GATX CORP

Segment profit is an internal performance measure used by the Chief Executive Officer to assess the profitability of each segment. Segment profit includes all revenues, expenses, pre-tax earnings from affiliates, and net gains on asset dispositions that are directly attributable to each segment. We allocate interest expense to the segments based on what we believe to be the appropriate risk-adjusted borrowing costs for each segment. Segment profit excludes selling, general and administrative expenses, income taxes, and certain other amounts not allocated to the segments.

RAIL NORTH AMERICA

Supply of existing railcars remained tight for most railcar types, and Rail North America continued to capitalize on current market conditions for both lease rates and lease terms. Utilization was 99.3% at the end of the current quarter.

The following table shows Rail North America's segment results (in millions):

The following table shows the components of Rail North America's lease revenue (in millions):

Rail North America Fleet Data

The following table shows fleet activity and statistics for Rail North America railcars, excluding boxcars, for the quarter ended:

(2) The renewal success rate represents the percentage of railcars on expiring leases that were renewed with the existing lessee. The renewal success rate is an important metric because railcars returned by our customers may remain idle or incur additional maintenance and freight costs prior to being leased to new customers.

(3) Active railcars refers to the number of railcars on lease to customers. Changes in railcars on lease compared to prior quarters are impacted by the utilization of new railcars purchased from builders or in the secondary market and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

(4) Average active railcars for the quarter is calculated using the number of active railcars at the end of each month.

As of June 30, 2024, leases for approximately 11,700 tank and freight cars and approximately 1,400 boxcars were scheduled to expire over the remainder of 2024. These amounts exclude railcars on leases expiring in 2024 that have already been renewed or assigned to a new lessee.

In 2022, we entered into a new long-term railcar supply agreement with a subsidiary of Trinity Industries, Inc. ("Trinity") to purchase 15,000 newly built railcars through 2028, with an option to order up to an additional 500 railcars each year from 2023 to 2028. The agreement enables us to order a broad mix of tank and freight cars. Trinity will deliver 6,000 tank cars (1,200 per year) from 2024 through 2028. The remaining 9,000 railcars, which can be a mix of freight and tank cars, will be ordered at a rate of 1,500 railcars per order year from 2023 to 2028 and delivered under a schedule to be determined. At June 30, 2024, 4,319 railcars have been ordered pursuant to the terms of the agreement, of which 2,312 railcars have been delivered.

In 2018, we amended a long-term supply agreement with Trinity to extend the term to December 2023, and we agreed to purchase 4,800 tank cars (1,200 per year) beginning in January 2020 and continuing through 2023. As of June 30, 2024, all 4,800 railcars have been ordered and delivered.

In 2018, we entered into a multi-year railcar supply agreement with American Railcar Industries, Inc. ("ARI"), pursuant to which we agreed to purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars to be delivered over a five-year period, beginning in April 2019 and ending in December 2023. ARI's railcar manufacturing business was acquired by a subsidiary of The Greenbrier Companies, Inc. on July 26, 2019, and such subsidiary assumed all of ARI's obligations under our long-term supply agreement. As of June 30, 2024, all 7,650 railcars have been ordered and delivered.

Lease Price Index

Our Lease Price Index ("LPI") is an internally-generated business indicator that measures renewal activity for our North American railcar fleet, excluding boxcars. The average renewal lease rate change is reported as the percentage change between the average renewal lease rate and the average expiring lease rate. The average renewal lease term is reported in months and reflects the average renewal lease term in the LPI.

During the second quarter of 2024, the renewal rate change of the LPI was positive 29.4%, compared to positive 33.0% in the prior quarter, and positive 33.1% in the second quarter of 2023. Lease terms on renewals for railcars in the LPI averaged 61 months in the current quarter, compared to 64 months in the prior quarter, and 61 months in the second quarter of 2023.

The following table shows fleet activity and statistics for Rail North America boxcars for the quarter ended:

(1) Utilization is calculated as the number of boxcars on lease as a percentage of total boxcars in the fleet.

