GATX(GATX) - 2019 Q1 - Quarterly Report

Forward-Looking Statements This section highlights forward-looking statements, which involve risks and uncertainties that could cause actual results to differ - The report contains forward-looking statements that involve known and unknown risks and uncertainties, which could cause actual results to differ materially from expectations[9] - Key risk factors include litigation outcomes, inability to maintain satisfactory lease rates, significant decline in customer demand, higher costs from increased railcar assignments, adverse impact on concentrated investments, financial/operational risks from long-term purchase commitments, reduced asset remarketing income, and risks related to affiliate investments[10][11] Part I - Financial Information This part presents GATX Corporation's unaudited consolidated financial statements and management's discussion and analysis Item 1 Financial Statements This section presents GATX Corporation's unaudited consolidated financial statements and related notes Consolidated Balance Sheets (Unaudited) This statement provides a snapshot of GATX Corporation's assets, liabilities, and shareholders' equity at specific dates Consolidated Balance Sheets (Unaudited) (In millions) | (In millions) | March 31, 2019 | December 31, 2018 | | :------------------------------------------ | :--------------- | :---------------- | | Assets | | | | Cash and Cash Equivalents | $248.4 | $100.2 | | Total Assets | $8,240.2 | $7,616.7 | | Liabilities and Shareholders' Equity | | | | Total Liabilities | $6,431.0 | $5,828.6 | | Total Shareholders' Equity | $1,809.2 | $1,788.1 | | Total Liabilities and Shareholders' Equity | $8,240.2 | $7,616.7 | - Total assets increased by $623.5 million (8.2%) from December 31, 2018, to March 31, 2019, primarily driven by an increase in cash and cash equivalents and the recognition of right-of-use assets due to the adoption of the new lease standard[15][26] - Total liabilities increased by $602.4 million (10.3%) over the same period, largely due to an increase in debt and the recognition of operating lease liabilities under the new accounting standard[15][26] Consolidated Statements of Comprehensive Income (Unaudited) This statement details GATX Corporation's revenues, expenses, net income, and earnings per share for the reporting periods Consolidated Statements of Comprehensive Income (Unaudited) (In millions, except per share data) | (In millions, except per share data) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $317.0 | $305.3 | | Total Expenses | $241.0 | $237.6 | | Net gain on asset dispositions | $8.9 | $56.1 | | Interest expense, net | $(46.5) | $(39.9) | | Income before Income Taxes | $35.2 | $82.6 | | Net Income | $41.5 | $76.3 | | Basic earnings per share | $1.14 | $2.02 | | Diluted earnings per share | $1.12 | $1.98 | - Net income decreased by $34.8 million (45.6%) from $76.3 million in Q1 2018 to $41.5 million in Q1 2019, primarily due to significantly lower net gains on asset dispositions ($8.9 million in 2019 vs. $56.1 million in 2018)[17][94] - Total revenues increased by $11.7 million (3.8%) year-over-year, driven by higher lease revenue and other revenue[17] Consolidated Statements of Cash Flows (Unaudited) This statement summarizes GATX Corporation's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (Unaudited) (In millions) | (In millions) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $64.3 | $77.2 | | Net cash used in investing activities | $(98.6) | $(83.0) | | Net cash provided (used) in financing activities | $182.5 | $(56.7) | | Net increase (decrease) in Cash, Cash Equivalents, and Restricted Cash | $147.9 | $(62.3) | | Cash, Cash Equivalents, and Restricted Cash at end of the period | $254.6 | $237.4 | - Net cash provided by operating activities decreased by $12.9 million (16.7%) to $64.3 million in Q1 2019, impacted by higher operating lease and compensation-related payments, partially offset by lower interest and income tax payments[19][150] - Net cash provided by financing activities significantly increased to $182.5 million in Q1 2019 from a net use of $56.7 million in Q1 2018, primarily due to $495.2 million in net proceeds from debt issuances, including a $500 million 10-year unsecured debt issuance[19][152] Consolidated Statements of Changes in Shareholders' Equity (Unaudited) This statement outlines the changes in GATX Corporation's shareholders' equity components over the reporting periods Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (In millions) | (In millions) | March 31, 2019 | March 31, 2018 | | :------------------------------------ | :------------- | :------------- | | Total Shareholders' Equity (end of period) | $1,809.2 | $1,839.7 | | Net income | $41.5 | $76.3 | | Dividends declared | $(17.5) | $(17.3) | | Stock repurchases | $(40.0) | $(25.0) | | Accumulated Other Comprehensive Loss | $(170.1) | $(113.7) | - Total Shareholders' Equity decreased slightly from $1,839.7 million in Q1 2018 to $1,809.2 million in Q1 2019, influenced by net income, dividends, stock repurchases, and changes in accumulated other comprehensive loss[20] - The cumulative impact of accounting standard adoption (ASU 2016-02, Leases) resulted in a $39.4 million increase to retained earnings as of January 1, 2019[20][26] Notes to the Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the consolidated financial statements Note 1. Description of Business This note describes GATX Corporation's primary business activities and its reporting segments - GATX Corporation leases, operates, manages, and remarkets long-lived, widely-used assets, primarily in the rail market[23] - The company reports financial results through four primary business segments: Rail North America, Rail International, Portfolio Management, and American Steamship Company (ASC)[23] Note 2. Basis of Presentation This note explains accounting principles, interim financial information, and new accounting pronouncements adopted - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, including normal recurring adjustments[24] - Operating results for Q1 2019 are not necessarily indicative of the full year, as ASC's fleet is inactive in Q1 due to winter conditions, and asset remarketing income is not evenly distributed[25] New Accounting Pronouncements Adopted in Q1 2019 | Standard/Description | Adoption Considerations | Effect on Financial Statements or Other Significant Matters | | :------------------- | :---------------------- | :-------------------------------------------------------- | | Leases (Topic 842) | Modified retrospective transition, cumulative effect adjustment. Elected practical expedients for lease classification, initial direct costs, and not separating non-lease components. | Recognized $460.7 million right-of-use assets and $483.6 million lease liabilities for operating leases. Eliminated deferred gains from sale-leaseback, resulting in a $39.4 million (after-tax) equity increase. Expected $4.0 million (pre-tax) increase in operating lease expense in 2019. No impact on cash flows. | | Derivatives and Hedging (Topic 815) | Adopted in Q1 2019. | No impact on financial statements, immaterial impact on disclosures. | | Compensation - Stock Compensation (Topic 718) | Adopted in Q1 2019. | No impact on financial statements or disclosures. | - ASU 2016-13, Credit Losses (Topic 326), is effective in Q1 2020, and the company is evaluating its effect[27] Note 3. Revenue This note details GATX Corporation's revenue recognition policies across its various income streams - Revenue is recognized when control of promised goods or services is transferred to customers, reflecting the expected consideration[28] - Lease revenue (operating and finance leases) is the primary source, with operating lease revenue recognized straight-line over the lease term and finance lease revenue recognized using the interest method[29][30][31] - Marine operating revenue is recognized over time as shipping services are completed, pro rata over the projected voyage duration[32] - Other revenue includes customer liability repair revenue, termination fees, utilization income, fee income, and interest on loans, with select components under Topic 606 and variable lease components under Topic 842[33] Note 4. Leases This note outlines the impact of the new lease accounting standard and GATX Corporation's lease activities as lessor and lessee - The adoption of ASU 2016-02 in Q1 2019 required recognition of right-of-use assets and lease liabilities for operating leases on the balance sheet and eliminated deferred gains from railcar sale-leaseback arrangements, increasing equity by $39.4 million[34][36] - As a lessor, GATX leases