OVERVIEW
We lease, operate, manage, and remarket long-lived, widely-used assets,
primarily in the rail market. We report our financial results through three
primary business segments:
OnMay 14, 2020 , we completed the sale of our ASC business, subject to customary post-closing adjustments. As a result, ASC is now reported as discontinued operations, and financial data for the ASC segment has been segregated and presented as discontinued operations for all periods presented. See "Note 27. Discontinued Operations" Part II, Item 8 of this Form 10-K for additional information. Unless otherwise indicated, the following information relates to continuing operations. OnDecember 29, 2020 , we acquiredTrifleet Leasing Holding B.V. ("Trifleet), the fourth largest tank container lessor in the world. Financial results for this business will be reported in the Other segment. See "Note 5. Business Combinations" in Part II, Item 8 of this Form 10-K for additional information. A more complete description of our business is included in "Item 1. Business," in Part I of this Form 10-K. The following discussion and analysis should be read in conjunction with the audited financial statements included in "Item 8. Financial Statements and Supplementary Data" in this Form 10-K. We based the discussion and analysis that follows on financial data we derived from the financial statements prepared in accordance withU.S. generally accepted accounting principles ("GAAP") and on certain other financial data that we prepared using non-GAAP components. For a reconciliation of these non-GAAP measures to the most comparable GAAP measures, see "Non-GAAP Financial Measures" at the end of this item.
Coronavirus Disease 2019 ("COVID-19")
COVID-19 negatively impacted operating conditions for all of our business segments in 2020. We expect COVID-19 will continue to have negative impacts on our operating results in future periods, the magnitude and duration of which are still uncertain. To limit the spread of COVID-19, governments have taken various actions, including travel bans and restrictions, the issuance of stay-at-home orders, and social distancing guidelines. These actions caused many businesses to reduce or suspend operations, negatively impacting economic conditions and many of the markets we serve. While certain of these restrictions were temporarily eased, some have been subsequently reinstated, and the economy continues to be adversely impacted by the effects of COVID-19. Our top priorities continue to be ensuring the health and safety of our global workforce and serving our various stakeholders with minimal disruptions. Across our operating segments, we have implemented business continuity and crisis management plans. We have a strong liquidity position, solid balance sheet, and access to capital which we expect will enable GATX to effectively manage through the COVID-19 pandemic. The COVID-19 pandemic continues to evolve rapidly, including the scope and duration of disruptions and the pace and timing of the eventual recovery.Rail North America The initial impact of COVID-19 resulted in a decline in industry railcar loadings, had a negative impact on lease rates, and led to a reduction in the purchase and sale of railcars in the secondary market. Although industry railcar loadings and absolute lease rates improved modestly by the end of year, the effects of COVID-19 will likely continue to disrupt global manufacturing, supply chains, and consumer spending. We expect the reduction in economic activity to continue to impact our customers, which we expect, in turn, to negatively impact the demand for our railcar fleet.
The initial impact of COVID-19 resulted in delayed investment at both GRE and GRI due to shutdowns and delays at the railcar manufacturers. Although railcar manufacturers have since re-opened, future disruptions may occur which could impact our ability to invest in our international railcar fleets.
Rail
Rail freight transportation and railcar repair have been deemed essential businesses globally. Our rail operations teams have implemented COVID-19 preparation and response programs to ensure the health and safety of our employees while continuing to provide critical railcar maintenance services. While our railcar repair facilities continue to operate, some have periodically reduced operating levels or closed on a temporary basis, and future disruptions may occur as the impacts of COVID-19 continue. 25 --------------------------------------------------------------------------------
Global air travel continues to be significantly impacted by COVID-19. In response to the drastic decline in demand, airlines have reduced system-wide capacity and grounded large portions or all of their fleets. Although some flight operations have resumed in a limited capacity, air travel remains significantly below pre-COVID-19 levels. Many airlines are currently focused on managing their near-term liquidity positions, restructuring operations, and obtaining government financial support. The major reduction in global air travel and the disruption across the aviation industry did impact the profitability of our aircraft spare engine leasing business and operating results in 2020, and we expect that it will continue to have a negative impact on our near-term future operating results, the magnitude and duration of which are still uncertain. 26 --------------------------------------------------------------------------------
DISCUSSION OF OPERATING RESULTS
The following table shows a summary of our reporting segments and consolidated financial results relating to continuing operations and discontinued operations for years endedDecember 31 (dollars in millions, except per share data): 2020 2019 2018 Segment Revenues Rail North America$ 934.1 $ 964.5 $ 941.5 Rail International 258.1 227.7 217.5 Portfolio Management 17.0 9.9 16.1$ 1,209.2 $ 1,202.1 $ 1,175.1 Segment Profit Rail North America$ 227.6 $ 276.2 $ 307.9 Rail International 83.5 78.9 68.6 Portfolio Management 77.4 62.4 38.7 388.5 417.5 415.2 Less: Selling, general and administrative expense 172.0 180.4 182.5 Unallocated interest (income) expense (7.7) (5.8) (8.6) Other, including eliminations 3.1 3.2 9.5 Income taxes ($33.6 ,$18.0 and$10.8 related to 70.9 58.9 41.3 affiliates' earnings) Net Income from Continuing Operations (GAAP)$ 150.2
Discontinued Operations, Net of Taxes Net (loss) income from discontinued operations, net of (2.2) taxes
30.4 20.8 Gain on sale of discontinued operation, net of taxes 3.3 - - Total Discontinued Operations, Net of Taxes (GAAP) 1.1 30.4$ 20.8 Net Income (GAAP)$ 151.3 $ 211.2 $ 211.3
Net income from continuing operations, excluding tax adjustments and other items (non-GAAP) (1)
$ 162.5
$ 1.1
$ 163.6
Diluted earnings per share from continuing operations (GAAP)
$ 4.24
$ 0.03
$ 4.27
Diluted earnings per share from continuing operations,
excluding tax adjustments and other items (non-GAAP) (1)
Return on equity (GAAP) 8.0 % 11.7 % 11.8 %
Return on equity, excluding tax adjustments and other 10.5 %
13.5 % 13.6 % items (non-GAAP) (1) Investment Volume$ 1,064.0 $ 722.8 $ 927.6 _________
(1) See "Non-GAAP Financial Measures" at the end of this item for further details.
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2020 Summary
Net income from continuing operations was$150.2 million , or$4.24 per diluted share, for 2020 compared to$180.8 million , or$4.97 per diluted share, for 2019, and$190.5 million , or$4.98 per diluted share, for 2018. Results for 2020 included a net negative impact of$12.3 million from tax adjustments and other items, compared to a net benefit of$2.8 million from tax adjustments and other items in 2019 and a net benefit of$11.7 million in 2018 (see "Non-GAAP Financial Measures" at the end of this item for further details). •At Rail North America, segment profit in 2020 was lower than prior year. The decrease was attributable to lower lease revenue and lower net gains on asset dispositions, partially offset by lower maintenance expense. •At Rail International, segment profit in 2020 was higher than prior year, due to higher revenue from more railcars on lease, partially offset by higher maintenance expense and depreciation expense, as well as the negative impact of changes in foreign exchange rates on non-functional currency items. •At Portfolio Management, segment profit in 2020 increased compared to prior year, primarily due to higher marine operating revenue. A large gain at theRolls-Royce & Partners Finance joint ventures (collectively the "RRPF affiliates") from a transaction involving the refinancing and sale of a group of aircraft spare engines in 2020 also contributed to higher segment profit. Total investment volume was$1,064.0 in 2020, compared to$722.8 million in 2019, and$927.6 million in 2018. 2021 Outlook The outlook for 2021 continues to be challenging. While we anticipate gradual easing of COVID-19 impacts as we move through 2021, the possibility of COVID-19 related volatility on our business segments remains high. Despite these adverse conditions, we have a strong balance sheet and access to capital which we believe positions us well to execute our strategy of investing in a weak market at attractive prices. •Rail North America's segment profit in 2021 is expected to be essentially flat compared to 2020. Lease rates for railcars scheduled to renew in 2021 will likely be lower than expiring lease rates, and we anticipate a small decrease in fleet utilization due to a continued oversupply of railcars in the market. As a result, we project revenue in 2021 to decline compared to the prior year. We expect 2021 maintenance expense to be similar to 2020, exclusive of any unplanned and/or major potential COVID-19 related disruptions. Finally, we expect remarketing income to be higher than 2020. •We anticipateRail International's segment profit in 2021 to increase from 2020 as the demand for railcars inEurope continues to be strong. Lease revenue is expected to be higher in 2021, resulting from higher lease rates and more railcars on lease. In addition, we expect continued investment in our railcar fleet inIndia this year, which will contribute to additional revenue in 2021. •Portfolio Management's segment profit in 2021 is expected to be lower than 2020. RRPF results are expected to decline due to the significant reduction in global air travel. We expect lower segment profit at RRPF to be partially offset by our direct investment in aircraft spare engines in 2021 and improved contribution from our marine operations. •At the end of 2020, we acquired Trifleet, the fourth largest tank container lessor in the world. Financial results will be reported in the Other segment. We expect that the timing of recognition of certain acquisition-related expenses will have a dilutive impact on results in 2021. Segment Operations Segment profit is an internal performance measure used by the Chief Executive Officer to assess the profitability of each segment. Segment profit includes all revenues, expenses, pre-tax earnings from affiliates, and net gains on asset dispositions that are directly attributable to each segment. We allocate interest expense to the segments based on what we believe to be the appropriate risk-adjusted borrowing costs for each segment. Segment profit excludes selling, general and administrative expenses, income taxes, and certain other amounts not allocated to the segments. These amounts are included in Other. 28 -------------------------------------------------------------------------------- RAILNORTH AMERICA
Segment Summary
The operating environment forRail North America continued to be challenging in 2020. Persistent industry-wide railcar overcapacity combined with the economic impacts of COVID-19 put significant pressure on lease rates. However, renewal lease rates for most car types stabilized or modestly improved in the second half of the year. During the year, the North American railcar leasing market experienced decreased railcar loadings across commodity types in response to the dramatic reduction in overall economic activity. Railcar lessors competed aggressively to place new and existing railcars, resulting in significant pressure on lease rates. Despite this, our commercial team continued to deploy railcars and displace competitors, resulting in fleet utilization of 98.1% at the end of the year. The economic environment presented unique challenges resulting from COVID-19, which negatively impactedRail North America's financial results.Rail North America did receive lease restructuring requests earlier in the year as some customers sought to lower costs and, in certain cases, reduce the size of their fleets. However, such requests dissipated in the second half of the year. To date, restructuring requests that have been approved did not have a significant impact onRail North America's financial results. Railcar repair facilities continued to operate throughout the year, but some facilities experienced periodic operating disruptions resulting from employee absences due to COVID-19 issues. The frequency of these disruptions increased in the fourth quarter. As a result of the aforementioned factors,Rail North America expects ongoing pressure on future railcar utilization, lease rates, and other key performance metrics, the magnitude and duration of which are still uncertain.