(2) Active boxcars refers to the number boxcars on lease to customers. Changes in boxcars on lease compared to prior quarters are impacted by the utilization of new boxcars purchased from builders or in the secondary market and the disposition of boxcars that were sold or scrapped, as well as the fleet utilization rate.

(3) Average active boxcars is calculated using the number of active boxcars at the end of each month.

In the six months ended June 30, 2024, segment profit of $169.1 million decreased 3.1% compared to $174.5 million for the same period in the prior year. The decrease was primarily due to lower net gain on asset dispositions and higher interest expense, largely offset by higher lease revenue. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from period to period.

In the six months ended June 30, 2024, lease revenue increased $44.6 million, or 10.3%, driven by higher lease rates and more railcars on lease. Other revenue increased $11.5 million due to higher repair revenue.

In the six months ended June 30, 2024, maintenance expense increased $16.6 million, driven by higher costs of repairs, more regulatory compliance events, and more repairs performed by the railroads. Depreciation expense increased $0.3 million due to the timing of new railcar investments and dispositions, offset by a change in the useful lives of certain railcars. Other operating expense decreased $0.6 million primarily due to lower switching and freight costs.

In the six months ended June 30, 2024, net gain on asset dispositions decreased $22.8 million due to fewer railcars sold, lower gains on railcars converted to finance leases, and lower net scrapping gains. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from period to period. Net interest expense increased $22.9 million, driven by a higher average interest rate and a higher average debt balance.

During the six months ended June 30, 2024, investment volume was $629.8 million compared to $457.8 million in the same period in 2023. We acquired 2,200 newly built railcars and purchased 1,247 railcars in the secondary market in the six months ended June 30, 2024, compared to 1,619 newly built railcars and 1,021 railcars in the secondary market in the same period in 2023.

Our investment volume is predominantly composed of acquired railcars, but also includes certain capitalized repairs and improvements to owned railcars and our maintenance facilities. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of railcars purchased, which may include tank cars and freight cars, as well as newly manufactured railcars or those purchased in the secondary market.

In the three months ended June 30, 2024, segment profit of $78.8 million decreased 0.6% compared to $79.3 million for the same period in the prior year. The decrease was primarily due to lower net gain on asset dispositions, higher interest expense, and higher maintenance expense, largely offset by higher lease revenue. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from period to period.

In the three months ended June 30, 2024, lease revenue increased $23.2 million, or 10.6%, driven by higher lease rates and more railcars on lease. Other revenue increased $6.8 million due to higher repair revenue.

In the three months ended June 30, 2024, maintenance expense increased $10.6 million, driven by higher costs of repairs, more regulatory compliance events, and more repairs performed by the railroads. Depreciation expense increased $0.7 million due to the timing of new railcar investments and dispositions, offset by a change in the useful lives of certain railcars. Other operating expense decreased $0.3 million primarily due to lower switching and freight costs.

In the three months ended June 30, 2024, net gain on asset dispositions decreased $9.2 million due primarily to lower net gains on railcars sold in the current year, partially offset by higher net scrapping gains. The amount and timing of disposition gains is dependent on a number of factors and may vary materially from period to period. Net interest expense increased $11.9 million, driven by a higher average interest rate and a higher average debt balance.

RAIL INTERNATIONAL

Rail International, composed primarily of GATX Rail Europe ("GRE"), produced solid operating results in the six months of 2024 and continued to grow its fleet. GRE experienced renewal lease rate increases for most railcar types in the period. Utilization was 95.8% at the end of the current quarter.

Our rail business in India ("Rail India") increased its fleet size in the first six months of 2024 and continued to focus on investment opportunities, diversification of its fleet, and developing relationships with customers, suppliers and the Indian Railways. Demand for railcars in India remained robust, driven by continued growth in the economy and infrastructure development. Utilization was 100.0% at the end of the current quarter.

In the first quarter of 2023, we sold Rail Russia and recorded a gain of $0.3 million upon completion of the sale.

The following table shows Rail International's segment results (in millions):

GRE Fleet Data

The following table shows fleet activity and statistics for GRE railcars for the quarter ended:

(2) Active railcars refers to the number of railcars on lease to customers. Changes in railcars on lease compared to prior quarters are impacted by the utilization of newly built railcars, railcars purchased in the secondary market, and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

(3) Average active railcars for the quarter is calculated using the number of active railcars at the end of each month.

