Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail market. We report our financial results through
four
primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”), and Portfolio Management.
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 Form10-K. We based the discussion and analysis that follows on financial data we derived from the financial statements prepared in accordance with US 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 components to the most comparable GAAP components, see “Non-GAAP Financial Measures” at the end of this item.
DISCUSSION OF OPERATING RESULTS
The following table shows a summary of our reporting segments and consolidated financial results for years ended December 31 (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Segment Revenues
|
|
|
|
|
|
|
Rail North America
|
$
|
1,018.5
|
|
|
$
|
1,006.8
|
|
|
$
|
927.5
|
|
|
Rail International
|
189.0
|
|
|
180.4
|
|
|
198.9
|
|
|
ASC
|
154.2
|
|
|
170.2
|
|
|
227.2
|
|
|
Portfolio Management
|
56.6
|
|
|
92.5
|
|
|
97.4
|
|
|
|
$
|
1,418.3
|
|
|
$
|
1,449.9
|
|
|
$
|
1,451.0
|
|
|
Segment Profit
|
|
|
|
|
|
|
Rail North America
|
$
|
321.9
|
|
|
$
|
379.5
|
|
|
$
|
321.0
|
|
|
Rail International
|
63.0
|
|
|
70.1
|
|
|
78.7
|
|
|
ASC
|
10.1
|
|
|
15.1
|
|
|
27.3
|
|
|
Portfolio Management
|
136.9
|
|
|
49.8
|
|
|
68.2
|
|
|
|
531.9
|
|
|
514.5
|
|
|
495.2
|
|
|
Less:
|
|
|
|
|
|
|
Selling, general and administrative expense
|
174.7
|
|
|
192.4
|
|
|
189.2
|
|
|
Unallocated interest expense, net
|
(4.8
|
)
|
|
5.3
|
|
|
5.4
|
|
|
Other, including eliminations
|
3.5
|
|
|
1.1
|
|
|
1.6
|
|
|
Income taxes ($5.7, ($0.5) and $18.3 related to affiliates' earnings)
|
101.4
|
|
|
110.4
|
|
|
94.0
|
|
|
Net Income
|
$
|
257.1
|
|
|
$
|
205.3
|
|
|
$
|
205.0
|
|
|
|
|
|
|
|
|
|
Net income, excluding tax adjustments and other items
|
$
|
235.9
|
|
|
$
|
234.9
|
|
|
$
|
205.0
|
|
|
Diluted earnings per share
|
$
|
6.29
|
|
|
$
|
4.69
|
|
|
$
|
4.48
|
|
|
Diluted earnings per share, excluding tax adjustments and other items
|
$
|
5.77
|
|
|
$
|
5.37
|
|
|
$
|
4.48
|
|
|
|
|
|
|
|
|
|
Return on equity
|
19.6
|
%
|
|
15.8
|
%
|
|
15.1
|
%
|
|
Return on equity, excluding tax adjustments and other items
|
18.0
|
%
|
|
18.1
|
%
|
|
15.1
|
%
|
|
|
|
|
|
|
|
|
Investment Volume
|
$
|
620.7
|
|
|
$
|
714.7
|
|
|
$
|
1,030.5
|
|
2016
Summary
Net income was
$257.1 million
, or
$6.29
per diluted share, for
2016
compared to
$205.3 million
, or
$4.69
per diluted share, for
2015
, and
$205.0 million
, or
$4.48
per diluted share, for
2014
. Results for 2016 include a net benefit of $21.2 million from tax adjustments and other items, compared to a net negative impact of $29.6 million in 2015 and no impact in 2014. (see "Non-GAAP Financial Measures" at the end of this item for further details).
|
|
|
|
•
|
At Rail North America, asset impairments, lower asset disposition gains, higher depreciation expense, and higher switching, freight and storage expenses were partially offset by higher lease revenue and fee income, resulting in a net decrease in segment profit in 2016.
|
|
|
|
|
•
|
At Rail International, segment profit in 2016 declined primarily due to higher maintenance expense and lower remarketing gains, partially offset by higher lease revenue and lower net litigation costs.
|
|
|
|
|
•
|
At ASC, segment profit was lower in 2016, largely due to lower volume and a reduction in higher-margin, long-haul shipments of various commodities, as well as expenses attributable to asbestos-related litigation reserves and lease termination costs.
|
|
|
|
|
•
|
At Portfolio Management, comparisons of reported results were impacted by the sale of marine investments in 2016 and 2015, as well as a settlement fee received in 2016 related to a residual value guarantee. Segment profit increased in 2016 primarily due to higher residual sharing gains on managed portfolio sales, partially offset by the absence of contributions from sold assets and lower income at our Rolls-Royce Partners Finance affiliates.
|
Total investment volume was
$620.7 million
in
2016
, compared to
$714.7 million
in
2015
and
$1,030.5 million
in
2014
.
2017 Outlook
For the second consecutive year, excess railcar supply, muted demand for certain railcar types, and increased railroad efficiency have combined to put pressure on lease rates for most car types. Despite these conditions, we believe that we are well positioned to continue to benefit from our North American fleet actions taken over the past few years. By extending average lease terms and optimizing our fleet mix, we have a relatively low number of leases scheduled for expiration in 2017. Our focus in 2017 will be to maintain high utilization. We will also focus on shortening lease terms to optimize our ability to reprice these leases when the market recovers. For 2017, we have already placed a majority of the cars to be delivered from our supply agreements. Our strong balance sheet also offers us flexibility to pursue secondary market acquisitions if attractive opportunities arise.
|
|
|
|
•
|
We expect Rail North America's segment profit in 2017 to decrease from 2016. We plan to invest in additional railcars during 2017 to add to our existing fleet; however lease revenue is expected to decline, driven by the impact of lower renewal rates and lower utilization. In addition, maintenance expense is expected to increase overall, as higher costs attributable to cars not renewed will be partially offset by lower scheduled maintenance and an increase in work performed within our own maintenance network. Finally, we expect remarketing income to be lower than 2016.
|
|
|
|
|
•
|
We anticipate Rail International's segment profit in 2017 to grow slightly compared to 2016 on a local currency basis. Higher lease revenue, resulting from modest fleet growth and continued strong utilization, as well as lower maintenance expenses, will drive this increase.
|
|
|
|
|
•
|
We expect ASC’s segment profit in 2017 to be higher than 2016. We anticipate higher revenue, due to similar tonnage carried at more favorable freight rates. In addition, operating expenses are expected to decrease, as we plan to have one fewer vessel in service during 2017 compared to 2016.
|
|
|
|
|
•
|
We believe Portfolio Management's segment profit in 2017 will be lower than 2016. We will benefit from the continuation of strong financial results at the Rolls-Royce Partners Finance affiliates; however, this will be offset by substantially lower remarketing income, as the magnitude of residual sharing fees received in 2016 will not be replicated.
|
Segment Operations
Segment profit is an internal performance measure used by the Chief Executive Officer to assess the performance of each segment in a given period. Segment profit includes all revenues, pretax earnings from affiliates, and net gains on asset dispositions that are attributable to the segments, as well as expenses that management believes are directly associated with the financing, maintenance, and operation of the revenue earning assets. 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.
We allocate debt balances and related interest expense to each segment based upon predetermined debt to equity leverage ratios. Due to the changes in the composition of our segments, we modified segment leverage levels for 2016. The leverage levels for 2016 were 5:1 for Rail North America, 3:1 for Rail International, 1.5:1 for ASC, and 1:1 for Portfolio Management. Prior to 2016, the leverage levels were 5:1 for Rail North America, 2:1 for Rail International, 1.5:1 for ASC, and 3:1 for Portfolio Management.
We believe that by using this leverage and interest expense allocation methodology, each operating segment’s financial performance reflects appropriate risk-adjusted borrowing costs
.
RAIL NORTH AMERICA
Segment Summary
At
December 31, 2016
, Rail North America's wholly owned fleet, excluding boxcars, consisted of approximately 104,500 cars. Fleet utilization, excluding boxcars, was 98.9% at the end of
2016
, compared to 99.1% at the end of
2015
, and 99.2% at the end of
2014
. Fleet utilization for approximately 17,700 boxcars was 93.8% at the end of
2016
compared to 97.7% at the end of
2015
, and 92.7% at the end of 2014. In 2014, we acquired more than 18,500 boxcars from General Electric Railcar Services Corporation for approximately $340 million (the "Boxcar Fleet").
The downturn in the rail market continued in 2016, as the oversupply of railcars resulted in a challenging lease rate environment. During the year, the Lease Price Index (the "LPI", see definition below) decreased 20.3%, compared to increases of 32.2% in
2015
, and 38.8% in
2014
. Lease terms on renewals for cars in the LPI averaged 32 months in
2016
, compared to 54 months in
2015
, and 66 months in
2014
. During
2016
, an average of approximately 103,900 railcars, excluding boxcars, were on lease, compared to 106,000 in
2015
, and 105,800 in
2014
. The decrease in railcars on lease in the current year is largely due to railcars that were sold or scrapped in an effort to optimize the composition of our fleet. The decline in demand, and the resulting decline in lease rates, was broad-based, but was particularly severe among cars serving the energy markets.
During 2016, we recorded impairment losses of $31.2 million, including $29.8 million related specifically to certain railcars in flammable service that we believe have been permanently and negatively impacted by regulatory changes.
In 2014, we entered into a long-term supply agreement with Trinity Rail Group, LLC ("Trinity") a subsidiary of Trinity Industries that took effect in mid-2016. Under the terms of that agreement, we may order up to 8,950 newly built railcars over a four-year period from March, 2016 through March, 2020. We may order either tank or freight cars; however, we expect that the majority of the order will be for tank cars. As of December 31, 2016, 3,173 railcars have been ordered, of which 776 railcars have been delivered. Pursuant to the terms of the agreement, the parties conducted a review of the contract pricing in January 2017 as it no longer reflected market rates. Based on this review, the parties agreed to reduce contract pricing for future orders pursuant to the terms of the agreement. Under a prior supply agreement with Trinity entered into in 2011, we ordered 12,500 newly built railcars, of which 12,313 railcars have been delivered as of December 31, 2016.
As of December 31, 2016, leases for approximately 15,100 railcars in our term lease fleet and approximately 5,200 boxcars are scheduled to expire in 2017. These amounts exclude railcars on leases that are scheduled to expire in 2017 but have already been renewed or assigned to a new lessee.
The following table shows Rail North America's segment results for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Lease revenue
|
$
|
935.1
|
|
|
$
|
930.9
|
|
|
$
|
864.1
|
|
|
Other revenue
|
83.4
|
|
|
75.9
|
|
|
63.4
|
|
|
Total Revenues
|
1,018.5
|
|
|
1,006.8
|
|
|
927.5
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Maintenance expense
|
266.5
|
|
|
264.2
|
|
|
265.5
|
|
|
Depreciation expense
|
231.8
|
|
|
215.1
|
|
|
190.0
|
|
|
Operating lease expense
|
67.6
|
|
|
82.2
|
|
|
103.7
|
|
|
Other operating expense
|
34.1
|
|
|
26.2
|
|
|
21.9
|
|
|
Total Expenses
|
600.0
|
|
|
587.7
|
|
|
581.1
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
Net gain on asset dispositions
|
16.6
|
|
|
67.2
|
|
|
72.3
|
|
|
Interest expense, net
|
(110.1
|
)
|
|
(102.1
|
)
|
|
(98.4
|
)
|
|
Other expense
|
(3.6
|
)
|
|
(5.2
|
)
|
|
(7.2
|
)
|
|
Share of affiliates' earnings (pretax)
|
0.5
|
|
|
0.5
|
|
|
7.9
|
|
|
Segment Profit
|
$
|
321.9
|
|
|
$
|
379.5
|
|
|
$
|
321.0
|
|
|
|
|
|
|
|
|
|
Investment Volume
|
$
|
495.6
|
|
|
$
|
524.5
|
|
|
$
|
810.6
|
|
The following table shows the components of Rail North America's lease revenue for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Railcars
|
$
|
815.0
|
|
|
$
|
809.7
|
|
|
$
|
764.5
|
|
|
Boxcars
|
80.6
|
|
|
83.6
|
|
|
64.7
|
|
|
Locomotives
|
39.5
|
|
|
37.6
|
|
|
34.9
|
|
|
|
$
|
935.1
|
|
|
$
|
930.9
|
|
|
$
|
864.1
|
|
Lease Price Index
Our 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.
Rail North America Fleet Data
The following table shows fleet activity for Rail North America railcars, excluding boxcars, for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Beginning balance
|
106,146
|
|
|
107,343
|
|
|
107,004
|
|
|
Cars added
|
3,519
|
|
|
3,762
|
|
|
3,453
|
|
|
Cars scrapped
|
(2,479
|
)
|
|
(1,445
|
)
|
|
(1,397
|
)
|
|
Cars sold
|
(2,664
|
)
|
|
(3,514
|
)
|
|
(1,717
|
)
|
|
Ending balance
|
104,522
|
|
|
106,146
|
|
|
107,343
|
|
|
Utilization rate at year end
|
98.9
|
%
|
|
99.1
|
%
|
|
99.2
|
%
|
|
Active railcars at year end
|
103,329
|
|
|
105,164
|
|
|
106,500
|
|
|
Average (monthly) active railcars
|
103,900
|
|
|
105,987
|
|
|
105,791
|
|
The following table shows fleet statistics for Rail North America boxcars for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Ending balance
|
17,706
|
|
|
18,429
|
|
|
19,021
|
|
|
Utilization rate at year end
|
93.8
|
%
|
|
97.7
|
%
|
|
92.7
|
%
|
The following table shows fleet activity for Rail North America locomotives for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Beginning balance
|
637
|
|
|
603
|
|
|
595
|
|
|
Locomotives added, net of scrapped or sold
|
23
|
|
|
34
|
|
|
8
|
|
|
Ending balance
|
660
|
|
|
637
|
|
|
603
|
|
|
Utilization rate at year end
|
93.3
|
%
|
|
93.3
|
%
|
|
99.3
|
%
|
|
Active locomotives at year end
|
616
|
|
|
584
|
|
|
599
|
|
|
Average (monthly) active locomotives
|
605
|
|
|
589
|
|
|
590
|
|
Segment Profit
In
2016
, segment profit was
$321.9 million
, compared to
$379.5 million
in
2015
. The decrease was driven by lower asset disposition gains, which includes the impairment losses noted above, and higher depreciation expense, partially offset by higher lease revenue and fee income.
In
2015
, segment profit was
$379.5 million
, compared to
$321.0 million
in 2014. The increase was driven by higher lease rates, a positive contribution from the full year impact of the Boxcar Fleet in 2015, and lower net maintenance expense, partially offset by higher depreciation expense and lower share of affiliates' earnings.
Revenues
In
2016
, lease revenue increased
$4.2 million
, primarily due to revenue from new cars added to the fleet and higher utilization revenue, partially offset by the impact of fewer cars on lease. Other revenue increased
$7.5 million
due to higher lease termination fees. Fees in 2016 included approximately $10.0 million for a penalty imposed by GATX for allowing a customer to return 200 crude oil railcars prior to the contractual end of an existing lease. The majority of these railcars were subsequently placed with other GATX customers. On occasion, customers may request relief from their lease commitments, particularly when underlying commodity markets turn down. However, our lease agreements do not include provisions for payment, and any such arrangement would be negotiated and dependent on achieving an optimal economic outcome.
In
2015
, lease revenue increased $66.8 million, primarily due to higher lease rates across the fleet and a full year of revenue in 2015 from the acquired Boxcar Fleet. Other revenue increased $12.5 million, primarily due to higher repair revenue, mileage equalization revenue, and lease termination fees.
Expenses
In
2016
, maintenance expense increased
$2.3 million
, primarily due to higher repair costs for the base fleet and lower costs eligible for capitalization for the boxcar fleet, partially offset by lower railroad repairs. Depreciation expense increased
$16.7 million
, largely due to new railcar investments and the purchase of railcars previously on operating leases. Operating lease expense decreased
$14.6 million
, as a result of purchases of railcars previously on operating leases in both 2016 and 2015. Other operating expense increased $7.9 million, primarily due to higher switching, storage, and freight costs as a result of more cars being moved into storage.
In
2015
, maintenance expense decreased $1.3 million, primarily due to lower tank car compliance maintenance, partially offset by higher costs attributable to the boxcar fleet. Depreciation expense increased $25.1 million, largely due to depreciation on new investments, including the Boxcar Fleet. Operating lease expense decreased $21.5 million, resulting from the purchase of railcars previously on operating leases in each year. Other operating expense increased $4.3 million, primarily due to higher switching, storage, and freight costs.
Other Income (Expense)
In
2016
, net gain on asset dispositions decreased
$50.6 million
largely due to a combination of higher impairments of railcars, primarily railcars in flammable service, and lower disposition gains, as fewer railcars were sold in 2016. See Note
23
."
Financial Data of Business Segments
", Item 8 of this Form 10-K, for further details of the components of net gains on asset dispositions and Note
9
."
Asset Impairments and Assets Held for Sale
", Item 8 of this Form 10-K, for additional analysis regarding the impairment loss. The timing of disposition gains is dependent on a number of factors and will vary from year to year. Net interest expense increased
$8.0 million
, due to a higher average debt balance and a higher average interest rates. Other expense decreased $1.6 million primarily due to a $1.9 million gain from the sale of an investment security in 2016.
In
2015
, net gain on asset dispositions decreased $5.1 million, primarily due to lower scrapping proceeds, resulting from lower prices for scrap and fewer cars scrapped, as well as lower residual sharing gains, and higher impairments of railcars in 2015. These impacts were partially offset by higher gains on cars sold. Net interest expense increased $3.7 million, primarily due to higher average debt balances, partially offset by the impact of lower average interest rates. Share of affiliates' earnings decreased $7.4 million, primarily due to gains on dispositions of railcars at our Southern Capital affiliate in the prior year.
Investment Volume
During
2016
, investment volume was
$495.6 million
compared to
$524.5 million
in
2015
, and
$810.6 million
in
2014
. We acquired approximately 3,465 railcars in
2016
, compared to 3,790 railcars in
2015
, and 3,570 railcars in
2014
. Additionally, investments in 2014 included the purchase of the Boxcar Fleet of approximately 18,500 boxcars for approximately $340 million.
North American Rail Regulatory Matters
In 2015, the Pipeline and Hazardous Materials Safety Administration of the US Department of Transportation (“PHMSA”) issued regulations that established new design standards for tank cars in flammable liquids service (the “PHMSA Rules”). In addition to setting standards for newly built tank cars, the PHMSA regulations established standards for modifying existing tank cars in certain flammable liquids service and deadlines for modifying or removing those cars from service. The deadlines range from January 2018 to May 2029, depending on the type of car and the type of commodity carried. The regulations were subsequently modified by legislation adopted by Congress, and in August 2016, PHMSA adopted final regulations that incorporated the legislative mandates.
Transport Canada (“TC”) also issued rules establishing revised design standards for tank cars carrying flammable liquids in Canada (the “Canadian Rules”). The Canadian Rules established standards for newly built tank cars, standards for modifying existing cars flammable liquids service, and deadlines for modifying or removing cars from service. The Canadian deadlines range from November 2016 to May 2025, depending on the type of car and the type of commodity carried.
We have a fleet of approximately 122,000 railcars in North America, including approximately 12,200 tank cars currently used to transport flammable liquids that are affected by the new rules, of which approximately 3,800 are moving crude oil and ethanol. Over 90% of our affected tank cars have a compliance deadline of 2023 or later. We expect to modify some of the most modern of our affected tank cars to comply with the new standards. However, for the majority of the affected cars, we currently anticipate retiring, redeploying, or selling them rather than performing retrofits. We recorded impairment losses on approximately 2,400 of these railcars, as noted above. See Note
9
."
Asset Impairments and Assets Held for Sale
" in Part II, Item 8 of this Form 10-K for further details.
RAIL INTERNATIONAL
Segment Summary
Rail International, composed primarily of GATX Rail Europe ("GRE"), continued to maintain stable utilization for its railcars and produced solid operating results in 2016. Railcar utilization for GRE was
95.6%
at the end of
2016
, compared to 95.8% at the end of
2015
, and 95.9% at the end of
2014
. GRE's results in 2016 continued to be impacted by higher wheelset costs, primarily due to a refurbishment program to address anti-corrosion paint issues on certain existing wheelsets. GRE is addressing this issue with the wheelset suppliers and is pursuing potential warranty remedies.
Rail India has continued to focus on investment opportunities and developing relationships with customers, suppliers and the Indian Railways. In
2016
, Rail India did not add any new railcars, compared to 410 railcars added in 2015 and 184 railcars added in 2014. While Rail India had no new investments in 2016, it has entered into contracts to acquire additional railcars in 2017 and expects continued fleet growth and diversification throughout 2017.
Rail Russia has continued to focus on managing its small fleet and developing relationships with customers. In 2016, Rail Russia added 20 railcars to its fleet, compared to 150 railcars added in 2015 and none added in 2014. Rail Russia plans to expand its customer base and pursue investment opportunities to grow its fleet in 2017.
The following table shows Rail International's segment results for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Revenues
|
|
|
|
|
|
|
Lease revenue
|
$
|
182.0
|
|
|
$
|
172.9
|
|
|
$
|
188.6
|
|
|
Other revenue
|
7.0
|
|
|
7.5
|
|
|
10.3
|
|
|
Total Revenues
|
189.0
|
|
|
180.4
|
|
|
198.9
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Maintenance expense
|
47.2
|
|
|
39.6
|
|
|
45.9
|
|
|
Depreciation expense
|
45.5
|
|
|
43.7
|
|
|
47.1
|
|
|
Other operating expense
|
5.3
|
|
|
5.1
|
|
|
5.1
|
|
|
Total Expenses
|
98.0
|
|
|
88.4
|
|
|
98.1
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
Net gain on asset dispositions
|
1.1
|
|
|
6.8
|
|
|
6.0
|
|
|
Interest expense, net
|
(29.7
|
)
|
|
(22.4
|
)
|
|
(24.7
|
)
|
|
Other (expense) income
|
0.8
|
|
|
(6.0
|
)
|
|
(3.1
|
)
|
|
Share of affiliates' earnings (pretax)
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
Segment Profit
|
$
|
63.0
|
|
|
$
|
70.1
|
|
|
$
|
78.7
|
|
|
|
|
|
|
|
|
|
Investment Volume
|
$
|
87.1
|
|
|
$
|
148.0
|
|
|
$
|
163.6
|
|
The following table shows fleet activity for GRE railcars for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Beginning balance
|
22,923
|
|
|
22,451
|
|
|
21,836
|
|
|
Cars added
|
879
|
|
|
1,421
|
|
|
1,672
|
|
|
Cars scrapped or sold
|
(680
|
)
|
|
(949
|
)
|
|
(1,057
|
)
|
|
Ending balance
|
23,122
|
|
|
22,923
|
|
|
22,451
|
|
|
Utilization rate at year end
|
95.6
|
%
|
|
95.8
|
%
|
|
95.9
|
%
|
|
Active railcars at year end
|
22,108
|
|
|
21,969
|
|
|
21,533
|
|
|
Average (monthly) active railcars
|
21,869
|
|
|
21,598
|
|
|
20,915
|
|
Foreign Currency
Rail International's reported results of operations are impacted by fluctuations in the exchange rates of the foreign currencies in which it conducts business, primarily the euro. In 2016, the value of the euro fluctuated; however, in aggregate, the changes did not have a meaningful impact on revenue or segment profit compared to 2015. In 2015, a weaker euro negatively impacted lease revenue by approximately $30.8 million and segment profit, excluding other income (expense), by approximately $16.1 million compared to 2014.
Segment Profit
In
2016
, segment profit was $
63.0 million
, compared to
$70.1 million
in
2015
. The decrease was largely due to higher maintenance expense, primarily as a result of higher wheelset costs, and the absence of a gain recognized on the sale of a workshop in 2015, partially offset by higher lease revenue and lower net legal defense costs.
In 2015, segment profit was
$70.1 million
, compared to
$78.7 million
in 2014. The decrease was largely due to the negative effects of foreign exchange.
Revenues
In
2016
, lease revenue increased
$9.1 million
, primarily due to more cars on lease in 2016. Other revenue decreased
$0.5 million
, primarily due to the absence of interest income on a loan that was repaid in 2015.
In 2015, lease revenue decreased $15.7 million, due to the effects of a weaker euro, as noted above. The decrease was partially offset by additional cars on lease in 2015. Other revenue decreased $2.8 million, primarily due to the absence of interest income on a loan that was repaid in 2015.
Expenses
In
2016
, maintenance expense increased
$7.6 million
, primarily due to the costs of wheelset replacements, as discussed above, and the higher cost of railcar revisions. Depreciation expense increased
$1.8 million
, driven by the impact of new cars added to the fleet. Other operating expense was comparable to prior year.
In 2015, maintenance expense decreased $6.3 million, primarily due to the effects of a weaker euro and lower costs at our European maintenance facilities, partially offset by the higher cost of railcar revisions. Depreciation expense decreased $3.4 million, largely due to the effects of a weaker euro, partially offset by the impact of new cars added to the fleet.
Other Income (Expense)
In
2016
, net gain on asset dispositions decreased
$5.7 million
, primarily due to the absence of a gain recognized on the sale of a workshop in 2015 and lower railcar scrapping gains as a result of fewer railcars scrapped in 2016. Net interest expense increased
$7.3 million
, largely due to a higher average debt balance, resulting from an increase in segment leverage in 2016, partially offset by lower average interest rates. Other expense decreased
$6.8 million
, largely due to lower net legal costs resulting from insurance reimbursements received in 2016 for previously expensed legal defense costs.
In 2015, net interest expense decreased $2.3 million, driven by the effects of foreign exchange. Other expense increased $2.9 million, primarily due to higher legal costs in 2015 and the absence of income from a warranty settlement in 2014, partially offset by the favorable impact of changes in foreign exchange rates on non-functional currency items and derivatives.
Investment Volume
Investment volume was
$87.1 million
in
2016
,
$148.0 million
in
2015
, and
$163.6 million
in
2014
. During
2016
, we acquired approximately 879 railcars compared to 1,980 railcars in
2015
, and 1,860 railcars in
2014
.
ASC
Segment Summary
In 2016, lower demand across most commodities, as well as a reduction in higher-margin, long-haul shipments, negatively impacted operating results. ASC carried
25.4 million
net tons of freight and deployed 11 vessels in
2016
compared to 26.5 million net tons and 13 vessels in
2015
and 30.5 million net tons and 15 vessels in 2014.
The following table shows ASC’s segment results for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Revenues
|
|
|
|
|
|
|
Lease revenue
|
$
|
4.2
|
|
|
$
|
4.1
|
|
|
$
|
4.2
|
|
|
Marine operating revenue
|
150.0
|
|
|
166.1
|
|
|
223.0
|
|
|
Total Revenues
|
154.2
|
|
|
170.2
|
|
|
227.2
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Maintenance expense
|
18.6
|
|
|
22.3
|
|
|
25.6
|
|
|
Marine operating expense
|
96.7
|
|
|
107.2
|
|
|
149.2
|
|
|
Depreciation expense
|
12.9
|
|
|
14.3
|
|
|
13.6
|
|
|
Operating lease expense
|
6.0
|
|
|
5.2
|
|
|
5.2
|
|
|
Total Expenses
|
134.2
|
|
|
149.0
|
|
|
193.6
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
Net loss on asset dispositions
|
—
|
|
|
(0.1
|
)
|
|
(0.5
|
)
|
|
Interest expense, net
|
(4.5
|
)
|
|
(5.3
|
)
|
|
(5.6
|
)
|
|
Other expense
|
(5.4
|
)
|
|
(0.7
|
)
|
|
(0.2
|
)
|
|
Segment Profit
|
$
|
10.1
|
|
|
$
|
15.1
|
|
|
$
|
27.3
|
|
|
|
|
|
|
|
|
|
Investment Volume
|
$
|
9.1
|
|
|
$
|
20.3
|
|
|
$
|
18.4
|
|
|
Total Net Tons Carried (000's)
|
25.4
|
|
|
26.5
|
|
|
30.5
|
|
Segment Profit
In
2016
, segment profit was
$10.1 million
compared to
$15.1 million
in
2015
. The decrease was driven by $5.0 million of expense related to an increased accrual for asbestos-related litigation and costs associated with the scheduled return of a leased vessel in 2017. In addition, lower demand across most commodities and fewer higher-margin, long-haul shipments of iron ore negatively impacted segment profit, which was partially offset by lower operating costs as a result of deploying two fewer vessels throughout most of 2016.