The following table shows
2020 2019 2018 Revenues Lease revenue$ 838.3 $ 868.3 $ 873.4 Other revenue 95.8 96.2 68.1 Total Revenues 934.1 964.5 941.5 Expenses Maintenance expense 264.7 267.9 254.7 Depreciation expense 258.6 256.9 248.5 Operating lease expense 49.3 54.4 49.6 Other operating expense 27.3 23.9 27.3 Total Expenses 599.9 603.1 580.1 Other Income (Expense) Net gain on asset dispositions 38.3 54.6 76.3 Interest expense, net (139.9) (134.5) (125.2) Other expense (4.9) (5.3) (5.2) Share of affiliates' pre-tax (loss) income (0.1) - 0.6 Segment Profit$ 227.6 $ 276.2 $ 307.9 Investment Volume$ 642.0 $ 502.2 $ 737.4
The following table shows the components of
2020 2019 2018 Railcars$ 741.9 $ 759.8 $ 757.8 Boxcars 67.1 72.2 76.8 Locomotives 29.3 36.3 38.8 Total$ 838.3 $ 868.3 $ 873.4 29
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Rail North America Fleet Data
AtDecember 31, 2020 ,Rail North America's wholly owned fleet, excluding boxcars, consisted of approximately 103,700 cars. Fleet utilization, excluding boxcars, was 98.1% at the end of 2020, compared to 99.3% at the end of 2019, and 99.4% at the end of 2018. Fleet utilization for approximately 14,300 boxcars was 95.8% at the end of 2020 compared to 95.0% at the end of 2019, and 94.2% at the end of 2018. Utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet. During 2020, an average of approximately 101,700 railcars, excluding boxcars, were on lease, compared to 103,500 in 2019, and 102,100 in 2018. Changes in railcars on lease compared to prior periods are impacted by the utilization of new railcars purchased under our supply agreements or in the secondary market and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.
As of
In 2014, we entered into a long-term supply agreement withTrinity Rail Group, LLC ("Trinity"), a subsidiary of Trinity Industries. Under the terms of that agreement, we agreed to order 8,950 newly built railcars. As ofDecember 31, 2020 , all 8,950 railcars have been ordered and delivered. OnMay 24, 2018 , we amended our long-term supply agreement with Trinity to extend the term toDecember 2023 , and we agreed to purchase an additional 4,800 tank cars (1,200 per year) beginning inJanuary 2020 and continuing through the expiration of the extended term. AtDecember 31, 2020 , 1,891 railcars have been ordered pursuant to the amended terms of the agreement, of which 1,272 railcars have been delivered. In 2018, we entered into a multi-year railcar supply agreement withAmerican Railcar Industries, Inc. ("ARI"), pursuant to which we will purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars that are to be delivered over a five-year period, beginning inApril 2019 . ARI's railcar manufacturing business was subsequently acquired by The Greenbrier Companies, Inc. ("Greenbrier") onJuly 26, 2019 , and Greenbrier assumed all of ARI's obligations under our long-term supply agreement. Under this agreement, 450 railcars were to be delivered in 2019, with the remaining 7,200 to be delivered ratably over the four-year period of 2020 to 2023. As ofDecember 31, 2020 , 4,035 railcars have been ordered, of which 2,297 railcars have been delivered. The agreement also includes an option to order up to an additional 4,400 railcars subject to certain restrictions. Additionally, we acquired a fleet of 3,098 railcars from ECN Capital Corporation, with 2,832 of the railcars acquired in 2018 and the remaining 266 railcars in early 2019. The following table shows fleet activity forRail North America railcars, excluding boxcars, for the years endedDecember 31 : 2020 2019 2018 Beginning balance 102,845 105,472 103,730 Cars added 4,696 3,145 6,958 Cars scrapped (2,153) (2,172) (2,211) Cars sold (1,643) (3,600) (3,005) Ending balance 103,745 102,845 105,472 Utilization rate at year end 98.1 % 99.3 % 99.4 %
Active railcars at year end 101,815 102,127 104,864 Average (monthly) active railcars 101,658 103,452 102,061
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The following table shows fleet statistics for
2020 2019 2018 Ending balance 14,315 15,264 16,220 Utilization rate at year end 95.8 % 95.0 % 94.2 %
The following table shows fleet activity for
2020 2019 2018 Beginning balance 661 702 693
Locomotives added, net of scrapped or sold (16) (41) 9
Ending balance 645 661 702 Utilization rate at year end 81.1 % 85.9 % 88.6 % Active locomotives at year end 523 568 622 Average (monthly) active locomotives 537 608 622
Lease Price Index
Our lease price index ("LPI") is an internally-generated business indicator that measures lease rate pricing on renewals for our North American railcar fleet, excluding boxcars. We calculate the index using the weighted-average lease rate for a group of railcar types that we believe best represents our overall North American fleet, excluding boxcars. The average renewal lease rate change is reported as the percentage change between the average renewal lease rate and the average expiring lease rate, weighted by fleet composition. The average renewal lease term is reported in months and reflects the average renewal lease term of railcar types in the LPI, weighted by fleet composition. During 2020, the renewal rate change of the LPI was negative 23.5%, compared to negative 3.9% in 2019 and negative 9.8% in 2018. Lease terms on renewals for cars in the LPI averaged 31 months in 2020, compared to 39 months in 2019, and 38 months in 2018. Additionally, the renewal success rate, which represents the percentage of railcars on expiring leases that were renewed with the existing lessee, was 70.8% in 2020, compared to 82.2% in 2019, and 82.9% in 2018. The renewal success rate is an important metric 31 --------------------------------------------------------------------------------
because railcars returned by our customers may remain idle or incur additional maintenance and freight costs prior to being leased to new customers.
[[Image Removed: gmt-20201231_g6.jpg]]
Comparison of Reported Results
Segment Profit
In 2020, segment profit of$227.6 million decreased 17.6% compared to$276.2 million in 2019. The decrease was primarily driven by lower lease revenue and lower net gains on asset dispositions in the current year, partially offset by lower maintenance expense. The amount and timing of disposition gains is dependent on a number of factors and will vary from year to year. In 2019, segment profit of$276.2 million decreased 10.3% compared to$307.9 million in 2018. The decrease was driven by lower net gains on asset dispositions, higher maintenance expense, and lower lease revenue, partially offset by higher other revenue.
Revenues
In 2020, lease revenue decreased
In 2019, lease revenue decreased$5.1 million , or 0.6%. The decrease was due to lower lease rates, higher rental abatement attributable to more railcars in the maintenance network, and fewer locomotives on lease in 2019, partially offset by more railcars on lease. Other revenue increased$28.1 million , due to higher repair revenue and higher lease termination fees in 2019.
Expenses
In 2020, maintenance expense decreased$3.2 million . The decrease resulted primarily from fewer repairs performed by the railroads on GATX-owned railcars and lower volumes of repairs on boxcars at third-party shops. Depreciation expense increased$1.7 million due to the timing of new railcar investments and dispositions. Operating lease expense decreased$5.1 million , resulting from the purchase of railcars previously on operating leases. Other operating expense increased$3.4 million , due to higher switching, freight, and storage costs. 32 -------------------------------------------------------------------------------- In 2019, maintenance expense increased$13.2 million , driven by more tank qualifications in 2019, as expected, as well as more repairs performed by the railroads on GATX-owned railcars. Depreciation expense increased$8.4 million due to new railcar investments, including the railcars acquired from ECN Capital Corporation in 2018. Operating lease expense increased$4.8 million , primarily a result of the elimination of deferred gain amortization for sale-leaseback transactions in accordance with the new lease accounting standard adopted in 2019. Other operating expense decreased$3.4 million , primarily due to lower switching, storage, and freight costs.
Other Income (Expense)
In 2020, net gain on asset dispositions decreased$16.3 million , due to fewer railcars sold, partially offset by lower net scrapping losses. The amount and timing of disposition gains is dependent on a number of factors and will vary from year to year. Net interest expense increased$5.4 million , primarily driven by a higher average debt balance and a higher average interest rate. In 2019, net gain on asset dispositions decreased$21.7 million , resulting from lower asset remarketing gains and lower net scrapping gains. Net scrapping gains were lower in 2019 due to certain railcars and locomotives scrapped at a loss, as well as lower scrap prices per ton. See "Note 25. Financial Data of Business Segments" in Part II, Item 8 of this Form 10-K, for further details of the components of net gain on asset dispositions. Net interest expense increased$9.3 million , driven by a higher average debt balance and a higher average interest rate.