The general decline in GRE's fleet utilization was primarily due to weakness in the intermodal market. At June 30, 2024, GRE owned 2,210 intermodal railcars.

As of June 30, 2024, leases for approximately 5,969 railcars were scheduled to expire over the remainder of 2024. This amount excludes railcars on leases expiring in 2024 that have already been renewed or assigned to a new lessee.

Rail India Fleet Data

The following table shows fleet activity and statistics for Rail India railcars for the quarter ended:

(2) Active railcars refers to the number of railcars on lease to customers. Changes in railcars on lease compared to prior quarters are impacted by the utilization of newly built railcars and the disposition of railcars that were sold or scrapped, as well as the fleet utilization rate.

(3) Average active railcars for the quarter is calculated using the number of active railcars at the end of each month.

Foreign Currency

Rail International's reported results of operations are impacted by fluctuations in the exchange rates of the U.S. dollar against the foreign currencies in which it conducts business, primarily the euro. In the six months ended June 30, 2024, fluctuations in the value of the euro, relative to the U.S. dollar, positively impacted lease revenue by approximately $0.3 million and negatively impacted segment profit, excluding other income (expense), by approximately $1.1 million compared to the same period in 2023.

In the six months ended June 30, 2024, segment profit of $55.3 million increased 8.9% compared to $50.8 million for the same period in the prior year. Segment profit in 2023 included a $0.3 million disposition gain recorded as a result of the decision to exit the Rail Russia business. Excluding these items, results for Rail International were $4.8 million higher compared to the same period in the prior year. The increase was primarily due to more railcars on lease and higher lease rates at both GRE and Rail India, partially offset by higher maintenance expense at GRE and higher interest expense.

In the six months ended June 30, 2024, lease revenue increased $19.1 million, or 13.3%, due to more railcars on lease and higher lease rates at GRE and Rail India and the impact of foreign exchange rates. Other revenue increased $0.3 million, driven by higher line haul revenue, partially offset by lower repair revenue.

In the six months ended June 30, 2024, maintenance expense increased $5.2 million, primarily due to more repairs performed, higher costs for repairs, higher wheelset costs, and the impact of foreign exchange rates. Depreciation expense increased $6.0 million, due the impact of new railcars added to the fleet.

In the six months ended June 30, 2024, net gain on asset dispositions increased $0.5 million, driven by higher net scrapping gains due to more railcars scrapped at a higher scrap price per ton. Net interest expense increased $8.2 million, due to a higher average debt balance and a higher average interest rate. Other expense was favorable by $6.6 million, driven by the positive impact of changes in foreign exchange rates, primarily euro-zloty fluctuations.

During the six months ended June 30, 2024, investment volume was $109.5 million compared to $158.4 million in the same period in 2023. In the six months ended June 30, 2024, GRE acquired 710 newly built railcars compared to 878 newly built railcars for the same period in 2023, and Rail India acquired 1,104 newly built railcars in the current year compared to 1,055 newly built railcars for the same period in 2023.

Our investment volume is predominantly composed of acquired railcars, but also includes certain capitalized repairs and improvements to owned railcars. As a result, the dollar value of investment volume does not necessarily correspond to the number of railcars acquired in any given period. In addition, the comparability of amounts invested and the number of railcars acquired in each period is impacted by the mix of the various car types acquired, as well as fluctuations in the exchange rates of the foreign currencies in which Rail International conducts business.

Foreign Currency

Rail International's reported results of operations are impacted by fluctuations in the exchange rates of the U.S. dollar against the foreign currencies in which it conducts business, primarily the euro. In the three months ended June 30, 2024, fluctuations in the value of the euro, relative to the U.S. dollar, negatively impacted lease revenue by approximately $0.7 million and negatively impacted segment profit, excluding other income (expense), by approximately $1.1 million compared to the same period in 2023.

In the three months ended June 30, 2024, segment profit of $26.5 million decreased 2.9% compared to $27.3 million for the same period in the prior year. The decrease was primarily due to higher maintenance expense at GRE and higher interest expense, offset by more railcars on lease and higher lease rates at both GRE and Rail India.

