GATX Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. GATX leases, manages and remarkets transportation assets, principally railcars, through Rail North America, Rail International, Portfolio Management and American Steamship Company (ASC).
Financial performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $1,393.8 million | $1,360.9 million | +2.4% |
| Net income (GAAP) | $211.2 million | $211.3 million | Essentially flat |
| Diluted EPS (GAAP) | $5.81 | $5.52 | +5.3% |
| Adjusted net income (non-GAAP) | $200.3 million | $199.8 million | +0.3% |
| Adjusted diluted EPS (non-GAAP) | $5.51 | $5.22 | +5.6% |
| Net cash from operating activities | $462.6 million | $508.5 million | −9.0% |
| Portfolio investment and capital additions | $741.7 million | $943.4 million | −21.4% |
2019 revenue growth reflected increases in Rail North America, Rail International and ASC, partly offset by lower Portfolio Management revenue. Total segment profit was $463.6 million versus $448.2 million. Net gains on asset dispositions were $62.1 million, down from $72.8 million; share of affiliates’ pre-tax income increased to $94.5 million from $61.1 million, principally reflecting stronger Rolls-Royce joint venture results.
Fourth-quarter 2019 revenue was $356.7 million and net income was $56.6 million, versus $356.4 million and $49.2 million, respectively, in fourth-quarter 2018. Fourth-quarter 2019 net income included an $8.1 million after-tax casualty gain related to the damaged ASC vessel.
Balance sheet, debt and liquidity
- Total assets were $8.285 billion at year-end, up from $7.617 billion. Shareholders’ equity was $1.835 billion.
- Recourse debt was $4.780 billion; short-term borrowings were $15.8 million. Operating and finance lease obligations were $432.3 million and $7.9 million, respectively. Unrestricted cash was $151.0 million.
- Recourse leverage was 2.8x, compared with 2.7x in 2018. Debt increased by $255.7 million year over year; weighted-average debt interest rate was 4.08% and remaining term was 8.7 years.
- GATX reported $850 million of available U.S. revolving credit facilities and €20.9 million available under European facilities. It was in compliance with debt covenants; ratings outlook was stable.
- Operating cash flow fell by $45.9 million, with management citing higher cash payments for interest, leases, maintenance and compensation, partly offset by higher repair receipts and lower tax payments. The company repurchased $150.0 million of shares and paid $69.3 million in dividends during 2019.
Material changes and operating trends
- Rail North America: Segment profit declined 10.3% to $276.2 million, reflecting lower disposition gains, higher maintenance expense and slightly lower lease revenue. Railcar utilization remained high at 99.3% excluding boxcars; renewal pricing was down 3.9%.
- Rail International: Segment profit increased 15.0% to $78.9 million. European utilization reached 99.3%; growth benefited from more cars on lease and the absence of prior-year German facility closure costs. A weaker euro reduced 2019 lease revenue by approximately $10.6 million.
- Portfolio Management: Segment profit rose to $62.4 million from $38.7 million, mainly on higher Rolls-Royce affiliate earnings. The five gas vessels had reduced utilization during a commercial-management transition.
- ASC: Segment profit increased to $46.1 million from $33.0 million, including a $10.5 million net casualty gain. Excluding that gain, profit was $2.6 million higher year over year, supported by higher volume and operating efficiency.
- GATX adopted the new lease accounting standard in 2019, bringing operating lease right-of-use assets and liabilities onto the balance sheet. Adoption included a $39.4 million after-tax equity increase; elimination of deferred sale-leaseback gains added approximately $4.0 million to 2019 operating lease expense. Comparative periods were not restated.
Outlook, risks and contingencies
For 2020, management expected Rail North America segment profit to decline, citing a guarded market outlook, lower renewal rates, continued railcar oversupply, somewhat lower utilization and higher customer-transition maintenance costs. Rail International and Portfolio Management segment profit were expected to increase; ASC was expected to be relatively flat. These were management expectations, not guarantees.
- Contractual commitments totaled $9.086 billion, including $1.838 billion of purchase commitments, primarily for railcars. Scheduled 2020 commitments were $1.358 billion.
- On February 7, 2020, GATX agreed to sell ASC to Rand Logistics for $260 million, subject to working-capital and other closing adjustments and customary closing conditions. The transaction was subsequent to year-end.
- Environmental remediation accruals were $14.4 million; litigation accruals were $5.9 million. The company could not estimate maximum potential losses for certain matters. The Viareggio derailment criminal case remained subject to appeal; management said related future legal expenses were not expected to be material, but the outcome could not be predicted.
- Principal disclosed risks include railcar supply-demand and lease-rate pressure, customer and commodity cycles, remarketing values, maintenance needs, long-term railcar purchase obligations, financing and interest-rate exposure, foreign exchange, environmental and accident liabilities, and performance of the Rolls-Royce engine-leasing affiliates.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Key audit matters included pension obligation measurement and impairment testing of long-lived assets.
Most important facts for investors to verify
- Whether the ASC sale closed, final proceeds after adjustments, and the treatment of ASC results and proceeds after divestiture.
- Whether North American railcar oversupply, renewal pricing and lease-renewal success developed as management anticipated; track utilization, maintenance costs and disposition gains.
- Whether Rolls-Royce affiliate earnings and distributions are sustainable, given their importance to Portfolio Management and the affiliates’ debt and customer exposure.
- How GATX funds its substantial debt maturities and railcar purchase commitments, and whether liquidity, leverage and credit ratings remain within management’s targets.
- Whether casualty, Viareggio, environmental and other litigation exposures result in losses beyond recorded accruals.