UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________ 
FORM 10-Q
__________________________________________  
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20182019
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-2328
image0a04a01a23.jpg
GATX Corporation
(Exact name of registrant as specified in its charter)
New York36-1124040
(State of incorporation)(I.R.S. Employer Identification No.)
222 West Adams Street
Chicago, Illinois 60606-5314
(Address of principal executive offices, including zip code)
(312) 621-6200

233 South Wacker Drive
Chicago,Illinois60606-7147
(Address of principal executive offices, including zip code)
(312) 621-6200
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockGATXNew York Stock Exchange
Chicago Stock Exchange
5.625% Senior Notes due 2066GMTANew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒    No  ¨☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x☒    No  ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company, (as defined" and "emerging growth company" in Rule 12b-2 of the Exchange Act).Act.
 x☒Large accelerated filer ¨Accelerated filer
¨Non-accelerated filer¨☐Smaller reporting company
 ☐Non-accelerated filer ¨☐Emerging growth company
☐Accelerated filer

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Yes  ¨    No  x

CommonThere were 35.7 million common shares outstanding were 37.7 million at June 30, 2018.2019.
     







GATX CORPORATION
FORM 10-Q
QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 20182019


INDEX
Item No. Page No.
 
Forward-Looking Statements
1
   
Part I - FINANCIAL INFORMATION
Item 1.1
Financial Statements
 
 
Consolidated Balance Sheets (Unaudited)
2
 
Consolidated Statements of Comprehensive Income (Unaudited)
3
 
Consolidated Statements of Cash Flows (Unaudited)
4
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
5
   
 
Notes to the Consolidated Financial Statements (Unaudited)
 
 
Note 1. Description of Business
56
 
Note 2. Basis of Presentation
56
 
Note 3. Revenue
78
 
Note 4. Fair Value DisclosureLeases
9
 
Note 5. Pension and Other Post-Retirement BenefitsFair Value Disclosure
11
 
Note 6. Share-Based CompensationPension and Other Post-Retirement Benefits
1216
 
Note 7. Income TaxesShare-Based Compensation
1217
 
Note 8. Commercial CommitmentsIncome Taxes
1317
 
Note 9. Earnings per ShareCommercial Commitments
1317
 
Note 10. Accumulated Other Comprehensive Income (Loss)Earnings per Share
1418
 
Note 11. Legal Proceedings andAccumulated Other ContingenciesComprehensive Income (Loss)
1418
 
Note 12. Legal Proceedings and Other Contingencies
18
Note 13. Financial Data of Business Segments
1519
   
Item 2.2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Overview
2024
 
Discussion of Operating Results
2124
 
Segment Operations
2225
 
Cash Flow and Liquidity
3839
 
Critical Accounting Policies and Estimates
4142
 
Non-GAAP Financial Measures
4143
Item 3.3
Quantitative and Qualitative Disclosures About Market Risk
4546
Item 4.4
Controls and Procedures
4546
Part II - OTHER INFORMATION
Item 1.1
Legal Proceedings
4547
Item 1A.1A
Risk Factors
4547
Item 2.2
Unregistered Sales of Equity Securities and Use of Proceeds
4547
Item 6.6
Exhibits
4648
SIGNATURE
4749
  







FORWARD-LOOKING STATEMENTS


Statements in this report not based on historical facts are “forward-looking statements”"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and, accordingly, involve known and unknown risks and uncertainties that are difficult to predict and could cause our actual results, performance, or achievements to differ materially from those discussed. These include statements as to our future expectations, beliefs, plans, strategies, objectives, events, conditions, financial performance, prospects, or future events. In some cases, forward-looking statements can be identified by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “likely,” “will,” “would”"may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," "outlook," "continue," "likely," "will," "would", and similar words and phrases. Forward-looking statements are necessarily based on estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of the date they are made, and are not guarantees of future performance. We do not undertake any obligation to publicly update or revise these forward-looking statements.


A detailed discussion of the known material risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our Annual Report on Form 10-K for the year ended December 31, 2017,2018, and in our other filings with the Securities and Exchange Commission ("SEC"). The following factors, in addition to those discussed under "Risk Factors", in our Annual Report on Form 10-K for the year ended December 31, 2017,2018, could cause actual results to differ materially from our current expectations expressed in forward looking statements:
•
exposure to damages, fines, criminal and civil penalties, and reputational harm arising from a negative outcome in litigation, including claims arising from an accident involving our railcars
•
inability to maintain our assets on lease at satisfactory rates due to oversupply of railcars in the market or other changes in supply and demand
•
a significant decline in customer demand for our railcars or other assets or services, including as a result of:
◦
weak macroeconomic conditions
◦
weak market conditions in our customers' businesses
◦
declines in harvest or production volumes
◦
adverse changes in the price of, or demand for, commodities
◦
changes in railroad operations or efficiency
◦
changes in supply chains
◦
availability of pipelines, trucks, and other alternative modes of transportation
◦
other operational or commercial needs or decisions of our customers
•
higher costs associated with increased railcar assignments following non-renewal of leases, customer defaults, and compliance maintenance programs or other maintenance initiatives
•
events having an adverse impact on assets, customers, or regions where we have a concentrated investment exposure
•
financial and operational risks associated with long-term railcar purchase commitments, including increased costs due to tariffs or trade disputes
•
reduced opportunities to generate asset remarketing income
 
•
operational and financial risks related to our affiliate investments, including the Rolls-Royce & Partners Finance joint ventures (collectively the "RRPF affiliates")
•
the impact of changes to the Internal Revenue Code as a result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), and uncertainty as to how this legislation will be interpreted and applied.
•
fluctuations in foreign exchange rates
•
failure to successfully negotiate collective bargaining agreements with the unions representing a substantial portion of our employees
•
asset impairment charges we may be required to recognize
•
deterioration of conditions in the capital markets, reductions in our credit ratings, or increases in our financing costs
•
uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021
•
competitive factors in our primary markets, including competitors with a significantly lower cost of capital than GATX
•
risks related to our international operations and expansion into new geographic markets, including the imposition of new or additional tariffs, quotas, or trade barriers
•
changes in, or failure to comply with, laws, rules, and regulations
•
inability to obtain cost-effective insurance
•
environmental remediation costs
•
inadequate allowances to cover credit losses in our portfolio
•
inability to maintain and secure our information technology infrastructure from cybersecurity threats and related disruption of our business


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share data)
June 30 December 31June 30 December 31
2018 20172019 2018
Assets      
Cash and Cash Equivalents
$237.4
 $296.5
$286.6
 $100.2
Restricted Cash
3.7
 3.2
0.3
 6.5
Receivables      
Rent and other receivables84.7
 83.4
97.8
 87.0
Finance leases130.8
 136.1
Finance leases (as lessor)95.3
 126.4
Less: allowance for losses(6.5) (6.4)(6.0) (6.4)
209.0
 213.1
187.1
 207.0
      
Operating Assets and Facilities9,206.7
 9,045.4
9,728.9
 9,545.9
Less: allowance for depreciation(2,911.8) (2,853.3)(3,122.6) (3,013.2)
6,606.3
 6,532.7
Lease Assets (as lessee)   
Right-of-use assets, net of accumulated depreciation440.6
 —
Finance leases, net of accumulated depreciation16.5
 16.8
457.1
 16.8
6,294.9
 6,192.1
   
Investments in Affiliated Companies
468.9
 441.0
495.8
 464.5
Goodwill
84.0
 85.6
82.4
 82.9
Other Assets
197.6
 190.9
237.5
 206.1
Total Assets
$7,495.5
 $7,422.4
$8,353.1
 $7,616.7
      
Liabilities and Shareholders’ Equity      
Accounts Payable and Accrued Expenses
$162.5
 $154.3
$152.8
 $177.5
Debt      
Commercial paper and borrowings under bank credit facilities4.3
 4.3
26.0
 110.8
Recourse4,397.9
 4,371.7
4,832.5
 4,429.7
Capital lease obligations11.9
 12.5
4,858.5
 4,540.5
Lease Obligations (as lessee)   
Operating leases454.5
 —
Finance leases10.6
 11.3
465.1
 11.3
4,414.1
 4,388.5
   
