GATX(GATX) - 2021 Q2 - Quarterly Report

Part I - Financial Information Financial Statements Total revenues increased to $622.9 million, but net income from continuing operations halved to $42.0 million Consolidated Financial Highlights (Six Months Ended June 30) | Financial Metric | 2021 (in millions) | 2020 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $622.9 | $599.9 | +3.8% | | Net Income from Continuing Operations | $42.0 | $84.2 | -50.1% | | Diluted EPS from Continuing Operations | $1.17 | $2.38 | -50.8% | | Net Cash from Operating Activities | $198.6 | $199.3 | -0.4% | | Net Cash used in Investing Activities | ($510.3) | ($287.9) | +77.3% | Balance Sheet Highlights | Balance Sheet Item | June 30, 2021 (in millions) | Dec 31, 2020 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Assets | $9,400.5 | $8,937.6 | +5.2% | | Total Debt (Recourse) | $5,803.1 | $5,329.0 | +8.9% | | Total Shareholders' Equity | $1,971.4 | $1,957.4 | +0.7% | Note 1. Description of Business GATX leases rail assets, recently expanding into aircraft engine leasing and tank containers, while divesting ASC - In Q1 2021, the company began directly investing in aircraft spare engines through its new entity, GATX Engine Leasing (GEL), acquiring 14 engines for approximately $352 million. These results are reported in the Portfolio Management segment[23] - On December 29, 2020, GATX acquired Trifleet Leasing Holding B.V., the world's fourth-largest tank container lessor[24] - The American Steamship Company (ASC) business was sold on May 14, 2020, and is now reported as discontinued operations[25] Note 5. Leases As a lessor, GATX's total lease income increased to $568.2 million in H1 2021, driven by higher fixed operating lease income Components of Lease Income (in millions) | Lease Income Component | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Operating lease income: | | | | Fixed lease income | $530.4 | $506.1 | | Variable lease income | $34.5 | $30.5 | | Total operating lease income | $564.9 | $536.6 | | Finance lease income | $3.3 | $3.4 | | Total lease income | $568.2 | $540.0 | Note 6. Investments in Affiliated Companies Affiliate investments, primarily RRPF aircraft engine JVs, saw net income drop to $31.7 million in H1 2021 - Affiliate investments primarily consist of 50% owned joint ventures with Rolls-Royce plc, known as the RRPF affiliates[41] Summarized Financials for Alpha Partners Leasing Limited (in millions) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Total revenue | $186.2 | $206.0 | | Net income | $31.7 | $55.9 | Note 15. Financial Data of Business Segments Rail North America and International profits rose, but Portfolio Management's profit fell sharply due to aviation weakness Segment Profit (in millions) | Segment | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Rail North America | $143.3 | $122.0 | | Rail International | $49.1 | $33.9 | | Portfolio Management | $18.3 | $38.8 | | Other | ($5.0) | $0.2 | | Total Segment Profit | $205.7 | $194.9 | Capital Expenditures by Segment (in millions) | Segment | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Rail North America | $215.5 | $270.5 | | Rail International | $85.2 | $119.2 | | Portfolio Management | $353.0 | $0.3 | | Other | $9.7 | $1.5 | | Total Capital Expenditures | $663.4 | $391.5 | Note 16. Discontinued Operations The American Steamship Company (ASC) was sold in May 2020, with its results reported as discontinued operations - The sale of the ASC business was completed on May 14, 2020. Final proceeds of $1.1 million held in escrow were received in May 2021[88] Financial Results of Discontinued Operations (in millions) | Line Item | Six Months Ended June 30, 2020 | | :--- | :--- | | Loss from Discontinued Operations, Net of Taxes | ($2.2) | | Gain on Sale of Discontinued Operations, Net of Taxes | $3.6 | | Income from Discontinued Operations, Net of Taxes | $1.4 | Management's Discussion and Analysis of Financial Condition and Results of Operations H1 2021 net income from continuing operations was $42.0 million, impacted by a UK tax rate increase and debt costs - Net income from continuing operations for H1 2021 was significantly impacted by a $39.7 million negative effect from a UK tax rate increase and a $3.4 million charge for debt extinguishment[103] - The COVID-19 pandemic continues to create uncertainty. While Rail North America shows signs of recovery, the aviation-focused RRPF affiliates in the Portfolio Management segment remain under pressure due to reduced global air travel[99][102] - The company maintains a strong liquidity position with $417.9 million in unrestricted cash and two fully available revolving credit facilities totaling $850 million as of June 30, 2021[192] Segment Operations Rail North America and International profits grew, but Portfolio Management's profit declined due to aviation challenges Rail North America Rail North America's profit rose to $143.3 million in H1 2021, driven