Leases Lessor, Operating Leases (Notes)

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Lessee, Finance Leases [Text Block]

Leases

Adoption of ASU 2016-02, "Leases (Topic 842)"

In the first quarter of 2019, we adopted ASU 2016-02 using the modified retrospective transition method with a cumulative effect adjustment upon adoption. Amounts for comparative periods are not required to be included in the footnote disclosures. See "Note 3. Accounting Changes" for additional information and impact on our financial statements from adoption of this standard.

We elected the package of practical expedients related to whether a contract is or contains a lease, lease classification and initial direct costs. We also elected the practical expedient that allows lessors and lessees to not separate non-lease components from the associated lease components for operating leases.

The adoption of this new standard required us to recognize right-of-use assets and lease liabilities on our balance sheet attributable to operating leases for railcars, offices, and certain equipment. In addition, the adoption of this new standard also required us to eliminate deferred gains associated with our railcar sale-leaseback financing arrangements, resulting in a one-time increase to equity.

The adoption of this standard did not have any impact on our cash flows.

GATX as Lessor

We lease railcars and other operating assets under full-service and net operating leases. We price full-service leases as an integrated service that includes amounts related to maintenance, insurance, and ad valorem taxes. In accordance with applicable guidance, we do not separate lease and non-lease components when reporting revenue for our full-service operating leases. In some cases, we lease railcars that, at commencement, are classified as finance leases. For certain operating leases, revenue is based on equipment usage and is recognized when earned. Typically, our leases do not provide customers with renewal options or options to purchase the asset. Our lease agreements do not generally have residual value guarantees. We collect reimbursements from customers for damage to our railcars, as well as additional rental payments for usage above specified levels, as provided in the lease agreements.

The following table shows the components of our lease income for the years ended December 31 (in millions):

	2020		2019
Operating lease income:
Fixed lease income	$	1,020.9	$	1,013.5
Variable lease income	59.4		65.2
Total operating lease income	$	1,080.3	$	1,078.7
Finance lease income	7.2		9.8
Total lease income	$	1,087.5	$	1,088.5

In accordance with the terms of our leases with customers, we may earn additional revenue, primarily for customer liability repairs. These amounts are reported in other revenue in the statements of comprehensive income and were $88.9 million and $88.2 million in 2020 and 2019.

The following table shows the components of our finance leases as of December 31 (in millions):

	2020		2019
Total contractual lease payments receivable	$	77.1	$	84.4
Estimated unguaranteed residual value of leased assets	24.6		40.7
Unearned income	(27.7)		(34.8)
Finance leases	$	74.0	$	90.3

The following table shows our future contractual receipts from our noncancelable operating leases and finance leases as of December 31, 2020 (in millions):

	Operating Leases (1)		Finance Leases		Total
2021	$	925.5	$	16.2	$	941.7
2022	702.7		21.8		724.5
2023	524.7		8.4		533.1
2024	357.7		9.3		367.0
2025	193.1		5.8		198.9
Years thereafter	215.0		15.6		230.6
	$	2,918.7	$	77.1	$	2,995.8

__________

(1)     The future contractual receipts due under our full-service operating leases include executory costs such as maintenance, car taxes, and insurance.

GATX as Lessee

We lease assets, including railcars at North America, as well as other assets such as offices, maintenance facilities, and other general purpose equipment. The railcars are subleased to customers as part of our normal course of operations. Certain leases have options to purchase the underlying assets early, renew the lease, or purchase the underlying 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. Our lease agreements do not contain any material residual value guarantees. At December 31, 2020, we leased approximately 6,700 railcars at Rail North America, all of which are accounted for as operating leases.

To calculate the right-of-use asset and lease liability for our leases, we use the implicit rate if readily determinable or when the implicit rate is not readily determinable, we use our incremental borrowing rate. Our incremental borrowing rate is the interest rate we estimate we would have to pay to borrow on a collateralized basis over a similar term of the lease payments. The implicit rate was measurable for railcars leased at Rail North America. For our other operating leases, we used our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Operating lease expense is recognized on a straight-line basis over the lease term.