Investment Volume
During 2020, investment volume was$642.0 million compared to$502.2 million in 2019, and$737.4 million in 2018. We acquired 5,103 railcars in 2020, compared to 3,225 railcars in 2019, and 7,489 railcars, including 2,832 railcars purchased as part of the ECN Capital Corporation transaction, in 2018. Our investment volume is predominantly composed of acquired railcars, but also includes certain capitalized repairs and improvements to owned railcars and our maintenance facilities. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of railcars purchased, which may include tank cars and freight cars, as well as newly manufactured railcars or those purchased in the secondary market. RAIL INTERNATIONAL
Segment Summary
Rail International , composed primarily of GATX Rail Europe ("GRE"), produced strong operating results in 2020. Demand for railcars inEurope remained relatively stable during the year, and renewal rates for most car types increased slightly. COVID-19 did not have a material impact on GRE's financial results in 2020. However, GRE experienced delays in new railcar investments throughout the year due to COVID-19 related interruptions at railcar manufacturing facilities. Although GRE received lease restructuring requests from certain customers during the year, requests dissipated in the second half of the year, and requests that were approved did not have a significant impact on GRE's financial results. GRE expects ongoing pressure on future railcar utilization and lease rates, the magnitude and duration of which are still uncertain.
In 2018, GRE recorded
Our rail operations inIndia ("GRI") continued to focus on investment opportunities, diversification of its fleet, and developing relationships with customers, suppliers and theIndian Railways . While COVID-19 did not have a material impact on GRI's financial results in 2020, GRI did experience delays in new railcar investments due to COVID-19 related interruptions at railcar manufacturing facilities. GRI expects continued fleet growth and diversification in 2021.
During 2020, our rail operations in
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The following table shows
2020 2019 2018 Revenues Lease revenue$ 248.4 $ 219.2 $ 209.3 Other revenue 9.7 8.5 8.2 Total Revenues 258.1 227.7 217.5 Expenses Maintenance expense 50.8 46.5
44.5
Depreciation expense 66.6 57.8
55.5
Other operating expense 7.5 6.8
5.8
Total Expenses 124.9 111.1
105.8
Other Income (Expense)
Net gain (loss) on asset dispositions 1.2 1.7
(0.2)
Interest expense, net (45.9) (40.6)
(35.9)
Other (expense) income (5.0) 1.2 (7.0) Segment Profit$ 83.5 $ 78.9 $ 68.6 Investment Volume$ 216.0 $ 215.7 $ 152.7 GRE Fleet Data AtDecember 31, 2020 , GRE's wholly owned fleet consisted of approximately 26,300 cars. Fleet utilization was 98.1% at the end of 2020, compared to 99.3% at the end of 2019 and 98.8% at the end of 2018. Utilization is calculated as the number of railcars on lease as a percentage of total railcars in the fleet. During 2020, an average of approximately 25,200 railcars were on lease, compared to 23,700 in 2019 and 22,600 in 2018. Changes in railcars on lease compared to prior periods are impacted by the number of new railcars purchased or acquired in the secondary market and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate. The following table shows fleet activity for GRE railcars for the years endedDecember 31 : 2020 2019 2018 Beginning balance 24,561 23,412 23,166 Cars added 2,071 1,417 847 Cars scrapped or sold (289) (268) (601) Ending balance 26,343 24,561 23,412 Utilization rate at year end 98.1 % 99.3 % 98.8 % Active railcars at year end 25,831 24,392 23,124 Average (monthly) active railcars 25,174 23,665 22,619 34
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GRI Fleet Data
The following table shows fleet activity for GRI railcars for the years ended
2020 2019 2018 Beginning balance 3,679 2,053 1,052 Cars added 477 1,626 1,001 Ending balance 4,156 3,679 2,053 Utilization rate at year end 99.0 % 100.0 % 100.0 %
Comparison of Reported Results
Foreign Currency
Rail International's reported results of operations are impacted by fluctuations in the exchange rates of theU.S. dollar versus the foreign currencies in which it conducts business, primarily the euro. In 2020, fluctuations in the value of the euro, relative to theU.S. dollar, positively impacted lease revenue by approximately$4.1 million and segment profit, excluding other income (expense), by approximately$3.4 million compared to 2019. In 2019, fluctuations in the value of the euro, relative to theU.S. dollar, negatively impacted lease revenue by approximately$10.6 million and segment profit, excluding other income (expense), by approximately$5.0 million compared to 2018.
Segment Profit
In 2020, segment profit of
In 2019, segment profit of$78.9 million increased 15.0% compared to$68.6 million in 2018. Segment profit in 2018 included expenses of approximately$9.5 million attributable to the closure of a railcar maintenance facility inGermany . Excluding these costs, results forRail International were$0.8 million higher than 2018, primarily due to higher revenue from more railcars on lease, partially offset by higher maintenance expense and the negative impact of foreign exchange rates. 35 --------------------------------------------------------------------------------
Revenues
In 2020, lease revenue increased$29.2 million , or 13.3%, due to more railcars on lease at GRE and GRI, as well as the impact of foreign exchange rates. Other revenue increased$1.2 million , driven by higher repair revenue. In 2019, lease revenue increased$9.9 million , or 4.7%, primarily due to more railcars on lease, partially offset by the impact of foreign exchange rates. Other revenue increased$0.3 million , driven by higher repair revenue.
Expenses
In 2020, maintenance expense increased$4.3 million , primarily due to higher wheelset costs, partially offset by lower costs for other repairs. Depreciation expense increased$8.8 million , resulting from the impact of new railcars added to the fleet. In 2019, maintenance expense increased$2.0 million , primarily due to higher wheelset costs and other repairs. These negative drivers were partially offset by lower workshop costs, due in part to the elimination of expenses associated with a maintenance facility inGermany that was closed in 2018, as well as the impact of foreign exchange rates. Depreciation expense increased$2.3 million , primarily due to new railcars added to the fleet.
Other Income (Expense)
In 2020, net gain on asset dispositions decreased$0.5 million , attributable to lower net scrapping gains. Net interest expense increased$5.3 million , due to a higher average debt balance, partially offset by a lower average interest rate. Other expense increased$6.2 million , driven by the negative impact of changes in foreign exchange rates on non-functional currency items and higher net litigation costs related to the Viareggio matter, which reflected the absence of insurance proceeds received in the prior year. See "Note 24. Legal Proceedings and Other Contingencies" in Part II, Item 8 of this Form 10-K for further details about the Viareggio matter. In 2019, net gain on asset dispositions increased$1.9 million , attributable to the absence of the impairment for the maintenance facility inGermany recorded in the prior year, partially offset by lower railcar scrapping gains, as a result of fewer railcars scrapped in 2019. Net interest expense increased$4.7 million , due to a higher average interest rate and a higher average debt balance. Other expense decreased$8.2 million , driven by the absence of the railcar maintenance facility closure costs recorded in 2018 and lower net litigation costs related to the Viareggio matter, which reflected insurance proceeds received in 2019. See "Note 22. Legal Proceedings and Other Contingencies" in Part II, Item 8 of this Form 10-K for further details about the Viareggio matter. This was partially offset by the negative impact of changes in foreign exchange rates on non-functional currency items.
Investment Volume
Investment volume was$216.0 million in 2020,$215.7 million in 2019, and$152.7 million in 2018. During 2020, GRE acquired 2,071 railcars (including 374 assembled at the GRE Ostróda,Poland facility), GRI acquired 477 rail cars, and Rail Russia did not acquire any railcars, compared to 1,417 railcars at GRE (including 384 assembled at the GRE Ostróda,Poland facility), 1,626 railcars at GRI, and 26 railcars at Rail Russia in 2019, and 847 railcars at GRE (including 316 assembled at the GRE Ostróda,Poland facility), 1,001 railcars at GRI, and 184 railcars at Rail Russia in 2018. Our investment volume is predominantly composed of acquired railcars, but may also include certain capitalized repairs and improvements to owned railcars. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of the various car types acquired, as well as fluctuations in the exchange rates of the foreign currencies in whichRail International conducts business. PORTFOLIO MANAGEMENT
Segment Summary
Portfolio Management's segment profit is attributable primarily to income from the RRPF affiliates, a group of 50% owned domestic and foreign joint ventures withRolls-Royce plc (or affiliates thereof, collectively "Rolls-Royce"), a leading manufacturer of commercial aircraft jet engines. Segment profit included earnings from the RRPF affiliates of$95.5 million for 2020,$94.5 million for 2019, and$60.5 million for 2018. Financial results for the current year included a transaction involving the refinancing and sale of a group of aircraft spare engines at the RRPF affiliates. In this transaction, the RRPF affiliates sold 21 aircraft spare engines for total proceeds of$233.0 million in 2020. GATX's 50% share of the resulting pre-tax net gains was$35.3 million . Portfolio Management 36 -------------------------------------------------------------------------------- did not make any additional investment in the RRPF affiliates in 2020 and 2019, compared to$14.1 million in 2018. There were no dividend distributions from the RRPF affiliates in 2020, compared to$27.5 million in 2019 and$35.2 million in 2018. COVID-19 severely impacted global air travel during 2020. As a result, RRPF has granted significant rent deferrals and a number of its customers have declared bankruptcy or undertaken restructuring processes. Despite this, RRPF maintained strong utilization, with 92.8% of its engines on lease at the end of the year, and is focused on preserving a strong liquidity position in the current environment. RRPF continues to expect pressure on both engine utilization and lease rates, which will impact future operating results, the magnitude and duration of which are still uncertain. Portfolio Management also owns marine assets, consisting of five liquefied gas-carrying vessels (the "Specialized Gas Vessels"). During 2019, the prior commercial management agreement withNorgas Carriers Private Limited , and related pooling arrangement, was terminated, and we entered into a new agreement withAnthony Veder Group B.V. to commercially manage these vessels. While COVID-19 had a significant impact on the gas shipping market in 2020, there were signs of improvement in the second half of the year, as charter rates and utilization increased modestly. We expect COVID-19 will likely continue to have a negative impact on future results, the magnitude and duration of which are still uncertain. Portfolio Management's total asset base was$706.1 million atDecember 31, 2020 , compared to$653.7 million atDecember 31, 2019 , and$606.8 million atDecember 31, 2018 .