In the three months ended June 30, 2024, lease revenue increased $8.9 million, or 12.2%, due to more railcars on lease and higher lease rates at GRE and Rail India, partially offset by the impact of foreign exchange rates. Other revenue was comparable to the same period in the prior year, as higher line haul revenue was offset by lower repair revenue.

In the three months ended June 30, 2024, maintenance expense increased $3.6 million, primarily due to more repairs performed, higher costs for repairs, higher wheelset costs, and the impact of foreign exchange rates. Depreciation expense increased $2.8 million, due the impact of new railcars added to the fleet.

In the three months ended June 30, 2024, net gain on asset dispositions was comparable to the same period in the prior year. Net interest expense increased $4.0 million, due to a higher average debt balance and a higher average interest rate. Other expense was favorable by $1.9 million, driven by the positive impact of changes in foreign exchange rates, primarily euro-zloty fluctuations.

ENGINE LEASING

As disclosed previously, as of December 31, 2023, we have sold all of our marine assets and no longer have any marine operations. As a result, we have changed the name of this business segment from Portfolio Management to Engine Leasing to reflect the prospective operations of the segment.

Engine Leasing's segment profit is attributable primarily to income from the RRPF affiliates, a group of 50% owned domestic and foreign joint ventures with Rolls-Royce, a leading manufacturer of commercial aircraft jet engines. Segment profit included earnings from the RRPF affiliates of $40.6 million and $16.9 million for the six months and three months ended June 30, 2024, compared to $48.3 million and $20.3 million for the same periods in 2023. The operating environment for the RRPF affiliates was robust, and demand for international air passenger travel remained strong.

Engine Leasing also includes GEL, our wholly owned entity that invests directly in aircraft spare engines. In the second quarter of 2024, GEL acquired three aircraft spare engines for $71.3 million. As of June 30, 2024, GEL owned 32 aircraft spare engines, with 14 on long-term leases with airline customers and 18 that are employed in an engine capacity agreement with Rolls-Royce for use in its engine maintenance programs. All engines at GEL are managed by the RRPF affiliates, for which we paid them a fee of $1.8 million and $0.9 million for the six months and three months ended June 30, 2024 and $1.0 million and $0.5 million for the same periods in 2023.

During the second quarter of 2023, we sold our natural gas holdings and recorded a gain of $5.7 million.

The following table shows Engine Leasing’s segment results (in millions):

The following table shows the net book values of Engine Leasing's assets (in millions):

RRPF Affiliates' Portfolio Data

The following table shows portfolio activity and statistics for the RRPF affiliates' aircraft spare engines for the quarter ended:

(1) Utilization is calculated as the number of engines on lease as a percentage of total engines in the fleet.

(2) Average leased engines is calculated using the number of leased engines at the end of each month.

GEL Portfolio Data

The following table shows portfolio activity for GEL's aircraft spare engines for the quarter ended:

In the six months ended June 30, 2024, segment profit was $44.1 million, compared to segment profit of $54.9 million for the same period in the prior year. Segment profit included $0.6 million of gains in 2024 and $1.4 million of losses in 2023 associated with the Specialized Gas Vessels. Excluding the impact of these items, results for Engine Leasing were $12.8 million lower than 2023. Lower earnings at the RRPF affiliates, resulting from lower remarketing income, and the absence of the gain on the sale of natural gas holdings recorded in the prior year, were partially offset by higher earnings from GEL operations.

In the six months ended June 30, 2024, lease revenue was comparable to the same period in the prior year. Non-dedicated engine revenue increased $16.0 million due to aircraft spare engines acquired in 2023 and 2024 and utilized in the engine capacity agreement with Rolls-Royce. Marine operating revenue decreased $5.5 million, driven by the final sales of the Specialized Gas Vessels in 2023.

In the six months ended June 30, 2024, marine operating expense decreased $4.4 million, due to the sale of the Specialized Gas Vessels in 2023. Depreciation expense increased $5.5 million, due to aircraft spare engines acquired in 2023 and 2024.