railcars and other operating assets, with finance lease income of $2.8 million and total operating lease income of $271.6 million for Q1 2019[38][39] Components of Lease Income (Q1 2019) (In millions) | (In millions) | Three Months Ended March 31, 2019 | | :------------ | :-------------------------------- | | Finance lease income | $2.8 | | Operating lease income: | | | Fixed lease income | $253.9 | | Variable lease income | $17.7 | | Total operating lease income | $271.6 | | Total lease income | $274.4 | - As a lessee, GATX leases assets including approximately 8,400 railcars in North America, offices, and maintenance facilities, with operating lease cost of $15.2 million and finance lease cost of $0.3 million for Q1 2019[41][43] Maturities of Lease Liabilities (March 31, 2019) (In millions) | (In millions) | Operating Leases | Finance Leases | Total | | :------------ | :--------------- | :------------- | :---- | | 2019 (remainder) | $34.8 | $11.1 | $45.9 | | 2020 | $67.7 | — | $67.7 | | 2021 | $66.1 | — | $66.1 | | 2022 | $57.2 | — | $57.2 | | 2023 | $54.4 | — | $54.4 | | Years thereafter | $268.2 | — | $268.2 | | Total discounted lease liabilities | $456.3 | $11.0 | $467.3 | Weighted-Average Lease Terms and Discount Rates (March 31, 2019) | Metric | Operating Leases | Finance Leases | | :----- | :--------------- | :------------- | | Weighted-average remaining lease term (years) | 10.3 | 0.5 | | Weighted-average discount rate | 3.87% | 3.39% | Note 5. Fair Value Disclosure This note provides information on assets and liabilities measured at fair value, primarily derivative instruments - Assets and liabilities recorded at fair value on a recurring basis consisted entirely of derivatives at March 31, 2019, and December 31, 2018[47] - GATX uses interest rate swaps for fair value hedges and Treasury/swap rate locks and currency swaps/options for cash flow hedges, hedging interest rate and foreign currency risk on anticipated transactions[49][50] - As of March 31, 2019, $2.0 million ($1.5 million after-tax) of net losses on previously terminated derivatives are expected to be reclassified from accumulated other comprehensive income (loss) to interest or operating lease expense within the next 12 months[50] Derivative Assets and Liabilities at Fair Value (March 31, 2019) (In millions) | (In millions) | Balance Sheet Location | Fair Value | | :------------ | :--------------------- | :--------- | | Derivative Assets | | | | Foreign exchange contracts (designated) | Other assets | $9.9 | | Foreign exchange contracts (non-designated) | Other assets | $0.4 | | Total derivative assets | | $10.3 | | Derivative Liabilities | | | | Interest rate contracts (designated) | Other liabilities | $4.4 | | Foreign exchange contracts (designated) | Other liabilities | $8.5 | | Foreign exchange contracts (non-designated) | Other liabilities | $5.3 | | Total derivative liabilities | | $18.2 | - All derivatives were classified as Level 2 in the fair value hierarchy, valued using pricing models with observable market inputs[57] Note 6. Pension and Other Post-Retirement Benefits This note details the components of GATX Corporation's net periodic pension and post-retirement benefit costs Pension and Other Post-Retirement Benefits Expense (Q1 2019 vs. Q1 2018) (In millions) | (In millions) | 2019 Pension Benefits | 2018 Pension Benefits | 2019 Retiree Health and Life | 2018 Retiree Health and Life | | :------------ | :-------------------- | :-------------------- | :--------------------------- | :--------------------------- | | Service cost | $1.7 | $1.9 | — | $0.1 | | Interest cost | $3.8 | $3.7 | $0.2 | $0.2 | | Expected return on plan assets | $(5.5) | $(5.6) | — | — | | Amortization of unrecognized net actuarial loss | $1.9 | $2.5 | — | — | | Net periodic cost | $1.9 | $2.5 | $0.2 | $0.3 | - Net periodic pension cost decreased from $2.5 million in Q1 2018 to $1.9 million in Q1 2019, primarily due to lower amortization of unrecognized net actuarial loss[63] Note 7. Share-Based Compensation This note describes share-based compensation expense and the types of awards granted by GATX Corporation - Total share-based compensation expense for Q1 2019 was $5.1 million (with $1.3 million related tax benefits), an increase from $4.9 million (with $1.2 million tax benefits) in Q1 2018[65] - Awards granted in Q1 2019 included 326,900 