The following table shows Portfolio Management's segment results for the years
ended
2020 2019 2018 Revenues Lease revenue$ 0.8 $ 1.0 $ 1.0 Marine operating revenue 15.6 8.2 14.3 Other revenue 0.6 0.7 0.8 Total Revenues 17.0 9.9 16.1 Expenses Marine operating expense 19.7 18.9 16.8 Depreciation expense 5.3 6.6 7.3 Other operating expense 0.5 0.6 - Total Expenses 25.5 26.1 24.1
Other Income (Expense) Net gain (loss) on asset dispositions 2.2 (4.7) (3.4) Interest expense, net
(12.2) (11.2) (10.4) Share of affiliates' pre-tax income 95.9 94.5 60.5 Segment Profit$ 77.4 $ 62.4 $ 38.7 Investment Volume$ 0.5 $ -$ 14.1 37
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The following table sets forth the approximate net book value of Portfolio
Management's assets as of
2020 2019 2018 Investment in RRPF Affiliates$ 584.7 $ 512.4 $ 464.3 Owned assets 121.4 141.3 142.5 Managed assets (1) 17.3 24.8 32.3 ________
(1) Amounts shown represent the estimated net book value of assets managed for third parties and are not included in our consolidated balance sheets.
[[Image Removed: gmt-20201231_g8.jpg]] RRPF Affiliates Engine Portfolio Data AtDecember 31, 2020 , the RRPF affiliates owned 445 aircraft spare engines with a net book value of$4,784.1 million , compared to 478 aircraft spare engines with a net book value of$5,036.4 million at the end of 2019 and 452 aircraft spare engines with a net book value of$4,435.6 million at the end of 2018. The following table shows portfolio activity for the RRPF affiliates' aircraft spare engines for the years endedDecember 31 : 2020 2019 2018 Beginning balance 478 452 432 Engine acquisitions 20 46 48 Engine dispositions (53) (20) (28) Ending balance 445 478 452 Utilization rate at year end 92.8 % 96.9 % 96.9 % 38
-------------------------------------------------------------------------------- [[Image Removed: gmt-20201231_g9.jpg]]
Comparison of Reported Results
Segment Profit
In 2020, segment profit was$77.4 million compared to$62.4 million in 2019. The increase is primarily due to higher marine operating revenue and the absence of impairment losses recognized in the prior year. In 2019, segment profit was$62.4 million compared to$38.7 million in 2018. The increase reflects stronger results at the RRPF affiliates, partially offset by a lower contribution from the Specialized Gas Vessels.
Revenues
In 2020, lease revenue was comparable to the same period in 2019. Marine operating revenue increased$7.4 million , driven by higher charter rates and utilization from the Specialized Gas Vessels, as well as the transition to the new commercial manager in the prior year.
In 2019, lease revenue was comparable to the same period in 2018. Marine
operating revenue decreased
Expenses
In 2020, marine operating expense increased$0.8 million , due to higher bunker fuel expense, offset by lower other operating expenses and management fees for the Specialized Gas Vessels.
In 2019, marine operating expense increased
39 --------------------------------------------------------------------------------
Other Income (Expense)
In 2020, net gain (loss) on asset dispositions was favorable by$6.9 million , largely due to the absence of impairment losses recorded in the prior year for certain offshore supply vessels, as well as higher residual sharing fees from the managed portfolio. In 2019, net loss on asset dispositions increased$1.3 million , largely due to higher impairment losses for certain offshore supply vessels, partially offset by higher residual sharing fees from the managed portfolio. In 2020, income from our share of affiliates' earnings increased$1.4 million , driven by higher net disposition gains, including$35.3 million of gains from a transaction involving the refinancing and sale of a group of aircraft spare engines. Apart from this, financial results were lower, due to the significant reduction in global air travel resulting from COVID-19. In 2019, income from our share of affiliates' earnings increased$34.0 million . The increase was due to more engines on lease and increased residual realization at the RRPF affiliates. Investment Volume
Investment volume was
OTHER Other comprises selling, general and administrative expenses ("SG&A"), unallocated interest expense, and miscellaneous income and expense not directly associated with the reporting segments and eliminations. OnDecember 29, 2020 , GATX acquiredTrifleet Leasing Holding B.V. ("Trifleet"), the fourth largest tank container lessor in the world, for approximately €165 million ($203.2 million ) in cash. Financial results for this business will be reported in the Other segment in our financial statements. See "Note 5. Business Combinations" in Part II, Item 8 of this Form 10-K for additional information.
The following table shows components of Other for the years ended
2020 2019
2018
Selling, general and administrative expense
(7.7) (5.8)
(8.6)
Other expense (income), including eliminations 3.1 3.2
9.5
SG&A, Unallocated Interest and Other
In 2020, SG&A of
In 2019, SG&A of$180.4 million decreased$2.1 million from 2018. The decrease was primarily due to the absence of accelerated depreciation recorded in 2018 related to the early termination of the corporate headquarters office lease, partially offset by higher compensation and other employee benefits costs. Unallocated interest (expense) income (the difference between external interest expense and interest expense allocated to the reporting segments) in any year is affected by our consolidated leverage position, the timing of debt issuances and investing activities, and intercompany allocations.
In 2020, other expense (income), including eliminations, was comparable to the prior year.
In 2019, other expense (income), including eliminations, decreased$6.3 million , driven by lower non-service pension expense. Specifically, certain lump sum distributions paid to retirees in 2018 triggered a non-recurring adjustment to pension expense for$2.1 million . In addition, lower provisions recorded for litigation and environmental accruals contributed to the decrease. 40 --------------------------------------------------------------------------------
Consolidated Income Taxes
In 2017, the Tax Cuts and Jobs Act (the "Tax Act") made broad and complex changes to theU.S. federal income tax laws. Additional guidance was issued by the Internal Revenue Service, theU.S. Department of the Treasury , and state taxing authorities during 2018 and, as a result, we recorded an adjustment to our provisional estimates. Specifically, in the fourth quarter of 2018, we recorded an additional net tax benefit of$16.5 million based on this clarifying guidance, the filing of our 2017 income tax returns, and the final determination of our foreign undistributed earnings and associated tax attributes. We do not expect to record any future material adjustments associated with the Tax Act. See "Note 14. Income Taxes" in Part II, Item 8 of this Form 10-K for additional information on income taxes. DISCONTINUED OPERATIONS
Segment Summary
OnMay 14, 2020 , we completed the sale of our ASC business, subject to customary post-closing adjustments. As a result, ASC is now reported as discontinued operations, and financial data for the ASC segment has been segregated and presented as discontinued operations for all periods presented. See "Note 27. Discontinued Operations" in Part II, Item 8 of this Form 10-K for additional information. The ASC business comprises the entirety of GATX's discontinued operations.
We recognized a gain of
In 2019, one of ASC's vessels was heavily damaged by fire during winter maintenance. As a result, the vessel was removed from service and written off. Upon final assessment of the damage, the vessel was deemed a total loss, and insurance proceeds of$27.0 million were received, resulting in a net casualty gain of$10.5 million ($8.1 million net of taxes).
The following table shows the income from discontinued operations, net of taxes (in millions):
2020 2019 2018 Discontinued operations, net of taxes Net (loss) income from discontinued operations, net of taxes$ (2.2) $ 30.4 $ 20.8 Gain on sale of discontinued operations, net of taxes 3.3 - - Total Discontinued operations, net of taxes$ 1.1
Comparison of Reported Results
In 2020, net loss from discontinued operations, net of taxes, was$2.2 million , compared to net income of$30.4 million in 2019. The variance was driven by the timing of the sale of the ASC business in the second quarter of 2020. The net casualty gain recorded in 2019, noted above, also contributed to the variance.
In 2019, net income from discontinued operations, net of taxes, was
BALANCE SHEET DISCUSSION Assets Total assets were$8.9 billion atDecember 31, 2020 , compared to$8.3 billion atDecember 31, 2019 . The increase in total assets was primarily driven by an increase in operating assets atRail North America andRail International , the Trifleet acquisition at Other and higher investment in the RRPF affiliates, partially offset by a decrease resulting from the sale of ASC. 41 -------------------------------------------------------------------------------- The following table shows total balance sheet assets by segment as ofDecember 31 (in millions): 2020 2019 Rail North America$ 5,944.4 $ 5,646.7 Rail International 1,851.8 1,486.7 Portfolio Management 706.1 653.7 Other 435.3 206.9 Discontinued Operations - 291.1 Total$ 8,937.6 $ 8,285.1 Gross Receivables
Receivables of
Allowance for Losses As ofDecember 31, 2020 , allowance for losses totaled$6.5 million , or 8.7% of rent and other receivables, compared to$6.2 million , or 9.4%, atDecember 31, 2019 . Both balances related entirely to general allowances.
See "Note 19. Allowance for Losses" in Part II, Item 8 of this Form 10-K.
Operating Assets and Facilities
Net operating assets and facilities increased$713.4 million from 2019. The increase was primarily due to investments of$1,016.8 million , including the operating assets acquired as part of the Trifleet acquisition,$39.2 million for the purchase of assets previously leased, and positive foreign exchange rate effects of$76.7 million , partially offset by depreciation of$336.1 million and asset dispositions of$90.1 million .
Investments in Affiliated Companies
Investments in affiliated companies increased$72.1 million in 2020 (see table below). The increase was driven by our share of earnings from the RRPF affiliates. During 2020, Adler was legally dissolved and final proceeds were distributed.
