Investments in Affiliated Companies

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

Investments in affiliated companies substantially comprises investments in domestic and foreign affiliates, and primarily include entities that lease aircraft spare engines.

During 2017, we recorded an impairment loss of $3.0 million to reflect a decline in the value of the railcars remaining in the Adler Funding LLC fleet. As of December 31, 2018, all railcar assets had been sold, and the partnership is in the process of winding down remaining activities. There was no revenue from this partnership in 2019.

In 2015, as a result of our decision to exit the majority of our marine investments within our Portfolio Management segment, we sold our 50% interest in the Cardinal Marine joint venture. In 2017, we recognized gains of $1.1 million resulting from additional proceeds received related to the sale.

The following table presents our investments in affiliated companies and our ownership percentage in those companies by segment as of December 31, 2019 (in millions):



	Segment	Investment		Percentage Ownership
Rolls-Royce & Partners Finance (1)	Portfolio Management	$	512.4	50.0	%
Adler Funding LLC	Rail North America	0.2		12.5	%
Investments in Affiliated Companies		$	512.6

__________

(1) Combined investment balances of a group of 50% owned domestic and foreign joint ventures with Rolls-Royce plc (collectively, the "RRPF affiliates").

The following table shows our share of affiliates’ earnings by segment for the years ended December 31 (in millions):



	2019			2018			2017
Rail North America (1)	$	—		$	0.6		$	(2.4	)
Rail International	—			—			(0.1		)
Portfolio Management	94.5			60.5			58.4
Share of affiliates' pre-tax income	94.5			61.1			55.9
Income taxes	(18.0		)	(10.8		)	(12.0		)
Share of affiliates' earnings, net of taxes	$	76.5		$	50.3		$	43.9

__________

(1) Amount for 2017 includes impairment losses of $3.0 million.

The following table shows our cash investments in and distributions and loan payments from our affiliates by segment for the years ended December 31 (in millions):



	Cash Investments						Cash Distributions (2)
	2019		2018		2017		2019		2018		2017
Rail North America (1)	$	—	$	—	$	—	$	—	$	6.3	$	0.7
Portfolio Management	—		14.1		36.6		27.6		35.2		30.2
Total	$	—	$	14.1	$	36.6	$	27.6	$	41.5	$	30.9

__________

(1) Loan payments in 2018 and 2017.

(2) Cash distributions exclude proceeds from sales of affiliates of $2.3 million in 2017.

Summarized Financial Data of Affiliates

The following table shows the aggregated operating results for the years ended December 31 for the affiliated companies we held at December 31 (in millions):



	2019		2018		2017
Revenues	$	469.8	$	436.9	$	350.7
Net gains on sales of assets	86.4		12.2		27.4
Net income	161.4		120.5		100.4

The following table shows aggregated summarized balance sheet data for our affiliated companies as of December 31 (in millions):



	2019		2018
Current assets	$	203.6	$	303.8
Noncurrent assets	5,015.9		4,417.5
Total assets	$	5,219.5	$	4,721.3

Current liabilities	$	525.5	$	827.8
Noncurrent liabilities	3,703.6		3,001.8
Shareholders’ equity	990.4		891.7
Total liabilities and shareholders' equity	$	5,219.5	$	4,721.3

Summarized Financial Data for the RRPF Affiliates

Our affiliate investments include interests in each of the RRPF affiliates, a group of 50% owned domestic and foreign joint ventures with Rolls-Royce plc (or affiliates thereof, collectively “Rolls-Royce”), a leading manufacturer of commercial aircraft jet engines. The RRPF affiliates are primarily engaged in two business activities: lease financing of aircraft spare engines to a diverse group of commercial aircraft operators worldwide and lease financing of aircraft spare engines to Rolls-Royce for use in their engine maintenance programs. In aggregate, the RRPF affiliates owned 478 aircraft engines at December 31, 2019, of which 250 were on lease to Rolls-Royce. Aircraft engines are generally depreciated over a useful life of 18 to 25 years to an estimated residual value. Lease terms vary but typically range from 3 to 12 years. Rolls-Royce manages each of the RRPF affiliates and also performs substantially all required maintenance activities. Our share of affiliates' earnings (after-tax) from the RRPF affiliates was $76.5 million in 2019, $49.8 million in 2018, and $44.8 million in 2017.

We derived the following financial information from the combined financial statements of the RRPF affiliates.

The following table shows condensed income statements of the RRPF affiliates for the years ending December 31 (in millions):



	2019			2018			2017
Lease revenue from third parties	$	213.3		$	178.6		$	168.8
Lease revenue from Rolls-Royce	256.7			232.7			176.0
Depreciation expense	(223.9		)	(195.6		)	(176.4		)
Interest expense	(126.4		)	(94.3		)	(64.3		)
Other expenses	(16.5		)	(12.6		)	(8.9		)
Other income, including net gains on sales of assets	86.4			12.5			20.5
Income before income taxes	189.6			121.3			115.7
Income taxes (1)	(27.9		)	(18.1		)	(13.2		)
Net income	$	161.7		$	103.2		$	102.5

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(1)	Represents income taxes directly attributable to the RRPF affiliates in the United Kingdom. Certain of the RRPF affiliates are disregarded entities for income tax purposes and, as a result, income taxes are incurred at the shareholder level.

The following table shows the condensed balance sheets of the RRPF affiliates as of December 31 (in millions):



	2019		2018
Current assets	$	202.6	$	301.9
Noncurrent assets, including operating assets, net of accumulated depreciation of $1,178.5 and $1,024.7 (a)	5,015.9		4,417.5
Total assets	$	5,218.5	$	4,719.4

Accounts payable and accrued expenses	$	96.2	$	97.9
Debt:
Current	429.3		729.3
Noncurrent, net of adjustments for hedges	3,367.5		2,722.4
Other liabilities	336.1		279.4
Shareholders’ equity	989.4		890.4
Total liabilities and shareholders' equity	$	5,218.5	$	4,719.4

_________

(a) All operating assets were pledged as collateral for long-term debt obligations.

The following table shows contractual future lease receipts from noncancelable leases of the RRPF affiliates as of December 31, 2019 (in millions):



	Rolls-Royce		Third Parties		Total
2020	$	262.2	$	210.7	$	472.9
2021	250.5		186.3		436.8
2022	239.7		171.1		410.8
2023	216.5		157.7		374.2
2024	208.6		143.1		351.7
Thereafter	472.0		468.9		940.9
Total	$	1,649.5	$	1,337.8	$	2,987.3

The following table shows the scheduled principal payments of debt obligations of the RRPF affiliates as of December 31, 2019 (in millions):



2020	$	432.3
2021	298.0
2022	342.6
2023	381.6
2024	168.1
Thereafter	2,189.1
Total debt principal (1)	$	3,811.7

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(1) All debt obligations are nonrecourse to the shareholders.