non-qualified employee stock options, 42,700 restricted stock units, 58,340 performance shares, and 5,933 phantom stock units[65] 2019 Non-Qualified Employee Stock Option Awards Assumptions | Metric | Value | | :----- | :---- | | Weighted-average estimated fair value | $22.24 | | Quarterly dividend rate | $0.46 | | Expected term of stock options, in years | 4.2 | | Risk-free interest rate | 2.5% | | Dividend yield | 2.6% | | Expected stock price volatility | 28.9% | | Present value of dividends | $7.29 | Note 8. Income Taxes This note explains GATX Corporation's effective income tax rate and the factors influencing its changes - The effective income tax rate for Q1 2019 was 24%, a decrease from 25% in Q1 2018[68] - The difference in effective rates is primarily due to the mix of pre-tax income among domestic and foreign jurisdictions, which are taxed at different rates, and incremental tax benefits from share-based compensation[68] Note 9. Commercial Commitments This note outlines GATX Corporation's commercial commitments, including guarantees and letters of credit - GATX has various commercial commitments, including lease payment guarantees, standby letters of credit, and performance bonds, which expose the company to credit, market, and equipment risk[69] Commercial Commitments (March 31, 2019 vs. December 31, 2018) (In millions) | (In millions) | March 31, 2019 | December 31, 2018 | | :------------ | :------------- | :---------------- | | Lease payment guarantees | $1.5 | $2.0 | | Standby letters of credit and performance bonds | $9.4 | $9.5 | | Total commercial commitments | $10.9 | $11.5 | - The carrying value of liabilities for commercial commitments was $0.7 million at March 31, 2019, with expirations ranging from 2019 to 2023, and no material losses are anticipated[70][72] Note 10. Earnings per Share This note presents the calculation of basic and diluted earnings per share for GATX Corporation - Basic EPS is calculated by dividing net income by the weighted-average common shares outstanding, while diluted EPS reflects the impact of potentially dilutive securities[73] Basic and Diluted Net Income per Common Share (Q1 2019 vs. Q1 2018) (In millions, except per share amounts) | (In millions, except per share amounts) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income | $41.5 | $76.3 | | Weighted-average shares outstanding - basic | 36.5 | 37.9 | | Weighted-average shares outstanding - diluted | 37.1 | 38.5 | | Basic earnings per share | $1.14 | $2.02 | | Diluted earnings per share | $1.12 | $1.98 | - Diluted EPS decreased by $0.86 (43.4%) from $1.98 in Q1 2018 to $1.12 in Q1 2019, consistent with the decrease in net income[74] Note 11. Accumulated Other Comprehensive Income (Loss) This note details the changes in GATX Corporation's accumulated other comprehensive income (loss) components Change in Accumulated Other Comprehensive Loss (Q1 2019) (In millions) | (In millions) | Foreign Currency Translation Gain (Loss) | Unrealized Loss on Derivative Instruments | Post Retirement Benefit Plans | Total | | :------------ | :--------------------------------------- | :---------------------------------------- | :---------------------------- | :---- | | Balance at December 31, 2018 | $(58.0) | $(14.0) | $(92.6) | $(164.6) | | Change in component | $(10.5) | $12.9 | — | $2.4 | | Reclassification adjustments into earnings | — | $(10.2) | $1.9 | $(8.3) | | Income tax effect | — | $(0.7) | $1.1 | $0.4 | | Balance at March 31, 2019 | $(68.5) | $(12.0) | $(89.6) | $(170.1) | - Accumulated other comprehensive loss increased from $(164.6) million at December 31, 2018, to $(170.1) million at March 31, 2019, primarily due to foreign currency translation losses and reclassification adjustments for derivative instruments and post-retirement benefit plans[76] Note 12. Legal Proceedings and Other Contingencies This note discusses pending legal actions and claims against GATX Corporation, including the Viareggio Derailment case - Various legal actions and claims are pending against GATX, with potential adverse outcomes, though the ultimate costs cannot be reasonably estimated[77] - The Viareggio Derailment case involves GATX Rail Austria GmbH (GRA) and Italian Railway companies, with a trial court finding GRA and employees guilty of negligence-based crimes and imposing a 1.4 million Euro fine on GRA