In
2015
, segment profit was
$15.1 million
compared to
$27.3 million
in 2014. Both periods were unfavorably impacted by difficult operating conditions on the Great Lakes at the start of each sailing season. Additionally, results in 2015 were negatively impacted by lower shipments of higher-margin, long-haul iron ore.
Revenues
In
2016
, marine operating revenue decreased
$16.1 million
, primarily due lower shipping volume as a result of decreased demand, as well as fewer long-haul shipments of various commodities. In addition, lower fuel revenue, which is offset in marine operating expense, contributed to the variance. The terms of ASC's contracts provide that a substantial portion of fuel costs is passed on to customers.
In
2015
, marine operating revenue decreased $56.9 million, largely due to $37.6 million lower fuel revenue. In addition, lower long-haul shipments of iron ore contributed to the variance.
Expenses
In
2016
, maintenance expense decreased
$3.7 million
, primary due to fewer operating vessels and lower operating repairs. Marine operating expense decreased
$10.5 million
, largely driven by lower fuel costs, more efficient operations, and two fewer vessels deployed in the current year.
In
2015
, maintenance expense decreased $3.3 million, due to less winter work and lower operating repairs. Marine operating expense decreased $42.0 million, largely driven by lower fuel costs and the impact of fewer operating days caused by the delay of deployment of vessels at the beginning of the season and fewer vessels operating late in the year. Inefficiencies associated with the extended winter conditions earlier in each year also negatively impacted operations in both years.
Operating lease expense in
2016
,
2015
and 2014 was primarily related to the lease of ASC's tug-barge vessel.
Other Income (Expense)
In 2016, other expense increased
$4.7 million
, driven by the $5.0 million of aggregate expense noted above.
Investment Volume
ASC's investments in each of
2016
,
2015
, and 2014 consisted of structural and mechanical upgrades to our vessels.
PORTFOLIO MANAGEMENT
Segment Summary
A significant portion of Portfolio Management's segment profit is generated by the Rolls-Royce & Partners Finance companies.
The Rolls-Royce & Partners Finance companies (collectively the “RRPF affiliates”) are a group of fifteen 50% owned domestic and foreign joint ventures with Rolls-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 $51.8 million for
2016
, $65.5 million for
2015
, and $55.9 million for
2014
. The RRPF affiliates owned
407
aircraft engines at the end of
2016
compared to 436 at the end of
2015
and 433 at the end of
2014. Operating results and remarketing income for the RRPF affiliates continued to be strong in 2016. However, impairment losses recorded for certain models of aircraft spare engines negatively impacted overall income at the RRPF affiliates in 2016.
In 2015, we made the decision to exit the majority of our marine investments, including six chemical parcel tankers (the "Nordic Vessels"), most of our inland marine vessels, and our 50% interest in the Cardinal Marine joint venture. As a result, we initially recognized impairment losses of $30.8 million on the Nordic Vessels and $19.0 million on the Cardinal Marine joint venture in 2015. Further, an additional $1.8 million of impairment losses were recorded for certain of the Nordic Vessels in 2016. Subsequently, we completed the sales of all six of the Nordic Vessels, our 50% interest in the Cardinal Marine joint venture, and the majority of our inland marine assets for total proceeds of $59.9 million and $124.4 million in 2016 and 2015. These sales resulted in net gains of $4.2 million and $21.6 million for 2016 and 2015. We also recognized a gain of $1.0 million in 2016, resulting from contingent proceeds received from the sale of the Cardinal Marine joint venture. Based on the valuation of our remaining inland marine assets held for sale at December 31, 2016, we recorded further impairment losses of $4.9 million. We expect to sell the remaining targeted inland marine assets in 2017. Upon final completion of these sales, Portfolio Management will continue to own and operate other marine investments, consisting primarily of five liquefied gas carrying vessels (the "Norgas Vessels"). In 2016, we also realized residual sharing income of $82.8 million. Proceeds of $49.1 million were recorded as a result of the settlement of a residual sharing agreement. This agreement was originally entered into in 2001 and related to a residual guarantee we provided on certain rail assets in the U.K. Receipt of the settlement fee concludes our participation in this transaction. Additionally, a customer sold its interest in two leased nuclear power plant facilities and, as manager of the leases, we received residual sharing fees of $30.1 million.
In 2014, we sold our investments in the Intermodal Investment Fund V and Intermodal Investment Fund VII affiliates and received aggregate cash proceeds of $18.3 million.
Portfolio Management's total asset base was $
593.5 million
at December 31,
2016
, compared to $636.5 million at December 31,
2015
, and $813.3 million at December 31,
2014
.
The following table shows Portfolio Management’s segment results for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Revenues
|
|
|
|
|
|
|
Lease revenue
|
$
|
5.8
|
|
|
$
|
22.2
|
|
|
$
|
29.7
|
|
|
Marine operating revenue
|
49.3
|
|
|
68.9
|
|
|
63.3
|
|
|
Other revenue
|
1.5
|
|
|
1.4
|
|
|
4.4
|
|
|
Total Revenues
|
56.6
|
|
|
92.5
|
|
|
97.4
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Marine operating expense
|
32.8
|
|
|
48.7
|
|
|
48.6
|
|
|
Depreciation expense
|
7.0
|
|
|
17.4
|
|
|
22.8
|
|
|
Other operating expense
|
4.4
|
|
|
7.1
|
|
|
1.9
|
|
|
Total Expenses
|
44.2
|
|
|
73.2
|
|
|
73.3
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
Net gain on asset dispositions
|
80.3
|
|
|
5.3
|
|
|
9.4
|
|
|
Interest expense, net
|
(8.6
|
)
|
|
(20.0
|
)
|
|
(24.3
|
)
|
|
Other expense
|
—
|
|
|
—
|
|
|
(1.2
|
)
|
|
Share of affiliates' earnings (pretax)
|
52.8
|
|
|
45.2
|
|
|
60.2
|
|
|
Segment Profit
|
$
|
136.9
|
|
|
$
|
49.8
|
|
|
$
|
68.2
|
|
|
|
|
|
|
|
|
|
Investment Volume
|
$
|
25.0
|
|
|
$
|
18.4
|
|
|
$
|
32.3
|
|
Segment Profit
In
2016
, segment profit was
$136.9 million
, compared to
$49.8 million
in
2015
. Segment profit in 2016 included income of $49.1 million related to the settlement of a residual sharing agreement. In addition, segment profit in 2016 was impacted by a net pre-tax loss of approximately $1.5 million associated with the planned exit of the majority of marine investments, compared to a net pre-tax loss of approximately $28.2 million in 2015. Excluding the impact of these items, segment profit was $11.3 million higher in 2016 primarily due to higher residual sharing gains on managed portfolio sales, partially offset by lower RRPF affiliate income.
In
2015
, segment profit was
$49.8 million
, compared to
$68.2 million
in 2014. The decrease was driven by a net loss of approximately $28.2 million associated with the planned exit of the majority of the marine investments. Excluding this net loss, segment profit increased $9.8 million primarily due to higher RRPF affiliate income and higher residual sharing fees on managed portfolio sales.
Revenues
In
2016
, lease revenue decreased
$16.4 million
, primarily due to the impact of the sales of leased assets in both years. Marine operating revenue decreased
$19.6 million
, largely due to the absence of revenue from the Nordic vessels that were sold during 2015 and 2016.
In
2015
, lease revenue decreased $7.5 million, primarily due to the impact of sales of leased assets in both years. Marine operating revenue increased $5.6 million, primarily due to higher revenue from the Nordic Vessels and higher inland marine revenue, partially offset by lower revenue from the Norgas Vessels. Other revenue decreased $3.0 million primarily due to lower investment fund distributions in 2015 and lower interest income resulting from the repayment of loans in both years.
Expenses
In
2016
, marine operating expense decreased
$15.9 million
, primarily due to the absence of the Nordic vessels that were sold during 2015 and 2016, as well as lower expenses from the Norgas Vessels. Depreciation expense decreased
$10.4 million
, driven by the sale of assets in 2015 and 2016. Other operating expense decreased
$2.7 million
, primarily due to proceeds received in 2016 for investments that had previously been reserved, lower barge painting expenses, and the absence of fleet manager incentive fees incurred in 2015.
In
2015
, depreciation expense decreased $5.4 million, primarily due to the sale of leased assets. Other operating expense increased $5.2 million, largely due to a loss reserve recorded in 2015 in connection with one investment.
Other Income (Expense)
In
2016
, net gain on asset dispositions increased
$75.0 million
. The current year included proceeds of $49.1 million related to the settlement of a residual sharing agreement. In addition, the current year included a net pre-tax loss of approximately $2.5 million associated with the planned exit of marine investments, compared to a net pre-tax loss of approximately $9.2 million in 2015. Excluding these net gains and losses, net gain on asset dispositions increased $19.2 million primarily due to higher residual sharing gains on managed portfolio sales in 2016. Net interest expense decreased
$11.4 million
as a result of a lower average debt balance, resulting from a combination of a lower asset base and a decrease in segment leverage in 2016, and lower average interest rates.
In 2015, net gain on asset dispositions decreased $4.1 million. The decrease was driven by a net loss of approximately $9.2 million associated with the planned exit of marine investments. Excluding the net loss from the marine investments, net gain on other asset dispositions increased $5.1 million primarily due to higher residual sharing gains on managed portfolio sales. Net interest expense decreased $4.3 million as a result of lower average debt balance and lower average interest rates.
In
2016
, share of affiliates' earnings increased
$7.6 million
, primarily due to an impairment charge of $19.0 million associated with the planned sale of our interest in the Cardinal Marine affiliate in 2015, and a net gain on sale of $1.0 million related to Cardinal Marine affiliate in 2016. Excluding these items, the share of affiliates' earnings decreased $12.4 million, primarily due to lower net disposition gains at RRPF attributable to impairment losses incurred on certain models of aircraft spare engines.
In
2015
, share of affiliates' earnings decreased $15.0 million. The decrease was driven by the $19.0 million impairment charge for our 50% interest in the Cardinal Marine joint venture. Excluding this item, affiliates' earnings increased $4.0 million primarily due to higher operating income and higher disposition gains on engine sales at the RRPF affiliates in 2015, partially offset by the absence of earnings from joint ventures sold in 2015 and 2014.
Investment Volume
Investment volume of $25.0 million in 2016 was for an incremental investment in an RRPF affiliate.
Investment volume of $18.4 million in 2015 consisted of $15.5 million for Portfolio Management's share in a newly created RRPF affiliate and $2.9 million to convert 51 open hopper barges to covered hopper barges.
Investment volume of $32.3 million in 2014 consisted of $10.5 million for two tank barges and one pushboat, $6.5 million for 13 new hopper barges and $15.3 million of incremental investment in an RRPF affiliate.
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.
The following table shows components of other for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Selling, general and administrative expense
|
$
|
174.7
|
|
|
$
|
192.4
|
|
|
$
|
189.2
|
|
|
Unallocated interest (income) expense, net
|
(4.8
|
)
|
|
5.3
|
|
|
5.4
|
|
|
Other expense (including eliminations)
|
3.5
|
|
|
1.1
|
|
|
1.6
|
|
SG&A, Unallocated Interest and Other
In
2016
, SG&A of $
174.7 million
decreased
$17.7 million
from 2015. The decrease was primarily due to lower employee costs, as well as lower pension and information technology expenses. In 2015, $9.0 million of expense was recorded associated with a voluntary early retirement program. The decrease in pension expense was driven by the change in accounting estimate discussed in "Note
2
.
Accounting Changes
" in Part II, Item 8 of this Form 10-K. These decreases were partially offset by a settlement accounting adjustment in 2016 attributable to lump sum payments elected by eligible retirees as part of the early retirement program. IT costs were lower due to savings related to discretionary spending.
In
2015
, SG&A of
$192.4 million
increased $3.2 million from 2014. The increase was primarily due to $9.0 million of expense associated with an early retirement program offered to certain employees in 2015, partially offset by lower compensation expense in 2015 and the absence of costs associated with the closure of our San Francisco office recognized in 2014.
Unallocated interest expense (the difference between external interest expense and interest expense allocated to the reporting segments in accordance with assigned leverage targets) in any year is affected by our consolidated leverage position, the timing of debt issuances and investing activities, and intercompany allocations.
Other expense and eliminations were immaterial in each of
2015
and
2014
. 2016 included a $2.9 million environmental remediation accrual related to properties sold in prior years.
Consolidated Income Taxes
See "Note
12
.
Income Taxes
" in Part II, Item 8 of this Form 10-K.
BALANCE SHEET DISCUSSION
Assets
Total assets (including on- and off-balance sheet) were
$7.6 billion
at
December 31, 2016
, compared to $7.4 billion at
December 31, 2015
. The increase was driven by an increase in cash, as well as an increase in Rail North America operating assets, partially offset by the sales of marine investments at Portfolio Management. In addition to the assets we recorded on our balance sheet, we utilized off-balance sheet assets, primarily railcars, which we leased in pursuant to operating lease agreements. The off-balance sheet assets represent the estimated present value of our committed future operating lease payments.
The following table shows on- and off-balance sheet assets by segment as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
On-Balance Sheet
|
|
Off-Balance Sheet
|
|
Total
|
|
On-Balance Sheet
|
|
Off-Balance Sheet
|
|
Total
|
|
Rail North America
|
$
|
4,775.6
|
|
|
$
|
456.5
|
|
|
$
|
5,232.1
|
|
|
$
|
4,629.1
|
|
|
$
|
488.7
|
|
|
$
|
5,117.8
|
|
|
Rail International
|
1,128.7
|
|
|
—
|
|
|
1,128.7
|
|
|
1,117.6
|
|
|
—
|
|
|
1,117.6
|
|
|
ASC
|
278.8
|
|
|
2.6
|
|
|
281.4
|
|
|
284.7
|
|
|
6.8
|
|
|
291.5
|
|
|
Portfolio Management
|
593.5
|
|
|
—
|
|
|
593.5
|
|
|
636.5
|
|
|
—
|
|
|
636.5
|
|
|
Other
|
328.8
|
|
|
—
|
|
|
328.8
|
|
|
226.3
|
|
|
—
|
|
|
226.3
|
|
|
|
$
|
7,105.4
|
|
|
$
|
459.1
|
|
|
$
|
7,564.5
|
|
|
$
|
6,894.2
|
|
|
$
|
495.5
|
|
|
$
|
7,389.7
|
|
Gross Receivables
Receivables of
233.6 million
at
December 31, 2016
decreased $3.4 million from
December 31, 2015
, primarily due to the expiration of certain financing leases.
Allowance for Losses
As of
December 31, 2016
, allowance for losses totaled $6.1 million, compared to $10.3 million at
December 31, 2015
. At
December 31, 2016
, the entire $6.1 million, or 7.1% of rent and other receivables, related to general allowances, compared to $6.3 million, or 9.1%, at
December 31, 2015
. There were no specific allowances for finance leases at
December 31, 2016
compared to $4.0 million at
December 31, 2015
.
The specific allowance in 2015 was related to a loss reserve recorded in connection with one investment at Portfolio Management that was written off in the current year.
See "Note
17
.
Allowance for Losses
" in Part II, Item 8 of this Form 10-K.
Operating Assets and Facilities
Net operating assets and facilities increased
$106.3 million
from
2015
. The increase was primarily due to investments of $589.3 million and the purchase of leased-in assets of $117.1 million. These increases were offset by depreciation expense of $300.9 million, dispositions of $114.8 million, sale leasebacks of $68.5 million, reclassification of $47.3 million of assets to assets held-for-sale, and impairments of $31.2 million at Rail North America, as well as negative foreign exchange rate effects of $42.0 million.
Investments in Affiliated Companies
Investments in affiliated companies increased
$38.5 million
in
2016
(see table below). The increase was driven by RRPF operating results and an incremental investment of $25.0 million for an RRPF affiliate at Portfolio Management, partially offset by dividend distributions from RRPF and a loan repayment from an affiliate at Rail North America.
The following table shows our investments in affiliated companies by segment as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Rail North America
|
$
|
10.5
|
|
|
$
|
12.0
|
|
|
Rail International
|
1.2
|
|
|
1.4
|
|
|
Portfolio Management
|
375.3
|
|
|
335.1
|
|
|
|
$
|
387.0
|
|
|
$
|
348.5
|
|
See "Note
6
.
Investments in Affiliated Companies
" in Part II, Item 8 of this Form 10-K.
Goodwill
In
2016
and
2015
, changes in the balance of our goodwill, all of which are attributable to the Rail North America and Rail International segments, resulted from changes in foreign currency exchange rates. We tested our goodwill for impairment in the fourth quarter of
2016
, and no impairment was indicated.
See "Note
16
.
Goodwill
" in Part II, Item 8 of this Form 10-K.
Debt
Total debt increased $67.7 million from the prior year, primarily due to issuances of long-term debt of
$882.8 million
, largely offset by scheduled maturities and principal payments of $800.0 million and the effects of foreign exchange on outstanding long-term debt balances.
The following table shows the details of our long-term debt issuances in
2016
($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Debt
|
|
Term
|
|
Interest Rate
|
|
Principal Amount
|
|
Recourse Unsecured
|
|
10.0 Years
|
|
3.25% Fixed
|
|
$
|
350.0
|
|
|
Recourse Unsecured
|
|
5.0 Years
|
|
2.18% Floating (2)
|
|
200.0
|
|
|
Recourse Unsecured
|
|
50.1 Years
|
|
5.63% Fixed
|
|
150.0
|
|
|
Recourse Secured (1)
|
|
5.0 Years
|
|
1.77% Floating (1)
|
|
125.0
|
|
|
Recourse Unsecured
|
|
5.0 Years
|
|
0.85% Floating (2)
|
|
57.8
|
|
|
|
|
|
|
|
|
$
|
882.8
|
|
________
|
|
|
|
(1)
|
This $125.0 million principal amount was repaid in 2016. The floating interest rate shown is as of the final payment date.
|
|
|
|
|
(2)
|
Floating interest rate at
December 31, 2016
.
|
The following table shows the carrying value of our debt obligations by major component, including off-balance sheet debt, as of
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
Unsecured
|
|
Total
|
|
Commercial paper and borrowings under bank credit facilities
|
$
|
—
|
|
|
$
|
3.8
|
|
|
$
|
3.8
|
|
|
Recourse debt
|
—
|
|
|
4,253.2
|
|
|
4,253.2
|
|
|
Capital lease obligations
|
14.9
|
|
|
—
|
|
|
14.9
|
|
|
Balance sheet debt
|
14.9
|
|
|
4,257.0
|
|
|
4,271.9
|
|
|
Recourse off-balance sheet debt (1)
|
459.1
|
|
|
—
|
|
|
459.1
|
|
|
|
$
|
474.0
|
|
|
$
|
4,257.0
|
|
|
$
|
4,731.0
|
|
________
(1) Off-balance sheet debt represents the estimated present value of committed operating lease payments and is equal to the amount reported as off-balance sheet assets.
See "Note
7
.
Debt
" in Part II, Item 8 of this Form 10-K.
Equity
Total equity increased
$67.0 million
from the prior year, primarily due to net income of
$257.1 million
, $12.8 million from the effects of post-retirement benefit plan adjustments, and $10.4 million from the effects of share-based compensation. These increases were partially offset by stock repurchases of
$120.1 million
, $68.1 million related to dividends, and $26.0 million of foreign currency translation adjustments due to the balance sheet effects of a stronger US dollar.
See "Note
19
.
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 from our investment portfolio proceeds. We also access domestic and international capital markets by issuing unsecured or secured debt and commercial paper. We use these sources of cash, along with our available cash balances, to fulfill our debt, lease, and dividend obligations and to fund portfolio investments and capital additions. We primarily use cash from operations and commercial paper issuances to fund daily operations.
The timing of asset dispositions and changes in working capital impacts cash flows from portfolio proceeds and operations. As a result, these cash flow components may vary materially from quarter to quarter and year to year. As of
December 31, 2016
, we had an unrestricted cash balance of
$307.5 million
.
The following table shows our principal sources and uses of cash for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Principal sources of cash
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
626.1
|
|
|
$
|
534.3
|
|
|
$
|
449.2
|
|
|
Portfolio proceeds
|
223.7
|
|
|
482.2
|
|
|
264.0
|
|
|
Other asset sales
|
23.0
|
|
|
18.7
|
|
|
26.9
|
|
|
Proceeds from sale-leasebacks
|
82.5
|
|
|
—
|
|
|
—
|
|
|
Proceeds from issuance of debt, commercial paper, and credit facilities
|
859.4
|
|
|
748.8
|
|
|
1,273.0
|
|
|
|
$
|
1,814.7
|
|
|
$
|
1,784.0
|
|
|
$
|
2,013.1
|
|
|
Principal uses of cash
|
|
|
|
|
|
|
Portfolio investments and capital additions
|
$
|
(620.7
|
)
|
|
$
|
(696.9
|
)
|
|
$
|
(1,030.5
|
)
|
|
Repayments of debt, commercial paper, and credit facilities
|
(803.6
|
)
|
|
(790.8
|
)
|
|
(819.8
|
)
|
|
Purchases of leased-in assets
|
(117.1
|
)
|
|
(118.4
|
)
|
|
(150.5
|
)
|
|
Payments on capital lease obligations
|
(3.6
|
)
|
|
(2.7
|
)
|
|
(2.6
|
)
|
|
Stock repurchases
|
(120.1
|
)
|
|
(125.4
|
)
|
|
(124.6
|
)
|
|
Cash dividends
|
(67.4
|
)
|
|
(68.2
|
)
|
|
(62.0
|
)
|
|
|
$
|
(1,732.5
|
)
|
|
$
|
(1,802.4
|
)
|
|
$
|
(2,190.0
|
)
|
Net Cash Provided by Operating Activities
Net cash provided by operating activities of
$626.1 million
increased
$90.7 million
compared to
2015
. The increase was driven by higher fee income, primarily residual sharing income, and lower operating lease payments, partially offset by lower contributions from our marine operations at ASC and Portfolio Management.
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
$620.7 million
decreased
$76.2 million
compared to
2015
, largely due to fewer railcar additions at Rail International and Rail North America. 2014 investments included Rail North America's purchase of approximately 18,500 boxcars for approximately $340 million. 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 December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Rail North America (1)
|
$
|
495.6
|
|
|
$
|
506.7
|
|
|
$
|
810.6
|
|
|
Rail International
|
87.1
|
|
|
148.0
|
|
|
163.6
|
|
|
ASC
|
9.1
|
|
|
20.3
|
|
|
18.4
|
|
|
Portfolio Management
|
25.0
|
|
|
18.4
|
|
|
32.3
|
|
|
Other
|
3.9
|
|
|
3.5
|
|
|
5.6
|
|
|
|
$
|
620.7
|
|
|
$
|
696.9
|
|
|
$
|
1,030.5
|
|
__________________
|
|
|
|
(1)
|
Investment volume in 2014 includes approximately $340 million related to the purchase of approximately 18,500 boxcars in 2014.
|
Portfolio Proceeds
Portfolio proceeds primarily consist of loan and finance lease receipts, proceeds from sales of operating assets, proceeds from sales of securities, and capital distributions from affiliates. Portfolio proceeds included $58.8 million in 2016 and $124.4 million in 2015 from the sales of marine investments as part of our decision to exit the majority of the marine assets at our Portfolio Management segment. In addition, Ahaus Alstätter Eisenbahn Cargo AG (“AAE”) repaid its outstanding loan from GATX in the amount of €67.5 million ($76.4 million) in 2015.
The following table shows portfolio proceeds for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Finance lease rents received, net of earned income
|
$
|
11.0
|
|
|
$
|
11.2
|
|
|
$
|
12.5
|
|
|
Loan principal received
|
1.2
|
|
|
82.7
|
|
|
14.9
|
|
|
Proceeds from sales of operating assets
|
201.8
|
|
|
357.8
|
|
|
202.1
|
|
|
Capital distributions and proceeds from sales related to affiliates
|
2.5
|
|
|
29.8
|
|
|
33.6
|
|
|
Proceeds from sales of securities
|
6.1
|
|
|
—
|
|
|
0.3
|
|
|
Other portfolio proceeds
|
1.1
|
|
|
0.7
|
|
|
0.6
|
|
|
|
$
|
223.7
|
|
|
$
|
482.2
|
|
|
$
|
264.0
|
|
Other Investing Activity
Rail North America acquired 3,328 railcars in
2016
, 5,004 railcars in
2015
, and 4,560 railcars in
2014
that were previously on operating leases. Proceeds from sales of other assets for all periods were primarily related to railcar scrapping. Rail North America completed sale-leaseback financing for 574 railcars in 2016.
Our restricted cash is a contractually required cash amount we maintain for
one
wholly owned special purpose limited liability company related to a secured debt line of credit. Prior to 2016, we had two other special purpose corporations, formed to finance railcars on a structured, nonrecourse basis. Both of these special purpose corporations were liquidated in 2016. Changes in restricted cash largely represent the net change in the cash requirements for the special purpose corporations based on their operating and financing activities.
The following table shows other investing activity for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Purchases of leased-in assets
|
$
|
(117.1
|
)
|
|
$
|
(118.4
|
)
|
|
$
|
(150.5
|
)
|
|
Proceeds from sales of other assets
|
23.0
|
|
|
18.7
|
|
|
26.9
|
|
|
Proceeds from sale-leasebacks
|
82.5
|
|
|
—
|
|
|
—
|
|
|
Net decrease (increase) in restricted cash
|
13.7
|
|
|
(2.9
|
)
|
|
5.8
|
|
|
Other
|
—
|
|
|
9.7
|
|
|
5.8
|
|
|
|
$
|
2.1
|
|
|
$
|
(92.9
|
)
|
|
$
|
(112.0
|
)
|
Net Cash (used in) provided by Financing Activities
The following table shows net cash (used in) provided by financing activities for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Net proceeds from issuances of debt (original maturities longer than 90 days)
|
$
|
859.4
|
|
|
$
|
748.8
|
|
|
$
|
1,223.0
|
|
|
Repayments of debt (original maturities longer than 90 days)
|
(800.0
|
)
|
|
(726.3
|
)
|
|
(819.8
|
)
|
|
Net increase (decrease) in debt with original maturities of 90 days or less
|
(3.6
|
)
|
|
(64.5
|
)
|
|
50.0
|
|
|
Payments on capital lease obligations
|
(3.6
|
)
|
|
(2.7
|
)
|
|
(2.6
|
)
|
|
Stock repurchases (1)
|
(120.1
|
)
|
|
(125.4
|
)
|
|
(124.6
|
)
|
|
Cash dividends
|
(67.4
|
)
|
|
(68.2
|
)
|
|
(62.0
|
)
|
|
Other
|
10.4
|
|
|
9.3
|
|
|
(1.8
|
)
|
|
|
$
|
(124.9
|
)
|
|
$
|
(229.0
|
)
|
|
$
|
262.2
|
|
________
|
|
|
|
(1)
|
During 2016, we repurchased
2.7 million
shares of common stock for
$120.0 million
, excluding commissions paid, under the repurchase program authorized in 2016. During 2015, we repurchased 2.4 million shares of common stock for $125.4 million, which completed our $250 million repurchase program authorized in 2014. In 2014, we repurchased 1.9 million shares of common stock for $124.6 million.
|
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 and commercial paper issuances to fund daily operations. We use both domestic and international capital markets and banks to meet our debt financing needs.