The following table shows our investments in affiliated companies by segment as
of
2020 2019 Rail North America $ -$ 0.2 Portfolio Management 584.7 512.4 Total$ 584.7 $ 512.6
See "Note 8. Investments in Affiliated Companies" in Part II, Item 8 of this Form 10-K.
Goodwill Goodwill increased$62.2 million from the prior year. The increase was primarily driven by the Trifleet acquisition. The remaining changes in goodwill resulted from fluctuations in foreign currency exchange rates. We tested our goodwill for impairment in the fourth quarter of 2020, and no impairment was indicated.
See "Note 18.
Debt
Total debt increased
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The following table shows the details of our long-term debt issuances in 2020 ($ in millions):
Type of Debt Term Interest Rate
Principal Amount
Recourse Unsecured 10.0 years 4.00% Fixed $ 500.0 Recourse Unsecured 2.0 years 0.70% Fixed 122.2 Recourse Unsecured 5.0 years 1.13% Fixed 119.3 Recourse Unsecured 5.0 years 1.00% Fixed 110.3 $ 851.8 As ofDecember 31, 2020 , our outstanding debt had a weighted-average remaining term of 8.1 years and a weighted-average interest rate of 4.04%, compared to 8.7 years and 4.08% atDecember 31, 2019 .
The following table shows the carrying value of our debt and lease obligations
by major component as of
2020 2019 Secured Unsecured Total Total
Commercial paper and borrowings under bank $ -
$ 23.6 $ 15.8 credit facilities Recourse debt - 5,329.0 5,329.0 4,780.4 Operating lease obligations 348.6 - 348.6 429.4 Finance lease obligations 33.3 - 33.3 7.9 Total$ 381.9 $ 5,352.6 $ 5,734.5 $ 5,233.5
See "Note 9. Debt" in Part II, Item 8 of this Form 10-K.
Equity
Total equity increased$122.3 million in 2020, primarily due to net income of$151.3 million ,$24.4 million of foreign currency translation adjustments due to the balance sheet effects of a weakerU.S. dollar relative to the foreign currencies in which our subsidiaries conduct business, primarily the euro, Canadian dollar, and Polish zloty,$15.3 million from the effects of share-based compensation, and$6.2 million from the effects of post-retirement benefit plan adjustments. These increases were offset by dividends of$70.5 million and$4.5 million of net unrealized losses on derivatives.
See "Note 21. Shareholders' Equity" in Part II, Item 8 of this Form 10-K.
CASH FLOW DISCUSSION
We generate a significant amount of cash from operating activities and investment portfolio proceeds. We also access domestic and international capital markets by issuing unsecured or secured debt and commercial paper. We use these resources, along with available cash balances, to fulfill our debt, lease, and dividend obligations, to support our share repurchase programs, and to fund portfolio investments and capital additions. We primarily use cash from operations to fund daily operations. The timing of asset dispositions and changes in working capital impact cash flows from portfolio proceeds and operations. As a result, these cash flow components may vary materially from year to year. While COVID-19 has negatively impacted all of our business segments, the impact on our financial results for year endedDecember 31, 2020 was not significant. We expect COVID-19 will continue to have negative impacts on our operating and financial results in future periods, the magnitude and duration of which are still uncertain. We also expect COVID-19 to have an ongoing negative impact on our customers, including their ability to make their lease payments timely, as well as their willingness to renew existing leases or enter into new lease contracts. During the year, we received specific requests from customers for relief through deferral of lease payments, lease rate reductions, and new car order postponement. While we have granted certain requests, the impact on our financial results was limited. We have a strong liquidity position, solid balance sheet, and access to capital that we expect will enable GATX to effectively manage through the COVID-19 pandemic. As ofDecember 31, 2020 , we had an unrestricted cash balance of$292.2 million . We also have a$250 million 3-year unsecured revolving credit facility in theU.S. (of which$14.7 million matures in 2022 and$235.3 million matures in 2023) and a$600 million , 5-year unsecured credit facility in theU.S. that matures in 2024, both of which were fully available as ofDecember 31, 2020 . 43 --------------------------------------------------------------------------------
The following table shows our principal sources and uses of cash from continuing
operations for the years ended
2020 2019 2018 Principal sources of cash Net cash provided by operating activities$ 436.8 $ 425.8 $ 485.2 Portfolio proceeds 131.1 250.3 234.4 Other asset sales 26.0 23.0 37.3 Proceeds from sale-leasebacks - - 59.1 Proceeds from issuance of debt, commercial paper, and credit facilities 1,592.9 743.0 800.2 Total$ 2,186.8 $ 1,442.1 $ 1,616.2 Principal uses of cash Portfolio investments and capital additions$ (1,064.0) $ (722.8) $ (927.6) Repayments of debt, commercial paper, and credit facilities (1,100.0) (504.6) (632.8) Purchases of assets previously leased - investing activities - (1.0) (66.6) Purchases of assets previously leased - financing activities (40.0) (11.3) - Stock repurchases - (150.0) (115.5) Dividends (71.0) (69.3) (69.3) Total$ (2,275.0) $ (1,459.0) $ (1,811.8) Additionally, net cash from discontinued operations, including proceeds from the sale of ASC, was$254.2 million ,$(0.1) million , and$0.0 million for the years endedDecember 31, 2020 , 2019, and 2018.
Net Cash Provided by Operating Activities
Net cash provided by operating activities of$436.8 million increased$11.0 million compared to 2019. Comparability among reporting periods is impacted by the timing of changes in working capital items. Specifically, lower cash payments for employee compensation costs, SG&A expenses, and other operating expenses were partially offset by higher payments for interest expense and income taxes.
Portfolio Investments and Capital Additions
Portfolio investments and capital additions primarily consist of purchases of operating assets, investments in affiliates, and capitalized asset improvements. Portfolio investments and capital additions of$1,064.0 million increased$341.2 million compared to 2019, primarily due to the Trifleet acquisition of$203.2 million at Other and more railcars acquired atRail North America . The timing of investments depends on purchase commitments, transaction opportunities, and market conditions.
The following table shows portfolio investments and capital additions by segment
for the years ended
2020 2019 2018 Rail North America$ 642.0 $ 502.2 $ 737.4 Rail International 216.0 215.7 152.7 Portfolio Management 0.5 - 14.1 Other 205.5 4.9 23.4 Total$ 1,064.0 $ 722.8 $ 927.6
Additionally, portfolio investments and capital additions for discontinued
operations were
44 --------------------------------------------------------------------------------
Portfolio Proceeds
Portfolio proceeds primarily consist of proceeds from sales of operating assets and finance lease receipts, as well as capital distributions from affiliates. Portfolio proceeds of$131.1 million for the year endedDecember 31, 2020 decreased$119.2 million compared to the year endedDecember 31, 2019 , primarily due to lower proceeds from railcar and locomotive sales atRail North America .
The following table shows portfolio proceeds for the years ended
2020 2019 2018 Proceeds from sales of operating assets$ 123.6 $ 239.6 $ 217.3 Finance lease rents received, net of earned income 7.0
8.4 9.7
Capital distributions and proceeds related to affiliates 0.5
2.3 6.3 Other portfolio proceeds - - 1.1 Total$ 131.1 $ 250.3 $ 234.4 Other Investing Activity
The following table shows other investing activity for the years ended
2020 2019 2018 Purchases of assets previously leased (1) $ -$ (1.0) $ (66.6) Proceeds from sales of other assets (2) 26.0 23.0 37.3 Proceeds from sale-leasebacks (3) - - 59.1 Other 2.0 2.7 3.1 Total$ 28.0 $ 24.7 $ 32.9 ________ (1) In 2019, we purchased 49 railcars that were previously leased, compared to 3,412 railcars in 2018. (2) Proceeds from sales of other assets for all periods were primarily related to railcar scrapping. (3)Rail North America completed sale-leaseback financings for 467 railcars in 2018. Additionally, other investing activity for discontinued operations was$21.8 million ,$27.0 million , and$0.0 million for the years endedDecember 31, 2020 , 2019, and 2018. 45 --------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities
The following table shows net cash provided by (used in) financing activities
for the years ended
2020 2019 2018
Net proceeds from issuances of debt (original maturities longer than 90 days)
$ 1,586.5
(1,100.0) (410.0) (632.8)
Net increase (decrease) in debt with original maturities of 90 days or less
6.4 (94.6) 106.5 Payments on finance lease obligations - - (1.2) Purchases of assets previously leased (1) (40.0) (11.3) - Stock repurchases (2) - (150.0) (115.5) Dividends (71.0) (69.3) (69.3) Other (26.3) 59.1 4.7 Total$ 355.6 $ 66.9 $ (13.9) ________ (1) In 2020, we purchased 732 railcars that were previously leased, compared to 157 railcars in 2019 and no railcars in 2018. (2) During 2020, we did not repurchase any shares of common stock, compared to 2.0 million shares of common stock repurchased for$150.0 million in 2019 and 1.5 million shares repurchased for$115.5 million in 2018.