in January 2017, with appeals ongoing[78][79] - Fines and penalties from the Viareggio case are not enforceable until all appeals are exhausted, and most civil claims have been settled by insurers[79] Note 13. Financial Data of Business Segments This note provides financial performance data for GATX Corporation's four primary business segments - GATX operates through four primary business segments: Rail North America, Rail International, Portfolio Management, and American Steamship Company (ASC)[80] - Segment profit is an internal performance measure used by the CEO, including all directly attributable revenues, expenses, pre-tax earnings from affiliates, and net gains on asset dispositions, with allocated interest expense, excluding SG&A, income taxes, and certain other unallocated amounts[85] Segment Profit (Q1 2019 vs. Q1 2018) (In millions) | (In millions) | Q1 2019 Segment Profit | Q1 2018 Segment Profit | | :------------ | :--------------------- | :--------------------- | | Rail North America | $68.4 | $108.9 | | Rail International | $14.8 | $19.0 | | Portfolio Management | $12.3 | $13.9 | | ASC | $2.5 | $0.8 | | Total Segment Profit | $98.0 | $142.6 | - Rail North America's segment profit decreased significantly by $40.5 million (37.2%) due to lower net gains on asset dispositions[87][104] - Rail International's segment profit decreased by $4.2 million (22.1%) due to negative foreign exchange impacts and Viareggio litigation costs[87][115] - Portfolio Management's segment profit decreased by $1.6 million (11.5%) due to lower contribution from Norgas Vessels, partially offset by higher RRPF affiliate income[87][128] - ASC's segment profit increased by $1.7 million (212.5%) due to higher revenue from favorable operating conditions and early vessel deployment[87][136] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of GATX's financial condition and results of operations Overview This overview describes GATX Corporation's business model and the basis for its financial discussion - GATX leases, operates, manages, and remarkets long-lived assets, primarily in the rail market, reporting through Rail North America, Rail International, Portfolio Management, and American Steamship Company (ASC)[89] - The discussion is based on GAAP financial data and certain non-GAAP components, with reconciliations provided, noting Q1 2019 results are not necessarily indicative of the full year due to seasonal factors and uneven asset remarketing income[90][91] Discussion of Operating Results This section analyzes GATX Corporation's consolidated financial performance, including net income and return on equity Consolidated Financial Results Summary (Q1 2019 vs. Q1 2018) (In millions, except per share data) | (In millions, except per share data) | March 31, 2019 | March 31, 2018 | | :----------------------------------- | :------------- | :------------- | | Total Segment Revenues | $317.0 | $305.3 | | Total Segment Profit | $98.0 | $142.6 | | Net Income | $41.5 | $76.3 | | Diluted earnings per share | $1.12 | $1.98 | | Investment Volume | $147.3 | $178.4 | - Net income for Q1 2019 was $41.5 million ($1.12 per diluted share), a decrease of $34.8 million compared to $76.3 million ($1.98 per diluted share) in Q1 2018, primarily due to lower asset disposition gains[94] Return on Equity (Trailing 12 Months Ended March 31) | Metric | 2019 | 2018 | | :----- | :--- | :--- | | ROE (GAAP) | 9.7% | 32.3% | | ROE, excluding tax adjustments and other items (non-GAAP) | 11.0% | 14.0% | Segment Operations This section provides a detailed analysis of the operating performance for each of GATX Corporation's business segments RAIL NORTH AMERICA This section discusses the performance of GATX Corporation's largest segment, focusing on lease rates, utilization, and investment volume - Lease rates for most tank car types improved in Q1 2019 due to stable customer demand and a lengthening industry manufacturing backlog, while freight car lease rates remained under pressure[97] Rail North America Fleet Utilization (March 31, 2019) | Fleet Type | Utilization Rate | | :--------- | :--------------- | | Wholly owned fleet (excluding boxcars) | 99.4% | | Boxcars | 95.2% | - The Lease Price Index (LPI) renewal rate change was 5.2% in Q1 2019, a significant improvement from negative 11.6% in Q1 2018, with average renewal lease terms of 