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
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
Total
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Recourse debt
|
$
|
4,286.2
|
|
|
$
|
302.6
|
|
|
$
|
515.7
|
|
|
$
|
550.0
|
|
|
$
|
350.0
|
|
|
$
|
557.8
|
|
|
$
|
2,010.1
|
|
|
Interest on recourse debt (1)
|
1,711.3
|
|
|
145.3
|
|
|
137.3
|
|
|
120.3
|
|
|
105.7
|
|
|
90.4
|
|
|
1,112.3
|
|
|
Commercial paper and credit facilities
|
3.8
|
|
|
3.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Capital lease obligations, including interest
|
16.1
|
|
|
3.0
|
|
|
1.4
|
|
|
11.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Recourse operating leases
|
599.3
|
|
|
77.3
|
|
|
74.5
|
|
|
77.8
|
|
|
72.4
|
|
|
59.9
|
|
|
237.4
|
|
|
Purchase commitments (2)
|
1,210.5
|
|
|
570.7
|
|
|
317.1
|
|
|
322.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
7,827.2
|
|
|
$
|
1,102.7
|
|
|
$
|
1,046.0
|
|
|
$
|
1,082.5
|
|
|
$
|
528.1
|
|
|
$
|
708.1
|
|
|
$
|
3,359.8
|
|
__________
|
|
|
|
(1)
|
For floating rate debt, future interest payments are based on the applicable interest rate as of December 31, 2016.
|
|
|
|
|
(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. The amount shown for 2017 includes $61.0
|
million related to options we exercised to purchase 2,261 railcars that are currently on lease and $24.0 million related to an option we exercised to purchase a vessel that is currently on lease.
In 2014, we entered into a long-term supply agreement with Trinity Rail Group, LLC ("Trinity"), a subsidiary of Trinity Industries that took effect in mid-2016. Under the terms of that agreement, we may order up to 8,950 newly built railcars over a four-year period from March, 2016 through March, 2020. We may order either tank or freight cars; however, we expect that the majority of the order will be for tank cars. Pursuant to the terms of the agreement, the parties conducted a review of the contract pricing in January 2017 as it no longer reflected market rates. Based on this review, the parties agreed to reduce contract pricing for future orders pursuant to the terms of the agreement.
The following table shows our contractual cash receipts arising from future lease payments from finance leases, future rental receipts from noncancelable operating leases, and future payments on loans as of
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Cash Receipts by Period
|
|
|
Total
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Finance leases
|
$
|
164.4
|
|
|
$
|
23.4
|
|
|
$
|
21.1
|
|
|
$
|
21.1
|
|
|
$
|
20.6
|
|
|
$
|
19.9
|
|
|
$
|
58.3
|
|
|
Operating leases
|
3,924.5
|
|
|
920.1
|
|
|
768.6
|
|
|
636.9
|
|
|
504.4
|
|
|
378.6
|
|
|
715.9
|
|
|
Loans
|
6.2
|
|
|
2.0
|
|
|
4.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
4,095.1
|
|
|
$
|
945.5
|
|
|
$
|
793.9
|
|
|
$
|
658.0
|
|
|
$
|
525.0
|
|
|
$
|
398.5
|
|
|
$
|
774.2
|
|
Our aggregate future contractual cash receipts at December 31, 2016 decreased $505.9 million compared to 2015, primarily as a result of lease receipts in 2016 and lower rates and shortened lease terms for new leases and renewals completed during 2016.
2017 Liquidity Outlook
We plan to meet our contractual obligations for 2017 using available cash at
December 31, 2016
in combination with cash we expect to receive in 2017 from operations, portfolio proceeds, long-term debt issuances, and our railcar and revolving credit facilities. Additionally, we anticipate that portfolio investments in 2017 will likely exceed contractual commitments as we expect to exercise options to purchase railcars that are currently on lease and opportunistically pursue other strategic investments. However, changes in the economic environment or capital markets could adversely impact our liquidity position, and we cannot provide assurance that our sources of cash will be adequate to fund our operations and contractual commitments.
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 using proceeds from a long-term debt issuance.
The following table shows additional information regarding our short-term borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America (1)
|
|
Europe (2)
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Balance as of December 31 (in millions)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69.0
|
|
|
$
|
3.8
|
|
|
$
|
7.4
|
|
|
$
|
3.1
|
|
|
Weighted average interest rate
|
—
|
%
|
|
—
|
%
|
|
0.6
|
%
|
|
1.0
|
%
|
|
0.9
|
%
|
|
1.5
|
%
|
|
Euro/Dollar exchange rate
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
1.05
|
|
|
1.09
|
|
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily amount outstanding during year (in millions)
|
$
|
0.5
|
|
|
$
|
5.7
|
|
|
$
|
41.9
|
|
|
$
|
13.2
|
|
|
$
|
5.5
|
|
|
$
|
17.4
|
|
|
Weighted average interest rate
|
0.7
|
%
|
|
0.5
|
%
|
|
0.3
|
%
|
|
0.6
|
%
|
|
1.1
|
%
|
|
1.1
|
%
|
|
Average Euro/Dollar exchange rate
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
1.11
|
|
|
1.11
|
|
|
1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily amount outstanding during 4
th
quarter (in millions)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19.4
|
|
|
$
|
5.9
|
|
|
$
|
5.2
|
|
|
$
|
8.4
|
|
|
Weighted average interest rate
|
—
|
%
|
|
—
|
%
|
|
0.4
|
%
|
|
0.8
|
%
|
|
1.1
|
%
|
|
1.1
|
%
|
|
Average Euro/Dollar exchange rate
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
1.08
|
|
|
1.10
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum daily amount outstanding (in millions)
|
$
|
20.0
|
|
|
$
|
69.0
|
|
|
$
|
162.0
|
|
|
$
|
31.2
|
|
|
$
|
75.5
|
|
|
$
|
49.8
|
|
|
Euro/Dollar exchange rate
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
1.11
|
|
|
1.06
|
|
|
1.36
|
|
__________
|
|
|
|
(1)
|
Short-term borrowings in North America are composed of commercial paper issued in the US.
|
|
|
|
|
(2)
|
Short-term borrowings in Europe are composed of borrowings under bank credit facilities.
|
Credit Lines and Facilities
In 2016, we entered into a new $600 million 5-year unsecured revolving credit facility in the US that matures in May 2021 with terms and conditions similar to the prior $575 million facility, which was terminated.
As of
December 31, 2016
,
the full $600 million was available under the facility.
Additionally, we completed a
$250 million
5-year secured railcar facility with a 3-year revolving period in the US that matures in February 2021. As of
December 31, 2016
, the full
$250 million
was available under this facility.
Restrictive Covenants
Our credit facility and certain other debt agreements contain various restrictive covenants. See "Note
7
.
Debt
" in Part II, Item 8 of this Form 10-K.
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 of December 31,
2016
, our long-term unsecured debt was rated BBB by Standard & Poor's and Baa2 by Moody’s Investor Service and our short-term unsecured debt was rated A-2 by Standard & Poor's and P-2 by Moody’s Investor Service. Our rating outlook from both agencies was stable.
Shelf Registration Statement
During 2016, we filed a 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, such as guarantees, standby letters of credit, and performance bonds, 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
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration by Period
|
|
|
Total
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Lease payment guarantees
|
$
|
15.0
|
|
|
$
|
10.1
|
|
|
$
|
2.8
|
|
|
$
|
2.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Standby letters of credit and performance bonds
|
8.9
|
|
|
8.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
23.9
|
|
|
$
|
19.0
|
|
|
$
|
2.8
|
|
|
$
|
2.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Lease payment guarantees are commitments to financial institutions to make lease payments for a third party in the event they default. We reduce any liability that may result from these guarantees by the value of the underlying asset or group of assets.
We are also 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.
Defined Benefit Plan Contributions
In
2016
, we contributed $5.0 million to our defined benefit pension plans and other post-retirement benefit plans. In 2017, we expect to contribute approximately
$5.7 million
. As of
December 31, 2016
, our funded pension plans were 97% funded in aggregate. 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.
Separately, the shipboard personnel at ASC participate in various multiemployer benefit plans that provide pension, health care, and post-retirement and other benefits to active and retired employees. We contributed
$7.1 million
to these plans in
2016
and recognized that amount as marine operating expense. We expect our 2017 contributions to approximate
2016
amounts, but our contributions will ultimately depend on the number of vessels deployed and crew hours worked during the year. See "Note
10
.
Pension and Other Post-Retirement Benefits
" in Part II, Item 8 of this Form 10-K for additional information on our benefit plans.
GATX Common and Preferred Stock Repurchases
On January 29, 2016, our board of directors authorized a $300 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 a Rule 10b5-1 plan. The share repurchase program does not have an expiration date, does not obligate the Company to repurchase any dollar amount or shares of common stock, and may be suspended or discontinued at any time. During 2016, we repurchased
2.7 million
shares for
$120.0 million
under this program.
As of December 31, 2016, $180.0 million remained available under the repurchase authorization.
In 2015, we repurchased 2.4 million shares for $125.4 million, which completed our prior $250 million repurchase authorization. In 2014, we repurchased 1.9 million shares for $124.6 million. The timing of share repurchases will be dependent on market conditions and other factors.
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 capital 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 thirty 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.
In addition, we review long-lived assets, such as operating assets and facilities, for impairment whenever circumstances indicate that the carrying amount of these assets may not be recoverable. We measure the recoverability of assets we expect to hold and use by comparing the carrying amount of an asset to its estimated future net cash flows. 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 record an impairment loss equal to the excess of the asset’s carrying amount over its estimated fair value. We base our estimates of fair value on discounted future cash flows, and supplement those estimates with independent appraisals and market comparables when available.
Lease Classification
We analyze all new and modified leases to determine whether we should classify the lease as an operating or capital lease. Our lease classification analysis relies on certain assumptions that require significant 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 would change the way the lease transaction impacts our financial position and results of operations. See "Note
5
.
Leases
" 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 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 investment's 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
6
.
Investments in Affiliated Companies
" and "Note
9
.
Asset Impairments and Assets Held for Sale
" in Part II, Item 8 of this Form 10-K.
Impairment of Goodwill
We review the carrying amount of our goodwill annually or in interim periods 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 is a two-step process and requires us to make certain judgments to determine the assumptions we use in the calculation. The first step requires us to estimate the fair value of each reporting unit, which we determine using a discounted cash flow model. We base our estimates of the future cash flows on revenue and expense forecasts and include assumptions for future growth. When estimating the fair value of the reporting unit, we also consider observable multiples of book value and earnings for companies that we believe are comparable to the applicable reporting units. We then compare our estimate of the fair value of the reporting unit with the reporting unit’s
carrying amount, which includes goodwill. If the estimated fair value is less than the carrying amount, we compare the implied fair value of the reporting unit’s goodwill with the carrying amount of the goodwill. If the carrying amount of the goodwill exceeds its implied fair value, we record an impairment loss for the amount the carrying amount of the goodwill exceeds its implied fair value. See "Note
16
.
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 critical 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 the 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 critical 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
10
.
Pension and Other Post-Retirement Benefits
" in Part II, Item 8 of this Form 10-K for additional information regarding these assumptions.
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 these awards on a pro-rata basis over the applicable vesting period 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, some of which are highly subjective, 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 appreciation rights are dividend participating. We base the fair value of other equity awards on our stock price on the grant date. See "Note
11
.
Share-Based Compensation
" in Part II, Item 8 of this Form 10-K.
Income Taxes
Our operations are subject to taxes in the US, various states, and foreign countries, and as 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 estimate, 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 we will realize deferred tax assets, including net operating loss and tax credit carryforward benefits, in the future. Our assessment of whether a valuation allowance is required involves judgment, including forecasting future taxable income and evaluating tax planning initiatives, if applicable.
Our tax provision does not include taxes on undistributed earnings of foreign subsidiaries as we intend to permanently reinvest such earnings in those foreign operations. If, in the future, these earnings are repatriated to the US, or if we expect such earnings to be repatriated, a provision for additional taxes may be required. See "Note
12
.
Income Taxes
" in Part II, Item 8 of this Form 10-K for additional information on income taxes.
NEW ACCOUNTING PRONOUNCEMENTS
See "Note
2
.
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 the SEC. 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
Balance Sheet Measures
We include total on- and off-balance sheet assets because a portion of our North American railcar fleet has been financed through sale-leasebacks that are accounted for as operating leases and are not recorded on the balance sheet. Similarly, ASC utilizes vessels that are accounted for as operating leases and are not recorded on the balance sheet. We include these leased-in assets in our calculation of total assets (as adjusted) because we believe it gives investors a more comprehensive representation of the magnitude of the assets we operate and that drive our financial performance. In addition, this calculation of total assets (as adjusted) provides consistency with other non-financial information we disclose about our fleet, including the number of railcars in the fleet, average number of cars on lease, and utilization. We also provide 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 is the equivalent of the off-balance sheet asset amount. We believe reporting this corresponding off-balance sheet debt amount provides investors and other users of our financial statements with a more comprehensive representation of our debt obligations, leverage, and capital structure.
The following table shows total balance sheet assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
Total assets (GAAP)
|
$
|
7,105.4
|
|
|
$
|
6,894.2
|
|
|
$
|
6,919.9
|
|
|
$
|
6,535.5
|
|
|
$
|
6,044.7
|
|
|
Off-balance sheet assets:
|
|
|
|
|
|
|
|
|
|
|
Rail North America
|
456.5
|
|
|
488.7
|
|
|
606.1
|
|
|
887.9
|
|
|
863.5
|
|
|
ASC
|
2.6
|
|
|
6.8
|
|
|
11.7
|
|
|
16.5
|
|
|
21.0
|
|
|
Total off-balance sheet assets
|
$
|
459.1
|
|
|
$
|
495.5
|
|
|
$
|
617.8
|
|
|
$
|
904.4
|
|
|
$
|
884.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, as adjusted (non-GAAP)
|
$
|
7,564.5
|
|
|
$
|
7,389.7
|
|
|
$
|
7,537.7
|
|
|
$
|
7,439.9
|
|
|
$
|
6,929.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
$
|
1,347.2
|
|
|
$
|
1,280.2
|
|
|
$
|
1,314.0
|
|
|
$
|
1,397.0
|
|
|
$
|
1,244.2
|
|
The following table shows the components of recourse leverage (in millions, except recourse leverage ratio):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
Debt, net of unrestricted cash:
|
|
|
|
|
|
|
|
|
|
|
Unrestricted cash
|
$
|
(307.5
|
)
|
|
$
|
(202.4
|
)
|
|
$
|
(209.9
|
)
|
|
$
|
(379.7
|
)
|
|
$
|
(234.2
|
)
|
|
Commercial paper and bank credit facilities
|
3.8
|
|
|
7.4
|
|
|
72.1
|
|
|
23.6
|
|
|
273.6
|
|
|
Recourse debt
|
4,253.2
|
|
|
4,171.5
|
|
|
4,162.3
|
|
|
3,751.8
|
|
|
3,141.7
|
|
|
Nonrecourse debt
|
—
|
|
|
6.9
|
|
|
15.9
|
|
|
72.6
|
|
|
130.6
|
|
|
Capital lease obligations
|
14.9
|
|
|
18.4
|
|
|
6.3
|
|
|
8.9
|
|
|
11.3
|
|
|
Total debt, net of unrestricted cash (GAAP)
|
3,964.4
|
|
|
4,001.8
|
|
|
4,046.7
|
|
|
3,477.2
|
|
|
3,323.0
|
|
|
Off-balance sheet recourse debt
|
459.1
|
|
|
495.5
|
|
|
566.7
|
|
|
727.6
|
|
|
730.1
|
|
|
Off-balance sheet nonrecourse debt
|
—
|
|
|
—
|
|
|
51.1
|
|
|
176.8
|
|
|
154.4
|
|
|
Total debt, net of unrestricted cash, as adjusted (non-GAAP)
|
$
|
4,423.5
|
|
|
$
|
4,497.3
|
|
|
$
|
4,664.5
|
|
|
$
|
4,381.6
|
|
|
$
|
4,207.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recourse debt (1)
|
$
|
4,423.5
|
|
|
$
|
4,490.4
|
|
|
$
|
4,597.5
|
|
|
$
|
4,132.2
|
|
|
$
|
3,922.5
|
|
|
Shareholders' Equity
|
$
|
1,347.2
|
|
|
$
|
1,280.2
|
|
|
$
|
1,314.0
|
|
|
$
|
1,397.0
|
|
|
$
|
1,244.2
|
|
|
Recourse Leverage (2)
|
3.3
|
|
|
3.5
|
|
|
3.5
|
|
|
3.0
|
|
|
3.2
|
|
________
|
|
|
|
(1)
|
Includes on- and off-balance sheet recourse debt, capital lease obligations, and commercial paper and bank credit facilities, net of restricted cash.
|
|
|
|
|
(2)
|
Calculated as total recourse debt / shareholder's equity.
|
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 this information 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.
The following tables show our net income, diluted earnings per share, and return on equity, excluding tax adjustments and other items (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Tax Adjustments and Other Items on Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
Net income (GAAP)
|
$
|
257.1
|
|
|
$
|
205.3
|
|
|
$
|
205.0
|
|
|
$
|
169.3
|
|
|
$
|
137.3
|
|
|
Adjustments attributable to consolidated income, pretax:
|
|
|
|
|
|
|
|
|
|
|
Railcar impairment at Rail North America (1)
|
29.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net loss on wholly owned Portfolio Management marine investments (2)
|
2.5
|
|
|
9.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residual sharing settlement at Portfolio Management (3)
|
(49.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Early retirement program (4)
|
—
|
|
|
9.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total adjustments attributable to consolidated income, pretax
|
$
|
(16.8
|
)
|
|
$
|
18.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Income taxes thereon, based on applicable effective tax rate
|
$
|
7.2
|
|
|
$
|
(6.9
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other income tax adjustments attributable to consolidated income:
|
|
|
|
|
|
|
|
|
|
|
Income tax rate changes (5)
|
—
|
|
|
14.1
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
GATX income taxes on sale of AAE (6)
|
—
|
|
|
—
|
|
|
—
|
|
|
23.2
|
|
|
—
|
|
|
Foreign tax credit utilization (7)
|
(7.1
|
)
|
|
—
|
|
|
—
|
|
|
(3.9
|
)
|
|
(4.6
|
)
|
|
Tax benefits upon close of tax audits
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15.5
|
)
|
|
Total other income tax adjustments attributable to consolidated income
|
$
|
(7.1
|
)
|
|
$
|
14.1
|
|
|
$
|
—
|
|
|
$
|
19.3
|
|
|
$
|
(19.4
|
)
|
|
Adjustments attributable to affiliates' earnings, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss on Portfolio Management affiliate (2)
|
(0.6
|
)
|
|
11.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income tax rate changes (8)
|
(3.9
|
)
|
|
(7.7
|
)
|
|
—
|
|
|
(7.6
|
)
|
|
(4.6
|
)
|
|
Pretax gain on sale of AAE (6)
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.3
|
)
|
|
—
|
|
|
Interest rate swaps at AAE (9)
|
—
|
|
|
—
|
|
|
—
|
|
|
(6.9
|
)
|
|
20.5
|
|
|
Total adjustments attributable to affiliates' earnings, net of taxes
|
$
|
(4.5
|
)
|
|
$
|
4.2
|
|
|
$
|
—
|
|
|
$
|
(23.8
|
)
|
|
$
|
15.9
|
|
|
Net income, excluding tax adjustments and other items (non-GAAP)
|
$
|
235.9
|
|
|
$
|
234.9
|
|
|
$
|
205.0
|
|
|
$
|
164.8
|
|
|
$
|
133.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Tax Adjustments and Other Items on Diluted Earnings per Share:
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
Diluted earnings per share (GAAP)
|
$
|
6.29
|
|
|
$
|
4.69
|
|
|
$
|
4.48
|
|
|
$
|
3.59
|
|
|
$
|
2.88
|
|
|
Adjustments attributable to consolidated income, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
Railcar impairment at Rail North America (1)
|
0.47
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net loss on wholly owned Portfolio Management marine investments (2)
|
0.04
|
|
|
0.13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residual sharing settlement at Portfolio Management (3)
|
(0.74
|
)
|
|
|
|
|
|
|
|
|
|
Early retirement program (4)
|
—
|
|
|
0.13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income tax rate changes (5)
|
—
|
|
|
0.32
|
|
|
—
|
|
|
—
|
|
|
0.01
|
|
|
GATX income taxes on sale of AAE (6)
|
—
|
|
|
—
|
|
|
—
|
|
|
0.50
|
|
|
—
|
|
|
Foreign tax credit utilization (7)
|
(0.17
|
)
|
|
—
|
|
|
—
|
|
|
(0.08
|
)
|
|
(0.09
|
)
|
|
Tax benefits upon close of tax audits
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.33
|
)
|
|
Adjustments attributable to affiliates' earnings, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss on Portfolio Management marine affiliate (2)
|
(0.02
|
)
|
|
0.27
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income tax rate changes (8)
|
(0.10
|
)
|
|
(0.18
|
)
|
|
—
|
|
|
(0.16
|
)
|
|
(0.09
|
)
|
|
Pretax gain on sale of AAE (6)
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.20
|
)
|
|
—
|
|
|
Interest rate swaps at AAE (9)
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.15
|
)
|
|
0.43
|
|
|
Diluted earnings per share, excluding tax adjustments and other items (non-GAAP)*
|
$
|
5.77
|
|
|
$
|
5.37
|
|
|
$
|
4.48
|
|
|
$
|
3.50
|
|
|
$
|
2.81
|
|
* Sum of individual components may not be additive, due to rounding.
_______
|
|
|
|
(1)
|
In 2016, we recorded impairment losses related specifically to certain railcars in flammable service that we believe have been permanently and negatively impacted by regulatory changes.
|
|
|
|
|
(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 losses and gains associated with the impairments and sales of certain investments.
|
|
|
|
|
(3)
|
Proceeds were recorded as a result of the settlement of a residual sharing agreement related to a residual guarantee we provided on certain rail assets.
|
|
|
|
|
(4)
|
Expenses associated with an early retirement program offered to certain eligible employees.
|
|
|
|
|
(5)
|
Deferred income tax adjustments attributable to an increase of our effective state income tax rate in 2015 and a deferred income tax adjustment due to an enacted statutory rate increase in Ontario in 2012.
|
|
|
|
|
(6)
|
Aggregate after-tax impact of the AAE sale, including the $3.9 million foreign credit carryforward, was a net loss of $10.0 million.
|
|
|
|
|
(7)
|
Benefits attributable to the utilization of foreign tax credit carryforwards.
|
|
|
|
|
(8)
|
Deferred income tax adjustments due to enacted statutory rate decreases in the United Kingdom for each of 2016, 2015, 2013, and 2012.
|
|
|
|
|
(9)
|
Realized and/or unrealized gains/losses on AAE interest rate swaps.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
Return on Equity (GAAP)
|
19.6
|
%
|
|
15.8
|
%
|
|
15.1
|
%
|
|
12.8
|
%
|
|
11.6
|
%
|
|
Return on Equity, excluding tax adjustments and other items (non-GAAP)
|
18.0
|
%
|
|
18.1
|
%
|
|
15.1
|
%
|
|
12.5
|
%
|
|
11.3
|
%
|
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm on Financial Statements
The Board of Directors and Shareholders of GATX Corporation and subsidiaries
We have audited the accompanying consolidated balance sheets of GATX Corporation and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GATX Corporation and subsidiaries at December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), GATX Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2017, expressed an unqualified opinion thereon.
|
|
|
|
|
Chicago, Illinois
|
|
February 22, 2017
|
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2016
|
|
2015
|
|
Assets
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
307.5
|
|
|
$
|
202.4
|
|
|
Restricted Cash
|
3.6
|
|
|
17.3
|
|
|
Receivables
|
|
|
|
|
Rent and other receivables
|
85.9
|
|
|
69.4
|
|
|
Finance leases
|
147.7
|
|
|
167.6
|
|
|
Less: allowance for losses
|
(6.1
|
)
|
|
(10.3
|
)
|
|
|
227.5
|
|
|
226.7
|
|
|
|
|
|
|
|
Operating Assets and Facilities
|
8,446.4
|
|
|
8,204.0
|
|
|
Less: allowance for depreciation
|
(2,641.7
|
)
|
|
(2,505.6
|
)
|
|
|
5,804.7
|
|
|
5,698.4
|
|
|
Investments in Affiliated Companies
|
387.0
|
|
|
348.5
|
|
|
Goodwill
|
78.0
|
|
|
79.7
|
|
|
Other Assets
|
297.1
|
|
|
321.2
|
|
|
Total Assets
|
$
|
7,105.4
|
|
|
$
|
6,894.2
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
Accounts Payable and Accrued Expenses
|
$
|
174.8
|
|
|
$
|
170.9
|
|
|
Debt
|
|
|
|
|
Commercial paper and borrowings under bank credit facilities
|
3.8
|
|
|
7.4
|
|
|
Recourse
|
4,253.2
|
|
|
4,171.5
|
|
|
Nonrecourse
|
—
|
|
|
6.9
|
|
|
Capital lease obligations
|
14.9
|
|
|
18.4
|
|
|
|
4,271.9
|
|
|
4,204.2
|
|
|
Deferred Income Taxes
|
1,089.4
|
|
|
1,018.3
|
|
|
Other Liabilities
|
222.1
|
|
|
220.6
|
|
|
Total Liabilities
|
5,758.2
|
|
|
5,614.0
|
|
|
Shareholders’ Equity
|
|
|
|
|
Common stock, $0.625 par value:
Authorized shares — 120,000,000
Issued shares — 66,953,606 and 66,776,290
Outstanding shares — 39,442,893 and 41,970,098
|
41.5
|
|
|
41.5
|
|
|
Additional paid in capital
|
687.8
|
|
|
677.4
|
|
|
Retained earnings
|
1,828.0
|
|
|
1,639.0
|
|
|
Accumulated other comprehensive loss
|
(211.1
|
)
|
|
(198.8
|
)
|
|
Treasury stock at cost (27,510,713 and 24,806,192 shares)
|
(999.0
|
)
|
|
(878.9
|
)
|
|
Total Shareholders’ Equity
|
1,347.2
|
|
|
1,280.2
|
|
|
Total Liabilities and Shareholders’ Equity
|
$
|
7,105.4
|
|
|
$
|
6,894.2
|
|
See accompanying notes to consolidated financial statements.
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
Revenues
|
|
|
|
|
|
|
Lease revenue
|
$
|
1,127.1
|
|
|
$
|
1,130.1
|
|
|
$
|
1,086.6
|
|
|
Marine operating revenue
|
199.3
|
|
|
235.0
|
|
|
286.3
|
|
|
Other revenue
|
91.9
|
|
|
84.8
|
|
|
78.1
|
|
|
Total Revenues
|
1,418.3
|
|
|
1,449.9
|
|
|
1,451.0
|
|
|
Expenses
|
|
|
|
|
|
|
Maintenance expense
|
332.3
|
|
|
326.1
|
|
|
337.0
|
|
|
Marine operating expense
|
129.5
|
|
|
155.9
|
|
|
197.8
|
|
|
Depreciation expense
|
297.2
|
|
|
290.5
|
|
|
273.5
|
|
|
Operating lease expense
|
73.5
|
|
|
87.2
|
|
|
108.7
|
|
|
Other operating expense
|
43.8
|
|
|
38.4
|
|
|
28.9
|
|
|
Selling, general and administrative expense
|
174.7
|
|
|
192.4
|
|
|
189.2
|
|
|
Total Expenses
|
1,051.0
|
|
|
1,090.5
|
|
|
1,135.1
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
Net gain on asset dispositions
|
98.0
|
|
|
79.2
|
|
|
87.2
|
|
|
Interest expense, net
|
(148.1
|
)
|
|
(155.1
|
)
|
|
(158.4
|
)
|
|
Other expense
|
(11.8
|
)
|
|
(13.2
|
)
|
|
(13.5
|
)
|
|
Income before Income Taxes and Share of Affiliates’ Earnings
|
305.4
|
|
|
270.3
|
|
|
231.2
|
|
|
Income Taxes
|
(95.7
|
)
|
|
(110.9
|
)
|
|
(75.7
|
)
|
|
Share of Affiliates’ Earnings, Net of Taxes
|
47.4
|
|
|
45.9
|
|
|
49.5
|
|
|
Net Income
|
$
|
257.1
|
|
|
$
|
205.3
|
|
|
$
|
205.0
|
|
|
Other Comprehensive Income, Net of Taxes
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(26.0
|
)
|
|
(55.8
|
)
|
|
(79.1
|
)
|
|
Unrealized gain (loss) on securities
|
0.3
|
|
|
(0.6
|
)
|
|
(0.1
|
)
|
|
Unrealized gain (loss) on derivative instruments
|
0.6
|
|
|
(1.8
|
)
|
|
3.0
|
|
|
Post-retirement benefit plans
|
12.8
|
|
|
7.8
|
|
|
(29.5
|
)
|
|
Other comprehensive loss
|
(12.3
|
)
|
|
(50.4
|
)
|
|
(105.7
|
)
|
|
Comprehensive Income
|
$
|
244.8
|
|
|
$
|
154.9
|
|
|
$
|
99.3
|
|
|
|
|
|
|
|
|
|
Share Data
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
6.35
|
|
|
$
|
4.76
|
|
|
$
|
4.55
|
|
|
Average number of common shares
|
40.5
|
|
|
43.1
|
|
|
45.0
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
6.29
|
|
|
$
|
4.69
|
|
|
$
|
4.48
|
|
|
Average number of common shares and common share equivalents
|
40.9
|
|
|
43.8
|
|
|
45.8
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
$
|
1.60
|
|
|
$
|
1.52
|
|
|
$
|
1.32
|
|
See accompanying notes to consolidated financial statements.