Deferred Income Taxes
881.4
 853.7
908.4
 877.8
Other Liabilities
219.9
 233.2
133.5
 221.5
Total Liabilities
5,677.9
 5,629.7
6,518.3
 5,828.6
Shareholders’ Equity      
Common stock, $0.625 par value:
Authorized shares — 120,000,000
Issued shares — 67,254,859 and 67,083,149
Outstanding shares — 37,701,950 and 37,895,641
41.6
 41.6
Common stock, $0.625 par value:
Authorized shares — 120,000,000
Issued shares — 67,476,417 and 67,329,081
Outstanding shares — 35,665,345 and 36,612,227
41.8
 41.6
Additional paid in capital702.7
 698.0
713.0
 706.4
Retained earnings2,357.3
 2,261.7
2,533.5
 2,419.2
Accumulated other comprehensive loss(160.0) (109.6)(155.8) (164.6)
Treasury stock at cost (29,552,909 and 29,187,508 shares)(1,124.0) (1,099.0)
Treasury stock at cost (31,811,072 and 30,716,854 shares)(1,297.7) (1,214.5)
Total Shareholders’ Equity
1,817.6
 1,792.7
1,834.8
 1,788.1
Total Liabilities and Shareholders’ Equity$7,495.5
 $7,422.4
$8,353.1
 $7,616.7

See accompanying notes to consolidated financial statements.


GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In millions, except per share data)
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30
2018 2017 2018 20172019 2018 2019 2018
Revenues              
Lease revenue$271.0
 $274.1
 $544.2
 $546.8
$274.0
 $271.0
 $548.4
 $544.2
Marine operating revenue55.8
 55.1
 70.0
 72.1
60.9
 55.8
 74.0
 70.0
Other revenue22.7
 19.2
 40.6
 45.6
24.5
 22.7
 54.0
 40.6
Total Revenues349.5
 348.4
 654.8
 664.5
359.4
 349.5
 676.4
 654.8
Expenses              
Maintenance expense82.0
 84.9
 163.2
 162.8
85.7
 82.0
 166.9
 163.2
Marine operating expense37.6
 38.0
 50.1
 50.9
41.0
 37.6
 53.1
 50.1
Depreciation expense81.1
 77.3
 158.5
 149.3
83.8
 81.1
 163.7
 158.5
Operating lease expense12.7
 15.2
 25.7
 31.0
13.7
 12.7
 27.4
 25.7
Other operating expense9.1
 7.8
 17.7
 17.4
7.8
 9.1
 15.8
 17.7
Selling, general and administrative expense46.2
 42.6
 91.1
 85.3
45.1
 46.2
 91.2
 91.1
Total Expenses268.7
 265.8
 506.3
 496.7
277.1
 268.7
 518.1
 506.3
Other Income (Expense)              
Net gain on asset dispositions6.1
 22.0
 62.2
 46.9
32.9
 6.1
 41.8
 62.2
Interest expense, net(42.2) (40.0) (82.1) (79.2)(47.1) (42.2) (93.6) (82.1)
Other expense(9.8) (1.6) (11.1) (3.1)(0.6) (9.8) (3.8) (11.1)
Income before Income Taxes and Share of Affiliates’ Earnings
34.9
 63.0
 117.5
 132.4
67.5
 34.9
 102.7
 117.5
Income taxes(9.1) (19.3) (29.7) (39.9)(15.6) (9.1) (24.0) (29.7)
Share of affiliates’ earnings, net of taxes13.0
 9.7
 27.3
 18.4
16.1
 13.0
 30.8
 27.3
Net Income
$38.8
 $53.4
 $115.1
 $110.9
$68.0
 $38.8
 $109.5
 $115.1
Other Comprehensive Income, Net of Taxes       
Other Comprehensive Income (Loss), Net of Taxes       
Foreign currency translation adjustments(50.4) 40.7
 (35.5) 58.6
11.7
 (50.4) 1.2
 (35.5)
Unrealized gain on derivative instruments2.2
 2.1
 0.7
 2.9
1.1
 2.2
 3.1
 0.7
Post-retirement benefit plans1.9
 1.4
 3.8
 2.7
1.5
 1.9
 4.5
 3.8
Other comprehensive income(46.3) 44.2
 (31.0) 64.2
Comprehensive (Loss) Income
$(7.5) $97.6
 $84.1
 $175.1
Other comprehensive income (loss)14.3
 (46.3) 8.8
 (31.0)
Comprehensive Income (Loss)$82.3
 $(7.5) $118.3
 $84.1
              
Share Data              
Basic earnings per share$1.03
 $1.37
 $3.05
 $2.83
$1.89
 $1.03
 $3.02
 $3.05
Average number of common shares37.7
 39.0
 37.8
 39.2
36.0
 37.7
 36.2
 37.8
              
Diluted earnings per share$1.01
 $1.35
 $2.99
 $2.79
$1.86
 $1.01
 $2.97
 $2.99
Average number of common shares and common share equivalents38.4
 39.5
 38.5
 39.7
36.7
 38.4
 36.9
 38.5
       
Dividends declared per common share$0.44
 $0.42
 $0.88
 $0.84

See accompanying notes to consolidated financial statements.


GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
Six Months Ended
June 30
Six Months Ended
June 30
2018 20172019 2018
Operating Activities      
Net income$115.1
 $110.9
$109.5
 $115.1
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation expense167.2
 155.8
169.3
 167.2
Change in accrued operating lease expense(11.1) (25.3)
Net gains on sales of assets(61.1) (39.5)(41.0) (61.1)
Deferred income taxes21.2
 30.4
15.7
 21.2
Change in income taxes payable(0.6) (4.9)
Share of affiliates’ earnings, net of dividends(27.2) (18.3)(30.7) (27.2)
Other3.2
 14.7
Changes in working capital items(47.0) (8.5)
Net cash provided by operating activities206.7
 223.8
175.8
 206.7
Investing Activities      
Portfolio investments and capital additions(367.0) (295.3)(331.4) (367.0)
Purchases of leased-in assets(39.1) (79.3)
Purchases of assets previously leased—
 (39.1)
Portfolio proceeds149.0
 99.1
133.5
 149.0
Proceeds from sales of other assets20.9
 14.9
14.6
 20.9
Proceeds from sale-leasebacks—
 90.7
Other2.6
 0.5
1.5
 2.6
Net cash used in investing activities(233.6) (169.4)(181.8) (233.6)
Financing Activities      
Net proceeds from issuances of debt (original maturities longer than 90 days)297.1
 297.6
549.5
 297.1
Repayments of debt (original maturities longer than 90 days)(263.1) (301.5)(160.0) (263.1)
Net increase in debt with original maturities of 90 days or less0.1
 11.5
Net decrease in debt with original maturities of 90 days or less(84.8) 0.1
Stock repurchases(25.0) (50.0)(82.4) (25.0)
Dividends(35.7) (35.2)(36.2) (35.7)
Other(1.4) (2.8)(0.3) (1.4)
Net cash used in financing activities(28.0) (80.4)
Net cash provided (used) in financing activities185.8
 (28.0)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(3.7) 2.9
0.4
 (3.7)
Net decrease in Cash, Cash Equivalents, and Restricted Cash during the period(58.6) (23.1)
Cash, Cash Equivalents, and Restricted Cash at beginning of period299.7
 311.1
Cash, Cash Equivalents, and Restricted Cash at end of period$241.1
 $288.0
Net increase (decrease) in Cash, Cash Equivalents, and Restricted Cash during the period180.2
 (58.6)
Cash, Cash Equivalents, and Restricted Cash at beginning of the period106.7
 299.7
Cash, Cash Equivalents, and Restricted Cash at end of the period$286.9
 $241.1

See accompanying notes to consolidated financial statements.

GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(In millions)
 Three Months Ended
June 30		 Six Months Ended
June 30
 2019 2018 2019 2018
 Shares Dollars Shares Dollars Shares Dollars Shares Dollars
Common Stock               
Balance at beginning of the period67.4
 $41.7
 67.2
 $41.6
 67.3
 $41.6
 67.1
 $41.6
Issuance of common stock0.1
 0.1
 0.1
 —
 0.2
 0.2
 0.2
 —
Balance at end of the period67.5
 41.8
 67.3
 41.6
 67.5
 41.8
 67.3
 41.6
Treasury Stock               
Balance at beginning of the period(31.2) (1,254.5) (29.6) (1,124.0) (30.7) (1,214.5) (29.2) (1,099.0)
Stock repurchases(0.6) (43.2) —
 —
 (1.1) (83.2) (0.4) (25.0)
Balance at end of the period(31.8) (1,297.7) (29.6) (1,124.0) (31.8) (1,297.7) (29.6) (1,124.0)
Additional Paid In Capital               
Balance at beginning of the period  709.5
   699.9
   706.4
   698.0
Share-based compensation effects  3.5
   2.8
   6.6
   4.7
Balance at end of the period  713.0
   702.7
   713.0
   702.7
Retained Earnings               
Balance at beginning of the period  2,482.6
   2,335.9
   2,419.2
   2,261.7
Net income  68.0
   38.8
   109.5
   115.1
Dividends declared ($0.46 and $0.44 per share QTR and $0.92 and $0.88 per share YTD)  (17.1)   (17.4)   (34.6)   (34.7)
Cumulative impact of accounting standard adoption  —
   —
   39.4
   15.2
Balance at end of the period  2,533.5
   2,357.3
   2,533.5
   2,357.3
Accumulated Other Comprehensive Loss            
Balance at beginning of the period  (170.1)   (113.7)   (164.6)   (109.6)
Other comprehensive income (loss)  14.3
   (46.3)   8.8
   (31.0)
Cumulative impact of accounting standard adoption  —
   —
   —
   (19.4)
Balance at end of the period  (155.8)   (160.0)   (155.8)   (160.0)
Total Shareholders’ Equity   
  $1,834.8
   $1,817.6
   $1,834.8
   $1,817.6

See accompanying notes to consolidated financial statements.


GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)






NOTE 1. Description of Business


As used herein, "GATX," "we," "us," "our," and similar terms refer to GATX Corporation and its subsidiaries, unless indicated otherwise.


We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail market. We report our financial results through fourprimary business segments: Rail North America, Rail International, Portfolio Management, and American Steamship Company (“ASC”("ASC").


NOTE 2. Basis of Presentation


We prepared the accompanying unaudited consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our unaudited consolidated financial statements do not include all of the information and footnotes required for complete financial statements. We have included all of the normal recurring adjustments that we deemed necessary for a fair presentation. Certain prior year amounts have been reclassified to conform to the 20182019 presentation.


Operating results for the six months ended June 30, 20182019 are not necessarily indicative of the results we may achieve for the entire year ending December 31, 2018.2019. In particular, ASC's fleet is inactive for a significant portion of the first quarter of each year due to winter conditions on the Great Lakes. In addition, asset remarketing income does not occur evenly throughout the year. For more information, refer to the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.


GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


New Accounting Pronouncements Adopted
Standard/DescriptionEffective Date and Adoption ConsiderationsEffect on Financial Statements or Other Significant Matters
Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers(Topic 606), which supersedes most current revenue recognition guidance, including industry-specific guidance. Subsequently, the FASB has issued updates which provide additional implementation guidance. The new guidance requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services.


We adopted this guidance in the first quarter of 2018 applying the modified retrospective approach.


We have completed our review of all revenue sources in scope for the new standard, and marine operating revenue is our largest component. In accordance with the new standard, the basis for determining revenue and expenses allocable to in-process shipments has been modified; however, the impact does not have a material impact on our financial statements. The net cumulative effect adjustment for this change was immaterial to retained earnings as of January 1, 2018.
Financial Instruments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities, which modifies the accounting and reporting requirements for certain equity securities and financial liabilities.


We adopted the new guidance in the first quarter of 2018.


The application of this new guidance did not impact our financial statements or related disclosures.
Income Taxes

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which modifies how an entity will recognize the income tax consequences of an intra-entity transfer of an asset when the transfer occurs.


We adopted the new guidance in the first quarter of 2018, applying the modified retrospective method.


The application of this new guidance had an immaterial impact on our financial statements and related disclosures, including the net cumulative effect adjustment recorded in retained earnings as of January 1, 2018.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


New Accounting Pronouncements Adopted (Continued)
Standard/DescriptionEffective Date and Adoption ConsiderationsEffect on Financial Statements or Other Significant Matters
Compensation

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which modifies how an entity must present service costs and other components of net benefit cost.


We adopted the new guidance in the first quarter of 2018, applying the retrospective method. The optional practical expedient was elected.


Application of the new guidance had an immaterial impact on the presentation of our financial statements as certain components of our net periodic pension and other post-retirement benefits costs were reclassified to an alternative income statement line.
Deferred Income Tax

In December 2017, the FASB issued ASU 2017-15, Codification Improvements to Topic 995, U.S. Steamship Entities, which supersedes obsolete guidance in Topic 995 on unrecognized deferred taxes related to certain statutory reserve deposits. If an entity has unrecognized deferred income taxes related to statutory deposits made on or before December 15, 1992, the entity would be required to recognize the unrecognized income taxes in accordance with Topic 740.


We elected to early adopt this new guidance in the first quarter of 2018, applying the modified retrospective method.


The application of this new guidance had an immaterial impact on our financial statements and related disclosures, including the net cumulative effect adjustment recorded in retained earnings as of January 1, 2018.
Accumulated Other Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, Income Statement Reporting - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits reclassification of certain stranded tax effects from the Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income to Retained Earnings. The amount of the reclassification is calculated on the basis of the difference between the historical and newly enacted tax rates recorded for the applicable AOCI components.


We adopted the new guidance in the first quarter of 2018.


The application of this new guidance resulted in the reclassification of stranded tax effects resulting from the newly enacted Tax Act of $19.4 million from Accumulated Other Comprehensive Income to Retained Earnings.

GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


New Accounting Pronouncements Not Yet Adopted
Standard/DescriptionEffective Date and Adoption ConsiderationsEffect on Financial Statements or Other Significant Matters
Leases



In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes most currentprevious lease guidance. The FASB subsequently issued ASU 2018-10, ASU 2018-11, and ASU 2018-20, Lease (Topic 842), for codification and targeted improvements to the standard. The new guidance requires companies to recognize most leases on the balance sheet and modifies accounting, presentation, and disclosure for both lessors and lessees.




TheWe adopted the new guidance is effective for us in the first quarter of 2019, with early adoption permitted.

We plan to adopt this guidance on January 1, 2019, usingapplying a modified retrospective transition method and we expect to utilizewith a cumulative effect adjustment upon adoption. Comparative periods are not restated.

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




We continue to assess the effect the new guidance will have on our consolidated financial statements and related disclosures. The adoption of the amended lease guidance will requirethis new standard required us to recognize right of useright-of-use assets and lease liabilities on our balance sheet attributable to operating leases for railcars, offices, and certain equipment. We areThis resulted in the processrecognition of completing our analysis to determine applicable amounts.
Credit Lossesright-of-use assets and lease liabilities of $460.7 million and $483.6 million, respectively, as of January 1, 2019.

In June 2016, the FASB issued ASU 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies how entities will measure credit losses.



The adoption of this new guidance is effective forstandard also required us in the first quarterto eliminate deferred gains associated with our railcar sale-leaseback financing arrangements, and record a one-time increase to equity of 2020, with early adoption permitted.


We are evaluating the effect the new guidance$39.4 million (after-tax). Elimination of these deferred gains will have on our financial statements and related disclosures.increase reported operating lease expense going forward. In 2019, we expect this impact to be approximately $4.0 million (pre-tax).
Derivatives and Hedging


In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness.