39 months and a renewal success rate of 83.6%[98] - Segment profit decreased by 37.2% to $68.4 million in Q1 2019, primarily due to lower net gains on asset dispositions ($8.2 million in 2019 vs. $54.1 million in 2018)[104][107] - Lease revenue increased by 0.6% to $220.9 million, driven by more railcars on lease, including acquisitions from ECN Capital Corporation, while other revenue increased by $11.6 million due to higher repair revenue and lease termination fees[105] - Investment volume was $99.0 million in Q1 2019, down from $136.5 million in Q1 2018, with 412 newly built and 266 secondary market railcars acquired[108] RAIL INTERNATIONAL This section reviews the operating results of GATX Rail Europe and Rail India, including lease rates, utilization, and foreign exchange impacts - Rail International, primarily GATX Rail Europe (GRE), showed strong operating results with improved lease rates and steady demand in Europe, with railcar utilization for GRE at 98.9% at March 31, 2019, up from 96.7% at March 31, 2018[111][113] - Segment profit decreased by 22.1% to $14.8 million in Q1 2019, driven by the negative impact of a weaker euro (approximately $2.0 million on segment profit) and Viareggio litigation costs, partially offset by more railcars on lease[114][115] - Lease revenue decreased slightly by 0.4% to $52.2 million, as the benefit from more railcars on lease was offset by foreign exchange rates, and maintenance expense decreased by $0.4 million due to lower workshop costs[116][117] - Investment volume increased to $33.1 million in Q1 2019 from $29.5 million in Q1 2018, with 185 railcars acquired at GRE and 368 at Rail India[119] PORTFOLIO MANAGEMENT This section details the performance of GATX Corporation's Portfolio Management segment, including RRPF affiliates and Norgas Vessels - Segment profit is primarily from income from RRPF affiliates (joint ventures with Rolls-Royce plc leasing aircraft spare engines), which contributed $18.2 million in Q1 2019, up from $17.4 million in Q1 2018[122][131] - As of March 31, 2019, RRPF affiliates owned 462 aircraft spare engines with a net book value of approximately $4,538.7 million, with a utilization rate of 96.8%[122][127] - Portfolio Management also owns five Norgas Vessels, specializing in transporting pressurized gases and chemicals[123] - Segment profit decreased to $12.3 million in Q1 2019 from $13.9 million in Q1 2018, reflecting a lower contribution from the Norgas Vessels due to lower utilization and charter rates, partially offset by higher RRPF affiliate income[128][129] ASC This section covers the operational and financial performance of the American Steamship Company segment, noting seasonal impacts - ASC's operations are limited in Q1 due to winter conditions, but in Q1 2019, ASC benefited from favorable sailing conditions and early vessel deployment, carrying 1.2 million net tons of freight, up from 0.9 million in Q1 2018[133][135] - Segment profit increased significantly to $2.5 million in Q1 2019 from $0.8 million in Q1 2018, driven by higher revenue from improved operating conditions[136] - Marine operating revenue increased by 9.2% to $10.7 million, while marine operating expense decreased by $0.7 million due to fewer operating days and more efficient fleet performance[137][138] - One ASC vessel was damaged by fire during winter maintenance in February 2019; management does not expect a material adverse effect on operations or cash flows[134] OTHER This section discusses selling, general and administrative expenses, unallocated interest, and other corporate-level adjustments - Selling, general and administrative (SG&A) expenses increased by $1.2 million in Q1 2019 compared to Q1 2018, primarily due to higher employee compensation, partially offset by lower information technology expenses and the absence of accelerated depreciation from a prior-year office lease termination[143] Components of Other (Q1 2019 vs. Q1 2018) (In millions) | (In millions) | March 31, 2019 | March 31, 2018 | | :------------ | :------------- | :------------- | | Selling, general and administrative expense | $46.1 | $44.9 | | Unallocated interest (income) expense | $(1.7) | $(2.6) | | Other expense (income), including eliminations | $0.2 | $0.2 | - Unallocated interest expense is influenced by consolidated leverage, timing of debt issuances, investing