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
Operating Activities
|
|
|
|
|
|
|
Net income
|
$
|
257.1
|
|
|
$
|
205.3
|
|
|
$
|
205.0
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation expense
|
310.2
|
|
|
303.3
|
|
|
287.0
|
|
|
Change in accrued operating lease expense
|
3.0
|
|
|
(24.2
|
)
|
|
(5.2
|
)
|
|
Net gains on sales of assets
|
(52.9
|
)
|
|
(99.7
|
)
|
|
(79.3
|
)
|
|
Asset impairments
|
38.5
|
|
|
33.9
|
|
|
1.3
|
|
|
Employee benefit plans
|
7.1
|
|
|
10.6
|
|
|
3.7
|
|
|
Share-based compensation
|
15.8
|
|
|
11.6
|
|
|
14.0
|
|
|
Deferred income taxes
|
72.8
|
|
|
90.2
|
|
|
61.4
|
|
|
Change in income taxes payable
|
(5.7
|
)
|
|
7.4
|
|
|
(4.4
|
)
|
|
Share of affiliates’ earnings, net of dividends
|
(12.2
|
)
|
|
(13.7
|
)
|
|
(9.5
|
)
|
|
Other
|
(7.6
|
)
|
|
9.6
|
|
|
(24.8
|
)
|
|
Net cash provided by operating activities
|
626.1
|
|
|
534.3
|
|
|
449.2
|
|
|
Investing Activities
|
|
|
|
|
|
|
Additions to operating assets and facilities
|
(595.7
|
)
|
|
(681.4
|
)
|
|
(1,015.2
|
)
|
|
Investments in affiliates
|
(25.0
|
)
|
|
(15.5
|
)
|
|
(15.3
|
)
|
|
Portfolio investments and capital additions
|
(620.7
|
)
|
|
(696.9
|
)
|
|
(1,030.5
|
)
|
|
Purchases of leased-in assets
|
(117.1
|
)
|
|
(118.4
|
)
|
|
(150.5
|
)
|
|
Portfolio proceeds
|
223.7
|
|
|
482.2
|
|
|
264.0
|
|
|
Proceeds from sales of other assets
|
23.0
|
|
|
18.7
|
|
|
26.9
|
|
|
Proceeds from sale-leasebacks
|
82.5
|
|
|
—
|
|
|
—
|
|
|
Net decrease (increase) in restricted cash
|
13.7
|
|
|
(2.9
|
)
|
|
5.8
|
|
|
Other
|
—
|
|
|
9.7
|
|
|
5.8
|
|
|
Net cash used in investing activities
|
(394.9
|
)
|
|
(307.6
|
)
|
|
(878.5
|
)
|
|
Financing Activities
|
|
|
|
|
|
|
Net proceeds from issuances of debt (original maturities longer than 90 days)
|
859.4
|
|
|
748.8
|
|
|
1,223.0
|
|
|
Repayments of debt (original maturities longer than 90 days)
|
(800.0
|
)
|
|
(726.3
|
)
|
|
(819.8
|
)
|
|
Net (decrease) increase in debt with original maturities of 90 days or less
|
(3.6
|
)
|
|
(64.5
|
)
|
|
50.0
|
|
|
Payments on capital lease obligations
|
(3.6
|
)
|
|
(2.7
|
)
|
|
(2.6
|
)
|
|
Stock repurchases
|
(120.1
|
)
|
|
(125.4
|
)
|
|
(124.6
|
)
|
|
Dividends
|
(67.4
|
)
|
|
(68.2
|
)
|
|
(62.0
|
)
|
|
Other
|
10.4
|
|
|
9.3
|
|
|
(1.8
|
)
|
|
Net cash (used in) provided by financing activities
|
(124.9
|
)
|
|
(229.0
|
)
|
|
262.2
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
(1.2
|
)
|
|
(5.2
|
)
|
|
(2.7
|
)
|
|
Net increase (decrease) in Cash and Cash Equivalents during the year
|
105.1
|
|
|
(7.5
|
)
|
|
(169.8
|
)
|
|
Cash and Cash Equivalents at beginning of year
|
202.4
|
|
|
209.9
|
|
|
379.7
|
|
|
Cash and Cash Equivalents at end of year
|
$
|
307.5
|
|
|
$
|
202.4
|
|
|
$
|
209.9
|
|
See accompanying notes to consolidated financial statements.
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
2014
|
|
2014
|
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
Dollars
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
66.8
|
|
|
$
|
41.5
|
|
|
66.6
|
|
|
$
|
41.4
|
|
|
66.3
|
|
|
$
|
41.3
|
|
|
Issuance of common stock
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
0.1
|
|
|
0.3
|
|
|
0.1
|
|
|
Balance at end of year
|
67.0
|
|
|
41.5
|
|
|
66.8
|
|
|
41.5
|
|
|
66.6
|
|
|
41.4
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
(24.8
|
)
|
|
(878.9
|
)
|
|
(22.4
|
)
|
|
(753.5
|
)
|
|
(20.5
|
)
|
|
(628.9
|
)
|
|
Stock repurchases
|
(2.7
|
)
|
|
(120.1
|
)
|
|
(2.4
|
)
|
|
(125.4
|
)
|
|
(1.9
|
)
|
|
(124.6
|
)
|
|
Balance at end of year
|
(27.5
|
)
|
|
(999.0
|
)
|
|
(24.8
|
)
|
|
(878.9
|
)
|
|
(22.4
|
)
|
|
(753.5
|
)
|
|
Additional Paid In Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
677.4
|
|
|
|
|
672.8
|
|
|
|
|
668.9
|
|
|
Share-based compensation effects
|
|
|
10.4
|
|
|
|
|
4.6
|
|
|
|
|
3.9
|
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Balance at end of year
|
|
|
687.8
|
|
|
|
|
677.4
|
|
|
|
|
672.8
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
1,639.0
|
|
|
|
|
1,501.7
|
|
|
|
|
1,358.4
|
|
|
Net income
|
|
|
257.1
|
|
|
|
|
205.3
|
|
|
|
|
205.0
|
|
|
Dividends declared
|
|
|
(68.1
|
)
|
|
|
|
(68.0
|
)
|
|
|
|
(61.7
|
)
|
|
Balance at end of year
|
|
|
1,828.0
|
|
|
|
|
1,639.0
|
|
|
|
|
1,501.7
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(198.8
|
)
|
|
|
|
(148.4
|
)
|
|
|
|
(42.7
|
)
|
|
Other comprehensive loss
|
|
|
(12.3
|
)
|
|
|
|
(50.4
|
)
|
|
|
|
(105.7
|
)
|
|
Balance at end of year
|
|
|
(211.1
|
)
|
|
|
|
(198.8
|
)
|
|
|
|
(148.4
|
)
|
|
Total Shareholders’ Equity
|
|
|
$
|
1,347.2
|
|
|
|
|
$
|
1,280.2
|
|
|
|
|
$
|
1,314.0
|
|
See accompanying notes to consolidated financial statements.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Description of Business
As used herein, "GATX," "we," "us," "our," and similar terms refer to GATX Corporation and its subsidiaries, unless indicated otherwise.
We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail market. We report our financial results through
four
primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”), and Portfolio Management.
NOTE
2
.
Accounting Changes
Change in Accounting Estimate
At the end of 2015, we changed the approach used to measure service and interest costs for pension and other postretirement benefits. In prior years, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016, we measured service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe this approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have applied it on a prospective basis. Our adoption of the full yield curve approach reduced 2016 service and interest cost by approximately
$4.5 million
(
$2.8 million
after-tax) as compared to the previous method.
New Accounting Pronouncements Adopted
Consolidation
In February 2015, the FASB issued ASU 2015-02,
Consolidation (Topic 810) Amendments to the Consolidation Analysis,
which amends the analysis required to determine whether to consolidate certain types of legal entities such as limited partnerships, limited liability corporations, and certain securitization structures. The new guidance was effective for us beginning in the first quarter of 2016. Application of the new guidance did not impact our financial statements or related disclosures.
Fair Value Measurement
In May 2015,
the FASB issued ASU 2015-07,
Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (ASU 2015-07).
ASU 2015-07 eliminates the requirement to categorize within the fair value hierarchy investments for which the fair values are estimated using the net asset value practical expedient. In addition, the requirement to make specific disclosures for all investments eligible to be assessed at fair value with the net asset value per share practical expedient has been removed. Instead, such disclosures are restricted only to investments that the entity has decided to measure using the practical expedient. The new guidance was effective for us beginning in the first quarter of 2016. However, none of our consolidated investments were valued using this method, although certain investments held within our funded pension plans are subject to this change. The amendment impacts the disclosure in our notes to the financial statements but does not have an effect on our financial statements.
Business Combinations
In September 2015, the FASB issued ASU 2015-16,
Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments,
which requires the acquirer in a business combination to recognize measurement-period adjustments in the period in which it determines the amount of the adjustment. The new guidance was effective for us in the first quarter of 2016. Application of the new guidance did not impact our financial statements and related disclosures.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
New Accounting Pronouncements Not Yet Adopted
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which supersedes most current revenue recognition guidance, including industry-specific guidance. Subsequently, the FASB has issued updates which provide additional implementation guidance. The new guidance requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The FASB delayed the effective date of this guidance to the first quarter of 2018, with early adoption permitted as of the original effective date of the first quarter of 2017. We plan to adopt this guidance as of January 1, 2018 using the modified retrospective approach. Our primary source of revenue is lease revenue, which will continue to be within the scope of existing lease accounting guidance upon adoption of Topic 606. With respect to our other revenue elements, marine operating revenue is our biggest component. The new standard may modify the recognition timing of certain in-transit cargo revenue, but we do not expect such changes to have a material impact on our financial statements.
Leases
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which supersedes most current lease guidance. The new guidance requires companies to recognize most leases on the balance sheet and modifies accounting, presentation, and disclosure for both lessors and lessees. The new guidance is effective for us in the first quarter of 2019 with early adoption permitted, using a modified retrospective transition method. We plan to adopt this guidance on January 1, 2019. We are evaluating the effect that the new guidance will have on our consolidated financial statements and related disclosures.
Financial Instruments
In January 2016, the FASB issued ASU 2016-01
, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,
which modifies the accounting and reporting requirements for certain equity securities and financial liabilities. The new guidance is effective for us beginning in the first quarter of 2018 with certain provisions eligible for early adoption. We do not expect the new guidance to have a significant impact on our financial statements or related disclosures.
Equity Method and Joint Ventures
In March 2016, the FASB issued ASU 2016-07,
Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
, which eliminates the requirement to retrospectively apply equity method accounting when an entity increases ownership or influence in a previously held investment. The new guidance is effective for us in the first quarter of 2017 with early adoption permitted. We do not expect the new guidance to impact our financial statements or related disclosures.
Stock Compensation
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,
which simplifies and clarifies certain aspects of share-based payment accounting and presentation. The new guidance is effective for us in the first quarter of 2017 with early adoption permitted. We do not expect the guidance to have a significant impact on our financial statements or related disclosures.
Credit Losses
In June 2016, the FASB issued ASU 2016-13,
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
which modifies how entities will measure credit losses. The new guidance is effective for us in the first quarter of 2020 with early adoption permitted. We are evaluating the effect that the new guidance will have on our financial statements and related disclosures.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
which clarifies the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is effective for us in the first quarter of 2018 with early adoption permitted. We do not expect the new guidance to have a significant impact on our financial statements or related disclosures.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force),
which clarifies the classification and presentation of changes in restricted cash on the statement of cash flows. The new guidance is effective for us in the first quarter of 2018 with early adoption permitted. We do not expect the new guidance to have a significant impact on our financial statements or related disclosures.
Income Taxes
In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,
which modifies how an entity will recognize the income tax consequences of an intra-entity transfer of an asset when the transfer occurs. The new guidance is effective for us in the first quarter of 2018 with early adoption permitted. We are evaluating the effect that the new guidance will have on our financial statements and related disclosures.
NOTE
3
. Significant Accounting Policies
Basis of Presentation
We prepared the accompanying consolidated financial statements in accordance with US generally accepted accounting principles ("GAAP"). Certain prior year amounts have been reclassified to conform to the 2016 presentation.
Use of Estimates
Preparing financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts we report. We regularly evaluate our estimates and judgments based on historical experience and other relevant facts and circumstances. Actual amounts could differ from our estimates.
Consolidation
Our consolidated financial statements include our assets, liabilities, revenues, and expenses, as well as the assets, liabilities, revenues, and expenses of subsidiaries in which we had a controlling financial interest. We have eliminated intercompany transactions and balances.
Investments in Affiliates
We use the equity method to account for investments in joint ventures and other unconsolidated entities if we have the ability to exercise significant influence over the financial and operating policies of those investees. Under the equity method, we record our initial investments in these entities at cost and subsequently adjust the investment for our share of the affiliates’ undistributed earnings (losses), and distributions. We include loans to and from affiliates as part of our investment in the affiliate and include interest on any such loans in our share of the affiliates’ earnings. We review the carrying amount of our investments in affiliates annually, or whenever circumstances indicate that the value of these investments may have declined. If we determine an investment is impaired on an other-than-temporary basis, we record a loss equal to the difference between the fair value of the investment and its carrying value. See "Note
6
.
Investments in Affiliated Companies
."
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Variable Interest Entities
We evaluate whether an entity is a variable interest entity based on the sufficiency of the entity’s equity and by determining whether the equity holders have the characteristics of a controlling financial interest. To determine if we are the primary beneficiary of a variable interest entity, we assess whether we have the power to direct the activities that most significantly impact the economic performance of the entity as well as the obligation to absorb losses or the right to receive benefits that may be significant to the entity. These determinations are both qualitative and quantitative, and they require us to make judgments and assumptions about the entity’s forecasted financial performance and the volatility inherent in those forecasted results. We evaluate new investments for variable interest entity determination and regularly review all existing entities for events that may result in an entity becoming a variable interest entity or us becoming the primary beneficiary of an existing variable interest entity.
Fair Value Measurements
Fair value is the price that a market participant would receive to sell an asset or pay to transfer a liability in an orderly transaction at the measurement date. We classify fair value measurements according to the three-level hierarchy defined by GAAP, and those classifications are based on our judgment about the reliability of the inputs we use in the fair value measurement. Level 1 inputs are quoted prices available in active markets for identical assets or liabilities. Level 2 inputs are observable, either directly or indirectly, and may include quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. For assets or liabilities with a specified contractual term, Level 2 inputs must be observable for substantially the full term of that asset or liability. Level 3 inputs are unobservable, meaning they are supported by little or no market activity. Fair value measurements classified as Level 3 typically rely on pricing models and discounted cash flow methodologies, both of which require significant judgment. See "Note
8
.
Fair Value Disclosure
."
Cash and Cash Equivalents
We classify all highly liquid investments with a maturity of three months or less when purchased as cash equivalents.
Restricted Cash
Restricted cash is cash and cash equivalents that are restricted as to withdrawal and use. Our restricted cash primarily relates to contractually required cash amounts we maintain for
one
wholly owned special purpose limited liability company.
Operating Assets and Facilities
We state operating assets, facilities, and capitalized improvements at cost. We include assets we acquire under capital leases in operating assets, and we record the related obligations as liabilities. We depreciate operating assets and facilities over their estimated useful lives or lease terms to estimated residual values using the straight-line method. We depreciate leasehold improvements over the shorter of their useful lives or the lease term. Our estimated depreciable lives of operating assets and facilities are as follows:
|
|
|
|
|
|
Railcars
|
20–45 years
|
|
Locomotives
|
10–20 years
|
|
Buildings
|
40–50 years
|
|
Leasehold improvements
|
5–15 years
|
|
Marine vessels
|
30–65 years
|
|
Other equipment
|
5–30 years
|
We review long-lived assets for impairment 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. If we determine an asset is impaired, we recognize an impairment loss equal to the amount 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
9
.
Asset Impairments and Assets Held for Sale
"
for further information about asset impairment losses and assets held for sale.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lease Classification
We determine the classification of a lease at its inception. If the provisions of the lease subsequently change, other than by renewal or extension, we evaluate whether that change would have resulted in a different lease classification had the change been in effect at inception. If so, the revised agreement is considered a new lease for lease classification purposes. See "Note
5
.
Leases
."
Operating Leases
We offer full-service and net operating leases. We price full-service leases as an integrated service that includes amounts related to executory costs, such as maintenance, insurance, and ad valorem taxes. We do not offer stand-alone maintenance service contracts and are unable to separate executory costs from full-service lease revenue. We recognize operating lease revenue, including amounts related to executory costs, on a straight-line basis over the term of the underlying lease. As a result, we may not recognize lease revenue in the same period as maintenance and other executory costs, which we expense as incurred. See "Note
5
.
Leases
."
Finance Leases
For finance leases, we record a gross lease payment receivable and an estimated residual value, net of unearned income. For sales-type leases, we may also recognize a gain or loss in the period the lease is recorded. Gross lease payment receivables are the rents we expect to receive through the end of the lease term for a leased asset. Estimated residual values are our estimates of value of an asset at the end of a finance lease term. We review our estimates of residual values annually or whenever circumstances indicate that residual values may have declined. Other-than-temporary declines in value are recognized as impairments. Initial unearned income is the amount that the original lease payment receivable and the estimated residual value of the leased asset exceeds the original cost or carrying value of the leased asset. We amortize unearned income to lease revenue using the interest method, which produces a constant yield over the lease term.
We regularly review the finance lease portfolio and classify finance leases as non-performing if it is probable that we will be unable to collect all amounts due under the lease. We generally stop accruing income on non-performing finance leases until all contractual payments are current. We apply payments received for non-performing finance leases to the lease payment receivable. See "Note
5
.
Leases
."
Inventory
Our inventory consists of railcar and locomotive repair components and marine vessel spare parts. All inventory balances are stated at lower of cost or market. Railcar repair components are valued using the average cost method. Vessel spare parts inventory is valued using the first-in, first-out method. Inventory is included in other assets on the balance sheet.
Loans
We record loans at their principal amount outstanding adjusted for allowances, deferred fees, unamortized premiums or discounts, and accrued interest. We review the loan portfolio regularly and classify a loan as impaired when it is probable that we will be unable to collect all amounts due under the loan agreement. Since most loans are collateralized, we generally measure impairment as the amount the carrying value of the loan exceeds the expected repayments, including any value attributable to underlying collateral. We do not typically recognize interest income on impaired loans until the loan has been paid to contractually current status.
Loans are included in other assets on the balance sheet.
Allowance for Losses
The allowance for losses is our estimate of credit losses associated with reservable assets. Reservable assets are divided into two categories: rent and other receivables, which includes short-term trade billings, and loans and finance lease receivables. We base our loss reserves for rent and other receivables on historical loss experience and judgments about the impact of economic conditions, the state of the markets we operate in, and collateral values, if applicable. In addition, we may establish specific reserves for known troubled accounts. We evaluate reserve estimates for loans and finance lease receivables on a customer-specific basis, considering each customer's particular credit situation. We also consider the factors we use to evaluate rent and other receivables, which are outlined above. We charge amounts
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
against the allowance when we deem them uncollectable. We made no material changes in our estimation methods or assumptions for the allowance during
2016
.
We believe that the allowance is adequate to cover losses inherent in our reservable assets as of December 31,
2016
.
Since the allowance is based on judgments and estimates, it is possible that actual losses incurred will differ from the estimate.
See "Note
17
.
Allowance for Losses
."
Goodwill
We recognize goodwill when the consideration paid to acquire a business exceeds the fair value of the net assets acquired. We assign goodwill to the same reporting unit as the net assets of the acquired business and we assess our goodwill for impairment on an annual basis in the fourth quarter, or during interim periods if impairment indicators are present. If the carrying amount of the applicable reporting unit exceeds its fair value, we compare the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill. We record an impairment loss if the carrying amount of goodwill exceeds its implied fair value. The fair values of our reporting units are determined using discounted cash flow models. See "Note
16
.
Goodwill
."
Income Taxes
We calculate provisions for federal, state, and foreign income taxes on our reported income before income taxes. We base our calculations of deferred tax assets and liabilities on the differences between the financial statement and tax bases of assets and liabilities, using enacted rates in effect for the year we expect the differences will reverse. We reflect the cumulative effect of changes in tax rates from those we previously used to determine deferred tax assets and liabilities in the provision for income taxes in the period the change is enacted. Provisions for income taxes in any given period differ from those currently payable or receivable because certain items of income and expense are recognized in different periods for financial reporting purposes than for income tax purposes. We may deduct expenses or defer income attributable to uncertain tax positions for tax purposes, however, we have not recognized a tax benefit in the financial statements for those items. We include our liability for uncertain tax positions in other liabilities on the balance sheet. See "Note
12
.
Income Taxes
."
Derivatives
We use derivatives, such as interest rate swap agreements, Treasury rate locks, options, cross currency swaps, and currency forwards, to hedge our exposure to interest rate and foreign currency exchange rate risk on existing and anticipated transactions. We formally designate derivatives that meet specific accounting criteria as qualifying hedges at inception. These criteria require us to have the expectation that the derivative will be highly effective at offsetting changes in the fair value or expected cash flows of the hedged exposure, both at the inception of the hedging relationship and on an ongoing basis.
We recognize all derivative instruments at fair value and classify them on the balance sheet as either other assets or other liabilities. We generally base the classification of derivative activity in the statements of comprehensive income and cash flows on the nature of the hedged item. For derivatives we designate as fair value hedges, we recognize changes in the fair value of both the derivative and the hedged item in earnings. For derivatives we designate as cash flow hedges, we record the effective portion of the change in the fair value of the derivative as part of other comprehensive income (loss), and we recognize those changes in earnings in the period the hedged transaction affects earnings. We recognize any ineffective portion of the change in the fair value of the derivative immediately in earnings. Although we do not hold or issue derivative financial instruments for purposes other than hedging, we do not designate certain derivatives as accounting hedges. We recognize changes in the fair value of these derivatives in earnings immediately. We classify gains and losses on derivatives that are not designated as hedges as other expenses, and we include the related cash flows in cash flows from operating activities. See "Note
8
.
Fair Value Disclosure
."
Defined Benefit Pension and Other Post-Retirement Plans
Our balance sheet reflects the funded status of our pension and post-retirement plans, which is the difference between the fair value of the plan assets and the projected benefit obligation. We recognize the aggregate overfunding of any plans in other assets, the aggregate underfunding of any plans in other liabilities, and the corresponding adjustments for unrecognized actuarial gains (losses) and prior service cost (credits) in accumulated other comprehensive income (loss). See "Note
10
.
Pension and Other Post-Retirement Benefits
."
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Foreign Currency
We translate the assets and liabilities of our operations that have non-US dollar functional currencies at exchange rates in effect at year-end. Revenue, expenses, and cash flows are translated monthly using average exchange rates. We defer gains and losses resulting from foreign currency translation and record those gains and losses as a separate component of accumulated other comprehensive income (loss). Gains and losses resulting from foreign currency transactions and from the remeasurement of non-functional currency assets and liabilities are recorded net of related hedges in other expense during the periods in which they occur. Net gains (losses) were
$(3.8) million
,
$1.1 million
and
$(3.4) million
for
2016
,
2015
, and
2014
.
Environmental Liabilities
We record accruals for environmental remediation costs at sites relating to past or discontinued operations when they are probable and when we can reasonably estimate the expected costs. We record adjustments to initial estimates as necessary. Since these accruals are based on estimates, actual environmental remediation costs may differ. We expense or capitalize environmental remediation costs related to current or future operations as appropriate. See "Note
22
.
Legal Proceedings and Other Contingencies
."
Marine Operating Revenue
We recognize marine operating revenue as we perform shipping services, and we allocate revenue among reporting periods based on the relative transit time in each reporting period for shipments in process.
Other Revenue
We include customer liability repair revenue, fee income, interest on loans, and other miscellaneous revenues in other revenue. We recognize these revenues when earned, which, in the case of management fees we receive from affiliates, is when we perform the related services.
Interest Expense, net
Interest expense is the interest we accrue on indebtedness and the amortization of debt issuance costs and debt discounts and premiums. We defer debt issuance costs and debt discounts and premiums and amortize them over the term of the related debt. We report interest expense net of interest income on bank deposits. Interest income on bank deposits was
$1.9 million
in
2016
,
$1.1 million
in
2015
, and
$0.9 million
in
2014
.
Operating Lease Expense
We classify leases of certain railcars and other assets and facilities, such as maintenance facilities and equipment, as operating leases. We record the lease expense associated with these leases on a straight-line basis. We defer gains and financing costs associated with sale-leasebacks and amortize those gains and costs as a component of operating lease expense over the related leaseback term. We also classify our leases of office facilities and related administrative assets as operating leases, and we record the associated expense in selling, general and administrative expense. See "Note
5
.
Leases
."
Maintenance and Repair Costs
We expense maintenance and repair costs as incurred. We capitalize certain costs incurred in connection with planned major maintenance activities if those activities improve the asset or extend its useful life. We depreciate those capitalized costs over the estimated useful life of the improvement. We capitalize required regulatory survey costs for vessels and amortize those costs over the applicable survey period, which is generally five years.
ASC Expense Seasonality
ASC's sailing season runs from April 1 to December 31 of each year. We defer certain expenses incurred prior to the beginning of the sailing season, such as winter maintenance, insurance, operating lease expense, and depreciation and amortize them ratably over the sailing season.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Share-Based Compensation
We base our measurement of share-based compensation expense on the grant date fair value of an award, and we recognize the expense net of estimated forfeitures over the requisite service period. Forfeiture rates at grant date are initially based on historical experience and are adjusted in subsequent periods if actual experience differs from the estimate. We record a final adjustment when those awards vest. See "Note
11
.
Share-Based Compensation
."
Net Gain on Asset Dispositions
Net gain on disposition includes gains and losses on sales of operating assets and residual sharing income, which we also refer to as asset remarketing income; non-remarketing disposition gains, primarily from scrapping of railcars; and asset impairment losses. We recognize disposition gains, including non-remarketing gains, upon completion of the sale or scrapping of operating assets. Residual sharing income includes fees we receive from the sale of managed assets and assets subject to residual value guarantees, and we recognize these fees upon completion of the underlying transactions.
The following table presents the net gain on asset dispositions for the years ending December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Net disposition gains
|
$
|
49.7
|
|
|
$
|
90.3
|
|
|
$
|
63.1
|
|
|
Residual sharing income
|
83.6
|
|
|
13.4
|
|
|
9.4
|
|
|
Non-remarketing net disposition gains
|
3.2
|
|
|
9.4
|
|
|
16.0
|
|
|
Asset impairment losses (1)
|
(38.5
|
)
|
|
(33.9
|
)
|
|
(1.3
|
)
|
|
Net Gain on Asset Dispositions
|
$
|
98.0
|
|
|
$
|
79.2
|
|
|
$
|
87.2
|
|
__________
(1) See "Note
9
.
Asset Impairments and Assets Held for Sale
"
for further information about asset impairment losses.
Other Income (Expense)
We include fair value adjustments on certain financial instruments, gains and/or losses on foreign currency transactions and remeasurements, legal defense costs and litigation settlements, along with other miscellaneous income and expense items in other income (expense).