by higher asset sale gains and lower maintenance costs Rail North America Segment Profit (in millions) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Total Revenues | $448.0 | $471.2 | | Total Expenses | $287.9 | $311.3 | | Net gain on asset dispositions | $54.6 | $32.0 | | Segment Profit | $143.3 | $122.0 | Key Operating Metrics (Q2) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Fleet Utilization (ex-boxcars) | 98.5% | 98.7% | | LPI - Renewal Rate Change | -6.7% | -28.0% | | LPI - Average Renewal Term | 29 months | 31 months | | Renewal Success Rate | 77.5% | 71.8% | Rail International Rail International's profit grew to $49.1 million in H1 2021, driven by fleet growth and favorable currency exchange rates Rail International Segment Profit (in millions) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Total Revenues | $141.1 | $121.3 | | Total Expenses | $70.0 | $59.4 | | Segment Profit | $49.1 | $33.9 | - Fluctuations in the euro positively impacted H1 2021 lease revenue by approximately $9.8 million and segment profit by approximately $5.4 million compared to H1 2020[142] GATX Rail Europe (GRE) Fleet Data | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Ending Fleet Size | 26,727 | 25,705 | | Utilization Rate | 98.4% | 98.4% | Portfolio Management Portfolio Management's profit fell to $18.3 million in H1 2021, primarily due to lower RRPF earnings despite new GEL investments Portfolio Management Segment Profit (in millions) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Total Revenues | $20.7 | $7.4 | | Share of affiliates' pre-tax income | $22.4 | $46.4 | | Segment Profit | $18.3 | $38.8 | - The RRPF affiliates' engine fleet utilization was 93.5% at the end of Q2 2021, down from 95.1% a year prior, reflecting the challenging aviation market[163][165] - In Q1 2021, GATX began directly investing in aircraft spare engines via its new entity, GEL, acquiring 14 engines for approximately $352 million[157] Cash Flow and Liquidity GATX maintained strong liquidity with $417.9 million cash, stable operating cash flow, and increased investing outflows Principal Sources and Uses of Cash (H1 2021, in millions) | Sources | Amount | Uses | Amount | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $198.6 | Portfolio investments | ($663.4) | | Portfolio proceeds | $124.1 | Debt repayments | ($589.2) | | Proceeds from issuance of debt | $1,072.6 | Dividends | ($37.9) | - Portfolio investments increased by $271.9 million compared to H1 2020, primarily due to the acquisition of 14 engines at GEL[197] Recourse Leverage Ratio | Date | Recourse Leverage Ratio | | :--- | :--- | | June 30, 2021 | 2.9x | | December 31, 2020 | 2.8x | | June 30, 2020 | 2.6x | Non-GAAP Financial Measures Non-GAAP net income from continuing operations was $85.1 million, adjusting for UK tax rate changes and debt extinguishment costs Reconciliation of Net Income from Continuing Operations (H1 2021, in millions) | Description | Amount | | :--- | :--- | | Net income from continuing operations (GAAP) | $42.0 | | Debt extinguishment costs (pre-tax) | $4.5 | | Income taxes thereon | ($1.1) | | Income tax rate change (affiliates) | $39.7 | | Net income from continuing operations (non-GAAP) | $85.1 | Reconciliation of Diluted EPS from Continuing Operations (H1 2021) | Description | Amount | | :--- | :--- | | Diluted EPS from continuing operations (GAAP) | $1.17 | | Debt extinguishment costs | $0.09 | | Income tax rate change (affiliates) | $1.10 | | Diluted EPS from continuing operations (non-GAAP) | $2.37 | Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in market risk exposures or derivative instruments since December 31, 2020 - There have been no material changes in interest rate and foreign currency exposures or the types of derivative instruments used since year-end 2020[225] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2021, with no material internal control changes - The CEO and CFO concluded that as of the end of the quarter, disclosure controls and procedures were effective[226] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[227] Part II - Other Information Legal Proceedings Information regarding legal proceedings and other contingencies is provided in Note 14 of the financial statements - Details on litigation and other contingencies are incorporated by reference from "Note 14. Legal Proceedings and Other Contingencies" in Part I, Item 1[229] Risk Factors No material changes in risk factors have occurred since the December 31, 2020 Annual Report on Form 10-K - No material changes in risk factors have occurred since December 31, 2020[230] Unregistered Sales of Equity Securities and Use of Proceeds GATX made no share repurchases in Q2 2021, with $150.0 million remaining available under authorization - No share repurchases were completed during the second quarter of 2021[232] - As of June 30, 2021, $150.0 million remained available under the company's share repurchase authorization[232]