The following table shows the components of lease expense for the years ended December 31 (in millions):

	2020		2019
Finance lease cost:
Amortization of right-of-use assets	$	0.6	$	0.7
Interest on lease liabilities	0.2		0.3
Operating lease cost (1):
Fixed lease cost - operating leases	53.3		59.7
Total lease cost	$	54.1	$	60.7

________

(1)     Total operating lease cost includes amounts recorded in selling, general and administrative expense. Operating lease cost also includes short-term leases, which are immaterial.

Operating lease cost includes amounts attributable to sale lease-back financing transactions for railcars we lease to customers. Lease revenue of $64.3 million for the year ended December 31, 2020 was recognized in connection with these operating leases compared to $70.1 million for the year ended December 31, 2019.

The following table shows the maturities of our lease liabilities as of December 31, 2019 (in millions):

	Operating Leases		Finance Leases		Total
2021	$	50.6	$	33.3	$	83.9
2022	49.0		—		49.0
2023	48.0		—		48.0
2024	45.1		—		45.1
2025	37.7		—		37.7
Thereafter	180.0		—		180.0
Total undiscounted lease payments	$	410.4	$	33.3	$	443.7
Less: amounts representing interest	(61.8)		—		(61.8)
Total discounted lease liabilities	$	348.6	$	33.3	$	381.9

The following table shows assets recorded as finance leases as of December 31 (in millions):

	2020		2019
Railcars	$	37.8	$	9.0
Less: allowance for depreciation	(0.3)		(0.1)
Finance leases, net of accumulated depreciation	$	37.5	$	8.9

The following table shows the lease terms and discount rates related to leases as of December 31:

	2020		2019
Weighted-average remaining lease term (years):
Operating leases	9.3		9.6
Finance leases (1)	—		—
Weighted-average discount rate:
Operating leases	3.57	%	3.66	%
Finance leases	0.95	%	2.26	%

________

(1)     The weighted-average remaining lease term for outstanding finance leases was less than one year in both 2020 and 2019.

The following table shows other information related to leases for the years ended December 31 (in millions):

	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	58.5	$	66.5
Operating cash flows for finance leases	—		0.3
Financing cash flows for finance leases	40.0		11.3
Total cash for leases	$	98.5	$	78.1
Non-cash financing lease transactions (1)	$	64.9	$	7.8

__________

(1) Non-cash financing lease transactions are a result of the reclassification from operating lease liability to finance lease liability upon notice of the intent to exercise an early buy-out option.

In 2020, we exercised options to acquire 732 railcars previously recorded on the balance sheet as a finance lease for $40.0 million, compared to the exercise of options to acquire 157 railcars previously recorded on the balance sheet as a finance lease for $10.5 million in 2019.

Lessor, Operating Leases [Text Block]

Leases

Adoption of ASU 2016-02, "Leases (Topic 842)"

In the first quarter of 2019, we adopted ASU 2016-02 using the modified retrospective transition method with a cumulative effect adjustment upon adoption. Amounts for comparative periods are not required to be included in the footnote disclosures. See "Note 3. Accounting Changes" for additional information and impact on our financial statements from adoption of this standard.

We elected the package of practical expedients related to whether a contract is or contains a lease, lease classification and initial direct costs. We also elected the practical expedient that allows lessors and lessees to not separate non-lease components from the associated lease components for operating leases.

The adoption of this new standard required us to recognize right-of-use assets and lease liabilities on our balance sheet attributable to operating leases for railcars, offices, and certain equipment. In addition, the adoption of this new standard also required us to eliminate deferred gains associated with our railcar sale-leaseback financing arrangements, resulting in a one-time increase to equity.

The adoption of this standard did not have any impact on our cash flows.