Cash Flows from Discontinued Operations
The following table shows cash flow information for our discontinued operations
for the years ended
2020 2019 2018 Net Cash (Used in) Provided By Operating Activities$ (8.5) $ 36.8 $ 23.3 Net Cash Provided By (Used In) Investing Activities 240.9 8.1 (15.8) Net Cash Provided By (Used In) Financing Activities 21.8 (45.0) (7.5) Cash Provided By (Used In) Discontinued Operations, Net$ 254.2 $ (0.1) $ -
LIQUIDITY AND CAPITAL RESOURCES
General
We fund our investments and meet our debt, lease, and dividend obligations using our available cash balances, as well as cash generated from operating activities, sales of assets, commercial paper issuances, committed revolving credit facilities, distributions from affiliates, and issuances of secured and unsecured debt. We primarily use cash from operations to fund daily operations. We use both domestic and international capital markets and banks to meet our debt financing needs. 46 --------------------------------------------------------------------------------
Contractual and Other Commercial Commitments
The following table shows our contractual commitments, including debt principal
and related interest payments, lease payments, and purchase commitments at
Payments Due by Period Total 2021 2022 2023 2024 2025 Thereafter Recourse debt$ 5,358.5 $ 600.0 $
372.2
187.2 171.6 159.4 147.1 132.8 1,118.6 Commercial paper and credit facilities 23.6 23.6 - - - - - Operating lease obligations 410.4 50.6 49.0 48.0 45.1 37.7 180.0 Finance lease obligations, including interest 33.3 33.3 - - - - - Purchase commitments (2) 1,251.8 574.1 337.9 339.8 - - - Total$ 8,994.3 $ 1,468.8 $ 930.7 $ 797.2 $ 742.6 $ 714.8 $ 4,340.2 __________ (1) For floating rate debt, future interest payments are based on the applicable interest rate as ofDecember 31, 2020 . (2) Primarily railcar purchase commitments. The amounts shown for all years are based on management's estimates of the timing, anticipated car types, and related costs of railcars to be purchased under its agreements. In 2014, we entered into a long-term supply agreement withTrinity Rail Group, LLC ("Trinity"), a subsidiary of Trinity Industries. Under the terms of that agreement, we agreed to order 8,950 newly built railcars. As ofDecember 31, 2020 , all 8,950 railcars have been ordered and delivered. OnMay 24, 2018 , we amended our long-term supply agreement with Trinity to extend the term toDecember 2023 , and we agreed to purchase an additional 4,800 tank cars (1,200 per year) beginning inJanuary 2020 and continuing through the expiration of the extended term. AtDecember 31, 2020 , 1,891 railcars have been ordered pursuant to the amended terms of the agreement, of which 1,272 railcars have been delivered. In 2018, we entered into a multi-year railcar supply agreement withAmerican Railcar Industries, Inc. ("ARI"), pursuant to which we will purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars that are to be delivered over a five-year period, beginning inApril 2019 . ARI's railcar manufacturing business was subsequently acquired by The Greenbrier Companies, Inc. ("Greenbrier") onJuly 26, 2019 , and Greenbrier assumed all of ARI's obligations under our long-term supply agreement. Under this agreement, 450 railcars were to be delivered in 2019, with the remaining 7,200 to be delivered ratably over the four-year period of 2020 to 2023. As ofDecember 31, 2020 , 4,035 railcars have been ordered, of which 2,297 railcars have been delivered. The agreement also includes an option to order up to an additional 4,400 railcars subject to certain restrictions. The following table shows our future contractual cash receipts arising from our direct finance leases and future rental receipts from noncancelable operating leases as ofDecember 31, 2020 (in millions): Contractual Cash Receipts
by Period
Total 2021 2022 2023 2024 2025 Thereafter Operating leases$ 2,918.7 $ 925.5 $ 702.7 $ 524.7 $ 357.7 $ 193.1 $ 215.0 Finance leases 77.1 16.2 21.8 8.4 9.3 5.8 15.6 Total$ 2,995.8 $ 941.7 $ 724.5 $ 533.1 $ 367.0 $ 198.9 $ 230.6 Our aggregate future contractual cash receipts atDecember 31, 2020 decreased$227.7 million compared toDecember 31, 2019 , primarily as a result of lease receipts in 2020, committed lease receipts associated with railcars sold in the current year, lower lease rates, and shortened lease terms for new leases and renewals completed during 2020 on existing railcars in the fleet, partially offset by the impact of the new railcars added to the fleet.
2021 Liquidity Outlook
In addition to our contractual obligations, expenditures in 2021 may also include the purchase of railcars that are currently leased and other discretionary capital spending for opportunistic asset purchases or strategic investments, including direct investments in aircraft spare engines. We plan to fund these expenditures in 2021 using available cash atDecember 31, 2020 in combination with cash from operations, portfolio proceeds, long-term debt issuances, and our revolving credit facilities. 47 --------------------------------------------------------------------------------
Short-Term Borrowings
We primarily use short-term borrowings as a source of working capital and to temporarily fund differences between our operating cash flows and portfolio proceeds, and our capital investments and debt maturities. We do not maintain or target any particular level of short-term borrowings on a permanent basis. Rather, we will temporarily utilize short-term borrowings at levels we deem appropriate until we decide to pay down these balances. The following table shows additional information regarding our short-term borrowings: North America (1) Europe (2) 2020 2019 2018 2020 2019 2018 Balance as of December 31 (in millions) $ - $
-
- % - % 3.0 % 0.9 % 0.7 % 0.6 % Euro/dollar exchange rate n/a n/a n/a 1.23 1.12 1.15 Average daily amount outstanding during year (in millions) $ - $
25.6
- % 2.4 % 3.0 % 0.8 % 0.7 % 0.9 % Average euro/dollar exchange rate n/a n/a n/a 1.14 1.12 1.18
Average daily amount outstanding during 4th quarter (in millions)
$ - $
47.2
- % 2.1 % 3.0 % 0.9 % 0.7 % 0.8 % Average euro/dollar exchange rate n/a n/a n/a 1.19 1.11 1.14 Maximum daily amount outstanding (in millions) $ -$ 130.0 $ 100.0 $ 35.8 $ 161.1 $ 84.8 Euro /dollar exchange rate n/a n/a n/a 1.18 1.11 1.13 __________ (1)Short-term borrowings inNorth America are composed of commercial paper issued in theU.S. (2)Short-term borrowings inEurope are composed of borrowings under bank credit facilities. Credit Lines and Facilities We have a$600 million , 5-year unsecured revolving credit facility in theU.S. , expiring inMay 2024 . The credit facility contains two 1-year extension options. As ofDecember 31, 2020 , the full$600 million was available under this facility. Additionally, we have a$250 million 3-year unsecured revolving credit facility in theU.S. In 2020, we extended the maturity of this facility by one year fromMay 2022 toMay 2023 . This facility also has two one-year extension options. As ofDecember 31, 2020 , the full$250 million was available under this facility. Our European subsidiaries have unsecured credit facilities with an aggregate limit of €35.0 million. As ofDecember 31, 2020 , €7.3 million was available under these credit facilities.
Delayed Draw Term Loan
OnDecember 14, 2020 , we executed a delayed draw term loan agreement ("Term Loan") which provides for a 3-year term loan in the aggregate principal amount of up to$500 million . Advances may be made fromDecember 14, 2020 throughApril 17, 2021 pursuant to the terms of the agreement and may not be re-borrowed. The amounts borrowed under the Term Loan agreement are required to be repaid no later thanDecember 14, 2023 . As ofDecember 31, 2020 the Term Loan had not been drawn. Restrictive Covenants
Our credit facility and certain other debt agreements contain various restrictive covenants. See "Note 9. Debt" in Part II, Item 8 of this Form 10-K.
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Credit Ratings
The global capital market environment and outlook may affect our funding options and our financial performance. Our access to capital markets at competitive rates depends on our credit rating and rating outlook, as determined by rating agencies. As ofDecember 31, 2020 , our long-term unsecured debt was rated BBB byStandard & Poor's and Baa2 by Moody's Investor Service and our short-term unsecured debt was rated A-2 byStandard & Poor's and P-2 by Moody's Investor Service. Our rating outlook from both agencies was stable.
Shelf Registration Statement
During 2019, we filed an automatic shelf registration statement that enables us to issue debt securities and pass-through certificates. The registration statement is effective for three years and does not limit the amount of debt securities and pass-through certificates we can issue.
Commercial Commitments
We have entered into various commercial commitments, including standby letters of credit, performance bonds, and guarantees related to certain transactions. These commercial commitments require us to fulfill specific obligations in the event of third-party demands. Similar to our balance sheet investments, these commitments expose us to credit, market, and equipment risk. Accordingly, we evaluate these commitments and other contingent obligations using techniques similar to those we use to evaluate funded transactions.
The following table shows our commercial commitments at
Amount
of Commitment Expiration by Period
Total 2021 2022 2023 2024 2025 Thereafter Standby letters of credit and performance bonds$ 9.1 $ 9.1 $ - $ - $ - $ - $ - Derivative guarantees 1.5 - 1.5 - - - - Total$ 10.6 $ 9.1 $ 1.5 $ - $ - $ - $ - We are parties to standby letters of credit and performance bonds, which primarily relate to contractual obligations and general liability insurance coverages. No material claims have been made against these obligations, and no material losses are anticipated. We also guarantee payment by a third party for final settlement of certain derivatives if they are in a liability position at expiration. There is no contractual limitation to the maximum payment under the guarantee, and the amount of the payment is ultimately determined by the value of the derivative upon final settlement.
Defined Benefit Plan Contributions
In 2020, we contributed$5.8 million to our defined benefit pension plans and other post-retirement benefit plans. In 2021, we expect to contribute approximately$5.7 million . As ofDecember 31, 2020 , our funded pension plans in the aggregate were 101.3% funded. Additional contributions will depend primarily on plan asset investment returns and actuarial experience, and subject to the impact of these factors, we may make additional material plan contributions.