activities, and intercompany allocations[144] CASH FLOW AND LIQUIDITY This section analyzes GATX Corporation's cash generation, funding strategies, and overall liquidity position - GATX generates significant cash from operating activities and investment portfolio proceeds, supplementing with domestic and international capital markets debt and commercial paper to fund obligations, share repurchases, and investments[148] - As of March 31, 2019, unrestricted cash balance was $248.4 million[149] Principal Sources and Uses of Cash (Q1 2019 vs. Q1 2018) (In millions) | (In millions) | 2019 | 2018 | | :------------ | :--- | :--- | | Principal sources of cash | | | | Net cash provided by operating activities | $64.3 | $77.2 | | Portfolio proceeds | $41.5 | $123.2 | | Proceeds from issuance of debt, commercial paper, and credit facilities | $495.2 | — | | Total | $607.5 | $209.2 | | Principal uses of cash | | | | Portfolio investments and capital additions | $(147.3) | $(178.4) | | Repayments of debt, commercial paper, and credit facilities | $(254.7) | $(11.8) | | Stock repurchases | $(38.1) | $(25.0) | | Dividends | $(19.2) | $(18.6) | | Total | $(459.6) | $(273.2) | - Net cash provided by operating activities decreased by $12.9 million, portfolio proceeds decreased by $81.7 million due to lower railcar sales, and proceeds from debt issuance were $495.2 million in Q1 2019 (vs. zero in Q1 2018), including a $500 million 10-year unsecured debt issuance[150][151][152] - Investment volume decreased by $31.1 million to $147.3 million, and GATX repurchased 0.5 million shares for $40.0 million in Q1 2019, with $260.0 million remaining under the $300.0 million share repurchase program approved in January 2019[153][155][156] Contractual Commitments (March 31, 2019) (In millions) | (In millions) | Total | 2019 (remainder) | 2020 | 2021 | 2022 | 2023 | Thereafter | | :------------ | :-------- | :--------------- | :------ | :------ | :------ | :------ | :--------- | | Recourse debt | $4,811.7 | $250.0 | $350.0 | $661.7 | $250.0 | $250.0 | $3,050.0 | | Interest on recourse debt | $2,040.6 | $150.8 | $181.4 | $169.5 | $144.7 | $133.5 | $1,260.7 | | Operating lease obligations | $551.2 | $35.2 | $68.0 | $66.3 | $57.5 | $54.7 | $269.5 | | Purchase commitments | $2,219.5 | $590.5 | $471.9 | $377.0 | $385.4 | $394.7 | — | | Total | $9,650.0 | $1,053.5 | $1,071.3 | $1,274.5 | $837.6 | $832.9 | $4,580.2 | - GATX has long-term railcar supply agreements with Trinity Rail Group (up to 8,950 railcars by March 2020, extended to December 2023 for an additional 4,800 tank cars) and American Railcar Industries (7,650 newly built railcars from April 2019 to 2023, with an option for 4,400 more)[159][160] - GATX maintains a $600 million unsecured revolving credit facility and a $250 million secured railcar facility, both fully available as of March 31, 2019, and was in compliance with all credit agreement covenants[163][166] - Credit ratings for long-term unsecured debt are BBB (S&P) and Baa2 (Moody's), with a stable outlook from both agencies[167] Critical Accounting Policies and Estimates This section highlights key accounting policies and estimates, particularly changes due to the new lease accounting standard - The adoption of the new lease accounting standard (ASU 2016-02) required changes to certain policies and estimates related to lease accounting as both lessee and lessor[168] - Other than the impacts from the new lease standard, there have been no material changes to critical accounting policies during Q1 2019[168] Non-GAAP Financial Measures This section explains GATX Corporation's use of non-GAAP financial measures to provide a clearer view of underlying operating results - GATX computes certain financial measures using non-GAAP components, excluding items not attributable to business operations (e.g., tax adjustments, facility closure costs, marine investment gains/losses) to provide a comparable view of underlying operating results[170][171] Net Income and Return on Equity, Excluding Tax Adjustments and Other Items (Non-GAAP) (Trailing 12 Months Ended March 31) (In millions) | (In millions) | 2019 | 2018 | | :------------ | :--- | :--- | | Net income (GAAP) | $176.5 | $520.8 | | Total adjustments attributable to consolidated pre-tax income | $9.5 | $(1.8) | | Total other income tax adjustments attributable to