In the six months ended June 30, 2024, net gain on asset dispositions was unfavorable by $3.9 million, driven by the absence of gains recorded in 2023 for the sale of natural gas holdings and gains on the sales of the Specialized Gas Vessels in 2023 and related post-closing adjustments recorded in both 2023 and 2024.

In the six months ended June 30, 2024, income from our share of affiliates' earnings decreased $7.7 million, driven by lower remarketing income, partially offset by higher income from operations.

In the six months ended June 30, 2024, investment volume was $71.3 million, compared to $239.0 million in the same period in 2023. In the six months ended June 30, 2024, GEL acquired three aircraft spare engines compared to nine in the same period in 2023.

In the three months ended June 30, 2024, segment profit was $18.4 million, compared to segment profit of $26.6 million for the same period in the prior year. Segment profit in 2023 included $0.2 million of gains associated with the Specialized Gas Vessels. Excluding the impact of these items, results for Engine Leasing were $8.0 million lower than 2023. The absence of the gain on the sale of natural gas holdings recorded in the prior year and lower earnings at the RRPF affiliates, resulting from lower remarketing income, were partially offset by higher earnings from GEL operations.

In the three months ended June 30, 2024, lease revenue was comparable to the same period in the prior year. Non-dedicated engine revenue increased $7.3 million due to aircraft spare engines acquired in 2023 and 2024 and utilized in the engine capacity agreement with Rolls-Royce. Marine operating revenue decreased $2.0 million, driven by the final sales of the Specialized Gas Vessels in 2023.

In the three months ended June 30, 2024, marine operating expense decreased $2.4 million, due to the sale of the Specialized Gas Vessels in 2023. Depreciation expense increased $2.5 million, due to aircraft spare engines acquired in 2023 and 2024.

In the three months ended June 30, 2024, net gain on asset dispositions was unfavorable by $6.0 million, driven by the absence of gains recorded in 2023 for both the sale of natural gas holdings and the sale of the Specialized Gas Vessel.

In the three months ended June 30, 2024, income from our share of affiliates' earnings decreased $3.4 million, driven by lower remarketing income, partially offset by higher income from operations.

OTHER

Other comprises our Trifleet business, as well as selling, general and administrative expenses ("SG&A"), unallocated interest expense, miscellaneous income and expense not directly associated with the reporting segments, and certain eliminations.

In the second quarter of 2024, GATX recorded reserves of $10.7 million for its share of anticipated environmental remediation costs arising out of prior operations and legacy businesses. The majority of the amount relates to a previously owned facility that GATX sold in 1974, while the remainder of the amount relates to a landfill that GATX entities previously utilized, which was closed in 1986.

The following table shows components of Other (in millions):

Trifleet Summary

The tank container leasing market remained soft across certain regions in the second quarter of 2024, but has shown some early signs of improvement. Utilization was 86.0% at the end of the current quarter.

Trifleet Tank Container Data

The following table shows fleet statistics for Trifleet's tank containers for the quarter ended:

(1) Utilization is calculated as the number of tank containers on lease as a percentage of total tank containers in the fleet.

SG&A, Unallocated Interest and Other

SG&A increased $12.1 million for the six months ended June 30, 2024 compared to the same period in the prior year. SG&A increased $6.6 million for the three months ended June 30, 2024 compared to the same period in the prior year. Both variances were driven by higher employee-related expenses, including higher share-based compensation expense, and higher information technology expense.

Unallocated interest income (the difference between external interest expense and interest expense allocated to the reporting segments) in any year is affected by our consolidated leverage position, the timing of debt issuances and investing activities, and intercompany allocations.

Other (expense) income, including eliminations was unfavorable by $8.6 million for the six months ended June 30, 2024 compared to the same period in the prior year. Other (expense) income, including eliminations was unfavorable by $9.4 million in the three months ended June 30, 2024 compared to the same period in the prior year. Both variances were driven by environmental reserves recorded, as noted above, partially offset by the absence of pension settlement charges recorded in the prior year.

Consolidated Income Taxes

See "Note 9. Income Taxes" in Part I, Item 1 of this Quarterly Report on Form 10-Q.