The update toWe adopted the standard is effective for us beginningnew guidance in the first quarter of 2019, with early adoption permitted in any interim period.2019.




We do not expect theThe application of this new guidance to have a significantdid not impact on our financial statements orand had an immaterial impact to related disclosures.
Compensation


 
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which modifies the accounting for nonemployee share-based payments.




We adopted the new guidance in the first quarter of 2019.


The application of this new guidance did not impact our financial statements or related disclosures.



GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


New Accounting Pronouncements Not Yet Adopted
Standard/DescriptionEffective Date and Adoption ConsiderationsEffect on Financial Statements or Other Significant Matters
Credit Losses

In June 2016, the FASB issued ASU 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies how entities will measure credit losses.


The new guidance is effective for us in the first quarter of 2019,2020, with early adoption permitted in any interim period.permitted.




We are evaluating the effect the new guidance will have on our financial statements and related disclosures.



NOTE 3. Revenue

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

In the first quarter of 2018, we adopted Topic 606 using the modified retrospective method with respect to applicable contracts existing as of January 1, 2018. As provided in the guidance, we recognize marine operating revenue in the amount that corresponds directly to the value transferred to the customer. Contract assets and liabilities related to our customer performance obligations are not material to our financial statements. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


amounts have not been adjusted and continue to be reported in accordance with appropriate accounting guidance. We recorded an immaterial cumulative adjustment to opening retained earnings, with the impact completely attributable to our marine operating revenue.


Revenue Recognition


Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.


We disaggregate revenue into three categories as presented on our income statement:


Lease Revenue


Lease revenue, which includes operating lease revenue and finance lease revenue, is our primary source of revenue which continues to be withinrevenue. In the scopefirst quarter of 2019, we adopted Topic 842 using the modified retrospective method. As provided in the guidance, we elected the package of practical expedients that retains the classification of existing leases at the time of adoption and does not require re-evaluation of embedded leases or reassessment of initial direct costs. In addition, we elected the practical expedient that allows lessors to not separate non-lease components from the associated lease guidance. Therefore,components for our operating leases. As a result, our current recognition and presentation policies for leases are substantially consistent with applicable provisions in the adoption of ASC 606 had no impact on our recognition or presentation ofnew lease revenue.standard.


Operating Lease Revenue


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 executory costs, such as maintenance, insurance, and ad valorem taxes. We do not offer stand-alone maintenance service contracts and are unable to separate executory costs from full-service lease revenue.contracts. Operating lease revenue including amounts relatedis within the scope of Topic 842, and we have elected to executory costs, isnot separate non-lease components from the associated lease component for qualifying leases. Operating lease revenue will continue to be recognized on a straight-line basis over the term of the underlying lease. As a result, welease revenue may not recognize lease revenuebe recognized in the same period as maintenance and other executory costs, which we expense as incurred. ContingentVariable rents are recognized when the contingency isapplicable contingencies are resolved. Revenue is not recognized if collectability is not reasonably assured.


Finance Lease Revenue


In certain cases, we lease railcars and other operating assets that, at lease inception, are classified as finance leases. We recognize unearned income asIn accordance with Topic 842, finance lease revenue will continue to be recognized using the interest method, which produces a constant yield over the lease term. Initial unearned income is the amount that the original lease payment receivable and the estimated residual value of the leased asset exceeds the original cost or carrying value of the leased asset.


Marine Operating Revenue


We generate marine operating revenue through shipping services completed by our marine vessels. Upon adoption of ASCIn accordance with Topic 606, marine operating revenue is recognized over time as the performance obligation is satisfied, beginning when cargo is loaded through its delivery and discharge. Revenue is recognized pro rata over the projected duration of each voyage, which is derived from our historical voyage data.


Other Revenue


Other revenue comprisesis comprised of customer liability repair revenue, termination fees, utilization income, fee income, interest on loans, and other miscellaneous revenues. Select components of other revenue are within the scope of Topic 606 but based on606. Revenue attributable to terms provided in our assessment, we determined that our current revenue elements and timing for purposes of income recognitionlease contracts are consistent with applicable provisions in the new standard. The remaining items are consideredvariable lease components that continue to be within the scope of existing lease guidance.are recognized when earned, in accordance with Topic 842.

GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)





NOTE 4. 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.

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. Elimination of these deferred gains will increase future operating lease expense associated with operating leases recorded on the date of adoption.

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. Upon adoption of the new lease accounting standard in 2019, we elected the lessor practical expedient which allows us not to 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 (in millions):
 Three Months Ended
June 30, 2019		 Six Months Ended
June 30, 2019
Finance lease income$2.7
 $5.5
Operating lease income:   
Fixed lease income253.9
 507.8
Variable lease income17.4
 35.1
Total operating lease income271.3
 542.9
Total lease income$274.0
 $548.4


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 $20.6 million and $44.3 million for the three months and six months ended June 30, 2019.

The following table shows the components of our direct finance leases (in millions):
 June 30, 2019
Total contractual lease payments receivable$93.7
Estimated unguaranteed residual value of leased assets41.0
Unearned income(39.4)
Finance leases$95.3


GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


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 June 30, 2019, we leased approximately 8,300 railcars at Rail North America.

We use the implicit rate to calculate the right-of-use asset amount and lease liability for our leases when readily determinable. Specifically, the implicit rate was measurable for railcars leased at Rail North America. For our other operating leases, an implicit rate was not determinable, and we used our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the lease term.

The following table shows the components of lease expense (in millions):
 Three Months Ended
June 30, 2019		 Six Months Ended
June 30, 2019
Finance lease cost:   
Amortization of right-of-use assets$0.2
 $0.4
Interest on lease liabilities0.1
 0.2
Operating lease cost (1):   
Fixed lease cost - operating leases15.2
 30.4
Total lease cost$15.5
 $31.0
________
(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 $17.8 million and $35.8 million for the three months and six months ended June 30, 2019 was recognized in connection with these operating leases.

The following table shows the maturities of our lease liabilities as of June 30, 2019 (in millions):
 June 30, 2019
 
 
 
Operating
Leases
 
Finance
Leases
 Total
2019 (1)$26.8
 $10.7
 $37.5
202067.8
 —
 67.8
202166.2
 —
 66.2
202257.5
 —
 57.5
202354.7
 —
 54.7
Years thereafter269.7
 —
 269.7
Total undiscounted lease payments$542.7
 $10.7
 $553.4
Less: amounts representing interest(88.2) (0.1) (88.3)
Total discounted lease liabilities$454.5
 $10.6
 $465.1
__________
(1)For the remainder of the year.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



The following table shows the lease terms and discount rates related to leases:
June 30, 2019
Weighted-average remaining lease term (years):
Operating leases10.0
Finance leases0.2
Weighted-average discount rate:
Operating leases3.69%
Finance leases3.39%


The following table shows other information related to leases (in millions):
 Three Months Ended
June 30, 2019		 Six Months Ended
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:   
Operating cash flows for operating leases$8.0
 $40.0
Operating cash flows for finance leases0.1
 0.2
Financing cash flows for finance leases0.3
 0.6
Total cash from leases$8.4
 $40.8


NOTE 4.5. Fair Value Disclosure


The following tables show our assets and liabilities that are measuredGATX records at fair value on a recurring basis (in millions):consisted entirely of derivatives at June 30, 2019 and December 31, 2018.