NOTE 4. Supplemental Cash Flow Information and Noncash Investing Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Supplemental Cash Flow Information (in millions)
|
|
|
|
|
|
|
Interest paid (1)
|
$
|
145.4
|
|
|
$
|
144.4
|
|
|
$
|
142.6
|
|
|
Income taxes paid, net
|
28.6
|
|
|
13.3
|
|
|
18.7
|
|
________
|
|
|
|
(1)
|
Interest paid consisted of interest on debt obligations, interest rate swaps (net of interest received), and capital leases. The interest expense we capitalized as part of the cost of construction of major assets was immaterial for all periods presented.
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Noncash Investing Transactions (in millions)
|
|
|
|
|
|
|
Capital lease (1)
|
$
|
—
|
|
|
$
|
17.8
|
|
|
$
|
—
|
|
|
Distributions from affiliates (2)
|
—
|
|
|
—
|
|
|
1.1
|
|
________
|
|
|
|
(1)
|
In 2015, we acquired all of the rights and obligations of
157
rail cars, classified as a capital lease in the amount of
$17.8 million
, which included the assumption of a capital lease obligation in the amount of
$14.8 million
.
|
|
|
|
|
(2)
|
In 2014, we received distributions of
62
railcars with a fair value of
$1.1 million
from our Southern Capital Corporation LLC affiliate ("SCC").
|
NOTE
5
.
Leases
GATX as Lessor
The following table shows the components of our direct finance leases as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Total contractual lease payments receivable
|
$
|
164.4
|
|
|
$
|
199.6
|
|
|
Estimated unguaranteed residual value of leased assets
|
59.0
|
|
|
58.7
|
|
|
Unearned income
|
(75.7
|
)
|
|
(90.7
|
)
|
|
Finance leases
|
$
|
147.7
|
|
|
$
|
167.6
|
|
Usage rents
We base lease revenue for certain operating leases on equipment usage. Lease revenue from such usage rents was
$74.5 million
in
2016
,
$91.2 million
in
2015
, and
$83.9 million
in
2014
. The decrease in 2016 was driven by the redeployment of certain boxcars from utilization leases to fixed term leases.
Future receipts
The following table shows our future contractual receipts from finance leases and noncancelable operating leases as of December 31,
2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
Operating Leases (1)
|
|
Total
|
|
2017
|
$
|
23.4
|
|
|
$
|
920.1
|
|
|
$
|
943.5
|
|
|
2018
|
21.1
|
|
|
768.6
|
|
|
789.7
|
|
|
2019
|
21.1
|
|
|
636.9
|
|
|
658.0
|
|
|
2020
|
20.6
|
|
|
504.4
|
|
|
525.0
|
|
|
2021
|
19.9
|
|
|
378.6
|
|
|
398.5
|
|
|
Years thereafter
|
58.3
|
|
|
715.9
|
|
|
774.2
|
|
|
|
$
|
164.4
|
|
|
$
|
3,924.5
|
|
|
$
|
4,088.9
|
|
__________
|
|
|
|
(1)
|
The future contractual receipts due under our full-service operating leases include executory costs such as maintenance, car taxes, and insurance.
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GATX as Lessee
Capital Lease Assets
The following table shows assets we financed with capital lease obligations as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Railcars
|
$
|
18.9
|
|
|
$
|
17.8
|
|
|
Marine vessels
|
62.1
|
|
|
84.5
|
|
|
Less: allowance for depreciation
|
(61.6
|
)
|
|
(79.8
|
)
|
|
|
$
|
19.4
|
|
|
$
|
22.5
|
|
Operating Leases
We lease assets that are closely associated with our revenue generating operations. At December 31, 2016 we leased approximately
13,400
railcars at Rail North America and
two
vessels at ASC. In addition, we lease office facilities and other general purpose equipment. Total operating lease expense, which includes amounts recorded in selling, general and administrative expense, was
$77.6 million
in
2016
,
$91.2 million
in
2015
, and
$112.9 million
in
2014
.
Lease Obligations
For some leases, we have the option to renew the leases or purchase the assets at the end of the lease term. The specific terms of the renewal and purchase options vary, and we did not include these amounts in our future contractual rental payments. Additionally, the contractual rental payments do not include amounts we are required to pay for licenses, taxes, insurance, and maintenance. The following table shows our future contractual rental payments due under noncancelable leases as of December 31,
2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Leases
|
|
Operating
Leases
|
|
2017
|
$
|
3.0
|
|
|
$
|
77.3
|
|
|
2018
|
1.4
|
|
|
74.5
|
|
|
2019
|
11.7
|
|
|
77.8
|
|
|
2020
|
—
|
|
|
72.4
|
|
|
2021
|
—
|
|
|
59.9
|
|
|
Years thereafter
|
—
|
|
|
237.4
|
|
|
|
$
|
16.1
|
|
|
$
|
599.3
|
|
|
Less: amounts representing interest
|
(1.2
|
)
|
|
|
|
Present value of future contractual capital lease payments
|
$
|
14.9
|
|
|
|
NOTE
6
.
Investments in Affiliated Companies
Investments in affiliated companies represent investments in and loans to domestic and foreign affiliates, and primarily include companies offering lease financing and related services for customers operating rail and marine assets, as well as entities that lease aircraft spare engines. Loan amounts included in investments in affiliated companies were
$9.7 million
as of December 31,
2016
and
$11.2 million
as of December 31,
2015
.
In 2015, as a result of our decision to exit the majority of our marine investments within our Portfolio Management segment, we recorded a
$19.0 million
impairment loss and then sold our
50%
interest in the Cardinal Marine joint venture. We received aggregate
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
cash proceeds of
$24.7 million
from this sale. In 2016, we recognized a gain of
$1.0 million
resulting from contingent proceeds received as part of the sale.
In 2014, we sold our investments in the Intermodal Investment Fund V and Intermodal Investment Fund VII affiliates for aggregate cash proceeds of
$18.3 million
.
The following table presents our most significant investments in affiliated companies and our ownership percentage in those companies by segment as of December 31,
2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Investment
|
|
Percentage
Ownership
|
|
Rolls-Royce & Partners Finance (1)
|
Portfolio Management
|
|
$
|
375.3
|
|
|
50.0
|
%
|
|
Adler Funding LLC
|
Rail North America
|
|
10.2
|
|
|
12.5
|
%
|
|
Other affiliates
|
Various
|
|
1.5
|
|
|
Various
|
|
|
Investments in Affiliated Companies
|
|
|
$
|
387.0
|
|
|
|
__________
(1) Combined investment balances of
fifteen
separate joint ventures (collectively, the "RRPF affiliates").
The following table shows our share of affiliates’ earnings by segment for the years ending December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Rail North America
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
7.9
|
|
|
Rail International
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
Portfolio Management (1)
|
52.8
|
|
|
45.2
|
|
|
60.2
|
|
|
Share of affiliates' earnings (pretax)
|
53.1
|
|
|
45.4
|
|
|
67.8
|
|
|
Income taxes
|
(5.7
|
)
|
|
0.5
|
|
|
(18.3
|
)
|
|
Share of Affiliates' Earnings
|
$
|
47.4
|
|
|
$
|
45.9
|
|
|
$
|
49.5
|
|
__________
(1) Amount for 2015 is net of impairment losses of
$19.0 million
.
The following table shows our cash investments in and distributions and loan payments from our affiliates by segment for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Investments
|
|
Cash Distributions (1)
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Rail North America
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.5
|
|
|
$
|
5.1
|
|
|
$
|
20.0
|
|
|
Portfolio Management
|
25.0
|
|
|
15.5
|
|
|
15.3
|
|
|
35.2
|
|
|
32.2
|
|
|
34.2
|
|
|
|
$
|
25.0
|
|
|
$
|
15.5
|
|
|
$
|
15.3
|
|
|
$
|
36.7
|
|
|
$
|
37.3
|
|
|
$
|
54.2
|
|
__________
|
|
|
|
(1)
|
Cash distributions exclude proceeds from sales of affiliates of
$1.0 million
in
2016
,
$24.7 million
in
2015
, and
$19.4 million
in
2014
.
|
Summarized Financial Data of Affiliates
The following table shows the aggregated operating results for the years ended December 31 for the affiliated companies we held at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Revenues
|
$
|
333.7
|
|
|
$
|
339.3
|
|
|
$
|
339.0
|
|
|
Net gains on sales of assets
|
23.6
|
|
|
37.6
|
|
|
33.7
|
|
|
Net income
|
99.3
|
|
|
121.4
|
|
|
99.6
|
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows aggregated summarized balance sheet data for our affiliated companies as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Current assets
|
$
|
254.1
|
|
|
$
|
185.0
|
|
|
Noncurrent assets
|
3,363.6
|
|
|
3,254.1
|
|
|
Total assets
|
$
|
3,617.7
|
|
|
$
|
3,439.1
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
551.0
|
|
|
$
|
285.5
|
|
|
Noncurrent liabilities
|
2,341.4
|
|
|
2,512.2
|
|
|
Shareholders’ equity
|
725.3
|
|
|
641.4
|
|
|
Total liabilities and shareholders' equity
|
$
|
3,617.7
|
|
|
$
|
3,439.1
|
|
Summarized Financial Data for the RRPF Affiliates
As noted above, our affiliate investments include
50%
interests in each of the RRPF affiliates, a group of
fifteen
domestic and foreign joint ventures with Rolls-Royce plc (or affiliates thereof, collectively “Rolls-Royce”), a leading manufacturer of commercial aircraft jet engines. The RRPF affiliates are primarily engaged in
two
business activities: lease financing of aircraft spare engines to a diverse group of commercial aircraft operators worldwide and lease financing of aircraft spare engines to Rolls-Royce for use in their engine maintenance programs. In aggregate, the RRPF affiliates own
407
aircraft engines at December 31, 2016, of which
211
were on lease to Rolls-Royce. Aircraft engines are generally depreciated over a useful life of
25
years to an estimated residual value. Lease terms vary but typically range from
3
to
12
years. Rolls-Royce manages each of the RRPF affiliates and also performs substantially all required maintenance activities. Our share of affiliates' earnings (after-tax) from the RRPF affiliates was
$46.6 million
in
2016
,
$58.4 million
in
2015
, and
$42.2 million
in
2014
.
We derived the following financial information from the combined financial statements of the RRPF affiliates.
The following table shows condensed income statements of the RRPF affiliates for the years ending December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Lease revenue from third parties
|
$
|
173.7
|
|
|
$
|
191.4
|
|
|
$
|
176.9
|
|
|
Lease revenue from Rolls-Royce
|
150.2
|
|
|
138.7
|
|
|
124.7
|
|
|
Depreciation expense
|
(171.6
|
)
|
|
(166.1
|
)
|
|
(140.7
|
)
|
|
Interest expense
|
(59.2
|
)
|
|
(56.7
|
)
|
|
(59.5
|
)
|
|
Other expenses
|
(8.0
|
)
|
|
(8.8
|
)
|
|
(11.8
|
)
|
|
Net gains on sales of assets
|
19.1
|
|
|
33.1
|
|
|
22.7
|
|
|
Income before income taxes
|
104.2
|
|
|
131.6
|
|
|
112.3
|
|
|
Income tax benefits (provision) (1)
|
(6.9
|
)
|
|
(9.0
|
)
|
|
(17.3
|
)
|
|
Net income
|
$
|
97.3
|
|
|
$
|
122.6
|
|
|
$
|
95.0
|
|
_________
|
|
|
|
(1)
|
Represents income taxes directly attributable to the RRPF affiliates in the United Kingdom. Several of the RRPF affiliates are flow through entities and income taxes are incurred at the owner level. Amounts shown for 2016 and 2015 include deferred income tax benefits of approximately
$7.8 million
and
$15.4 million
, attributable to statutory rate decreases enacted in the United Kingdom.
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows the condensed balance sheets of the RRPF affiliates as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Current assets
|
$
|
241.3
|
|
|
$
|
173.4
|
|
|
Noncurrent assets, including operating assets, net of accumulated depreciation of $1,007.4 and $993.6 (a)
|
3,281.9
|
|
|
3,161.4
|
|
|
Total assets
|
$
|
3,523.2
|
|
|
$
|
3,334.8
|
|
|
|
|
|
|
|
Current liabilities, excluding debt
|
$
|
127.3
|
|
|
$
|
85.1
|
|
|
Debt obligations, net of adjustments for hedges
|
2,452.9
|
|
|
2,391.1
|
|
|
Other liabilities
|
233.8
|
|
|
231.4
|
|
|
Shareholders’ equity
|
709.2
|
|
|
627.2
|
|
|
Total liabilities and shareholders' equity
|
$
|
3,523.2
|
|
|
$
|
3,334.8
|
|
_________
(a) All operating assets were pledged as collateral for long-term debt obligations.
The following table shows contractual future lease receipts from noncancelable leases of the RRPF affiliates as of December 31,
2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolls-Royce
|
|
Third Parties
|
|
Total
|
|
2017
|
$
|
165.6
|
|
|
$
|
158.9
|
|
|
$
|
324.5
|
|
|
2018
|
159.7
|
|
|
143.4
|
|
|
303.1
|
|
|
2019
|
156.2
|
|
|
107.3
|
|
|
263.5
|
|
|
2020
|
136.6
|
|
|
93.7
|
|
|
230.3
|
|
|
2021
|
107.1
|
|
|
82.4
|
|
|
189.5
|
|
|
Thereafter
|
388.5
|
|
|
215.1
|
|
|
603.6
|
|
|
|
$
|
1,113.7
|
|
|
$
|
800.8
|
|
|
$
|
1,914.5
|
|
The following table shows maturities of debt obligations of the RRPF affiliates as of December 31,
2016
(in millions):
|
|
|
|
|
|
|
|
2017 (1)
|
$
|
618.1
|
|
|
2018
|
96.9
|
|
|
2019
|
54.4
|
|
|
2020
|
470.7
|
|
|
2021
|
265.7
|
|
|
Thereafter
|
943.9
|
|
|
Total debt principal (2)
|
$
|
2,449.7
|
|
_______
|
|
|
|
(1)
|
For principal payment amounts shown as due in 2017, new debt agreements have been executed that extend the maturity date for approximately
$335 million
of debt to 2026.
|
|
|
|
|
(2)
|
All debt obligations are nonrecourse to the shareholders.
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE
7
.
Debt
Commercial Paper and Borrowings Under Bank Credit Facilities ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2016
|
|
2015
|
|
Balance
|
$
|
3.8
|
|
|
$
|
7.4
|
|
|
Weighted average interest rate
|
1.02
|
%
|
|
1.22
|
%
|
Recourse and Nonrecourse Debt Obligations
The following table shows the outstanding balances of our debt obligations and the applicable interest rates as of December 31 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Issue
|
|
Final
Maturity
|
|
Interest Rate
|
|
2016
|
|
2015
|
|
Recourse Fixed Rate Debt
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
03/04/14
|
|
03/04/17
|
|
1.25
|
%
|
|
$
|
300.0
|
|
|
$
|
300.0
|
|
|
Unsecured
|
02/06/08
|
|
02/15/18
|
|
6.00
|
%
|
|
200.0
|
|
|
200.0
|
|
|
Unsecured
|
03/19/13
|
|
07/30/18
|
|
2.38
|
%
|
|
250.0
|
|
|
250.0
|
|
|
Unsecured (1)
|
12/27/10
|
|
10/31/18
|
|
3.84
|
%
|
|
10.5
|
|
|
10.9
|
|
|
Unsecured (1)
|
11/29/10
|
|
11/30/18
|
|
3.70
|
%
|
|
5.3
|
|
|
8.1
|
|
|
Unsecured
|
01/30/15
|
|
12/31/18
|
|
1.20
|
%
|
|
52.6
|
|
|
54.3
|
|
|
Unsecured
|
11/19/13
|
|
03/15/19
|
|
2.50
|
%
|
|
300.0
|
|
|
300.0
|
|
|
Unsecured
|
03/04/14
|
|
07/30/19
|
|
2.50
|
%
|
|
250.0
|
|
|
250.0
|
|
|
Unsecured
|
10/31/14
|
|
03/30/20
|
|
2.60
|
%
|
|
250.0
|
|
|
250.0
|
|
|
Unsecured
|
02/06/15
|
|
03/30/20
|
|
2.60
|
%
|
|
100.0
|
|
|
100.0
|
|
|
Unsecured
|
05/27/11
|
|
06/01/21
|
|
4.85
|
%
|
|
250.0
|
|
|
250.0
|
|
|
Unsecured
|
09/20/11
|
|
06/01/21
|
|
4.85
|
%
|
|
50.0
|
|
|
50.0
|
|
|
Unsecured
|
06/11/12
|
|
06/15/22
|
|
4.75
|
%
|
|
250.0
|
|
|
250.0
|
|
|
Unsecured
|
03/19/13
|
|
03/30/23
|
|
3.90
|
%
|
|
250.0
|
|
|
250.0
|
|
|
Unsecured
|
02/06/15
|
|
03/30/25
|
|
3.25
|
%
|
|
300.0
|
|
|
300.0
|
|
|
Unsecured
|
09/13/16
|
|
09/15/26
|
|
3.25
|
%
|
|
350.0
|
|
|
—
|
|
|
Unsecured
|
03/04/14
|
|
03/15/44
|
|
5.20
|
%
|
|
300.0
|
|
|
300.0
|
|
|
Unsecured
|
02/06/15
|
|
03/30/45
|
|
4.50
|
%
|
|
250.0
|
|
|
250.0
|
|
|
Unsecured
|
05/16/16
|
|
05/30/66
|
|
5.63
|
%
|
|
150.0
|
|
|
—
|
|
|
Unsecured
|
03/03/06
|
|
03/01/16
|
|
5.80
|
%
|
|
—
|
|
|
200.0
|
|
|
Unsecured
|
11/19/10
|
|
07/15/16
|
|
3.50
|
%
|
|
—
|
|
|
250.0
|
|
|
Unsecured
|
09/20/11
|
|
07/15/16
|
|
3.50
|
%
|
|
—
|
|
|
100.0
|
|
|
Total recourse fixed rate debt
|
|
|
|
|
|
|
$
|
3,868.4
|
|
|
$
|
3,923.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse Floating Rate Debt
|
|
|
|
|
|
|
|
|
|
|
Unsecured
|
03/02/16
|
|
03/02/21
|
|
2.18
|
%
|
|
$
|
200.0
|
|
|
$
|
—
|
|
|
Unsecured
|
12/20/16
|
|
12/20/21
|
|
0.85
|
%
|
|
57.8
|
|
|
—
|
|
|
Unsecured
|
08/28/14
|
|
08/28/24
|
|
2.24
|
%
|
|
100.0
|
|
|
100.0
|
|
|
Unsecured
|
09/23/15
|
|
09/23/25
|
|
2.25
|
%
|
|
60.0
|
|
|
60.0
|
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Issue
|
|
Final
Maturity
|
|
Interest Rate
|
|
2016
|
|
2015
|
|
Unsecured (2) (3)
|
12/21/12
|
|
12/21/17
|
|
1.76
|
%
|
|
—
|
|
|
100.0
|
|
|
Unsecured (2) (3)
|
01/22/13
|
|
12/21/17
|
|
1.76
|
%
|
|
—
|
|
|
10.0
|
|
|
Unsecured (3)
|
09/02/11
|
|
08/31/16
|
|
0.79
|
%
|
|
—
|
|
|
5.2
|
|
|
Total recourse floating rate debt
|
|
|
|
|
|
|
$
|
417.8
|
|
|
$
|
275.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecourse Fixed Rate Debt
|
|
|
|
|
|
|
|
|
|
Secured
|
09/30/97
|
|
09/20/16
|
|
6.69
|
%
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
Total nonrecourse fixed rate debt
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
Total debt principal
|
|
|
|
|
|
|
$
|
4,286.2
|
|
|
$
|
4,205.4
|
|
|
Unamortized debt discount and debt issuance costs
|
|
|
|
|
|
|
(33.6
|
)
|
|
(28.5
|
)
|
|
Debt adjustment for fair value hedges
|
|
|
|
|
|
|
0.6
|
|
|
1.5
|
|
|
Total Debt
|
|
|
|
|
|
|
$
|
4,253.2
|
|
|
$
|
4,178.4
|
|
__________
(1) Amount shown includes scheduled principal payments prior to the final maturity.
(2) Debt repaid prior to the final maturity.
(3) For floating rate debt repaid during 2016, the interest rate reflected is as of the final payment date.
The following table shows the scheduled principal payments of our debt obligations as of December 31,
2016
(in millions):
|
|
|
|
|
|
|
|
2017
|
$
|
302.6
|
|
|
2018
|
515.7
|
|
|
2019
|
550.0
|
|
|
2020
|
350.0
|
|
|
2021
|
557.8
|
|
|
Thereafter
|
2,010.1
|
|
|
Total debt principal
|
$
|
4,286.2
|
|
At December 31,
2016
,
$301.1 million
of our operating assets were pledged as collateral for certain of our debt obligations.
Shelf Registration Statement
During 2016, we filed a 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.
Credit Lines and Facilities
In 2016, we entered into a new
$600 million
5-year unsecured revolving credit facility in the US that matures in May 2021 with terms and conditions similar to the prior
$575 million
facility, which was terminated. As of
December 31, 2016
, the full
$600 million
was available under the facility. Additionally, we completed a
$250 million
5-year secured railcar facility with a 3-year revolving period in the US that matures in February 2021. As of
December 31, 2016
, the full
$250 million
was available under this facility.
Annual commitment fees for GATX's credit facilities were
$1.5 million
for
2016
,
$1.0 million
for
2015
, and
$1.0 million
for
2014
.
Restrictive Covenants
Our
$600 million
revolving credit facility contains various restrictive covenants, including requirements to maintain a fixed charge coverage ratio and an asset coverage test. Our ratio of earnings to fixed charges, as defined in this facility, was
3.3
for the period ended
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31,
2016
,
which is in excess of the minimum covenant ratio of
1.2
.
At December 31,
2016
, we were in compliance with all covenants and conditions of the facility. Some of our bank term loans have the same financial covenants as the facility.
As of December 31,
2016
,
the indentures for our public debt also contain various restrictive covenants, including limitation on liens provisions that limit the amount of additional secured indebtedness that we may incur to
$1,363.9 million
.
Additionally, certain exceptions to the covenants permit us to incur an unlimited amount of purchase money and nonrecourse indebtedness. At December 31,
2016
, we were in compliance with all covenants and conditions of the indentures.
The loan agreements for our European rail subsidiaries ( "GATX Rail Europe" or "GRE") also contain restrictive covenants, including leverage and cash flow covenants specific to those subsidiaries, restrictions on making loans, and limitations on the ability of those subsidiaries to repay loans or to distribute capital to certain related parties (including GATX, the US parent company). These covenants effectively limit GRE's ability to transfer funds to us. At December 31,
2016
, the maximum amount that GRE could transfer to us without violating its covenants was
$157.4 million
, therefore implying the loan covenants restrict
$359.9 million
of subsidiary net assets. At December 31,
2016
, GRE was in compliance with all covenants and conditions of these loan agreements.
We do not anticipate any covenant violations nor do we anticipate that any of these covenants will restrict our operations or our ability to obtain additional financing.
NOTE
8
.
Fair Value Disclosure
The following tables show our assets and liabilities that are measured at fair value on a recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
Total
December 31
2016
|
|
Quoted
Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Observable Inputs
(Level 2)
|
|
Significant Unobservable
Inputs
(Level 3)
|
|
Interest rate derivatives (1)
|
$
|
2.9
|
|
|
$
|
—
|
|
|
$
|
2.9
|
|
|
$
|
—
|
|
|
Foreign exchange rate derivatives (1)
|
12.2
|
|
|
—
|
|
|
12.2
|
|
|
—
|
|
|
Foreign exchange rate derivatives (2)
|
1.3
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives (1)
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
Total
December 31
2015
|
|
Quoted
Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Observable Inputs
(Level 2)
|
|
Significant Unobservable
Inputs
(Level 3)
|
|
Interest rate derivatives (1)
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
Foreign exchange rate derivatives (1)
|
10.2
|
|
|
—
|
|
|
10.2
|
|
|
—
|
|
|
Foreign exchange rate derivatives (2)
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
|
Available-for-sale equity securities
|
3.3
|
|
|
3.3
|
|
|
—
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Interest rate derivatives (1)
|
1.2
|
|
|
—
|
|
|
1.2
|
|
|
—
|
|
|
Foreign exchange rate derivatives (1)
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
Foreign exchange rate derivatives (2)
|
2.4
|
|
|
—
|
|
|
2.4
|
|
|
—
|
|
_________
|
|
|
|
(1)
|
Designated as hedges.
|
|
|
|
|
(2)
|
Not designated as hedges.
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We base our valuations of available-for-sale equity securities on their quoted prices on an active exchange. We value derivatives using a pricing model with inputs (such as yield curves and foreign currency rates) that are observable in the market or that can be derived principally from observable market data.
In addition, we review long-lived assets, such as operating assets and facilities, for impairment whenever circumstances indicate that the carrying amount of these assets may not be recoverable. We determine the fair value of the respective assets using Level 3 inputs, including estimates of discounted future cash flows (including net proceeds from sale), independent appraisals, and market comparables, as applicable. The fair value of assets held at December 31 that were subject to non-recurring Level 3 fair value measurements was
$106.6 million
and
$34.0 million
for 2016 and 2015. See "Note
9
.
Asset Impairments and Assets Held for Sale
"
for further information about our impairment losses.
Derivative instruments
Fair Value Hedges
We use interest rate swaps to manage the fixed-to-floating rate mix of our debt obligations by converting the fixed rate debt to floating rate debt. For fair value hedges, we recognize changes in fair value of both the derivative and the hedged item as interest expense. We had
eight
instruments outstanding with an aggregate notional amount of
$550.0 million
as of
December 31, 2016
that mature from 2017 to 2020 and
eight
instruments outstanding with an aggregate notional amount of
$550.0 million
as of
December 31, 2015
.
Cash Flow Hedges
We use interest rate swaps to convert floating rate debt to fixed rate debt. We use Treasury rate locks to hedge our exposure to interest rate risk on anticipated transactions. We also use currency swaps to hedge our exposure to fluctuations in the exchange rates of the foreign currencies in which we conduct business. We had
nine
instruments outstanding with an aggregate notional amount of
$412.1 million
as of
December 31, 2016
that mature from 2017 to 2022 and
ten
instruments outstanding with an aggregate notional amount of
$442.9 million
as of
December 31, 2015
. Within the next 12 months, we expect to reclassify
$5.9 million
(
$3.7 million
after-tax) of net losses on previously terminated derivatives from accumulated other comprehensive income (loss) to interest expense or operating lease expense, as applicable. We reclassify these amounts when interest and operating lease expense on the related hedged transactions affect earnings.
Non-designated Derivatives
We do not hold derivative financial instruments for purposes other than hedging, although certain of our derivatives are not designated as accounting hedges. We recognize changes in the fair value of these derivatives in other (income) expense immediately.
Some of our derivative instruments contain credit risk provisions that could require us to make immediate payment on net liability positions in the event that we default on certain outstanding debt obligations.
None
of our derivative instruments with credit risk related contingent features were in a liability position as of
December 31, 2016
. We are not required to post any collateral on our derivative instruments and do not expect the credit risk provisions to be triggered.