GATX Common Stock Repurchases
OnJanuary 25, 2019 , our board of directors ("Board") approved a$300.0 million share repurchase program, pursuant to which we are authorized to purchase shares of our common stock in the open market, in privately negotiated transactions, or otherwise, including pursuant to Rule 10b5-1 plans. The share repurchase program does not have an expiration date, does not obligate the Company to repurchase any dollar amount or number of shares of common stock, and may be suspended or discontinued at any time. The timing of share repurchases will be dependent on market conditions and other factors. During 2020, we did not repurchase any shares under the program, compared to 2.0 million shares repurchased for$150.0 million , excluding commissions, in 2019 and 1.5 million shares repurchased for$115.4 million , excluding commissions, in 2018. As ofDecember 31, 2020 ,$150.0 million remained available under the repurchase authorization. 49 --------------------------------------------------------------------------------
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our consolidated financial statements in conformity with GAAP, which requires us to use judgment in making estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses, as well as information in the related disclosures. We regularly evaluate our estimates and judgments based on historical experience, market indicators, and other relevant factors and circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Operating Assets
We state operating assets, including assets acquired under finance leases, at cost and depreciate them over their estimated economic useful lives to an estimated residual value using the straight-line method. We determine the economic useful life based on our estimate of the period over which the asset will generate revenue. For the majority of our operating assets, the economic useful life is greater than 30 years. The residual values are based on historical experience and economic factors. We periodically review the appropriateness of our estimates of useful lives and residual values based on changes in economic circumstances and other factors. Changes in these estimates would result in a change in future depreciation expense.
Lease Classification
We analyze all new and modified leases to determine whether we should classify the lease as an operating or finance lease. Our lease classification analysis relies on certain assumptions that require judgment, such as the asset's fair value, the asset's estimated residual value, the interest rate implicit in the lease, and the asset's economic useful life. While most of our leases are classified as operating leases, changes in the assumptions we use could result in a different lease classification, which could change the impacts of the lease transactions on our results of operations and financial position. See "Note 7. Leases" in Part II, Item 8 of this Form 10-K.
Impairment of Long-Lived Assets
We review long-lived assets, such as operating assets, right-of-use assets, and facilities, for impairment annually, or whenever circumstances indicate that the carrying amount of those assets may not be recoverable. We evaluate the recoverability of assets to be held and used by comparing the carrying amount of the asset to the undiscounted future net cash flows we expect the asset to generate. We base estimated future cash flows on a number of assumptions, including lease rates, lease term (including renewals), freight rates and volume, operating costs, the life of the asset, and final disposition proceeds. If we determine an asset is impaired, we recognize an impairment loss equal to the amount by which the carrying amount exceeds the asset's fair value. We classify assets we plan to sell or otherwise dispose of as held for sale, provided they meet specified accounting criteria, and we record those assets at the lower of their carrying amount or fair value less costs to sell. See "Note 11. Asset Impairments and Assets Held for Sale" in Part II, Item 8 of this Form 10-K.
Impairment of Investments in Affiliated Companies
We review the carrying amount of our investments in affiliates annually, or whenever circumstances indicate that their value may have declined. If management determines that indicators of impairment are present for an investment, we perform an analysis to estimate the fair value of that investment. Active markets do not typically exist for our affiliate investments and as a result, we may estimate fair value using a discounted cash flow analysis at the investee level, price-earnings ratios based on comparable businesses, or other valuation techniques that are appropriate for the particular circumstances of the affiliate. For all fair value estimates, we use observable inputs whenever possible and appropriate. Once we make an estimate of fair value, we compare the estimate of fair value to the investment's carrying value. If the investment's estimated fair value is less than its carrying value, then we consider the investment impaired. If an investment is impaired, we assess whether the impairment is other-than-temporary. We consider factors such as the expected operating results for the near future, the length of the economic life cycle of the underlying assets of the investee, and our ability to hold the investment through the end of the underlying assets' useful life to determine if the impairment is other-than-temporary. We may also consider actions we anticipate the investee will take to improve its business prospects if it seems probable the investee will take those actions. If we determine an investment to be only temporarily impaired, we do not record an impairment loss. Alternatively, if we determine an impairment is other-than-temporary, we record a loss equal to the difference between the estimated fair value of the investment and its carrying value. See "Note 8. Investments in Affiliated Companies" and "Note 11. Asset Impairments and Assets Held for Sale" in Part II, Item 8 of this Form 10-K. 50 --------------------------------------------------------------------------------
Impairment of
We review the carrying amount of our goodwill annually, or if circumstances indicate an impairment may have occurred. We perform the impairment review at the reporting unit level, which is one level below an operating segment. The goodwill impairment test performed is a two-tiered approach and requires us to make certain judgments to determine the assumptions we use in the calculation. We first complete a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying value. If necessary, the fair value is then compared to its carrying value, including goodwill. When estimating the fair value of the reporting unit, we use a discounted cash flow model and base our estimates of future cash flows on revenue and expense forecasts and include assumptions for future growth. We also consider observable multiples of book value and earnings for companies that we believe are comparable to the applicable reporting units. If the estimated fair value is less than the carrying amount, we record an impairment loss for the difference. See "Note 18.Goodwill " in Part II, Item 8 of this Form 10-K.
Pension and Post-Retirement Benefits Assumptions
We use actuarial assumptions to calculate pension and other post-retirement benefit obligations and related costs. The discount rate and the expected return on plan assets are two assumptions that influence the plan expense and liability measurement. Other assumptions involve demographic factors such as expected retirement age, mortality, employee turnover, health care cost trends, and the rate of compensation increases. We use a discount rate to calculate the present value of expected future pension and post-retirement cash flows as of the measurement date. The discount rate is based on yields for high-quality, long-term bonds with durations similar to the projected benefit obligation. We base the expected long-term rate of return on plan assets on current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We evaluate these assumptions annually and make adjustments as required in accordance with changes in underlying market conditions, valuation of plan assets, or demographics. Changes in these assumptions may increase or decrease periodic benefit plan expense as well as the carrying value of benefit plan obligations. See "Note 12. Pension and Other Post-Retirement Benefits" in Part II, Item 8 of this Form 10-K.
Share-Based Compensation
We grant equity awards to certain employees and non-employee directors in the form of non-qualified stock options, stock appreciation rights, restricted stock, performance shares, and phantom stock. We recognize compensation expense for our equity awards over the applicable service period for each award, based on the award's grant date fair value. We use the Black-Scholes options valuation model to calculate the grant date fair value of stock options and stock appreciation rights. This model requires us to make certain assumptions that affect the amount of compensation expense we will record. The assumptions we use in the model include the expected stock price volatility (based on the historical volatility of our stock price), the risk-free interest rate (based on the treasury yield curve), the expected life of the equity award (based on historical exercise patterns and post-vesting termination behavior), and the dividend equivalents we expect to pay during the estimated life of the equity award since our stock options and stock appreciation rights are dividend participating. We base the fair value of other equity awards on our stock price on the grant date. We recognize forfeitures when they occur. See "Note 13. Share-Based Compensation" in Part II, Item 8 of this Form 10-K.
Income Taxes
Our operations are subject to taxes inthe United States , various states, and foreign countries, and as a result, we may be subject to audit in all of these jurisdictions. Tax audits may involve complex issues and disagreements with taxing authorities that could require several years to resolve. GAAP requires that we presume the relevant tax authority will examine uncertain income tax positions. We must determine whether, based on the technical merits of our position, it is more likely than not that our uncertain income tax positions will be sustained by taxing authorities upon examination, which may include related appeals or litigation processes. We must then evaluate income tax positions that meet the "more likely than not" recognition threshold to determine the probable amount of benefit we would recognize in the financial statements. Establishing accruals for uncertain tax benefits requires us to make estimates and assessments with respect to the ultimate outcome of tax audit issues for amounts recorded in the financial statements. The ultimate resolution of uncertain tax benefits may differ from our estimates, potentially impacting our financial position, results of operations, or cash flows. We evaluate the need for a deferred tax asset valuation allowance by assessing the likelihood that we will realize tax assets, including net operating loss and tax credit carryforward benefits. Our assessment of whether a valuation allowance is required involves judgment, including forecasting future taxable income and evaluating tax planning initiatives, if applicable. 51 -------------------------------------------------------------------------------- We expect to continue to reinvest foreign earnings outsidethe United States indefinitely. If future earnings are repatriated tothe United States , or if we expect such earnings to be repatriated, a provision for additional taxes may be required. Under provisions of the Tax Act, the territorial tax system will generally exempt such repatriated earnings from furtherUnited States income taxation, however, incremental income taxes may occur from withholding taxes, foreign exchange gains, or other taxable gains recognized in connection with tax basis differences in our foreign investments. The ultimate tax cost of repatriating such earnings will depend on tax laws in effect and other circumstances at that time. See "Note 14. Income Taxes" in Part II, Item 8 of this Form 10-K. Business Combinations We account for business combinations using the acquisition method of accounting, which requires assets acquired and liabilities assumed be recorded at their respective fair values as of the acquisition date. The excess consideration paid over the fair value of the assets acquired and liabilities assumed represents goodwill. The allocation of the purchase price requires management to make significant estimates in determining fair values. These estimates can include, but are not limited to, expected future cash flows, discount rates, and the expected use of the acquired assets. Transaction costs associated with business combinations are expensed when incurred. See "Note 5. Business Combinations" in Part II, Item 8 of this Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
See "Note 3. Accounting Changes" in Part II, Item 8 of this Form 10-K for a summary of new accounting pronouncements that may impact our business.
NON-GAAP FINANCIAL MEASURES
In addition to financial results reported in accordance with GAAP, we compute certain financial measures using non-GAAP components, as defined by theSEC . These measures are not in accordance with, or a substitute for, GAAP, and our financial measures may be different from non-GAAP financial measures used by other companies. We have provided a reconciliation of our non-GAAP components to the most directly comparable GAAP components.