Assets
Total
June 30
2018
 
Quoted
Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Observable Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
Foreign exchange rate derivatives (1)$2.7
 $—
 $2.7
 $—
Foreign exchange rate derivatives (2)0.4
 —
 0.4
 —
Liabilities

      
Interest rate derivatives (1)12.2
 —
 12.2
 —
Foreign exchange rate derivatives (1)23.5
 —
 23.5
 —
Foreign exchange rate derivatives (2)1.0
 —
 1.0
 —
Adoption of ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities"

Assets
Total
December 31
2017
 Quoted
Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Observable Inputs
(Level 2)		 Significant Unobservable
Inputs
(Level 3)
Foreign exchange rate derivatives (1)$1.2
 $—
 $1.2
 $—
Liabilities       
Interest rate derivatives (1)4.7
 —
 4.7
 —
Foreign exchange rate derivatives (1)27.7
 —
 27.7
 —
Foreign exchange rate derivatives (2)6.9
 —
 6.9
 —
In the first quarter of 2019, we adopted ASU 2016-02. The adoption of this new standard did not have an impact on our financial statements, but certain disclosures have been modified in accordance with the new requirements.
_________
(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.Derivative Instruments

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 eight instruments outstanding with an aggregate notional amount of $450.0 million as of June 30, 2019 with maturities ranging from 2020 to 2022 and nine instruments outstanding with an aggregate notional amount of $500.0 million as of June 30,December 31, 2018 with maturities ranging from 2019 to 2022 and ten instruments outstanding with an aggregate notional amount of $550.0 million as of December 31, 2017 with maturities ranging from 2018 to 2022.

GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



Cash Flow Hedges


We use interest rate swaps to convert floating rate debt to fixed rate debt. 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 and put/call options to hedge our exposure to fluctuations in the exchange rates of the foreign currencies for certain loans and operating expenses denominated in which we conduct business.non-functional currencies. We had 1114 instruments outstanding with an aggregate notional amount of $296.6$470.0 million as of June 30, 20182019 that mature from 20182019 to 2022 and fiveeight instruments outstanding with an aggregate notional amount of $285.6$501.9 million as of December 31, 20172018 with maturities ranging from 2019 to 2022. Within the next 12 months, we expect to reclassify $3.4$1.9 million ($2.61.4 million after-tax) of net losses on previously terminated derivatives from accumulated other comprehensive income (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
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


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.


Some 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 are in a liability position as of June 30, 20182019 was $35.7$10.2 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 tables show our derivative assets and liabilities that are measured at fair value (in millions):
 Balance Sheet Location 
Fair Value
June 30, 2019
 
Quoted
Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Observable Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
Derivative Assets         
Interest rate contracts (1)Other assets $1.2
 $—
 $1.2
 $—
Foreign exchange contracts (1)Other assets 6.1
 —
 6.1
 —
Foreign exchange contracts (2)Other assets 0.1
 —
 0.1
 —
Total derivative assets  $7.4
 $—
 $7.4
 $—
Derivative Liabilities         
Interest rate contracts (1)Other liabilities $0.3
 $—
 $0.3
 $—
Foreign exchange contracts (1)Other liabilities 9.9
 —
 9.9
 —
Foreign exchange contracts (2)Other liabilities 7.0
 —
 7.0
 —
Total derivative liabilities  $17.2
 $—
 $17.2
 $—
 Balance Sheet Location 
Fair Value
December 31, 2018
 Quoted
Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Observable Inputs
(Level 2)		 Significant Unobservable
Inputs
(Level 3)
Derivative Assets         
Foreign exchange contracts (1)Other assets $4.4
 $—
 $4.4
 $—
Foreign exchange contracts (2)Other assets 0.5
 —
 0.5
 —
Total derivative assets  $4.9
 $—
 $4.9
 $—
Derivative Liabilities         
Interest rate contracts (1)Other liabilities $7.7
 $—
 $7.7
 $—
Foreign exchange contracts (1)Other liabilities 18.2
 —
 18.2
 —
Foreign exchange contracts (2)Other liabilities 4.7
 —
 4.7
 —
Total derivative liabilities  $30.6
 $—
 $30.6
 $—
_________
(1) Designated as hedges.
(2)Not designated as hedges.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



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 June 30, 2019 and December 31, 2018, 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 June 30, 2019 and December 31, 2018 (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 
June 30
2019
 
December 31
2018
 
June 30
2019
 
December 31
2018
         
Recourse Debt $449.3
 $493.5
 $0.9
 $(7.7)

The following tables show the impacts of our derivative instruments on our statement of comprehensive income for the three months and six months ended June 30, 2019 and 2018 (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 June 30  Three Months Ended June 30
Derivative Designation 2019 2018  2019 2018
Derivatives in cash flow hedging relationships:      
Interest rate contracts $4.4
 $(17.2) Interest expense $0.7
 $1.1
Foreign exchange contracts (0.2) —
 Other (income) expense 5.9
 (16.3)
Total $4.2
 $(17.2) Total $6.6
 $(15.2)


  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
  
Six Months Ended
June 30
  
Six Months Ended
June 30
Derivative Designation 2019 2018  2019 2018
Derivatives in cash flow hedging relationships:      
Interest rate contracts $(8.6) $(6.4) Interest expense $1.5
 $2.2
Foreign exchange contracts (0.1) 0.7
 Other (income) expense (5.1) (8.1)
Total $(8.7) $(5.7) Total $(3.6) $(5.9)


GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

    Three Months Ended
June 30		 Six Months Ended
June 30
Derivative Designation Location of Loss (Gain) Recognized 2018 2017 2018 2017
Fair value hedges (1) Interest expense $1.8
 $(1.2) $7.6
 $0.9
Cash flow hedges Other comprehensive loss (effective portion) 17.2
 (18.6) 5.7
 (23.7)
Cash flow hedges Interest expense (effective portion reclassified from accumulated other comprehensive loss) 1.1
 1.7
 2.2
 3.4
Cash flow hedges (2) Other (income) expense (effective portion reclassified from accumulated other comprehensive loss) (16.3) 19.6
 (8.1) 23.7
Non-designated Other (income) expense (5.0) 1.3
 (5.7) 6.1

The following tables show the impact of our fair value and cash flow hedge accounting relationships, as well as the impact of our non-designated derivatives, on the statement of comprehensive income for the three months and six months ended June 30, 2019 and 2018 (in millions):
 Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
 
Three Months Ended
June 30
 
Three Months Ended
June 30
 2019 2018
 
 
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$(47.1) $(0.6) $(42.2) $(9.8)
Gain (loss) on fair value hedging relationships       
Interest rate contracts:       
Hedged items(5.3) —
 1.8
 —
Derivatives designated as hedging instruments5.3
 —
 (1.8) —
Gain (loss) on cash flow hedging relationships       
Interest rate contracts:       
Amount of gain (loss) reclassified from accumulated other comprehensive income into income(0.7) —
 (1.1) —
Foreign exchange contracts:       
Amount of gain (loss) reclassified from accumulated other comprehensive income into income (1)—
 (5.9) —
 16.3
Gain (loss) on non-designated derivative contracts—
 (1.9) —
 5.0

GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



 Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
 
Six Months Ended
June 30
 
Six Months Ended
June 30
 2019 2018
 
 
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$(93.6) $(3.8) $(82.1) $(11.1)
Gain (loss) on fair value hedging relationships       
Interest rate contracts:       
Hedged items(8.5) —
 7.6
 —
Derivatives designated as hedging instruments8.5
 —
 (7.6) —
Gain (loss) on cash flow hedging relationships       
Interest rate contracts:       
Amount of gain (loss) reclassified from accumulated other comprehensive income into income(1.5) —
 (2.2) —
Foreign exchange contracts:       
Amount of gain (loss) reclassified from accumulated other comprehensive income into income (1)—
 5.1
 —
 8.1
Gain (loss) on non-designated derivative contracts—
 (2.7) —
 5.7
_________
(1)The fair value adjustments related to the underlying debt equally offset theThese amounts recognized in interest expense.
(2)Includes (income) expense on foreign currency derivatives that are substantially offset by foreign currency remeasurement adjustments on related hedged instruments, also recognized in Other (income) expense.other income (expense).

GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



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 bank credit facilities 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):

 June 30, 2019 December 31, 2018
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Liabilities       
Recourse fixed rate debt$4,441.8
 $4,631.6
 $3,933.4
 $3,836.0
Recourse floating rate debt419.1
 416.8
 522.7
 515.1

 June 30, 2018 December 31, 2017
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Liabilities       
Recourse fixed rate debt$3,999.5
 $3,952.9
 $3,971.2
 $4,089.1
Recourse floating rate debt424.3
 423.0
 426.0
 428.7


GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


NOTE 5. 6. Pension and Other Post-Retirement Benefits


The following table shows the components of our pension and other post-retirement benefits expense for the three months ended June 30, 20182019 and 20172018 (in millions):

 
 
 
 
2019
Pension
Benefits
 
2018
Pension
Benefits
 
2019
Retiree Health and Life
 2018
Retiree Health and Life
Service cost$1.5
 $2.2
 $0.1
 $—
Interest cost3.8
 3.7
 0.3
 0.3
Expected return on plan assets(5.5) (5.5) —
 —
Amortization of (1):       
Unrecognized prior service credit—
 —
 (0.1) (0.1)
Unrecognized net actuarial loss2.1
 2.6
 (0.1) —
Net periodic cost$1.9
 $3.0
 $0.2
 $0.2


 
 
 
 
2018
Pension
Benefits
 
2017
Pension
Benefits
 
2018
Retiree Health and Life
 2017
Retiree Health and Life
Service cost$2.2
 $1.7
 $—
 $0.1
Interest cost3.7
 3.9
 0.3
 0.3
Expected return on plan assets(5.5) (6.0) —
 —
Settlement expense—
 0.1
 —
 —
Amortization of (1):       
Unrecognized prior service credit—
 —
 (0.1) (0.1)
Unrecognized net actuarial loss (gain)2.6
 2.4
 —
 (0.1)
Net periodic cost$3.0
 $2.1
 $0.2
 $0.2

GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



The following table shows the components of our pension and other post-retirement benefits expense for the six months ended June 30, 20182019 and 20172018 (in millions):

2018
Pension
Benefits
 
2017
Pension
Benefits
 
2018
Retiree Health and Life
 2017
Retiree Health and Life
2019
Pension
Benefits
 
2018
Pension
Benefits
 
2019
Retiree Health and Life
 2018
Retiree Health and Life
Service cost$4.1
 $3.3
 $0.1
 $0.1
$3.2
 $4.1
 $0.1
 $0.1
Interest cost7.4
 7.7
 0.5
 0.5
7.6
 7.4
 0.5
 0.5
Expected return on plan assets(11.1) (12.0) —
 —
(11.0) (11.1) —
 —
Settlement expense—
 0.1
 —
 —
Amortization of (1):              
Unrecognized prior service credit—
 —
 (0.1) (0.1)—
 —
 (0.1) (0.1)
Unrecognized net actuarial loss (gain)5.1
 4.7
 —
 (0.2)
Unrecognized net actuarial loss4.0
 5.1
 (0.1) —
Net periodic cost$5.5
 $3.8
 $0.5
 $0.3
$3.8
 $5.5
 $0.4
 $0.5
________
(1) Amounts reclassified from accumulated other comprehensive loss.


In 2018, we adopted ASU 2017-07 which modifies how an entity must present service costs and other components of net benefit cost. See "Note 2. Basis of Presentation" for further details. In accordance with this new guidance, theThe service cost component of net periodic cost is recorded in the applicable operating expense line, including maintenance expense and selling, general and administrative expense in the Statementsstatements of Comprehensive Income;comprehensive income, and the othernon-service components of net periodic cost are recorded in other expense.


GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


NOTE 6. 7. Share-Based Compensation


During the six months ended June 30, 2018,2019, we granted 320,100326,900 non-qualified employee stock options, 45,25042,700 restricted stock units, 58,44058,340 performance shares, and 12,19411,884 phantom stock units. For the three months and six months ended June 30, 2019, total share-based compensation expense was $4.5 million and $9.7 million and the related tax benefits were $1.1 million and $2.4 million. For the three months and six months ended June 30, 2018, total share-based compensation expense was $4.7$4.7 million and $9.6 million and the related tax benefits were $1.2 million and $2.4 million. For the three months and six months ended June 30, 2017, total share-based compensation expense was $3.9 million and $7.2 million and the related tax benefits were $1.5 million and $2.7$2.4 million.


The estimated fair value of our 20182019 non-qualified employee stock option awards and related underlying assumptions are shown in the table below.
2019
Weighted-average estimated fair value$22.24
Quarterly dividend rate$0.46
Expected term of stock options, in years4.2
Risk-free interest rate2.5%
Dividend yield2.6%
Expected stock price volatility28.9%
Present value of dividends$7.29

 2018
Weighted average estimated fair value$21.87
Quarterly dividend rate$0.44
Expected term of stock options and stock appreciation rights, in years4.5
Risk-free interest rate1.4%
Dividend yield2.5%
Expected stock price volatility27.9%
Present value of dividends$7.51


NOTE 7. 8. Income Taxes


On December 22, 2017, the Tax Act was enacted, which made broad and complex changes to the U.S. tax laws. In particular, the U.S. corporationOur effective income tax rate was reduced to 21% from 35%, and a new territorial tax system was implemented that will affect the future U.S. taxation of earnings repatriated from our foreign subsidiaries and affiliates. Other provisions included an immediate deduction23% for qualified investments and limitations on the deductibility of interest expense and executive compensation. Due to our net operating loss position, these adjustments had no cash impact on our tax positions.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



In 2017, we recorded a one-time non-cash net tax benefit of $315.9 million, which represented our provisional estimate of the impact of the Tax Act. This amount included a net benefit of $371.4 million associated with the re-measurement of our net deferred tax liability utilizing the lower U.S. tax rate. The Tax Act also imposed a one-time transitional repatriation tax of $57.2 million on certain undistributed earnings of our non-U.S. subsidiaries and affiliates.

We continue to evaluate the provisions of the Tax Act, and the ultimate impact may differ from this provisional estimate, due to, among other things, changes in interpretations and assumptions made by us, additional guidance that may be issued by the Internal Revenue Service and the U.S. Department of the Treasury, and actions that we may take. In addition, these estimates may change due to guidance provided by state taxing authorities and the completion of our 2017 U.S. and state income tax returns. No adjustments were made to our initial provisional estimate during the six months ended June 30, 2018.

Our effective tax rate was2019, compared to 25% for the six months ended June 30, 2018, compared to 30% for the six months ended June 30, 2017.2018. The difference in the effective rates for the current year compared to the prior year is primarily attributable to thea reduction in the U.S. corporationcorporate income tax rate from 35% to 21%, as part of the Tax Act.Alberta, Canada. Additionally, the effective tax rate was impacted by the mix of pre-tax income among domestic and foreign jurisdictions, which are taxed at different rates. Incremental tax benefits associated with share-based compensation were also recognized in each of the six-month periods ended June 30, 2018 and 2017.period.


NOTE 8.9. Commercial Commitments


We have entered into various commercial commitments, such as guarantees, standby letters of credit, and performance bonds, related to certain transactions. These commercial commitments require us to fulfill specific obligations in the event of third-party demands. Similar to our balance sheet investments, these commitments expose us to credit, market, and equipment risk. Accordingly, we evaluate these commitments and other contingent obligations using techniques similar to those we use to evaluate funded transactions.


The following table shows our commercial commitments (in millions):
June 30
2018
 
December 31
2017
June 30
2019
 
December 31
2018
Lease payment guarantees$3.5
 $4.9
$—
 $2.0
Standby letters of credit and performance bonds17.7
 17.8
9.4
 9.5
Total commercial commitments (1)$21.2
 $22.7
$9.4
 $11.5
_______
(1) The carrying value of liabilities on the balance sheet for commercial commitments was $1.50.4 million at June 30, 20182019 and $2.0$0.9 million at December 31, 2017.2018. The expirations of these commitments range from 20192022 to 2023. We are not aware of any event that would require us to satisfy any of our commitments.


Lease payment guarantees arewere commitments to financial institutions to make lease payments for a third party in the event theyof default. We reduce any liability that may result fromAs of June 30, 2019, our obligations for these guarantees by the value of the underlying asset or group of assets.concluded.