GATX as Lessor

We lease railcars and other operating assets under full-service and net operating leases. We price full-service leases as an integrated service that includes amounts related to maintenance, insurance, and ad valorem taxes. In accordance with applicable guidance, we do not separate lease and non-lease components when reporting revenue for our full-service operating leases. In some cases, we lease railcars that, at commencement, are classified as finance leases. For certain operating leases, revenue is based on equipment usage and is recognized when earned. Typically, our leases do not provide customers with renewal options or options to purchase the asset. Our lease agreements do not generally have residual value guarantees. We collect reimbursements from customers for damage to our railcars, as well as additional rental payments for usage above specified levels, as provided in the lease agreements.

The following table shows the components of our lease income for the years ended December 31 (in millions):

	2020		2019
Operating lease income:
Fixed lease income	$	1,020.9	$	1,013.5
Variable lease income	59.4		65.2
Total operating lease income	$	1,080.3	$	1,078.7
Finance lease income	7.2		9.8
Total lease income	$	1,087.5	$	1,088.5

In accordance with the terms of our leases with customers, we may earn additional revenue, primarily for customer liability repairs. These amounts are reported in other revenue in the statements of comprehensive income and were $88.9 million and $88.2 million in 2020 and 2019.

The following table shows the components of our finance leases as of December 31 (in millions):

	2020		2019
Total contractual lease payments receivable	$	77.1	$	84.4
Estimated unguaranteed residual value of leased assets	24.6		40.7
Unearned income	(27.7)		(34.8)
Finance leases	$	74.0	$	90.3

The following table shows our future contractual receipts from our noncancelable operating leases and finance leases as of December 31, 2020 (in millions):

	Operating Leases (1)		Finance Leases		Total
2021	$	925.5	$	16.2	$	941.7
2022	702.7		21.8		724.5
2023	524.7		8.4		533.1
2024	357.7		9.3		367.0
2025	193.1		5.8		198.9
Years thereafter	215.0		15.6		230.6
	$	2,918.7	$	77.1	$	2,995.8

__________

(1)     The future contractual receipts due under our full-service operating leases include executory costs such as maintenance, car taxes, and insurance.

GATX as Lessee

We lease assets, including railcars at North America, as well as other assets such as offices, maintenance facilities, and other general purpose equipment. The railcars are subleased to customers as part of our normal course of operations. Certain leases have options to purchase the underlying assets early, renew the lease, or purchase the underlying 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. Our lease agreements do not contain any material residual value guarantees. At December 31, 2020, we leased approximately 6,700 railcars at Rail North America, all of which are accounted for as operating leases.

To calculate the right-of-use asset and lease liability for our leases, we use the implicit rate if readily determinable or when the implicit rate is not readily determinable, we use our incremental borrowing rate. Our incremental borrowing rate is the interest rate we estimate we would have to pay to borrow on a collateralized basis over a similar term of the lease payments. The implicit rate was measurable for railcars leased at Rail North America. For our other operating leases, we used our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Operating lease expense is recognized on a straight-line basis over the lease term.

The following table shows the components of lease expense for the years ended December 31 (in millions):

	2020		2019
Finance lease cost:
Amortization of right-of-use assets	$	0.6	$	0.7
Interest on lease liabilities	0.2		0.3
Operating lease cost (1):
Fixed lease cost - operating leases	53.3		59.7
Total lease cost	$	54.1	$	60.7

________

(1)     Total operating lease cost includes amounts recorded in selling, general and administrative expense. Operating lease cost also includes short-term leases, which are immaterial.

Operating lease cost includes amounts attributable to sale lease-back financing transactions for railcars we lease to customers. Lease revenue of $64.3 million for the year ended December 31, 2020 was recognized in connection with these operating leases compared to $70.1 million for the year ended December 31, 2019.