In the event that a counterparty fails to meet the terms of an interest rate swap agreement or a foreign exchange contract, our exposure is limited to the fair value of the swap, if in our favor. We manage the credit risk of counterparties by transacting with institutions that we consider financially sound and by avoiding concentrations of risk with a single counterparty. We believe that the risk of non-performance by any of our counterparties is remote.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows the impacts of our derivative instruments on our statement of comprehensive income for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Designation
|
|
Location of Loss (Gain) Recognized
|
|
2016
|
|
2015
|
|
2014
|
|
Fair value hedges (1)
|
|
Interest expense
|
|
$
|
0.8
|
|
|
$
|
(0.8
|
)
|
|
$
|
4.7
|
|
|
Cash flow hedges
|
|
Other comprehensive loss (effective portion)
|
|
4.9
|
|
|
5.3
|
|
|
5.1
|
|
|
Cash flow hedges
|
|
Interest expense (effective portion reclassified from accumulated other comprehensive loss)
|
|
6.9
|
|
|
5.6
|
|
|
4.9
|
|
|
Cash flow hedges
|
|
Operating lease expense (effective portion reclassified from accumulated other comprehensive loss)
|
|
1.1
|
|
|
0.3
|
|
|
3.2
|
|
|
Cash flow hedges (2)
|
|
Other (income) expense (effective portion reclassified from accumulated other comprehensive loss)
|
|
(11.9
|
)
|
|
(6.9
|
)
|
|
(2.1
|
)
|
|
Non-designated (3)
|
|
Other (income) expense
|
|
(2.6
|
)
|
|
(6.1
|
)
|
|
(11.4
|
)
|
_________
|
|
|
|
(1)
|
The fair value adjustments related to the underlying debt equally offset the amounts recognized in interest expense.
|
|
|
|
|
(2)
|
For each of 2016, 2015 and 2014, foreign currency derivatives are substantially offset by losses from foreign currency remeasurement adjustments, also recognized in Other (income) expense.
|
|
|
|
|
(3)
|
For 2015 and 2014 includes
$5.1 million
, and
$10.4 million
of gains on foreign currency derivatives which substantially offset losses from foreign currency remeasurement adjustments on the Ahaus Alstätter Eisenbahn Cargo AG loan, also recognized in Other (income) expense.
|
Other Financial Instruments
The carrying amounts of cash and cash equivalents, restricted cash, rent and other receivables, accounts payable, and commercial paper and bank credit facilities approximate fair value due to the short maturity of those instruments. We base the fair values of investment funds, which are accounted for under the cost method, on the best information available, which may include quoted investment fund values. We estimate the fair values of loans and fixed and floating rate debt using discounted cash flow analyses that are based on interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The inputs we use to estimate each of these values are classified in Level 2 of the fair value hierarchy because they are directly or indirectly observable inputs.
The following table shows the carrying amounts and fair values of our other financial instruments as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment funds
|
$
|
0.6
|
|
|
$
|
1.2
|
|
|
$
|
0.6
|
|
|
$
|
1.2
|
|
|
Loans
|
6.2
|
|
|
6.2
|
|
|
8.8
|
|
|
8.7
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Recourse fixed rate debt
|
$
|
3,858.5
|
|
|
$
|
3,852.6
|
|
|
$
|
3,915.0
|
|
|
$
|
3,882.6
|
|
|
Recourse floating rate debt
|
417.8
|
|
|
412.2
|
|
|
275.2
|
|
|
264.6
|
|
|
Nonrecourse debt
|
—
|
|
|
—
|
|
|
6.9
|
|
|
7.1
|
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE
9
.
Asset Impairments and Assets Held for Sale
We review our operating assets annually, or whenever indicators of impairment maybe present. The following table summarizes the components of asset impairments for the years ending December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Attributable to Consolidated Assets
|
|
|
|
|
|
|
Rail North America - railcars in flammable service
|
$
|
29.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Portfolio Management - marine assets
|
6.7
|
|
|
30.8
|
|
|
—
|
|
|
Other
|
2.0
|
|
|
3.1
|
|
|
1.3
|
|
|
|
$
|
38.5
|
|
|
$
|
33.9
|
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
Attributable to Affiliate Investments
|
|
|
|
|
|
|
Portfolio Management
|
$
|
—
|
|
|
$
|
19.0
|
|
|
$
|
—
|
|
In 2015, the Pipeline and Hazardous Materials Safety Administration of the US Department of Transportation (“PHMSA”) and Transport Canada ("TC") each issued rules that established new design standards for tank cars utilized in flammable liquids service in North America. In addition to setting standards for newly built tank cars, the regulations established guidelines for modifying existing tank cars utilized in certain flammable liquids service and deadlines for modifying or removing those cars from service. The deadlines range from November 2016 to May 2029, depending on the type of car and the nature of commodity carried. The PHMSA rule was subsequently modified by legislation adopted by Congress, and in August 2016, PHMSA amended its earlier rule to incorporate the legislative mandates into the final rule, which included expanded retrofit requirements and a shorter phase out period for the older tank cars.
During 2016, excess railcar supply, muted demand for certain railcar types, and increased railroad efficiency have combined to put pressure on lease rates for most car types. Within the flammable tank car market, the challenge of keeping existing tank cars in service has been compounded by the increased availability of newer cars with enhanced designs, including those that comply with the new regulations, to serve this market. Further, our expectations of redeploying certain tank cars currently in flammable service into nonflammable service has diminished as a substantial oversupply of tank cars has developed to serve these alternative markets. We expect these conditions to continue and potentially worsen. As a result of these changed expectations, we believe indicators of impairment were present for certain tank cars impacted by the new regulations, and a comprehensive impairment analysis was completed.
While all railcars subject to the new regulations were reviewed, approximately
2,400
railcars with a carrying value of approximately
$90 million
were determined to be most vulnerable based on their age, configuration, and carrying values. For purposes of this review, we modeled multiple scenarios of net cash flows using a range of assumptions, including revised estimated useful lives for these railcars. Based on this analysis, we concluded that our carrying values exceeded our estimates of undiscounted cash flows, indicating an impairment for this group of railcars. The market for this group of railcars is fairly illiquid, given the circumstances noted above. Accordingly, the fair value of this railcar group was estimated based on discounting our estimated cash flows using a discount rate we believe reflects the applicable return for typical buyers and sellers of these types of assets. Concurrently with this analysis, we entered into an agreement to sell approximately
400
of these railcars, for total proceeds consistent with our valuations. As a result, we recorded impairment losses of
$29.8 million
related to these tank cars, of which
$5.8 million
is attributable to assets held for sale. The total carrying value of assets held for sale at Rail North America was
$43.9 million
at December 31, 2016, including the impaired tank cars that were written down to their expected net sales proceeds. Lastly, we shortened the depreciable lives for these tank cars consistent with our revised expectations, beginning January 1, 2017; however, the impact of adjusting the useful lives for these assets will not be material to future financial results.
The assumptions we relied upon for purposes of this impairment analysis were based on our judgment of current and future market conditions. Actual results could differ from our estimates, and we may incur future impairment losses with respect to this railcar group, particularly if we sell or scrap the railcars sooner than anticipated.
In 2015, we recorded impairment losses of
$30.8 million
at Portfolio Management related to certain marine assets. This was the result of management's decision to exit the majority of our marine investments within the Portfolio Management segment, including
six
chemical parcel tankers (the "Nordic Vessels"), certain inland marine vessels, and our
50%
interest in the Cardinal Marine joint venture. In 2016 and 2015 disposition gains of
$5.2 million
and
$21.6 million
were realized from the sale of certain of these marine assets. During 2016,
$6.7 million
of additional impairment losses were recorded, reflective of final disposition results and revised estimates of expected net sales proceeds for assets that remain classified as held for sale with a carrying value of
$45.6 million
at
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016.
Other impairment losses in each year were primarily attributable to railcars we have retired early due to excess damage or functional obsolescence and designated for scrap.
These impairment losses were included in net (loss) gains on asset dispositions in the consolidated statement of comprehensive income.
Additionally, as part of the decision to exit the marine investments, Portfolio Management also recorded impairment losses of
$19.0 million
in 2015 related to our
50%
interest in the Cardinal Marine joint venture, based on expected proceeds from the final sale of this investment. This impairment loss was included in the share of affiliates' earnings in the consolidated statement of comprehensive income. This investment was sold in 2015.
The following table summarizes the components of assets held for sale at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Rail North America
|
$
|
43.9
|
|
|
$
|
2.6
|
|
|
Portfolio Management
|
45.6
|
|
|
103.4
|
|
|
|
$
|
89.5
|
|
|
$
|
106.0
|
|
All assets classified as held for sale are expected to be sold in 2017.
NOTE
10
.
Pension and Other Post-Retirement Benefits
We maintain both funded and unfunded noncontributory defined benefit pension plans covering our domestic employees and the employees of our subsidiaries. We also have a funded noncontributory defined benefit pension plan related to a former business in the United Kingdom that has no active employees. The plans base benefits payable on years of service and/or final average salary. We base our funding policies for the pension plans on actuarially determined cost methods allowable under IRS regulations and statutory requirements in the UK.
In addition to the pension plans, we have other post-retirement plans that provide health care, life insurance, and other benefits for certain retired domestic employees who meet established criteria. Most domestic employees that retire with immediate benefits under our pension plan are eligible for health care and life insurance benefits. The other post-retirement plans are either contributory or noncontributory, depending on various factors.
During 2015, we offered an early retirement program for certain eligible employees, effective in 2016. This program provided enhanced benefits to the employees that elected to participate and provided the option for employees to receive their pension benefits as a lump sum payment or as an annuity. Special termination benefits of
$9.0 million
resulting from this program were recognized as a one-time expense in 2015. In 2016, we recorded a settlement accounting expense of
$6.1 million
attributable to lump sum payments elected by eligible retirees as part of the program.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We use a December 31 measurement date for all of our plans. The following tables show pension obligations, plan assets, and other post-retirement obligations as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Pension
Benefits
|
|
2015 Pension
Benefits
|
|
2016 Retiree
Health
and Life
|
|
2015 Retiree
Health
and Life
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
475.0
|
|
|
$
|
502.7
|
|
|
$
|
35.0
|
|
|
$
|
40.8
|
|
|
Service cost
|
6.1
|
|
|
7.4
|
|
|
0.2
|
|
|
0.2
|
|
|
Interest cost
|
15.3
|
|
|
19.6
|
|
|
0.9
|
|
|
1.3
|
|
|
Plan amendments
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
|
Actuarial loss (gain)
|
18.3
|
|
|
(22.6
|
)
|
|
(3.0
|
)
|
|
(3.6
|
)
|
|
Benefits paid
|
(44.5
|
)
|
|
(36.9
|
)
|
|
(2.8
|
)
|
|
(2.9
|
)
|
|
Special termination benefits
|
—
|
|
|
7.3
|
|
|
—
|
|
|
1.7
|
|
|
Effect of foreign exchange rate changes
|
(5.8
|
)
|
|
(2.5
|
)
|
|
—
|
|
|
—
|
|
|
Benefit obligation at end of year
|
$
|
464.4
|
|
|
$
|
475.0
|
|
|
$
|
30.3
|
|
|
$
|
35.0
|
|
|
Change in Fair Value of Plan Assets
|
|
|
|
|
|
|
|
|
Plan assets at beginning of year
|
416.1
|
|
|
456.9
|
|
|
—
|
|
|
—
|
|
|
Actual return on plan assets
|
45.8
|
|
|
(4.6
|
)
|
|
—
|
|
|
—
|
|
|
Effect of exchange rate changes
|
(6.1
|
)
|
|
(2.2
|
)
|
|
—
|
|
|
—
|
|
|
Company contributions
|
2.2
|
|
|
2.9
|
|
|
2.8
|
|
|
2.9
|
|
|
Benefits paid
|
(44.5
|
)
|
|
(36.9
|
)
|
|
(2.8
|
)
|
|
(2.9
|
)
|
|
Plan assets at end of year
|
$
|
413.5
|
|
|
$
|
416.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Funded Status at end of year
|
$
|
(50.9
|
)
|
|
$
|
(58.9
|
)
|
|
$
|
(30.3
|
)
|
|
$
|
(35.0
|
)
|
|
Amount Recognized
|
|
|
|
|
|
|
|
|
Other Liabilities and Other Assets (net)
|
$
|
(50.9
|
)
|
|
$
|
(58.9
|
)
|
|
$
|
(30.3
|
)
|
|
$
|
(35.0
|
)
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
144.1
|
|
|
163.3
|
|
|
(2.9
|
)
|
|
(0.2
|
)
|
|
Prior service credit
|
(0.1
|
)
|
|
(1.1
|
)
|
|
(1.8
|
)
|
|
(2.0
|
)
|
|
Accumulated other comprehensive loss (gain)
|
144.0
|
|
|
162.2
|
|
|
(4.7
|
)
|
|
(2.2
|
)
|
|
Total recognized
|
$
|
93.1
|
|
|
$
|
103.3
|
|
|
$
|
(35.0
|
)
|
|
$
|
(37.2
|
)
|
|
After-tax amount recognized in accumulated other comprehensive loss
|
$
|
90.0
|
|
|
$
|
101.3
|
|
|
$
|
(2.9
|
)
|
|
$
|
(1.4
|
)
|
The aggregate accumulated benefit obligation for the defined benefit pension plans was
$441.8 million
at December 31,
2016
and
$449.4 million
at December 31,
2015
.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows our pension plans that have a projected benefit obligation in excess of plan assets as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Projected benefit obligations
|
$
|
430.8
|
|
|
$
|
438.3
|
|
|
Fair value of plan assets
|
378.8
|
|
|
378.6
|
|
The following table shows our pension plans that have an accumulated benefit obligation in excess of plan assets as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Accumulated benefit obligations
|
$
|
126.4
|
|
|
$
|
412.6
|
|
|
Fair value of plan assets
|
94.4
|
|
|
378.6
|
|
The following table shows the components of net periodic cost (benefit) for the year ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
Pension
Benefits
|
|
2015
Pension
Benefits
|
|
2014
Pension
Benefits
|
|
2016
Retiree Health and Life
|
|
2015
Retiree Health and Life
|
|
2014
Retiree Health and Life
|
|
Service cost
|
$
|
6.1
|
|
|
$
|
7.4
|
|
|
$
|
5.9
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.1
|
|
|
Interest cost
|
15.3
|
|
|
19.6
|
|
|
20.7
|
|
|
0.9
|
|
|
1.3
|
|
|
1.6
|
|
|
Expected return on plan assets
|
(25.6
|
)
|
|
(25.8
|
)
|
|
(28.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Settlement accounting adjustment
|
6.1
|
|
|
7.3
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized prior service credit
|
(1.0
|
)
|
|
(1.0
|
)
|
|
(1.0
|
)
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
Unrecognized net actuarial loss (gain)
|
10.5
|
|
|
14.8
|
|
|
11.3
|
|
|
(0.3
|
)
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
Net periodic cost
|
$
|
11.4
|
|
|
$
|
22.3
|
|
|
$
|
8.5
|
|
|
$
|
0.6
|
|
|
$
|
2.9
|
|
|
$
|
1.5
|
|
We amortize the unrecognized prior service credit using a straight-line method over the average remaining service period of the employees we expect to receive benefits under the plan. We amortize the unrecognized net actuarial loss (gain), which is subject to certain averaging conventions, over the average remaining service period of active employees.
The following table shows the amounts we expect to recognize as components of net periodic cost in 2017 from amounts recorded in accumulated comprehensive loss (gain) as of December 31,
2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
Pension Benefits
|
|
Retiree Health and Life
|
|
Unrecognized net actuarial loss (gain)
|
$
|
9.1
|
|
|
$
|
(0.3
|
)
|
|
Unrecognized prior service credit
|
—
|
|
|
(0.2
|
)
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We use the following assumptions to measure the benefit obligation, compute the expected long-term return on assets, and measure the periodic cost for our defined benefit pension plans and other post-retirement benefit plans for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Domestic defined benefit pension plans
|
|
|
|
|
Benefit Obligation at December 31:
|
|
|
|
|
Discount rate — salaried funded and unfunded plans
|
4.22
|
%
|
|
4.46
|
%
|
|
Discount rate — hourly funded plan
|
4.30
|
%
|
|
4.51
|
%
|
|
Rate of compensation increases — salaried funded and unfunded plans
|
2.50
|
%
|
|
2.50
|
%
|
|
Rate of compensation increases — hourly funded plans
|
N/A
|
|
|
N/A
|
|
|
Net Periodic Cost (Benefit) for the years ended December 31:
|
|
|
|
|
Discount rate — salaried funded and unfunded plans
|
4.47
|
%
|
|
4.05
|
%
|
|
Discount rate — hourly funded plan
|
4.52
|
%
|
|
4.10
|
%
|
|
Expected return on plan assets — salaried funded plan
|
6.80
|
%
|
|
6.50
|
%
|
|
Expected return on plan assets — hourly funded plan
|
6.75
|
%
|
|
6.35
|
%
|
|
Rate of compensation increases — salaried funded and unfunded plans
|
2.50
|
%
|
|
2.50
|
%
|
|
Rate of compensation increases — hourly funded plan
|
N/A
|
|
|
N/A
|
|
|
Foreign defined benefit pension plan
|
|
|
|
|
Benefit Obligation at December 31:
|
|
|
|
|
Discount rate
|
2.60
|
%
|
|
3.60
|
%
|
|
Rate of pension-in-payment increases
|
3.20
|
%
|
|
3.00
|
%
|
|
Net Periodic Cost (Benefit) for the years ended December 31:
|
|
|
|
|
Discount rate
|
3.60
|
%
|
|
3.20
|
%
|
|
Expected return on plan assets
|
4.80
|
%
|
|
4.80
|
%
|
|
Rate of pension-in-payment increases
|
3.00
|
%
|
|
2.90
|
%
|
|
Other post-retirement benefit plans
|
|
|
|
|
Benefit Obligation at December 31:
|
|
|
|
|
Discount rate - salaried health
|
3.78
|
%
|
|
3.96
|
%
|
|
Discount rate - hourly health
|
4.09
|
%
|
|
4.11
|
%
|
|
Discount rate - salaried life insurance
|
4.18
|
%
|
|
4.40
|
%
|
|
Discount rate - hourly life insurance
|
3.83
|
%
|
|
4.04
|
%
|
|
Rate of compensation increases
|
N/A
|
|
|
N/A
|
|
|
Net Periodic Cost (Benefit) for the years ended December 31:
|
|
|
|
|
Discount rate - salaried health
|
3.94
|
%
|
|
3.65
|
%
|
|
Discount rate - hourly health
|
4.31
|
%
|
|
3.85
|
%
|
|
Discount rate - salaried life insurance
|
4.41
|
%
|
|
4.00
|
%
|
|
Discount rate - hourly life insurance
|
4.06
|
%
|
|
3.70
|
%
|
|
Rate of compensation increases
|
N/A
|
|
|
N/A
|
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We calculate the present value of expected future pension and post-retirement cash flows as of the measurement date using a discount rate. We base the discount rate on yields for high-quality, long-term bonds with durations similar to that of our projected benefit obligation. We base the expected return on our plan assets on current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. We routinely review our historical returns along with current market conditions to ensure our expected return assumption is reasonable and appropriate.
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Assumed Health Care Cost Trend Rates at December 31
|
|
|
|
|
Health care cost trend assumed for next year
|
|
|
|
|
Medical claims - pre age 65
|
6.60
|
%
|
|
7.00
|
%
|
|
Medical claims - post age 65
|
5.80
|
%
|
|
6.00
|
%
|
|
Prescription drugs claims - pre age 65
|
9.30
|
%
|
|
10.00
|
%
|
|
Prescription drugs claims - post age 65
|
9.80
|
%
|
|
10.50
|
%
|
|
Rate to which the cost trend is expected to decline (the ultimate trend rate)
|
|
|
|
|
Medical claims
|
4.50
|
%
|
|
4.50
|
%
|
|
Prescription drugs claims
|
4.50
|
%
|
|
4.50
|
%
|
|
Year that rate reaches the ultimate trend rate
|
|
|
|
|
Medical claims
|
2022
|
|
|
2022
|
|
|
Prescription drugs claims
|
2024
|
|
|
2024
|
|
The health care cost trend, which is based on projected growth rates for medical and prescription drug claims, has an effect on our other post-retirement benefit costs and obligations. The following table shows the effects of a one percentage point change in the health care cost trend rate on service and interest costs for the year ended
December 31, 2016
and the post-retirement benefit obligation as of
December 31, 2016
(in millions) :
|
|
|
|
|
|
|
|
|
|
|
|
|
One Percentage Point
Increase
|
|
One Percentage Point
Decrease
|
|
Effect on total of service and interest cost
|
$
|
—
|
|
|
$
|
—
|
|
|
Effect on post-retirement benefit obligation
|
1.1
|
|
|
(1.0
|
)
|
Our investment policies require that asset allocations of domestic and foreign funded pension plans be maintained at certain targets. The following table shows our weighted-average asset allocations of our domestic funded pension plans at December 31,
2016
and
2015
, and current target asset allocation for 2017, by asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at
December 31
|
|
|
Target
|
|
2016
|
|
2015
|
|
Asset Category
|
|
|
|
|
|
|
Equity securities
|
52.0
|
%
|
|
52.0
|
%
|
|
50.2
|
%
|
|
Debt securities
|
44.0
|
%
|
|
42.2
|
%
|
|
44.4
|
%
|
|
Real estate
|
4.0
|
%
|
|
5.0
|
%
|
|
5.4
|
%
|
|
Cash
|
—
|
%
|
|
0.8
|
%
|
|
—
|
%
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows the weighted-average asset allocations of our foreign funded pension plan at December 31,
2016
and
2015
, and current target asset allocation for 2017, by asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at
December 31
|
|
|
Target
|
|
2016
|
|
2015
|
|
Asset Category
|
|
|
|
|
|
|
Equity securities
|
36.8
|
%
|
|
37.7
|
%
|
|
36.8
|
%
|
|
Debt securities
|
63.2
|
%
|
|
62.3
|
%
|
|
63.2
|
%
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
The following tables set forth the fair value of our pension plan assets as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
December 31
2016
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
Short-term investment funds
|
$
|
3.1
|
|
|
$
|
3.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Common stock collective funds (1)
|
210.4
|
|
|
|
|
|
|
|
|
Fixed income collective trust funds (1)
|
151.4
|
|
|
|
|
|
|
|
|
Real estate collective trust funds (1)
|
18.7
|
|
|
|
|
|
|
|
|
Loan fund (1)
|
29.9
|
|
|
|
|
|
|
|
|
Total
|
$
|
413.5
|
|
|
$
|
3.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
December 31
2015
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
Short-term investment funds
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
US equities
|
11.4
|
|
|
11.4
|
|
|
—
|
|
|
—
|
|
|
International equities
|
1.2
|
|
|
1.2
|
|
|
—
|
|
|
—
|
|
|
Common stock collective funds (1)
|
190.4
|
|
|
|
|
|
|
|
|
Fixed income collective trust funds (1)
|
160.4
|
|
|
|
|
|
|
|
|
Real estate collective trust funds (1)
|
20.2
|
|
|
|
|
|
|
|
|
Loan fund (1)
|
30.9
|
|
|
|
|
|
|
|
|
Total
|
$
|
416.1
|
|
|
$
|
14.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
_______
|
|
|
|
(1)
|
In accordance with the relevant accounting standards, these investments are measured at fair value using the NAV per share (or its equivalent) practical expedient and, as a result, are not recorded in the fair value hierarchy.
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a description of the valuation techniques and inputs used as of December 31,
2016
and
2015
.
Short-term investment funds
We value short-term investment funds based on the closing net asset values (NAV) quoted by the funds. The NAV represents the unitized fair values of the underlying securities held by the trusts, which are traded in an active market. Short-term investment funds are highly liquid investments in obligations of the US Government, or its agencies or instrumentalities, and the related money market instruments. The short-term investment funds have no unfunded commitments, restrictions on redemption frequency, or advance notice periods required for redemption. The fund seek to provide safety of principal, daily liquidity, and a competitive yield over the long term.
Common stock
We value common stock traded in an active market at the last reported sales price on the last business day of the plan year.
Common stock and fixed income collective trust funds
We value common stock and fixed income collective trusts based on the closing NAV prices quoted by the funds. The NAV prices are the unitized fair values of the underlying securities held by the trusts, which are traded in an active market. None of the collective trusts have unfunded commitments, restrictions on redemption frequency, or advance notice periods required for redemption. The investment objective of each of the common stock funds is long-term total return through capital appreciation and current income. The fixed income funds are each designed to deliver safety and stability by preserving principal and accumulated earnings.
Real estate collective trust funds
We value real estate collective trust funds based on the NAV provided by the funds' administrators, which are the unitized fair values of the underlying US commercial real estate investments held by the funds. An independent appraisal determines the fair values of the real estate properties. Redemptions from the real estate funds are available with either
45
or
60
day notice prior to the end of a quarter. A lack of liquidity in the funds may limit or delay redemptions. The investment objective of the real estate funds, which are diversified by location and property type, is long-term return through property appreciation, current income, and timely sales.
Loan fund
The loan fund is a limited liability company (LLC) and is valued using the NAV. The NAV is based on the fair value of the underlying assets owned by the LLC, less its liabilities, multiplied times the ownership interest of the LLC. As of December 31,
2016
, the GATX Master Trust held investments in
one
LLC. Generally, capital may be withdrawn as of the last day of the month upon written notice given on no later than
30
days prior to the withdrawal date. The investment manager may determine in its discretion to allow withdrawals on any such other date. The LLC fund seeks to achieve risk-adjusted total returns by buying and selling investments that are anticipated to have a primarily bank loan focus. Investments will be primarily in debt securities of midsize and large capitalizations. The Plan is allocated 100% of the interest that the GATX Corporation Master Trust holds. There are no unfunded commitments.
The primary investing objective of the pension plans is to provide benefits to plan participants and their beneficiaries. To achieve this goal, we invest in a diversified portfolio of equities, debt, and real estate investments to maximize return and to keep long-term investment risk at a reasonable level. Equity investments are diversified across US and non-US stocks, growth and value stocks, and small cap and large cap stocks. Debt securities are predominately investments in long-term, investment-grade corporate bonds. Real estate investments include investments in funds that are diversified by location and property type.
On a timely basis, but not less than twice a year, we formally review pension plan investments to ensure we adhere to investment guidelines and our stated investment approach. Our review also evaluates the reasonableness of our investment decisions and risk positions. We compare our investments' performance to indices and peers to determine if investment performance has been acceptable.
In 2017, we expect to contribute approximately
$5.7 million
to our pension and other post-retirement benefit plans. Additional contributions to the domestic funded pension plans will depend on investment returns on plan assets and actuarial experience.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows benefit payments, which reflect expected future service, as appropriate, we expect the plans to pay (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Plans
|
|
Unfunded Plans
|
|
Retiree Health and Life
|
|
2017
|
$
|
27.0
|
|
|
$
|
2.5
|
|
|
$
|
3.2
|
|
|
2018
|
27.0
|
|
|
2.6
|
|
|
3.0
|
|
|
2019
|
27.2
|
|
|
3.2
|
|
|
2.7
|
|
|
2020
|
27.5
|
|
|
3.5
|
|
|
2.5
|
|
|
2021
|
27.6
|
|
|
3.6
|
|
|
2.3
|
|
|
Years 2022-2026
|
142.0
|
|
|
19.2
|
|
|
9.9
|
|
|
|
$
|
278.3
|
|
|
$
|
34.6
|
|
|
$
|
23.6
|
|
In addition to our defined benefit plans, we have
two
401(k) retirement plans available to substantially all salaried employees and certain other employee groups. We may contribute to the plans as specified by their respective terms and as our board of directors determines. Contributions to our 401(k) retirement plans were
$1.8 million
for
2016
,
$1.9 million
for
2015
, and
$1.8 million
for
2014
.
Multiemployer Plans
Most of the shipboard personnel at ASC participate in various multiemployer benefit plans that provide pension, health care, and post-retirement and other benefits to active and retired employees. Unlike single employer plans, we do not recognize plan assets or obligations for multiemployer plans on our balance sheet. Rather, we recognize our contributions to the plans as marine operating expenses. The amounts we contribute are based on the number of crew hours worked, which depends on the number of vessels deployed and aggregate operating days in a particular year. The risks of participating in these multiemployer plans are different from single employer plans in the following aspects:
|
|
|
|
•
|
Assets contributed by one employer may be used to provide benefits to employees of other participating employers;
|
|
|
|
|
•
|
If a participating employer fails to make its required contributions, any unfunded obligations of the plan may be the responsibility of the remaining participating employers; and
|
|
|
|
|
•
|
If an employer chooses to stop participating in a multiemployer plan, the plan may require the withdrawing company to make additional contributions.