We are also parties to standby letters of credit and performance bonds, which primarily relate to contractual obligations and general liability insurance coverages. No material claims have been made against these obligations, and no material losses are anticipated.


GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)


NOTE 9.10. Earnings per Share


We compute basic earnings per share by dividing net income available to our common shareholders by the weighted averageweighted-average number of shares of our common stock outstanding. We weight shares issued or reacquired for the portion of the period that they were outstanding. Our diluted earnings per share reflect the impacts of our potentially dilutive securities, which include our equity compensation awards.

GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)



The following table shows the computation of our basic and diluted net income per common share (in millions, except per share amounts):
 Three Months Ended
June 30		 Six Months Ended
June 30
 2019 2018 2019 2018
Numerator:       
Net income$68.0
 $38.8
 $109.5
 $115.1
        
Denominator:       
Weighted-average shares outstanding - basic36.0
 37.7
 36.2
 37.8
Effect of dilutive securities:       
Equity compensation plans0.7
 0.7
 0.7
 0.7
Weighted-average shares outstanding - diluted36.7
 38.4
 36.9
 38.5
Basic earnings per share$1.89
 $1.03
 $3.02
 $3.05
Diluted earnings per share$1.86
 $1.01
 $2.97
 $2.99

 Three Months Ended
June 30		 Six Months Ended
June 30
 2018 2017 2018 2017
Numerator:       
Net income$38.8
 $53.4
 $115.1
 $110.9
        
Denominator:       
Weighted average shares outstanding - basic37.7
 39.0
 37.8
 39.2
Effect of dilutive securities:       
Equity compensation plans0.7
 0.5
 0.7
 0.5
Weighted average shares outstanding - diluted38.4
 39.5
 38.5
 39.7
Basic earnings per share$1.03
 $1.37
 $3.05
 $2.83
Diluted earnings per share$1.01
 $1.35
 $2.99
 $2.79


NOTE 10. 11. Accumulated Other Comprehensive Income (Loss)


The following table shows the change in components for accumulated other comprehensive loss (in millions):

 
 
 
 Foreign Currency Translation Gain (Loss) Unrealized Loss on Derivative Instruments Post-Retirement Benefit Plans Total
Balance at December 31, 2018$(58.0) $(14.0) $(92.6) $(164.6)
Change in component(10.5) 12.9
 —
 2.4
Reclassification adjustments into earnings (1)—
 (10.2) 1.9
 (8.3)
Income tax effect—
 (0.7) 1.1
 0.4
Balance at March 31, 2019$(68.5) $(12.0) $(89.6) $(170.1)
Change in component11.7
 (4.9) —
 6.8
Reclassification adjustments into earnings (1)—
 6.6
 1.9
 8.5
Income tax effect—
 (0.6) (0.4) (1.0)
Balance at June 30, 2019$(56.8) $(10.9) $(88.1) $(155.8)

 
 
 
 Foreign Currency Translation Gain (Loss) Unrealized Gain (Loss) on Securities Unrealized Loss on Derivative Instruments Post-Retirement Benefit Plans Total
Balance at December 31, 2017$(10.5) $—
 $(15.5) $(83.6) $(109.6)
Change in component14.9
 —
 (11.5) —
 3.4
Reclassification adjustments into earnings (1)—
 —
 9.3
 2.5
 11.8
Income tax effect—
 —
 0.7
 (0.6) 0.1
Reclassification adjustments into retained earnings (2)—
 —
 (3.0) (16.4) (19.4)
Balance at March 31, 2018$4.4
 $—
 $(20.0) $(98.1) $(113.7)
Change in component(50.4) —
 18.0
 —
 (32.4)
Reclassification adjustments into earnings (1)—
 —
 (15.2) 2.5
 (12.7)
Income tax effect—
 —
 (0.6) (0.6) (1.2)
Balance at June 30, 2018$(46.0) $—
 $(17.8) $(96.2) $(160.0)

________
(1)
See "Note 4.5. Fair Value Disclosure" and "Note 5. 6. Pension and Other Post-Retirement Benefits"Benefits" for impacts of the reclassification adjustments on the statement of comprehensive income.
(2)
As detailed in "Note 2. Basis of Presentation", we adopted ASU 2018-02, which permits reclassification of certain stranded tax effects related to the Tax Act from Accumulated Other Comprehensive Income to Retained Earnings. 


NOTE 11.12. Legal Proceedings and Other Contingencies


Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against GATX and certain of our subsidiaries. These matters are subject to many uncertainties, and it is possible that some of these matters could ultimately be decided, resolved or settled adversely. For a full discussion of our pending legal matters, please refer to "Note 22. Legal Proceedings and Other Contingencies" of our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.

GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)




Viareggio Derailment
In June 2009, a train consisting of fourteen liquefied petroleum gas (“LPG”) tank cars owned by GATX Rail Austria GmbH and its subsidiaries (collectively, “GRA”) derailed while passing through the City of Viareggio, in the province of Lucca, Italy. Five tank cars overturned and one of the overturned cars was punctured by a peg or obstacle along the side of the track, resulting in a release of LPG, which subsequently ignited. The accident resulted in multiple deaths, personal injuries and property damage. The LPG tank cars were leased to FS Logistica S.p.A., a subsidiary of the Italian state-owned railway, Ferrovie dello Stato S.p.A (the “Italian Railway”).
In January 2017, the trial court of Lucca found various Italian Railway companies, GRA, and certain of their employees guilty of negligence-based crimes related to the accident. The court imposed a fine of 1.4 million Euros against GRA and prison sentences against eight employees. GRA and its employees appealed, and on June 20, 2019, the court of appeal of Florence upheld the adverse verdicts, except for the acquittal of one employee and minor reductions to the fine and prison sentences. GRA and its current and former employees intend to appeal to the Italian Supreme Court and, pending the final disposition of this appeal, the fine and penalties are not enforceable. With respect to civil claims, the insurers for the Italian Railway and GRA have fully settled and resolved most of the claims arising out of the accident. GRA believes that its employees acted diligently and in accordance with applicable laws and regulations; however, we cannot predict the ultimate outcome of the Italian appellate process and thus cannot reasonably estimate the possible amount or range of costs that may be ultimately incurred in connection with this litigation.
NOTE 1213. Financial Data of Business Segments


The financial data presented below depicts the profitability, financial position, and capital expenditures of each of our business segments.


We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail market. We report our financial results through fourprimary business segments: Rail North America, Rail International, Portfolio Management, and American Steamship Company (“ASC”("ASC").


Rail North America is composed of our operations in the United States, Canada, and Mexico, as well as an affiliate investment.Mexico. Rail North America primarily provides railcars pursuant to full-service leases under which it maintains the railcars, pays ad valorem taxes and insurance, and provides other ancillary services.


Rail International is composed of our operations in Europe ("GATX Rail Europe" or "GRE"), India ("Rail India"), and Russia ("Rail Russia"). GRE leases railcars to customers throughout Europe pursuant to full-service leases under which it maintains the railcars and provides value-adding services according to customer requirements.


Portfolio Management is composed primarily of our ownership in a group of joint ventures with Rolls-Royce plc that lease aircraft spare engines, as well as five liquefied gas carrying vessels (the "Norgas Vessels""Specialized GasVessels") and assorted other marine assets. In prior years, Portfolio Management generated leasing, marine operating, asset remarketing, and management fee income through a collection of diversified wholly owned assets and joint venture investments. In 2015, we made the decision to exit the majority of the marine investments, excluding the Norgas Vessels, within our Portfolio Management segment, including six chemical parcel tankers, a number of inland marine vessels, and our 50% interest in the Cardinal Marine joint venture, all of which had been sold as of December 31, 2017.


ASC operates the largest fleet of US-flagged vessels on the Great Lakes, providing waterborne transportation of dry bulk commodities such as iron ore, coal, limestone aggregates, and metallurgical limestone.


Segment profit is an internal performance measure used by the Chief Executive Officer to assess the performanceprofitability of each segment in a given period.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 as well as expenses that management believes are directly associated withbased on what we believe to be the financing, maintenance, and operation of the revenue earning assets.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. These amounts are included in Other.