The following table shows the maturities of our lease liabilities as of December 31, 2019 (in millions):

	Operating Leases		Finance Leases		Total
2021	$	50.6	$	33.3	$	83.9
2022	49.0		—		49.0
2023	48.0		—		48.0
2024	45.1		—		45.1
2025	37.7		—		37.7
Thereafter	180.0		—		180.0
Total undiscounted lease payments	$	410.4	$	33.3	$	443.7
Less: amounts representing interest	(61.8)		—		(61.8)
Total discounted lease liabilities	$	348.6	$	33.3	$	381.9

The following table shows assets recorded as finance leases as of December 31 (in millions):

	2020		2019
Railcars	$	37.8	$	9.0
Less: allowance for depreciation	(0.3)		(0.1)
Finance leases, net of accumulated depreciation	$	37.5	$	8.9

The following table shows the lease terms and discount rates related to leases as of December 31:

	2020		2019
Weighted-average remaining lease term (years):
Operating leases	9.3		9.6
Finance leases (1)	—		—
Weighted-average discount rate:
Operating leases	3.57	%	3.66	%
Finance leases	0.95	%	2.26	%

________

(1)     The weighted-average remaining lease term for outstanding finance leases was less than one year in both 2020 and 2019.

The following table shows other information related to leases for the years ended December 31 (in millions):

	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	58.5	$	66.5
Operating cash flows for finance leases	—		0.3
Financing cash flows for finance leases	40.0		11.3
Total cash for leases	$	98.5	$	78.1
Non-cash financing lease transactions (1)	$	64.9	$	7.8

__________

(1) Non-cash financing lease transactions are a result of the reclassification from operating lease liability to finance lease liability upon notice of the intent to exercise an early buy-out option.

In 2020, we exercised options to acquire 732 railcars previously recorded on the balance sheet as a finance lease for $40.0 million, compared to the exercise of options to acquire 157 railcars previously recorded on the balance sheet as a finance lease for $10.5 million in 2019.

Lessee, Operating Leases [Text Block]

Leases

Adoption of ASU 2016-02, "Leases (Topic 842)"

In the first quarter of 2019, we adopted ASU 2016-02 using the modified retrospective transition method with a cumulative effect adjustment upon adoption. Amounts for comparative periods are not required to be included in the footnote disclosures. See "Note 3. Accounting Changes" for additional information and impact on our financial statements from adoption of this standard.

We elected the package of practical expedients related to whether a contract is or contains a lease, lease classification and initial direct costs. We also elected the practical expedient that allows lessors and lessees to not separate non-lease components from the associated lease components for operating leases.

The adoption of this new standard required us to recognize right-of-use assets and lease liabilities on our balance sheet attributable to operating leases for railcars, offices, and certain equipment. In addition, the adoption of this new standard also required us to eliminate deferred gains associated with our railcar sale-leaseback financing arrangements, resulting in a one-time increase to equity.

The adoption of this standard did not have any impact on our cash flows.

GATX as Lessor

We lease railcars and other operating assets under full-service and net operating leases. We price full-service leases as an integrated service that includes amounts related to maintenance, insurance, and ad valorem taxes. In accordance with applicable guidance, we do not separate lease and non-lease components when reporting revenue for our full-service operating leases. In some cases, we lease railcars that, at commencement, are classified as finance leases. For certain operating leases, revenue is based on equipment usage and is recognized when earned. Typically, our leases do not provide customers with renewal options or options to purchase the asset. Our lease agreements do not generally have residual value guarantees. We collect reimbursements from customers for damage to our railcars, as well as additional rental payments for usage above specified levels, as provided in the lease agreements.

The following table shows the components of our lease income for the years ended December 31 (in millions):

	2020		2019
Operating lease income:
Fixed lease income	$	1,020.9	$	1,013.5
Variable lease income	59.4		65.2
Total operating lease income	$	1,080.3	$	1,078.7
Finance lease income	7.2		9.8
Total lease income	$	1,087.5	$	1,088.5

In accordance with the terms of our leases with customers, we may earn additional revenue, primarily for customer liability repairs. These amounts are reported in other revenue in the statements of comprehensive income and were $88.9 million and $88.2 million in 2020 and 2019.

The following table shows the components of our finance leases as of December 31 (in millions):

	2020		2019
Total contractual lease payments receivable	$	77.1	$	84.4
Estimated unguaranteed residual value of leased assets	24.6		40.7
Unearned income	(27.7)		(34.8)
Finance leases	$	74.0	$	90.3

The following table shows our future contractual receipts from our noncancelable operating leases and finance leases as of December 31, 2020 (in millions):

	Operating Leases (1)		Finance Leases		Total
2021	$	925.5	$	16.2	$	941.7
2022	702.7		21.8		724.5
2023	524.7		8.4		533.1
2024	357.7		9.3		367.0
2025	193.1		5.8		198.9
Years thereafter	215.0		15.6		230.6
	$	2,918.7	$	77.1	$	2,995.8

__________

(1)     The future contractual receipts due under our full-service operating leases include executory costs such as maintenance, car taxes, and insurance.

