XML 61 R11.htm IDEA: XBRL DOCUMENT

Fair Value Disclosure

3 Months Ended

Mar. 31, 2022

The assets and liabilities that GATX records at fair value on a recurring basis consisted entirely of derivatives at March 31, 2022 and December 31, 2021.

In addition, we review long-lived assets, such as operating assets and facilities, investments in affiliates, and goodwill, for impairment whenever circumstances indicate that the carrying amount of these assets may not be recoverable or when assets may be classified as held for sale. We considered the Russia/Ukraine conflict as part of our assessment during the quarter and determined there were no material impacts on our final conclusions. We will continue to monitor our long-lived assets, investments in affiliates, and goodwill for indicators of impairment as this conflict continues to impact the global economy.

Derivative Instruments

Fair Value Hedges

We use interest rate swaps to manage the fixed-to-floating rate mix of our debt obligations by converting a portion of our 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 five instruments outstanding with an aggregate notional amount of $300.0 million as of March 31, 2022 with maturities ranging from 2022 to 2027 and five instruments outstanding with an aggregate notional amount of $300.0 million as of December 31, 2021 with maturities ranging from 2022 to 2027.

Cash Flow Hedges

We use Treasury rate locks and swap rate locks to hedge our exposure to interest rate risk on anticipated transactions. We also use currency swaps, forwards, and put/call options to hedge our exposure to fluctuations in the exchange rates of foreign currencies for certain loans and operating expenses denominated in non-functional currencies. We had twelve instruments outstanding with an aggregate notional amount of $132.3 million as of March 31, 2022 that mature in 2022 and one instrument outstanding with an aggregate notional amount of $101.7 million as of December 31, 2021 that matures in 2022. Within the next 12 months, we expect to reclassify $1.7 million ($1.2 million after-tax) of net losses on previously terminated derivatives from accumulated other comprehensive 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.

Certain 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. The aggregate fair value of our derivative instruments with credit risk related contingent features that were in a liability position as of March 31, 2022 was $5.1 million. 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.

The following table shows our derivative assets and liabilities that are measured at fair value (in millions):


		Significant Observable Inputs (Level 2)
	Balance Sheet Location	Fair Value March 31, 2022		Fair Value December 31, 2021
Derivative Assets
Interest rate contracts (1)	Other assets	$	0.4	$	1.4
Foreign exchange contracts (1)	Other assets	6.5		3.6
Foreign exchange contracts (2)	Other assets	5.3		3.9

Total derivative assets		$	12.2	$	8.9
Derivative Liabilities
Interest rate contracts (1)	Other liabilities	$	5.0	$	0.3
Foreign exchange contracts (1)	Other liabilities	0.1		—

Total derivative liabilities		$	5.1	$	0.3

_________

(1) Designated as hedges.

(2) Not designated as hedges.

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. As of March 31, 2022 and December 31, 2021, all derivatives were classified as Level 2 in the fair value hierarchy. There were no derivatives classified as Level 1 or Level 3.

The following table shows the amounts recorded on the balance sheet related to cumulative basis adjustments for fair value hedges as of March 31, 2022 and December 31, 2021 (in millions):


	Carrying Amount of the Hedged Assets/(Liabilities)				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
Line Item in the Balance Sheet in Which the Hedged Item is Included	March 31 2022		December 31 2021		March 31 2022		December 31 2021
Recourse debt	$	(298.9)	$	(300.4)	$	(4.6)	$	1.1

The following table shows the impacts of our derivative instruments on our statements of comprehensive income for the three months ended March 31, 2022 and 2021 (in millions):


	Amount of Loss (Gain) Recognized in Other Comprehensive Income				Location of Loss (Gain) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Loss (Gain) Reclassified from Accumulated Other Comprehensive Income into Income
	Three Months Ended March 31					Three Months Ended March 31
Derivative Designation	2022		2021			2022		2021
Derivatives in cash flow hedging relationships:
Foreign exchange contracts	$	(3.3)	$	(4.8)	Interest expense	$	0.4	$	0.6
Total	$	(3.3)	$	(4.8)	Other (income) expense	(2.9)		(4.7)
					Total	$	(2.5)	$	(4.1)

The following table shows the impact of our fair value and cash flow hedge accounting relationships, as well as the impact of our non-designated derivatives, on the statements of comprehensive income for the three months ended March 31, 2022 and 2021 (in millions):


	Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Three Months Ended March 31					Three Months Ended March 31
	2022				2021
	Interest (expense), net		Other income (expense)			Interest (expense), net		Other income (expense)
Total amounts of income and expense presented in the statements of comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	(51.2)	$	(2.0)		$	(53.6)	$	(1.3)
Gain (loss) on fair value hedging relationships
Interest rate contracts:
Hedged items	5.7		—			1.3		—
Derivatives designated as hedging instruments	(5.7)		—			(1.3)		—
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income	(0.4)		—			(0.6)		—
Foreign exchange contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income (1)	—		2.9			—		4.7
Gain (loss) on non-designated derivative contracts	—		1.5			—		2.0

_______

(1) These amounts are substantially offset by foreign currency remeasurement adjustments on related hedged instruments, also recognized in other income (expense).

Other Financial Instruments

Except for derivatives, as disclosed above, GATX has no other assets and liabilities measured at fair value on a recurring basis. The carrying amounts of cash and cash equivalents, restricted cash, rent and other receivables, accounts payable, and commercial paper and borrowings under bank credit facilities with maturities under one year approximate fair value due to the short maturity of those instruments. We estimate the fair values of 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 (in millions):


	March 31, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities
Recourse fixed rate debt	$	6,037.7	$	5,962.5	$	5,666.1	$	6,040.2
Recourse floating rate debt	250.0		250.0		250.0		250.0

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details