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows our contributions to multiemployer benefit plans for the years indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiemployer Plans
|
|
EIN and Pension Plan Number
|
|
Pension Protection Act Zone Status
|
|
GATX Contributions
|
|
Collective Bargaining Agreement Expiration Date
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
American Maritime Officers Pension Plan (1)(2)
|
|
13-1969709-001
|
|
Endangered-Yellow
|
|
$
|
1.2
|
|
|
$
|
1.4
|
|
|
$
|
1.5
|
|
|
January 15, 2017
|
|
Other multiemployer post-retirement plans
|
|
|
|
|
|
5.9
|
|
|
6.8
|
|
|
7.0
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
7.1
|
|
|
$
|
8.2
|
|
|
$
|
8.5
|
|
|
|
_______
|
|
|
|
(1)
|
Our contributions represented more than
5%
of the total contributions to the plan during each year and no surcharge was imposed for any year. The actuary for the American Maritime Officers Pension Plan certified that the plan is in endangered status (i.e. “yellow zone” as defined by the Pension Protection Act of 2006) for the plan year beginning October 1, 2013, because it has funding or liquidity problems, or both. A rehabilitation plan, as defined by the Employee Retirement Security Act of 1974, was instituted under which certain adjustable benefits were reduced or eliminated, and we are required to contribute at a negotiated rate per day worked by each employee.
|
|
|
|
|
(2)
|
ASC reached a tentative agreement with the American Maritime Officers ("AMO") management in February 2017. The new agreement, which would expire in January 2021, must now be ratified by the AMO members.
|
NOTE
11
.
Share-Based Compensation
We provide equity awards to our employees under the GATX Corporation 2012 Incentive Award Plan, including grants of non-qualified stock options, stock appreciation rights, restricted stock units, performance shares, and phantom stock awards. As of December 31,
2016
,
3.4 million
shares were authorized under the 2012 Plan and
1.1 million
shares were available for future issuance. We recognize compensation expense for our equity awards in selling, general and administrative expenses over the service period of each award. Share-based compensation expense was
$15.8 million
for
2016
,
$11.6 million
for
2015
, and
$14.0 million
for
2014
, and the related tax benefits were
$6.0 million
for
2016
,
$4.4 million
for
2015
, and
$5.3 million
for
2014
.
Stock Options and Stock Appreciation Rights
Stock options and stock appreciation rights entitle the holder to purchase shares of common stock for periods up to
seven
years from the grant date. Stock appreciation rights entitle the holder to receive the difference between the market price of our common stock at the time of exercise and the exercise price, either in shares of common stock, cash, or a combination thereof, at our discretion. Stock options entitle the holder to purchase shares of our common stock at a specified exercise price. The dividends that accrue on all stock options and stock appreciation rights are paid upon vesting and continue to be paid until the stock options or stock appreciation rights are exercised, canceled, or expire. The exercise price for stock options and stock appreciation rights is equal to the average of the high and low trading prices of our common stock on the date of grant. We recognize compensation expense on a straight-line basis over the vesting period of the award, which is generally
three
years.
The estimated fair value of a stock option or stock appreciation right is the sum of the value we derive using the Black-Scholes option pricing model and the present value of dividends we expect to pay over the expected term of the award. The Black-Scholes valuation incorporates various assumptions, including expected term, expected volatility, and risk free interest rates. We base the expected term on historical exercise patterns and post-vesting terminations, and we base the expected volatility on the historical volatility of our stock price over a period equal to the expected term. We use risk-free interest rates that are based on the implied yield on recently-issued US Treasury zero-coupon bonds with a term comparable to the expected term.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows the weighted average fair value for our stock options and stock appreciation rights and the assumptions we used to estimate fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Weighted average estimated fair value
|
$
|
13.86
|
|
|
$
|
18.16
|
|
|
$
|
18.12
|
|
|
Quarterly dividend rate
|
$
|
0.40
|
|
|
$
|
0.38
|
|
|
$
|
0.33
|
|
|
Expected term of stock appreciation rights, in years
|
4.7
|
|
|
4.7
|
|
|
4.4
|
|
|
Risk-free interest rate
|
1.4
|
%
|
|
1.2
|
%
|
|
1.3
|
%
|
|
Dividend yield
|
4.1
|
%
|
|
2.6
|
%
|
|
2.3
|
%
|
|
Expected stock price volatility
|
29.4
|
%
|
|
29.2
|
%
|
|
30.3
|
%
|
|
Present value of dividends
|
$
|
7.27
|
|
|
$
|
6.90
|
|
|
$
|
5.76
|
|
The following table shows information about outstanding stock options and stock appreciation rights for the year ended December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options and Stock Appreciation Rights
(in thousands)
|
|
Weighted Average Exercise Price
|
|
Outstanding at beginning of the year
|
1,574
|
|
$
|
45.18
|
|
|
Granted
|
467
|
|
39.19
|
|
|
Exercised
|
(363)
|
|
29.93
|
|
|
Forfeited/Cancelled
|
(24)
|
|
51.68
|
|
|
Expired
|
(6)
|
|
50.11
|
|
|
Outstanding at end of the year
|
1,648
|
|
46.73
|
|
|
Vested and exercisable at end of the year
|
895
|
|
47.12
|
|
The following table shows the aggregate intrinsic value of stock options and stock appreciation rights exercised in
2016
,
2015
, and
2014
, and the weighted average remaining contractual term and aggregate intrinsic value of stock options and stock appreciation rights outstanding and vested as of December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
Stock Options and Stock Appreciation Rights
|
Weighted Average Remaining Contractual Term
(Years)
|
|
Aggregate Intrinsic Value
(in millions)
|
|
Exercised in 2014
|
|
|
$
|
11.8
|
|
|
Exercised in 2015
|
|
|
6.2
|
|
|
Exercised in 2016
|
|
|
6.2
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016 (a)
|
4.1
|
|
24.5
|
|
|
Vested and exercisable at December 31, 2016
|
2.9
|
|
13.0
|
|
_______
(a) As of
December 31, 2016
,
1,188,635
stock appreciation rights and
459,600
stock options were outstanding.
As of December 31, 2016, none of the stock options issued during 2016 had vested. No stock options were issued during 2015, and all prior stock option awards had been exercised, forfeited, or expired as of December 31, 2014. Therefore, no cash was received from
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
employees for exercises of stock options during the years ended
December 31, 2016
and December 31, 2015. As of December 31,
2016
, we had
$6.4 million
of unrecognized compensation expense related to nonvested stock options and stock appreciation rights, which we expect to recognize over a weighted average period of
1.7
years.
Restricted Stock Units and Performance Shares
Restricted stock units entitle the recipient to receive a specified number of restricted shares of common stock upon vesting. Restricted stock units do not carry voting rights and are not transferable prior to the expiration of a specified restriction period, which is generally
three
years, as determined by the Compensation Committee of the Board of Directors ("Compensation Committee"). We accrue dividends on all restricted stock units and pay those dividends when the awards vest. We recognize compensation expense for these awards over the applicable vesting period.
Performance shares are restricted shares that we grant to key employees for achieving certain strategic objectives. The shares convert to common stock at the end of a specified performance period if predetermined performance goals are achieved, as determined by the Compensation Committee. We estimate the number of shares we expect will vest as a result of actual performance against the performance criteria at the time of grant to determine total compensation expense to be recognized. We reevaluate the estimate annually and adjust total compensation expense for any changes to the estimate of the number of shares we expect to vest. The performance shares granted in 2014 and later include an option to settle shares earned in cash upon vesting for certain eligible employees. We recognize compensation expense for these awards over the applicable vesting period, which is generally
three
years. In addition, compensation expense includes a component related to the changes in the value of the underlying shares.
We value our restricted stock units and performance share awards using the average of the high and low values of our common stock on the grant date of the awards. As of December 31,
2016
, there was
$9.0 million
of unrecognized compensation expense related to these awards, which we expect to be recognized over a weighted average period of
2.0
years.
The following table shows information about restricted stock units and performance shares for the year ended December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Number of Share Units Outstanding (in thousands)
|
|
Weighted Average Grant-Date Fair Value
|
|
Restricted Stock Units:
|
|
|
|
|
Nonvested at beginning of the year
|
172
|
|
|
$
|
53.18
|
|
|
Granted
|
88
|
|
|
40.33
|
|
|
Vested
|
(46
|
)
|
|
46.31
|
|
|
Forfeited
|
(10
|
)
|
|
52.71
|
|
|
Nonvested at end of the year
|
204
|
|
|
49.23
|
|
|
Performance Shares:
|
|
|
|
|
Nonvested at beginning of the year
|
121
|
|
|
$
|
54.32
|
|
|
Granted
|
95
|
|
|
38.83
|
|
|
Net increase due to estimated performance
|
18
|
|
|
56.91
|
|
|
Vested
|
(89
|
)
|
|
53.63
|
|
|
Forfeited
|
(2
|
)
|
|
54.79
|
|
|
Nonvested at end of the year
|
143
|
|
|
44.81
|
|
The total fair value of restricted stock units and performance shares that vested during the year was
$7.5 million
in
2016
,
$7.2 million
in
2015
, and
$6.6 million
in
2014
.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Phantom Stock Awards
We grant phantom stock awards to non-employee directors as a component of their compensation for service on our board of directors. In accordance with the terms of the phantom stock awards, each director is credited with a quantity of units that equate to, but are not, common shares. Phantom stock awards are dividend participating, and all dividends are reinvested in additional phantom shares at the average of the high and low trading prices of our stock on the dividend payment date. At the expiration of each director’s service on the board of directors, or in accordance with his or her deferral election, whole units of phantom stock will be settled with shares of common stock and fractional units will be paid in cash. In
2016
, we granted
29,481
units of phantom stock and there were
189,422
units outstanding as of December 31,
2016
.
NOTE
12
.
Income Taxes
Deferred income taxes are the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We have not recognized deferred US income taxes on the undistributed earnings of foreign subsidiaries and affiliates that we intend to permanently reinvest in foreign operations. The cumulative amount of such earnings was
$961.1 million
at December 31,
2016
. The ultimate tax cost of repatriating these earnings depends on tax laws in effect and other circumstances at the time of distribution.
The following table shows the significant components of our deferred tax liabilities and assets as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Deferred Tax Liabilities
|
|
|
|
|
Book/tax basis difference due to depreciation
|
$
|
1,119.1
|
|
|
$
|
1,058.1
|
|
|
Investments in affiliated companies
|
69.5
|
|
|
72.9
|
|
|
Lease accounting
|
11.1
|
|
|
7.3
|
|
|
Other
|
1.0
|
|
|
—
|
|
|
Total deferred tax liabilities
|
1,200.7
|
|
|
1,138.3
|
|
|
Deferred Tax Assets
|
|
|
|
|
Federal net operating loss
|
—
|
|
|
13.2
|
|
|
Alternative minimum tax credit
|
8.0
|
|
|
14.8
|
|
|
Foreign tax credit
|
—
|
|
|
5.8
|
|
|
Valuation allowance on foreign tax credit
|
—
|
|
|
(5.8
|
)
|
|
State net operating loss
|
25.4
|
|
|
27.7
|
|
|
Valuation allowance on state net operating loss
|
(12.9
|
)
|
|
(12.6
|
)
|
|
Foreign net operating loss
|
2.9
|
|
|
3.6
|
|
|
Valuation allowance on foreign net operating loss
|
(0.3
|
)
|
|
(0.3
|
)
|
|
Accruals not currently deductible for tax purposes
|
26.7
|
|
|
22.2
|
|
|
Allowance for losses
|
1.5
|
|
|
3.2
|
|
|
Pension and post-retirement benefits
|
30.9
|
|
|
35.8
|
|
|
Other
|
29.1
|
|
|
12.4
|
|
|
Total deferred tax assets
|
111.3
|
|
|
120.0
|
|
|
Net deferred tax liabilities
|
$
|
1,089.4
|
|
|
$
|
1,018.3
|
|
At December 31,
2016
, we have fully utilized all of our available US federal tax net operating loss carryforward. We do have an alternative minimum tax credit of
$8.0 million
that has an unlimited carryforward period.
At December 31,
2016
, we have fully utilized all of our available foreign tax credits. We do have state net operating losses of
$25.4 million
, net of federal benefits that are scheduled to expire at various times beginning in 2017. We have recorded a
$12.9 million
valuation
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
allowance related to state net operating losses, as we believe it is more likely than not that we will be unable to use all of these losses. Additionally, we have foreign net operating losses, net of valuation allowances, of
$2.6 million
which have unlimited carryforward periods. Our use of future tax credits and net operating losses depends on a number of variables, including the amount of taxable income and state apportionment factors.
The following table shows a reconciliation of the beginning and ending amount of our gross liability for unrecognized tax benefits (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Beginning balance
|
$
|
5.7
|
|
|
$
|
5.6
|
|
|
Additions to tax positions of prior years
|
—
|
|
|
0.1
|
|
|
Reduction for tax positions of prior years
|
(1.4
|
)
|
|
—
|
|
|
Ending balance
|
$
|
4.3
|
|
|
$
|
5.7
|
|
At December 31,
2016
, our gross liability for unrecognized tax benefits was
$4.3 million
, of which
$2.8
million, if recognized, would favorably impact income tax expense. During the year ended December 31,
2016
, we reduced our unrecognized tax benefit by
$1.4 million
based on a final determination ruling for a disputed state tax filing position. During the year ended December 31,
2015
, we added an additional
$0.1 million
gross state tax liability. We recognize interest and penalties related to unrecognized tax benefits as income tax expense. We have not accrued any amounts for penalties. To the extent interest is not assessed or is otherwise reduced with respect to uncertain tax positions, we will record any required adjustment as a reduction of income tax expense.
We file one consolidated federal income tax return with our domestic subsidiaries in the US jurisdiction, as well as tax returns in various state and foreign jurisdictions. As of
December 31, 2016
, all audits or statute of limitations with respect to our federal tax returns for years prior to 2013 have been closed or expired. Additionally, we do not currently have any ongoing state income tax audits.
The following table shows the components of income before income taxes, excluding affiliates, for the years ending December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Domestic
|
$
|
211.0
|
|
|
$
|
174.7
|
|
|
$
|
137.9
|
|
|
Foreign
|
94.4
|
|
|
95.6
|
|
|
93.3
|
|
|
|
$
|
305.4
|
|
|
$
|
270.3
|
|
|
$
|
231.2
|
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows income taxes, excluding domestic and foreign joint ventures, for the years ending December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Current
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
Federal
|
$
|
6.0
|
|
|
$
|
5.6
|
|
|
$
|
0.7
|
|
|
State and local
|
—
|
|
|
(0.2
|
)
|
|
0.6
|
|
|
|
6.0
|
|
|
5.4
|
|
|
1.3
|
|
|
Foreign
|
16.9
|
|
|
15.3
|
|
|
13.0
|
|
|
|
22.9
|
|
|
20.7
|
|
|
14.3
|
|
|
Deferred
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
Federal
|
55.8
|
|
|
44.7
|
|
|
45.0
|
|
|
State and local
|
10.5
|
|
|
33.7
|
|
|
5.6
|
|
|
|
66.3
|
|
|
78.4
|
|
|
50.6
|
|
|
Foreign
|
6.5
|
|
|
11.8
|
|
|
10.8
|
|
|
|
72.8
|
|
|
90.2
|
|
|
61.4
|
|
|
Income taxes
|
$
|
95.7
|
|
|
$
|
110.9
|
|
|
$
|
75.7
|
|
The following table shows the differences between our effective income tax rate and the federal statutory income tax rate for the years ending December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Income taxes at federal statutory rate
|
$
|
106.9
|
|
|
$
|
94.6
|
|
|
$
|
80.9
|
|
|
Adjust for effect of:
|
|
|
|
|
|
|
Foreign tax credits
|
(7.8
|
)
|
|
—
|
|
|
—
|
|
|
Foreign earnings taxed at lower rates
|
(9.7
|
)
|
|
(6.2
|
)
|
|
(8.5
|
)
|
|
Corporate owned life insurance
|
(1.7
|
)
|
|
(0.9
|
)
|
|
(0.6
|
)
|
|
State income taxes
|
6.8
|
|
|
7.6
|
|
|
4.1
|
|
|
State deferred tax rate change impact
|
—
|
|
|
14.1
|
|
|
—
|
|
|
Other
|
1.2
|
|
|
1.7
|
|
|
(0.2
|
)
|
|
Income taxes
|
$
|
95.7
|
|
|
$
|
110.9
|
|
|
$
|
75.7
|
|
|
Effective income tax rate
|
31.3
|
%
|
|
41.0
|
%
|
|
32.7
|
%
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In
2016
, our effective tax rate was
31.3%
compared to
41.0%
in 2015 and
32.7%
in 2014. The current year effective tax rate reflects the utilization of
$7.8 million
in foreign tax credits. The 2015 effective tax rate reflected incremental deferred state income taxes of
$14.1 million
associated with a change in our consolidated effective state tax rate. Specifically, the sale of our marine assets in our Portfolio Management segment had a negative impact on our allocation factors that increased our overall effective state income tax rates in future years. Additionally, the 2015 rate reflected a higher contribution from domestic source income, which is taxed at a higher rate, as well as the impact of an increase in the statutory tax rate in Alberta, Canada.
The adjustment for foreign earnings in each year reflects the impact of lower tax rates on income earned at our foreign subsidiaries. State income taxes are recognized on domestic pretax income or loss. The amount of our domestic income subject to state taxes relative to our total worldwide income impacts the effect state income tax has on our overall income tax rate.
Separately, our affiliates incurred income taxes of
$5.7 million
and
$18.3 million
in 2016 and
2014
, and an income tax benefit of
$0.5 million
in 2015. The 2016 and 2015 amounts were favorably impacted tax benefits of
$3.9 million
and
$7.7 million
as a result of income tax rate reductions enacted in the United Kingdom.
NOTE
13
.
Concentrations
Concentration of Revenues
We derived revenue from a wide range of industries and companies. In 2016, we generated approximately
26%
of our total revenues from customers in the petroleum industry,
19%
from the chemical industry,
18%
from the transportation industry,
9%
from food/agriculture industries, and
8%
from the mining, minerals and aggregates industry. Our foreign identifiable revenues were primarily derived in Germany, Canada, Poland, Mexico, and Austria.
Concentration of Credit Risk
We did not have revenue concentrations greater than
10%
from any particular customer for any of the years ended December 31,
2016
,
2015
, and
2014
. Under our lease agreements with customers, we typically retain legal ownership of the assets unless such assets have been financed by sale-leasebacks. We perform a credit evaluation prior to approval of a lease contract. Subsequently, we monitor the creditworthiness of the customer and the value of the collateral on an ongoing basis. We maintain an allowance for losses to provide for credit losses inherent in our reservable assets portfolio.
Concentration of Labor Force
As of December 31,
2016
, collective bargaining agreements covered approximately
43%
of our employees, of which agreements covering
20%
of employees will expire within the next year. The hourly employees at our US service centers are represented by the United Steelworkers. Employees at
three
of Rail North America's Canadian service centers are represented by Unifor, the union formerly known as the Communication, Energy and Paperworkers Union of Canada, and Employee Shop Committee of Riviere-des-Prairies. The Unifor agreements expired in January 2017 and negotiations are scheduled to begin in February 2017. The unlicensed shipboard personnel on
twelve
of the ASC vessels are represented by the Seafarers International Union ("SIU"). Licensed personnel on ASC’s vessels, other than captains, are represented by the AMO. The SIU and AMO agreements expired January 15, 2017. SIU membership, representing approximately
5%
of our employees, ratified a new agreement in January 2017, which will expire in June 2020. ASC reached a tentative agreement with AMO management in February 2017. The new agreement, which would expire in January 2021 and covers approximately
4%
of our employees, must now be ratified by the AMO members. Certain employees of GATX Rail Europe are represented by
one
union in Germany and
three
unions in Poland.
NOTE
14
.
Commercial Commitments
We have entered into various commercial commitments, such as guarantees, standby letters of credit, and performance bonds, 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.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows our commercial commitments as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Lease payment guarantees
|
$
|
15.0
|
|
|
$
|
22.1
|
|
|
Standby letters of credit and performance bonds
|
8.9
|
|
|
8.9
|
|
|
Total commercial commitments (1)
|
$
|
23.9
|
|
|
$
|
31.0
|
|
_______
|
|
|
|
(1)
|
The carrying value of liabilities on the balance sheet for commercial commitments was
$3.0 million
at December 31,
2016
and
$4.1 million
at December 31,
2015
. The expirations of these commitments range from
2017 to 2023
. We are not aware of any event that would require us to satisfy any of our commitments.
|
Lease payment guarantees are commitments to financial institutions to make lease payments for a third party in the event they default. We reduce any liability that may result from these guarantees by the value of the underlying asset or group of assets.
We are also 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.
NOTE
15
. Earnings per Share
We compute basic earnings per share by dividing net income available to our common shareholders by the weighted average number of shares of our common stock outstanding. We appropriately weighted shares issued or reacquired during the year for the portion of the year that they were outstanding. Our diluted earnings per share reflect the impacts of our potentially dilutive securities, which include our equity compensation awards.
The following table shows the computation of our basic and diluted net income per common share for the years ending December 31 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
Net income
|
$
|
257.1
|
|
|
$
|
205.3
|
|
|
$
|
205.0
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
40.5
|
|
|
43.1
|
|
|
45.0
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Equity compensation plans
|
0.4
|
|
|
0.7
|
|
|
0.8
|
|
|
Weighted average shares outstanding - diluted
|
40.9
|
|
|
43.8
|
|
|
45.8
|
|
|
Basic earnings per share
|
$
|
6.35
|
|
|
$
|
4.76
|
|
|
$
|
4.55
|
|
|
Diluted earnings per share
|
$
|
6.29
|
|
|
$
|
4.69
|
|
|
$
|
4.48
|
|
NOTE
16
.
Goodwill
Our goodwill, all of which pertains to Rail North America and Rail International, was
$78.0 million
as of December 31,
2016
and
$79.7 million
as of December 31,
2015
. In the fourth quarter of
2016
, we performed a review for impairment of goodwill, and concluded that goodwill was not impaired. For
2016
and
2015
, changes in the carrying amount of our goodwill resulted from changes in foreign currency exchange rates.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE
17
.
Allowance for Losses
The following table shows changes in the allowance for losses at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Beginning balance
|
$
|
10.3
|
|
|
$
|
5.7
|
|
|
Provision for losses
|
4.0
|
|
|
6.6
|
|
|
Charges to allowance
|
(9.1
|
)
|
|
(1.9
|
)
|
|
Recoveries and other, including foreign exchange adjustments
|
0.9
|
|
|
(0.1
|
)
|
|
Ending balance
|
$
|
6.1
|
|
|
$
|
10.3
|
|
The allowance for losses is comprised of a general allowance for trade receivables and specific allowances for finance leases. As of December 31,
2016
, the general allowance for trade receivables was
$6.1 million
, or
7.1%
of rent and other receivables, compared to
$6.3 million
, or
9.1%
of rent and other receivables at December 31,
2015
. At December 31,
2016
, there were no specific allowances for finance leases, compared to
$4.0 million
at December 31, 2015.
The specific allowance in 2015 was related to a loss reserve recorded in connection with one investment at Portfolio Management that was written off in the current year.
NOTE
18
. Other Assets and Other Liabilities
The following table shows the components of other assets reported on our balance sheets as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Assets held for sale
|
$
|
89.5
|
|
|
$
|
106.0
|
|
|
Inventory
|
51.3
|
|
|
55.2
|
|
|
Office furniture, fixtures and other equipment, net of accumulated depreciation
|
27.9
|
|
|
31.8
|
|
|
Derivatives
|
16.4
|
|
|
12.8
|
|
|
Prepaid items
|
15.1
|
|
|
14.3
|
|
|
Loans
|
6.2
|
|
|
8.8
|
|
|
Deferred financing costs
|
4.5
|
|
|
3.4
|
|
|
Prepaid pension
|
1.1
|
|
|
0.7
|
|
|
Other investments
|
0.5
|
|
|
4.2
|
|
|
Other
|
84.6
|
|
|
84.0
|
|
|
|
$
|
297.1
|
|
|
$
|
321.2
|
|
Assets held for sale consisted of Portfolio Management marine assets, resulting from management's decision to exit the majority of our marine investments within the Portfolio Management segment, as well as railcars at Rail North America. For additional information see "Note
9
.
Asset Impairments and Assets Held for Sale
".
The following table shows the components of other liabilities reported on our balance sheets as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Accrued pension and other post-retirement benefits
|
$
|
82.3
|
|
|
$
|
94.6
|
|
|
Deferred gains on sale-leasebacks
|
54.0
|
|
|
44.8
|
|
|
Accrued operating lease expense
|
22.2
|
|
|
19.3
|
|
|
Environmental accruals
|
14.9
|
|
|
13.2
|
|
|
Deferred income
|
3.8
|
|
|
7.7
|
|
|
Unrecognized tax benefits
|
2.8
|
|
|
3.8
|
|
|
Derivatives
|
0.1
|
|
|
3.8
|
|
|
Other
|
42.0
|
|
|
33.4
|
|
|
|
$
|
222.1
|
|
|
$
|
220.6
|
|
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE
19
.
Shareholders’ Equity
In
2016
, our board of directors authorized a
$300 million
share repurchase program. During the year, we purchased
2.7 million
shares of common stock for
$120.1 million
, including commissions. In 2015, we purchased
2.4 million
shares of common stock for
$125.4 million
which completed our
$250 million
repurchase program authorized in 2014. In 2014, we purchased
1.9 million
shares of common stock for
$124.6 million
. The timing of share repurchases is dependent on market conditions and other factors.
In accordance with our certificate of incorporation,
120 million
shares of common stock are authorized, at a par value of
$0.625
per share. As of December 31,
2016
,
67.0 million
shares were issued and
39.4 million
shares were outstanding.
The following shares of common stock were reserved as of December 31,
2016
(in millions):
|
|
|
|
|
|
|
GATX Corporation 2004 Equity Incentive Compensation Plan
|
2.2
|
|
|
GATX Corporation 2012 Incentive Award Plan
|
3.4
|
|
|
|
5.6
|
|
Our certificate of incorporation also authorizes
five million
shares of preferred stock at a par value of
$1.00
per share. We had no outstanding shares of preferred stock as of December 31,
2016
,
December 31, 2015
and
December 31, 2014
.
NOTE
20
.
Accumulated Other Comprehensive Income (Loss)
The following table shows the change in components for accumulated other comprehensive loss (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Gain (Loss)
|
|
Unrealized Gain (Loss) on Securities
|
|
Unrealized Loss on Derivative Instruments
|
|
Post-Retirement Benefit Plans
|
|
Total
|
|
Balance at December 31, 2013
|
$
|
57.2
|
|
|
$
|
0.4
|
|
|
$
|
(22.1
|
)
|
|
$
|
(78.2
|
)
|
|
(42.7
|
)
|
|
Change in component
|
(79.1
|
)
|
|
(0.2
|
)
|
|
0.3
|
|
|
(57.3
|
)
|
|
(136.3
|
)
|
|
Reclassification adjustments into earnings
|
—
|
|
|
—
|
|
|
6.0
|
|
|
10.1
|
|
|
16.1
|
|
|
Income tax effect
|
—
|
|
|
0.1
|
|
|
(3.3
|
)
|
|
17.7
|
|
|
14.5
|
|
|
Balance at December 31, 2014
|
(21.9
|
)
|
|
0.3
|
|
|
(19.1
|
)
|
|
(107.7
|
)
|
|
(148.4
|
)
|
|
Change in component
|
(55.8
|
)
|
|
(1.0
|
)
|
|
1.6
|
|
|
(0.9
|
)
|
|
(56.1
|
)
|
|
Reclassification adjustments into earnings
|
—
|
|
|
—
|
|
|
(1.0
|
)
|
|
13.5
|
|
|
12.5
|
|
|
Income tax effect
|
—
|
|
|
0.4
|
|
|
(2.4
|
)
|
|
(4.8
|
)
|
|
(6.8
|
)
|
|
Balance at December 31, 2015
|
(77.7
|
)
|
|
(0.3
|
)
|
|
(20.9
|
)
|
|
(99.9
|
)
|
|
(198.8
|
)
|
|
Change in component
|
(26.0
|
)
|
|
2.5
|
|
|
7.3
|
|
|
11.7
|
|
|
(4.5
|
)
|
|
Reclassification adjustments into earnings
|
—
|
|
|
(1.9
|
)
|
|
(3.9
|
)
|
|
9.0
|
|
|
3.2
|
|
|
Income tax effect
|
—
|
|
|
(0.3
|
)
|
|
(2.8
|
)
|
|
(7.9
|
)
|
|
(11.0
|
)
|
|
Balance at December 31, 2016
|
$
|
(103.7
|
)
|
|
$
|
—
|
|
|
$
|
(20.3
|
)
|
|
$
|
(87.1
|
)
|
|
$
|
(211.1
|
)
|
________
See "Note
8
.