Reconciliation of Non-GAAP Components Used in the Computation of Certain Financial Measures
Net Income Measures
We exclude the effects of certain tax adjustments and other items for purposes of presenting net income, diluted earnings per share, and return on equity because we believe these items are not attributable to our business operations. Management utilizes net income, excluding tax adjustments and other items, when analyzing financial performance because such amounts reflect the underlying operating results that are within management's ability to influence. Accordingly, we believe presenting this information provides investors and other users of our financial statements with meaningful supplemental information for purposes of analyzing year-to-year financial performance on a comparable basis and assessing trends. 52
-------------------------------------------------------------------------------- The following tables show our net income, diluted earnings per share, and return on equity, excluding tax adjustments and other items for the years endedDecember 31 (in millions, except per share data): Impact of Tax Adjustments and Other Items on Net Income: 2020 2019 2018 2017 2016 Net income (GAAP)$ 151.3 $ 211.2 $ 211.3 $ 502.0 $ 257.1 Less: Net income from discontinued operations (GAAP) 1.1 30.4 20.8 34.2 n/a
Net income from continuing operations (GAAP)
Adjustments attributable to pre-tax income from continuing operations: Cost attributable to the closure of a maintenance facility at Rail International (1) - - 9.5 - - Net (gain) loss on wholly owned Portfolio Management marine investments (2) - - - (1.8) 2.5 Railcar impairment at Rail North America (3) - - - - 29.8 Residual sharing settlement at Portfolio Management (4) - - - - (49.1) Total adjustments attributable to pre-tax income from continuing operations $ - $ -$ 9.5 $ (1.8) $ (16.8) Income taxes thereon, based on applicable effective tax rate $ - $ -$ (3.1) $ 0.7 $ 7.2 Other income tax adjustments attributable to income from continuing operations: Income tax rate changes (5) - (2.8) - - - Impact of the Tax Act (6) - - (16.7) (293.2) - Foreign tax credit utilization (7) - - (1.4) - (7.1) Total other income tax adjustments attributable to income from continuing operations $ -$ (2.8) $ (18.1) $ (293.2) $ (7.1) Adjustments attributable to affiliates' earnings from continuing operations, net of taxes: Net gain loss on Portfolio Management marine affiliate (2) - - - - (0.6) Income tax rate changes (8) 12.3 - - - (3.9) Total adjustments attributable to affiliates' earnings, net of taxes$ 12.3 $ - $ - $ -$ (4.5) Net income from continuing operations, excluding tax adjustments and other items (non-GAAP)$ 162.5 $ 178.0
Adjustments attributable to discontinued operations, net of taxes: Net casualty gain at ASC (9) - (8.1) - - n/a Impact of the Tax Act (6) - - 0.2 (22.7) n/a Total adjustments attributable to discontinued operations, net of taxes $ -$ (8.1) $ 0.2 $ (22.7) n/a Net income from discontinued operations, excluding tax adjustments and other items (non-GAAP)$ 1.1 $ 22.3 $ 21.0 $ 11.5 n/a Net income from consolidated operations, excluding tax adjustments and other items (non-GAAP)$ 163.6 $ 200.3 $ 199.8 $ 185.0 $ 235.9 53
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Impact of Tax Adjustments and Other Items on Diluted Earnings per Share:
2020 2019 2018 2017 2016 Diluted earnings per share from consolidated operations (GAAP)$ 4.27 $ 5.81 $ 5.52 $ 12.75 $ 6.29 Less: Diluted earnings per share from discontinued operations (GAAP) 0.03 0.84 0.54 0.87 n/a Diluted earnings per share from continuing operations (GAAP)$ 4.24 $ 4.97
Adjustments attributable to income from continuing operations, net of taxes: Cost attributable to the closure of a maintenance facility at Rail International (1) - - 0.17 - - Net (gain) loss on wholly owned Portfolio Management marine investments (2) - - - (0.03) 0.04 Railcar impairment at Rail North America (3) - - - - 0.47 Residual sharing settlement at Portfolio Management (4) - - - - (0.74) Income tax rate changes (5) - (0.08) - - - Impact of the Tax Act (6) - - (0.44) (7.44) - Foreign tax credit utilization (7) - - (0.04) - (0.17) Adjustments attributable to affiliates' earnings from continuing operations, net of taxes: Net gain on wholly owned Portfolio Management marine investments (2) - - - - (0.02) Income tax rate changes (8) 0.35 - - - (0.10) Diluted earnings per share from continuing operations, excluding tax adjustments and other items (non-GAAP) *$ 4.59 $ 4.89
Adjustments attributable to discontinued operations, net of taxes: Net casualty gain at ASC (9) - (0.22) - - n/a Impact of the Tax Act (6) - - 0.01 (0.58) n/a Diluted earnings per share from discontinued operations, excluding tax adjustments and other items (non-GAAP)$ 0.03 $ 0.62 $ 0.55 $ 0.29 n/a Diluted earnings per share from consolidated operations, excluding tax adjustments and other items (non-GAAP) *$ 4.62 $ 5.51
*bSum of individual components may not be additive due to rounding.
Note: The information for 2016 in the tables above has not been recast for discontinued operations presentation. _______ (1) Expenses related to the closure of a maintenance facility. (2) In 2015, we made the decision to exit the majority of our non-core, marine investments within our Portfolio Management segment. As a result, we recorded gains and losses associated with the impairments and sales of certain investments. (3) Impairment losses related specifically to certain railcars in flammable service that we believe have been permanently and negatively impacted by regulatory changes. (4) Income recognized from the settlement of a residual sharing agreement related to a residual guarantee we provided on certain rail assets. (5) Deferred income tax adjustment due to a reduction of the corporate income tax rate enacted inAlberta, Canada in 2019. (6) Amounts attributable to the impact of corporate income tax changes enacted by the Tax Act. (7) Benefits attributable to the utilization of foreign tax credits. (8) Deferred income tax adjustments due to the elimination of a previously announced corporate income tax rate reduction in theUnited Kingdom in 2020 and an enacted statutory rate decrease in theUnited Kingdom in 2016. (9) Net casualty gain attributable to insurance recovery for a vessel at ASC. 54 -------------------------------------------------------------------------------- 2020 2019 2018 2017 2016 Return on Equity (GAAP) 8.0 % 11.7 % 11.8 % 32.0 % 19.6 % Return on Equity, excluding tax adjustments and other items (non-GAAP) (1) 10.5 % 13.5 % 13.6 % 13.1 % 18.0 % _______
(1) Shareholders' equity used in this calculation excludes the increases resulting from the impact of the Tax Act, as described above.
Balance Sheet Measures
A portion of our North American railcar fleet is financed through sale-leasebacks that are accounted for as operating leases. Prior to 2019, these railcar assets were not recorded on the balance sheet. Under the new lease accounting standard adopted onJanuary 1, 2019 , GATX records these railcar operating leases on the balance sheet as right-of-use assets with corresponding amounts for operating lease liabilities. Similarly, ASC's fleet previously included vessels that were accounted for as operating leases and were not recorded on the balance sheet. Prior to 2019, we reported total on- and off-balance sheet assets in our calculation of total assets (as adjusted) because we believed it provided investors a more comprehensive representation of the magnitude of the assets we operated and that drove our financial performance. In addition, this calculation of total assets (as adjusted) provided consistency with other non-financial information we disclosed about our fleet, including the number of railcars in the fleet, average number of cars on lease, and utilization. We also provided information regarding our leverage ratios, which are expressed as a ratio of debt (including off-balance sheet debt) to equity. The off-balance sheet debt amount in this calculation was the equivalent of the off-balance sheet asset amount. We believe reporting this corresponding off-balance sheet debt amount provided investors and other users of our financial statements with a more comprehensive representation of our debt obligations, leverage, and capital structure. Because the railcar operating lease assets and associated liabilities are now recorded on the balance sheet, beginning in 2019, the prior non-GAAP measure is no longer necessary in order to convey the full magnitude of our asset base.
The following table shows total assets as of
2020 2019 2018 2017 2016 Total assets (GAAP)$ 8,937.6 $ 8,285.1
- - 430.2 435.7 456.5 Discontinued operations - - - - 2.6 Total off-balance sheet assets $ - $ -
Shareholders' Equity (GAAP)$ 1,957.4 $ 1,835.1
_______
(1) Off-balance sheet assets apply to each of the years 2018 and prior. In accordance with the new lease accounting standard, off-balance sheet assets are no longer applicable beginning in 2019.
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The following table shows the components of recourse leverage as of
2020 2019 2018 2017 2016 Debt and lease obligations, net of unrestricted cash: Unrestricted cash$ (292.2) $ (151.0)
15.8 110.8 4.3 3.8 Recourse debt 5,329.0 4,780.4 4,429.7 4,371.7 4,253.2 Nonrecourse debt - - - - - Operating lease obligations 348.6 432.3 - - - Finance lease obligations 33.3 7.9 11.3 12.5 14.9 Total debt and lease obligations, net of 5,442.3 5,085.4 4,451.6 4,092.0 3,964.4 unrestricted cash (GAAP) Off-balance sheet recourse debt (1) - - 430.2 435.7 459.1 Total debt and lease obligations, net of unrestricted cash, as adjusted (non-GAAP)$ 5,442.3 $ 5,085.4 $ 4,881.8 $ 4,527.7 $ 4,423.5 Total recourse debt (2)$ 5,442.3 $ 5,085.4 $ 4,881.8 $ 4,527.7 $ 4,423.5 Shareholders' Equity (3)$ 1,957.4 $ 1,835.1 $ 1,788.1 $ 1,792.7 $ 1,347.2 Recourse Leverage (4) 2.8 2.8 2.7 2.5 3.3 ________ (1) Off-balance sheet recourse debt applies to each of the years 2018 and prior. In accordance with the new lease accounting standard, off-balance sheet recourse debt is no longer applicable beginning in 2019. (2) Includes on- and off-balance sheet recourse debt, commercial paper and bank credit facilities, and operating and finance lease obligations, net of unrestricted cash. (3) Balances for 2020, 2019, 2018 and 2017 reflect increases in shareholders' equity resulting from the impact of the Tax Act. (4) Calculated as total recourse debt / shareholder's equity. The reduction in recourse leverage beginning with 2017 is due to the increase in shareholders' equity resulting from the impact of the Tax Act.
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