GATX as Lessee

We lease assets, including railcars at North America, as well as other assets such as offices, maintenance facilities, and other general purpose equipment. The railcars are subleased to customers as part of our normal course of operations. Certain leases have options to purchase the underlying assets early, renew the lease, or purchase the underlying 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. Our lease agreements do not contain any material residual value guarantees. At December 31, 2020, we leased approximately 6,700 railcars at Rail North America, all of which are accounted for as operating leases.

To calculate the right-of-use asset and lease liability for our leases, we use the implicit rate if readily determinable or when the implicit rate is not readily determinable, we use our incremental borrowing rate. Our incremental borrowing rate is the interest rate we estimate we would have to pay to borrow on a collateralized basis over a similar term of the lease payments. The implicit rate was measurable for railcars leased at Rail North America. For our other operating leases, we used our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Operating lease expense is recognized on a straight-line basis over the lease term.

The following table shows the components of lease expense for the years ended December 31 (in millions):

	2020		2019
Finance lease cost:
Amortization of right-of-use assets	$	0.6	$	0.7
Interest on lease liabilities	0.2		0.3
Operating lease cost (1):
Fixed lease cost - operating leases	53.3		59.7
Total lease cost	$	54.1	$	60.7

________

(1)     Total operating lease cost includes amounts recorded in selling, general and administrative expense. Operating lease cost also includes short-term leases, which are immaterial.

Operating lease cost includes amounts attributable to sale lease-back financing transactions for railcars we lease to customers. Lease revenue of $64.3 million for the year ended December 31, 2020 was recognized in connection with these operating leases compared to $70.1 million for the year ended December 31, 2019.

The following table shows the maturities of our lease liabilities as of December 31, 2019 (in millions):

	Operating Leases		Finance Leases		Total
2021	$	50.6	$	33.3	$	83.9
2022	49.0		—		49.0
2023	48.0		—		48.0
2024	45.1		—		45.1
2025	37.7		—		37.7
Thereafter	180.0		—		180.0
Total undiscounted lease payments	$	410.4	$	33.3	$	443.7
Less: amounts representing interest	(61.8)		—		(61.8)
Total discounted lease liabilities	$	348.6	$	33.3	$	381.9

The following table shows assets recorded as finance leases as of December 31 (in millions):

	2020		2019
Railcars	$	37.8	$	9.0
Less: allowance for depreciation	(0.3)		(0.1)
Finance leases, net of accumulated depreciation	$	37.5	$	8.9

The following table shows the lease terms and discount rates related to leases as of December 31:

	2020		2019
Weighted-average remaining lease term (years):
Operating leases	9.3		9.6
Finance leases (1)	—		—
Weighted-average discount rate:
Operating leases	3.57	%	3.66	%
Finance leases	0.95	%	2.26	%

________

(1)     The weighted-average remaining lease term for outstanding finance leases was less than one year in both 2020 and 2019.

The following table shows other information related to leases for the years ended December 31 (in millions):

	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	58.5	$	66.5
Operating cash flows for finance leases	—		0.3
Financing cash flows for finance leases	40.0		11.3
Total cash for leases	$	98.5	$	78.1
Non-cash financing lease transactions (1)	$	64.9	$	7.8

__________

(1) Non-cash financing lease transactions are a result of the reclassification from operating lease liability to finance lease liability upon notice of the intent to exercise an early buy-out option.

In 2020, we exercised options to acquire 732 railcars previously recorded on the balance sheet as a finance lease for $40.0 million, compared to the exercise of options to acquire 157 railcars previously recorded on the balance sheet as a finance lease for $10.5 million in 2019.