Fair Value Disclosure
" and "Note
10
.
Pension and Other Post-Retirement Benefits
" for impacts of the reclassification adjustments on the statement of comprehensive income.
NOTE
21
.
Foreign Operations
For the years ended
December 31, 2016
,
2015
, and
2014
, we did not derive revenues in excess of
10%
of our consolidated revenues from any one foreign country. Additionally, at
December 31, 2016
and
2015
, we did not have more than
10%
of our identifiable assets in any one foreign country.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table shows our domestic and foreign revenues and identifiable assets for the years ended or as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Revenues
|
|
|
|
|
|
|
Foreign
|
$
|
320.7
|
|
|
$
|
329.4
|
|
|
$
|
346.2
|
|
|
United States
|
1,097.6
|
|
|
1,120.5
|
|
|
1,104.8
|
|
|
|
$
|
1,418.3
|
|
|
$
|
1,449.9
|
|
|
$
|
1,451.0
|
|
|
Identifiable Assets
|
|
|
|
|
|
|
Foreign
|
$
|
2,098.2
|
|
|
$
|
1,992.3
|
|
|
$
|
2,133.3
|
|
|
United States
|
5,007.2
|
|
|
4,901.9
|
|
|
4,786.6
|
|
|
|
$
|
7,105.4
|
|
|
$
|
6,894.2
|
|
|
$
|
6,919.9
|
|
NOTE
22
.
Legal Proceedings and Other Contingencies
Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against GATX and certain of our subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved or settled adversely.
Viareggio Derailment
In June 2009, a train consisting of fourteen liquefied petroleum gas (“LPG”) tank cars owned by GATX Rail Austria GmbH and its subsidiaries (collectively, “GRA”) derailed while passing through the City of Viareggio, in the province of Lucca, Italy. Five tank cars overturned and one of the overturned cars was punctured by a peg or obstacle along the side of the track, resulting in a release of LPG, which subsequently ignited. The accident resulted in multiple deaths, personal injuries and property damage. The LPG tank cars were leased to FS Logistica S.p.A., a subsidiary of the Italian state-owned railway, Ferrovie dello Stato S.p.A (the “Italian Railway”).
On December 14, 2012, the prosecutors for Lucca charged the Italian Railway, GRA, and a number of their maintenance, operations, and managerial employees with various negligence-based crimes related to the accident. A trial was held in the court of Lucca and, on January 31, 2017, the court announced guilty verdicts against various Italian Railway companies, GRA, and certain of their employees. The court imposed a fine of 1.4 million Euros against GRA and prison sentences against the employees. GRA disagrees with the trial court’s ruling and believes that the evidence shows it and its employees acted diligently and in accordance with applicable regulations at all times. GRA plans to appeal the trial court’s ruling and, pending the final disposition of the appeals, these fines and penalties are not enforceable.
With respect to civil claims, the insurers for the Italian Railway and GRA have fully settled and resolved most of the claims arising out of the accident. With respect to unsettled claims, the Lucca court ordered all convicted defendants (including various Italian Railway entities and GRA) to pay final damages or advances to the remaining 56 claimants. The amount of these awards is immaterial and GRA expects that its insurers will continue to cover most of these damages to claimants except for a small number of civil claims. GRA will continue to incur legal expenses for the criminal appeals although they are not expected to be material. We cannot predict the outcome of the appeals process and thus cannot reasonably estimate the possible amount or range of costs that may be ultimately incurred in connection with this litigation.
Other Litigation
GATX and its subsidiaries have been named as defendants in various other legal actions and claims, governmental proceedings, and private civil suits arising in the ordinary course of business, including environmental matters, workers’ compensation claims, and other personal injury claims. Some of these proceedings include claims for punitive as well as compensatory damages.
Several of our subsidiaries have also been named as defendants or co-defendants in cases alleging injury caused by exposure to asbestos. The plaintiffs seek an unspecified amount of damages based on common law, statutory, or premises liability or, in the case of claims against ASC, the Jones Act, which provides limited remedies to certain maritime employees. In January 2017, GATX agreed to settle 57
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Jones Act cases originally filed against ASC in the United States District Court, Northern District of Ohio for an immaterial amount. During 2016, an additional 3 asbestos cases were dismissed without payment. As of January 31, 2017, there remains 22 asbestos-related cases pending against GATX and its subsidiaries, which includes 7 new asbestos cases filed during 2016. In addition, demand has been made against GATX for asbestos-related claims under limited indemnities given in connection with the sale of certain of our former subsidiaries. It is possible that the number of these cases or claims for indemnity could begin to grow and that the cost of these cases, including costs to defend, could correspondingly increase in the future.
Litigation Accruals
We have recorded accruals totaling $4.7 million at December 31, 2016 for losses related to those litigation matters that we believe to be probable and for which an amount of loss can be reasonably estimated. However, we cannot determine a reasonable estimate of the maximum possible loss or range of loss for these matters given that they are at various stages of the litigation process and each case is subject to the inherent uncertainties of litigation (such as the strength of our legal defenses and the availability of insurance recovery). Although the maximum amount of liability that may ultimately result from any of these matters cannot be predicted with absolute certainty, management expects that none of the matters for which we have recorded an accrual, when ultimately resolved, will have a material adverse effect on our consolidated financial position or liquidity. It is possible, however, that the ultimate resolution of one or more of these matters could have a material adverse effect on our results of operations in a particular quarter or year if such resolution results in liability that materially exceeds the accrued amount.
In addition, we have other litigation matters pending for which we have not recorded any accruals because our potential liability for those matters is not probable or cannot be reasonably estimated based on currently available information. For those matters where we have not recorded an accrual but a loss is reasonably possible, we cannot determine a reasonable estimate of the maximum possible loss or range of loss for these matters given that they are at various stages of the litigation process and each case is subject to the inherent uncertainties of litigation (such as the strength of our legal defenses and the availability of insurance recovery). Although the maximum amount of liability that may ultimately result from any of these matters cannot be predicted with absolute certainty, management expects that none of the matters for which we have not recorded an accrual, when ultimately resolved, will have a material adverse effect on our consolidated financial position or liquidity. It is possible, however, that the ultimate resolution of one or more of these matters could have a material adverse effect on our results of operations in a particular quarter or year if such resolution results in a significant liability for GATX.
Environmental
Our operations are subject to extensive federal, state, and local environmental regulations. Our operating procedures include practices to protect the environment from the risks inherent in full service railcar leasing, which involves maintaining railcars used by customers to transport chemicals and other hazardous materials. Under some environmental laws in the US and certain other countries, the owner of a leased railcar may be liable for environmental damage and cleanup or other costs in the event of a spill or discharge of material from a railcar without regard to the owner's fault. While our standard master railcar lease agreement requires the lessee to indemnify us against environmental claims and to carry liability insurance coverage, such indemnities and insurance may not fully protect us against claims for environmental damage. Additionally, some of our real estate holdings, including previously owned properties, are or have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities might have resulted in discharges on the property. As a result, we are subject to environmental cleanup and enforcement actions. In particular, the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the Superfund law, as well as similar state laws, impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct. If there are other potentially responsible parties (“PRPs”), we generally contribute to the cleanup of these sites through cost-sharing agreements with terms that vary from site to site. Costs are typically allocated based on the relative volumetric contribution of material, the period of time the site was owned or operated, and/or the portion of the site owned or operated by each PRP.
At the time a potential environmental issue is identified, initial accruals for environmental liability are established when such liability is determined to be probable and a reasonable estimate of the associated costs can be made. Costs are estimated based on the type and level of investigation and/or remediation activities that our internal environmental staff (and where appropriate, independent consultants) have advised to be necessary to comply with applicable laws and regulations. Activities include surveys and environmental studies of potentially contaminated sites as well as costs for remediation and restoration of sites determined to be contaminated. In addition, we have provided indemnities for potential environmental liabilities to buyers of divested companies. In these instances, accruals are based
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
on the scope and duration of the respective indemnities together with the extent of known contamination. Estimates are periodically reviewed and adjusted as required to reflect additional information about facility or site characteristics or changes in regulatory requirements. We conduct a quarterly environmental contingency analysis, which considers a combination of factors including independent consulting reports, site visits, legal reviews, analysis of the likelihood of participation in and the ability of other PRPs to pay for cleanup, and historical trend analyses.
We are involved in administrative and judicial proceedings and other voluntary and mandatory cleanup efforts at 18 sites, including Superfund sites, for which we are contributing to the cost of performing the study or cleanup, or both, of alleged environmental contamination. As of December 31, 2016, we have recorded accruals of $14.9 million for remediation and restoration costs that we believe to be probable and for which the amount of loss can be reasonably estimated. These amounts are included in other liabilities on our balance sheet. Our environmental liabilities are not discounted.
We did not materially change our methodology for identifying and calculating environmental liabilities in the last three years. Currently, no known trends, demands, commitments, events or uncertainties exist that are reasonably likely to occur and materially affect the methodology or assumptions described above.
The recorded accruals represent our best estimate of all costs for remediation and restoration of affected sites, without reduction for anticipated recoveries from third parties, and include both asserted and unasserted claims. However, we are unable to provide a reasonable estimate of the maximum potential loss associated with these sites because cleanup costs cannot be predicted with certainty. Various factors beyond our control can impact the amount of loss GATX will ultimately incur with respect to these sites, including the extent of corrective actions that may be required; evolving environmental laws and regulations; advances in environmental technology, the extent of other parties' participation in cleanup efforts; developments in periodic environmental analyses related to sites determined to be contaminated, and developments in environmental surveys and studies of potentially contaminated sites. As a result, future charges associated with these sites could have a significant effect on results of operations in a particular quarter or year if the costs materially exceed the accrued amount as individual site studies and remediation and restoration efforts proceed. However, management believes it is unlikely that the ultimate cost to GATX for any of these sites, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or liquidity.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE
23
.
Financial Data of Business Segments
The financial data presented below depicts the profitability, financial position, and capital expenditures of each of our business segments.
We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail market. We report our financial results through
four
primary business segments: Rail North America, Rail International, American Steamship Company (“ASC”), and Portfolio Management.
Rail North America is composed of our wholly owned operations in the United States, Canada, and Mexico, as well as an affiliate investment. Rail North America primarily provides railcars pursuant to full-service leases under which it maintains the railcars, pays ad valorem taxes and insurance, and provides other ancillary services.
Rail International is composed of our wholly owned European operations ("GATX Rail Europe" or "GRE"), a wholly owned railcar leasing business in India ("Rail India"), and our operations in Russia ("Rail Russia"). GRE leases railcars to customers throughout Europe pursuant to full-service leases under which it maintains the railcars and provides value-adding services according to customer requirements.
ASC operates the largest fleet of US-flagged vessels on the Great Lakes, providing waterborne transportation of dry bulk commodities such as iron ore, coal, limestone aggregates, and metallurgical limestone.
Portfolio Management is composed primarily of our ownership in a group of joint ventures with Rolls-Royce plc that lease aircraft spare engines, as well as five liquefied gas carrying vessels and assorted other marine assets. In prior years, Portfolio Management generated leasing, marine operating, asset remarketing, and management fee income through a collection of diversified wholly owned assets and joint venture investments. In 2015, we made the decision to exit the majority of the marine investments within our Portfolio Management segment, including six chemical parcel tankers, a number of inland marine vessels, and our 50% interest in the Cardinal Marine joint venture.
Segment profit is an internal performance measure used by the Chief Executive Officer to assess the performance of each segment in a given period. Segment profit includes all revenues, pretax earnings from affiliates, and net gains on asset dispositions that are attributable to the segments, as well as expenses that management believes are directly associated with the financing, maintenance, and operation of the revenue earning assets. 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.
We allocate debt balances and related interest expense to each segment based upon predetermined debt to equity leverage ratios. Due to the changes in the composition of our segments, we modified segment leverage levels for 2016. The leverage levels for 2016 were 5:1 for Rail North America, 3:1 for Rail International, 1.5:1 for ASC, and 1:1 for Portfolio Management. Prior to 2016, the leverage levels were 5:1 for Rail North America, 2:1 for Rail International, 1.5:1 for ASC, and 3:1 for Portfolio Management.
We believe that by using this leverage and interest expense allocation methodology, each operating segment’s financial performance reflects appropriate risk-adjusted borrowing costs
.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables show certain segment data for the years ended December 31,
2016
,
2015
, and
2014
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail North America
|
|
Rail International
|
|
ASC
|
|
Portfolio Management
|
|
Other
|
|
GATX Consolidated
|
|
2016 Profitability
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue
|
$
|
935.1
|
|
|
$
|
182.0
|
|
|
$
|
4.2
|
|
|
$
|
5.8
|
|
|
$
|
—
|
|
|
$
|
1,127.1
|
|
|
Marine operating revenue
|
—
|
|
|
—
|
|
|
150.0
|
|
|
49.3
|
|
|
—
|
|
|
199.3
|
|
|
Other revenue
|
83.4
|
|
|
7.0
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
|
91.9
|
|
|
Total Revenues
|
1,018.5
|
|
|
189.0
|
|
|
154.2
|
|
|
56.6
|
|
|
—
|
|
|
1,418.3
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance expense
|
266.5
|
|
|
47.2
|
|
|
18.6
|
|
|
—
|
|
|
—
|
|
|
332.3
|
|
|
Marine operating expense
|
—
|
|
|
—
|
|
|
96.7
|
|
|
32.8
|
|
|
—
|
|
|
129.5
|
|
|
Depreciation expense
|
231.8
|
|
|
45.5
|
|
|
12.9
|
|
|
7.0
|
|
|
—
|
|
|
297.2
|
|
|
Operating lease expense
|
67.6
|
|
|
—
|
|
|
6.0
|
|
|
—
|
|
|
(0.1
|
)
|
|
73.5
|
|
|
Other operating expense
|
34.1
|
|
|
5.3
|
|
|
—
|
|
|
4.4
|
|
|
—
|
|
|
43.8
|
|
|
Total Expenses
|
600.0
|
|
|
98.0
|
|
|
134.2
|
|
|
44.2
|
|
|
(0.1
|
)
|
|
876.3
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on asset dispositions
|
16.6
|
|
|
1.1
|
|
|
—
|
|
|
80.3
|
|
|
—
|
|
|
98.0
|
|
|
Interest (expense) income, net
|
(110.1
|
)
|
|
(29.7
|
)
|
|
(4.5
|
)
|
|
(8.6
|
)
|
|
4.8
|
|
|
(148.1
|
)
|
|
Other (expense) income
|
(3.6
|
)
|
|
0.8
|
|
|
(5.4
|
)
|
|
—
|
|
|
(3.6
|
)
|
|
(11.8
|
)
|
|
Share of affiliates' earnings (pretax)
|
0.5
|
|
|
(0.2
|
)
|
|
—
|
|
|
52.8
|
|
|
—
|
|
|
53.1
|
|
|
Segment profit
|
$
|
321.9
|
|
|
$
|
63.0
|
|
|
$
|
10.1
|
|
|
$
|
136.9
|
|
|
$
|
1.3
|
|
|
533.2
|
|
|
Selling, general and administrative expense
|
174.7
|
|
|
Income taxes (includes $5.7 related to affiliates' earnings)
|
101.4
|
|
|
Net income
|
$
|
257.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain on Asset Dispositions
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Remarketing Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposition gains on owned assets
|
$
|
45.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.2
|
|
|
$
|
—
|
|
|
$
|
49.7
|
|
|
Residual sharing income
|
0.8
|
|
|
—
|
|
|
—
|
|
|
82.8
|
|
|
—
|
|
|
83.6
|
|
|
Non-remarketing disposition gains (1)
|
1.5
|
|
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.2
|
|
|
Asset impairments
|
(31.2
|
)
|
|
(0.6
|
)
|
|
—
|
|
|
(6.7
|
)
|
|
—
|
|
|
(38.5
|
)
|
|
|
$
|
16.6
|
|
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
80.3
|
|
|
$
|
—
|
|
|
$
|
98.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio investments and capital additions
|
$
|
495.6
|
|
|
$
|
87.1
|
|
|
$
|
9.1
|
|
|
$
|
25.0
|
|
|
$
|
3.9
|
|
|
$
|
620.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliated companies
|
$
|
10.5
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
375.3
|
|
|
$
|
—
|
|
|
$
|
387.0
|
|
|
Identifiable assets
|
$
|
4,775.6
|
|
|
$
|
1,128.7
|
|
|
$
|
278.8
|
|
|
$
|
593.5
|
|
|
$
|
328.8
|
|
|
$
|
7,105.4
|
|
__________
(1) Includes scrapping gains.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail North America
|
|
Rail International
|
|
ASC
|
|
Portfolio Management
|
|
Other
|
|
GATX Consolidated
|
|
2015 Profitability
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue
|
$
|
930.9
|
|
|
$
|
172.9
|
|
|
$
|
4.1
|
|
|
$
|
22.2
|
|
|
$
|
—
|
|
|
$
|
1,130.1
|
|
|
Marine operating revenue
|
—
|
|
|
—
|
|
|
166.1
|
|
|
68.9
|
|
|
—
|
|
|
235.0
|
|
|
Other revenue
|
75.9
|
|
|
7.5
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
84.8
|
|
|
Total Revenues
|
1,006.8
|
|
|
180.4
|
|
|
170.2
|
|
|
92.5
|
|
|
—
|
|
|
1,449.9
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance expense
|
264.2
|
|
|
39.6
|
|
|
22.3
|
|
|
—
|
|
|
—
|
|
|
326.1
|
|
|
Marine operating expense
|
—
|
|
|
—
|
|
|
107.2
|
|
|
48.7
|
|
|
—
|
|
|
155.9
|
|
|
Depreciation expense
|
215.1
|
|
|
43.7
|
|
|
14.3
|
|
|
17.4
|
|
|
—
|
|
|
290.5
|
|
|
Operating lease expense
|
82.2
|
|
|
—
|
|
|
5.2
|
|
|
—
|
|
|
(0.2
|
)
|
|
87.2
|
|
|
Other operating expense
|
26.2
|
|
|
5.1
|
|
|
—
|
|
|
7.1
|
|
|
—
|
|
|
38.4
|
|
|
Total Expenses
|
587.7
|
|
|
88.4
|
|
|
149.0
|
|
|
73.2
|
|
|
(0.2
|
)
|
|
898.1
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on asset dispositions
|
67.2
|
|
|
6.8
|
|
|
(0.1
|
)
|
|
5.3
|
|
|
—
|
|
|
79.2
|
|
|
Interest expense, net
|
(102.1
|
)
|
|
(22.4
|
)
|
|
(5.3
|
)
|
|
(20.0
|
)
|
|
(5.3
|
)
|
|
(155.1
|
)
|
|
Other expense
|
(5.2
|
)
|
|
(6.0
|
)
|
|
(0.7
|
)
|
|
—
|
|
|
(1.3
|
)
|
|
(13.2
|
)
|
|
Share of affiliates' earnings (pretax) (1)
|
0.5
|
|
|
(0.3
|
)
|
|
—
|
|
|
45.2
|
|
|
—
|
|
|
45.4
|
|
|
Segment profit (loss)
|
$
|
379.5
|
|
|
$
|
70.1
|
|
|
$
|
15.1
|
|
|
$
|
49.8
|
|
|
$
|
(6.4
|
)
|
|
508.1
|
|
|
Selling, general and administrative expense
|
192.4
|
|
|
Income taxes (includes $0.5 net benefits related to affiliates' earnings)
|
110.4
|
|
|
Net income
|
$
|
205.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain (Loss) on Asset Dispositions
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Remarketing Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposition gains on owned assets
|
$
|
66.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23.7
|
|
|
$
|
—
|
|
|
$
|
90.3
|
|
|
Residual sharing income
|
0.8
|
|
|
—
|
|
|
—
|
|
|
12.6
|
|
|
—
|
|
|
13.4
|
|
|
Non-remarketing disposition gains (2)
|
2.3
|
|
|
7.2
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
9.4
|
|
|
Asset impairments
|
(2.5
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
(31.0
|
)
|
|
—
|
|
|
(33.9
|
)
|
|
|
$
|
67.2
|
|
|
$
|
6.8
|
|
|
$
|
(0.1
|
)
|
|
$
|
5.3
|
|
|
$
|
—
|
|
|
$
|
79.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio investments and capital additions
|
$
|
524.5
|
|
|
$
|
148.0
|
|
|
$
|
20.3
|
|
|
$
|
18.4
|
|
|
$
|
3.5
|
|
|
$
|
714.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliated companies
|
$
|
12.0
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
335.1
|
|
|
$
|
—
|
|
|
$
|
348.5
|
|
|
Identifiable assets
|
$
|
4,629.1
|
|
|
$
|
1,117.6
|
|
|
$
|
284.7
|
|
|
$
|
636.5
|
|
|
$
|
226.3
|
|
|
$
|
6,894.2
|
|
__________
(1) Includes a
$19.0 million
impairment loss in the Portfolio Management segment.
(2) Includes scrapping gains.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rail North America
|
|
Rail International
|
|
ASC
|
|
Portfolio Management
|
|
Other
|
|
GATX Consolidated
|
|
2014 Profitability
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue
|
$
|
864.1
|
|
|
$
|
188.6
|
|
|
$
|
4.2
|
|
|
$
|
29.7
|
|
|
$
|
—
|
|
|
$
|
1,086.6
|
|
|
Marine operating revenue
|
—
|
|
|
—
|
|
|
223.0
|
|
|
63.3
|
|
|
—
|
|
|
286.3
|
|
|
Other revenue
|
63.4
|
|
|
10.3
|
|
|
—
|
|
|
4.4
|
|
|
—
|
|
|
78.1
|
|
|
Total Revenues
|
927.5
|
|
|
198.9
|
|
|
227.2
|
|
|
97.4
|
|
|
—
|
|
|
1,451.0
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance expense
|
265.5
|
|
|
45.9
|
|
|
25.6
|
|
|
—
|
|
|
—
|
|
|
337.0
|
|
|
Marine operating expense
|
—
|
|
|
—
|
|
|
149.2
|
|
|
48.6
|
|
|
—
|
|
|
197.8
|
|
|
Depreciation expense
|
190.0
|
|
|
47.1
|
|
|
13.6
|
|
|
22.8
|
|
|
—
|
|
|
273.5
|
|
|
Operating lease expense
|
103.7
|
|
|
—
|
|
|
5.2
|
|
|
—
|
|
|
(0.2
|
)
|
|
108.7
|
|
|
Other operating expense
|
21.9
|
|
|
5.1
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
28.9
|
|
|
Total Expenses
|
581.1
|
|
|
98.1
|
|
|
193.6
|
|
|
73.3
|
|
|
(0.2
|
)
|
|
945.9
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on asset dispositions
|
72.3
|
|
|
6.0
|
|
|
(0.5
|
)
|
|
9.4
|
|
|
—
|
|
|
87.2
|
|
|
Interest expense, net
|
(98.4
|
)
|
|
(24.7
|
)
|
|
(5.6
|
)
|
|
(24.3
|
)
|
|
(5.4
|
)
|
|
(158.4
|
)
|
|
Other expense
|
(7.2
|
)
|
|
(3.1
|
)
|
|
(0.2
|
)
|
|
(1.2
|
)
|
|
(1.8
|
)
|
|
(13.5
|
)
|
|
Share of affiliates' earnings (pretax)
|
7.9
|
|
|
(0.3
|
)
|
|
—
|
|
|
60.2
|
|
|
—
|
|
|
67.8
|
|
|
Segment profit (loss)
|
$
|
321.0
|
|
|
$
|
78.7
|
|
|
$
|
27.3
|
|
|
$
|
68.2
|
|
|
$
|
(7.0
|
)
|
|
488.2
|
|
|
Selling, general and administrative expense
|
189.2
|
|
|
Income taxes (includes $18.3 related to affiliates' earnings)
|
94.0
|
|
|
Net income
|
$
|
205.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain (Loss) on Asset Dispositions
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Remarketing Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposition gains on owned assets
|
$
|
57.4
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
5.1
|
|
|
$
|
—
|
|
|
$
|
63.1
|
|
|
Residual sharing income
|
5.2
|
|
|
—
|
|
|
—
|
|
|
4.2
|
|
|
—
|
|
|
9.4
|
|
|
Non-remarketing disposition gains (1)
|
10.4
|
|
|
5.7
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
16.0
|
|
|
Asset impairments
|
(0.7
|
)
|
|
(0.3
|
)
|
|
(0.4
|
)
|
|
0.1
|
|
|
—
|
|
|
(1.3
|
)
|
|
|
$
|
72.3
|
|
|
$
|
6.0
|
|
|
$
|
(0.5
|
)
|
|
$
|
9.4
|
|
|
$
|
—
|
|
|
$
|
87.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio investments and capital additions
|
$
|
810.6
|
|
|
$
|
163.6
|
|
|
$
|
18.4
|
|
|
$
|
32.3
|
|
|
$
|
5.6
|
|
|
$
|
1,030.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliated companies
|
$
|
17.2
|
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
338.7
|
|
|
$
|
—
|
|
|
$
|
357.7
|
|
|
Identifiable assets
|
$
|
4,358.2
|
|
|
$
|
1,228.8
|
|
|
$
|
286.7
|
|
|
$
|
813.3
|
|
|
$
|
232.9
|
|
|
$
|
6,919.9
|
|
__________
(1) Includes scrapping gains.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE
24
. Selected Quarterly Financial Data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second Quarter
|
|
Third Quarter (2)
|
|
Fourth Quarter (3)
|
|
Total
|
|
|
In millions, except per share data
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
334.4
|
|
|
$
|
358.9
|
|
|
$
|
362.9
|
|
|
$
|
362.1
|
|
|
$
|
1,418.3
|
|
|
Net income
|
$
|
69.3
|
|
|
$
|
61.2
|
|
|
$
|
95.7
|
|
|
$
|
30.9
|
|
|
$
|
257.1
|
|
|
Per Share Data (1)
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.67
|
|
|
$
|
1.51
|
|
|
$
|
2.39
|
|
|
$
|
0.78
|
|
|
$
|
6.35
|
|
|
Diluted
|
$
|
1.66
|
|
|
$
|
1.49
|
|
|
$
|
2.36
|
|
|
$
|
0.77
|
|
|
$
|
6.29
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
319.7
|
|
|
$
|
365.3
|
|
|
$
|
386.2
|
|
|
$
|
378.7
|
|
|
$
|
1,449.9
|
|
|
Net income
|
$
|
62.2
|
|
|
$
|
45.4
|
|
|
$
|
39.5
|
|
|
$
|
58.2
|
|
|
$
|
205.3
|
|
|
Per Share Data (1)
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.41
|
|
|
$
|
1.04
|
|
|
$
|
0.92
|
|
|
$
|
1.38
|
|
|
$
|
4.76
|
|
|
Diluted
|
$
|
1.39
|
|
|
$
|
1.03
|
|
|
$
|
0.91
|
|
|
$
|
1.37
|
|
|
$
|
4.69
|
|
_______
|
|
|
|
(1)
|
Quarterly earnings per share may not be additive, as per share amounts are computed independently for each quarter and the full year is based on the respective weighted average common shares and common stock equivalents outstanding.
|
|
|
|
|
(2)
|
In the third quarter of 2016, net income included
$30.3 million
of income related to the settlement of a residual sharing agreement and
$3.9 million
of benefit resulting from a reduction in the statutory income tax rate in the UK. In the third quarter of 2015, net income included
$26.6 million
of net loss related to the exit of marine investments at Portfolio Management.
|
|
|
|
|
(3)
|
In the fourth quarter of 2016, net income included
$19.2 million
of impairment losses related to certain railcars at Rail North America and
$7.1 million
of benefit related to the utilization of foreign tax credits. In the fourth quarter of 2015, net income included
$9.0 million
of net gain related to the exit of marine investments at Portfolio Management. In addition, net income included
$14.1 million
of expense attributable to an increase in our effective state income tax rate,
$7.7 million
of benefit resulting from a reduction in the statutory income tax rate in the UK, and
$5.6 million
of net expenses associated with an early retirement program offered to certain employees.
|