consolidated income | $(17.9) | $(315.9) | | Net income, excluding tax adjustments and other items (non-GAAP) | $165.0 | $203.8 | | Return on Equity (GAAP) | 9.7% | 32.3% | | Return on Equity, excluding tax adjustments and other items (non-GAAP) | 11.0% | 14.0% | - Prior to 2019, GATX reported total on- and off-balance sheet assets and off-balance sheet debt for a comprehensive view of assets and leverage, but with the adoption of the new lease standard, railcar operating lease assets and liabilities are now on the balance sheet, making the prior non-GAAP measure no longer required[175][176][177] Recourse Leverage (March 31, 2019 vs. December 31, 2018) (In millions, except recourse leverage ratio) | (In millions, except recourse leverage ratio) | March 31, 2019 | December 31, 2018 | | :------------------------------------------ | :------------- | :---------------- | | Total debt and lease obligations, net of unrestricted cash (GAAP) | $5,002.9 | $4,451.6 | | Off-balance sheet recourse debt (1) | — | $430.2 | | Total debt and lease obligations, net of unrestricted cash, as adjusted (non-GAAP) | $5,002.9 | $4,881.8 | | Shareholders' Equity | $1,809.2 | $1,788.1 | | Recourse Leverage (Total recourse debt / shareholder's equity) | 2.8 | 2.7 | Item 3 Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes in GATX Corporation's market risk exposures or hedging strategies since prior year-end - No material changes in interest rate and foreign currency exposures or derivative instruments used for hedging since December 31, 2018[182] Item 4 Controls and Procedures This section confirms the effectiveness of disclosure controls and outlines modifications to internal controls for lease accounting changes - Disclosure controls and procedures were effective as of March 31, 2019, as concluded by management, including the CEO and CFO[183] - Internal controls were modified to effectively implement changes to lease accounting and reporting upon the adoption of ASU 2016-02, Leases (Topic 842)[184] - No other material changes in internal control over financial reporting occurred during Q1 2019[184] Part II - OTHER INFORMATION This part includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and equity sales Item 1 Legal Proceedings This section refers to Note 12 for details on GATX Corporation's legal proceedings and other contingencies - Information on legal proceedings and other contingencies is incorporated by reference from Note 12. Legal Proceedings and Other Contingencies in Part I, Item 1 of this Form 10-Q[186] Item 1A Risk Factors This section states no material changes to GATX Corporation's risk factors since December 31, 2018, referring to the annual report - No material changes in risk factors since December 31, 2018. Refer to Item 1A. Risk Factors of the Annual Report on Form 10-K for the year ended December 31, 2018, for a discussion of risk factors[187] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds This section details GATX Corporation's share repurchase program and the shares bought back during the quarter - On January 25, 2019, the board approved a $300.0 million share repurchase program, with no expiration date, allowing purchases in the open market, privately negotiated transactions, or via Rule 10b5-1 plans[188] Common Stock Repurchases (Q1 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | | :----- | :------------------------------- | :--------------------------- | :-------------------------------------------------------------------------------------------------------------------- | | January 1, 2019 - January 31, 2019 | 79,809 | $75.97 | $293.9 | | February 1, 2019 - February 28, 2019 | 172,040 | $76.20 | $280.8 | | March 1, 2019 - March 31, 2019 | 277,394 | $75.09 | $260.0 | | Total | 529,243 | $75.58 | | - As of March 31, 2019, $260.0 million remained available under the repurchase authorization[188] Item 6 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL financial statements - Exhibits include CEO and CFO certifications (31A, 31B, 32) and XBRL formatted financial statements and notes (101)[190][191] SIGNATURE This section contains the official signature of GATX Corporation's authorized financial officer for the report - The report was signed on behalf of GATX Corporation by Thomas A. Ellman, Executive Vice President and Chief Financial Officer, on April 30, 2019[193]