We allocate debt balances and related interest expense to each segment based upon predetermined debt to equity leverage ratios. The leverage levels are 5:1 for Rail North America, 3:1 for Rail International, 1:1 for Portfolio Management, and 1.5:1 for ASC. We believe that by using this leverage and interest expense allocation methodology, each operating segment’s financial performance reflects appropriate risk-adjusted borrowing costs.




GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)




The following tables show certain segment data for each of our business segments (in millions):



Rail North America
 

Rail International
 
Portfolio Management		 

ASC
 Other GATX Consolidated
Rail
North America		 

Rail International
 
Portfolio Management		 

ASC
 Other GATX Consolidated
Three Months Ended June 30, 2018           
Three Months Ended June 30, 2019 
          
Revenues                      
Lease revenue$217.6
 $52.2
 $0.2
 $1.0
 $—
 $271.0
$218.8
 $53.9
 $0.2
 $1.1
 $—
 $274.0
Marine operating revenue—
 —
 3.5
 52.3
 —
 55.8
—
 —
 0.1
 60.8
 —
 60.9
Other revenue20.1
 2.2
 0.4
 —
 —
 22.7
22.4
 1.8
 0.3
 —
 —
 24.5
Total Revenues237.7
 54.4
 4.1
 53.3
 —
 349.5
241.2
 55.7
 0.6
 61.9
 —
 359.4
Expenses                      
Maintenance expense64.1
 11.2
 —
 6.7
 —
 82.0
67.0
 11.2
 —
 7.5
 —
 85.7
Marine operating expense—
 —
 4.2
 33.4
 —
 37.6
—
 —
 4.0
 37.0
 —
 41.0
Depreciation expense61.8
 13.8
 1.9
 3.6
 —
 81.1
64.4
 14.2
 1.7
 3.5
 —
 83.8
Operating lease expense12.7
 —
 —
 —
 —
 12.7
13.7
 —
 —
 —
 —
 13.7
Other operating expense7.5
 1.5
 0.1
 —
 —
 9.1
6.4
 1.3
 0.1
 —
 —
 7.8
Total Expenses146.1
 26.5
 6.2
 43.7
 —
 222.5
151.5
 26.7
 5.8
 48.0
 —
 232.0
Other Income (Expense)                      
Net gain on asset dispositions4.7
 1.1
 0.3
 —
 —
 6.1
32.1
 0.5
 0.3
 —
 —
 32.9
Interest (expense) income, net(31.1) (8.9) (2.7) (1.5) 2.0
 (42.2)(34.1) (10.1) (2.8) (1.6) 1.5
 (47.1)
Other expense(1.2) (7.3) —
 (0.1) (1.2) (9.8)
Other (expense) income(1.9) 1.9
 —
 (0.2) (0.4) (0.6)
Share of affiliates' pre-tax income0.2
 —
 15.9
 —
 —
 16.1
—
 —
 19.6
 —
 —
 19.6
Segment profit$64.2
 $12.8
 $11.4
 $8.0
 $0.8
 97.2
$85.8
 $21.3
 $11.9
 $12.1
 $1.1
 $132.2
Less:                      
Selling, general and administrative expenseSelling, general and administrative expense46.2
Selling, general and administrative expense45.1
Income taxes (includes $3.1 related to affiliates' earnings)12.2
Income taxes (includes $3.5 related to affiliates' earnings)Income taxes (includes $3.5 related to affiliates' earnings)19.1
Net incomeNet income$38.8
Net income$68.0
                      
Net Gain on Asset Dispositions                      
Asset Remarketing Income:                      
Net gains on disposition of owned assets$4.2
 $—
 $—
 $—
 $—
 $4.2
$26.8
 $—
 $—
 $—
 $—
 $26.8
Residual sharing income0.3
 —
 0.3
 —
 —
 0.6
0.1
 —
 0.3
 —
 —
 0.4
Non-remarketing net gains (1)0.2
 1.1
 —
 —
 —
 1.3
5.2
 0.5
 —
 —
 —
 5.7
$4.7
 $1.1
 $0.3
 $—
 $—
 $6.1
$32.1
 $0.5
 $0.3
 $—
 $—
 $32.9
                      
Capital Expenditures                      
Portfolio investments and capital additions$149.1
 $34.6
 $—
 $4.1
 $0.8
 $188.6
$105.3
 $73.7
 $—
 $3.9
 $1.2
 $184.1
                      
Selected Balance Sheet Data at June 30, 2018        
Selected Balance Sheet Data at June 30, 2019Selected Balance Sheet Data at June 30, 2019        
Investments in affiliated companies$6.8
 $—
 $462.1
 $—
 $—
 $468.9
$0.2
 $—
 $495.6
 $—
 $—
 $495.8
Identifiable assets$5,022.6
 $1,313.9
 $606.0
 $313.6
 $239.4
 $7,495.5
$5,618.8
 $1,440.2
 $628.8
 $331.3
 $334.0
 $8,353.1
__________
(1) Includes net gains from scrapping of railcars.
GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)








Rail North America
 

Rail International
 
Portfolio Management		 

ASC
 Other GATX Consolidated

Rail
North America
 

Rail International
 
Portfolio Management		 

ASC
 Other GATX Consolidated
Three Months Ended June 30, 2017           
Three Months Ended June 30, 2018           
Revenues                      
Lease revenue$225.7
 $46.2
 $1.2
 $1.0
 $—
 $274.1
$217.6
 $52.2
 $0.2
 $1.0
 $—
 $271.0
Marine operating revenue—
 —
 7.4
 47.7
 —
 55.1
—
 —
 3.5
 52.3
 —
 55.8
Other revenue17.3
 1.6
 0.3
 —
 —
 19.2
20.1
 2.2
 0.4
 —
 —
 22.7
Total Revenues243.0
 47.8
 8.9
 48.7
 —
 348.4
237.7
 54.4
 4.1
 53.3
 —
 349.5
Expenses                      
Maintenance expense68.5
 9.7
 —
 6.7
 —
 84.9
64.1
 11.2
 —
 6.7
 —
 82.0
Marine operating expense—
 —
 7.4
 30.6
 —
 38.0
—
 —
 4.2
 33.4
 —
 37.6
Depreciation expense59.7
 11.8
 1.8
 4.0
 —
 77.3
61.8
 13.8
 1.9
 3.6
 —
 81.1
Operating lease expense14.8
 —
 —
 0.4
 —
 15.2
12.7
 —
 —
 —
 —
 12.7
Other operating expense6.3
 1.2
 0.3
 —
 —
 7.8
7.5
 1.5
 0.1
 —
 —
 9.1
Total Expenses149.3
 22.7
 9.5
 41.7
 —
 223.2
146.1
 26.5
 6.2
 43.7
 —
 222.5
Other Income (Expense)                      
Net gain on asset dispositions10.7
 0.8
 10.5
 —
 —
 22.0
4.7
 1.1
 0.3
 —
 —
 6.1
Interest (expense) income, net(28.5) (8.1) (2.4) (1.3) 0.3
 (40.0)(31.1) (8.9) (2.7) (1.5) 2.0
 (42.2)
Other (expense) income(1.2) (1.1) —
 0.8
 (0.1) (1.6)
Share of affiliates' pre-tax income (loss)0.2
 (0.1) 12.3
 —
 —
 12.4
Other expense(1.2) (7.3) —
 (0.1) (1.2) (9.8)
Share of affiliates' pre-tax income0.2
 —
 15.9
 —
 —
 16.1
Segment profit$74.9
 $16.6
 $19.8
 $6.5
 $0.2
 118.0
$64.2
 $12.8
 $11.4
 $8.0
 $0.8
 $97.2
Less:                      
Selling, general and administrative expenseSelling, general and administrative expense42.6
Selling, general and administrative expense46.2
Income taxes (includes $2.7 related to affiliates' earnings)22.0
Income taxes (includes $3.1 related to affiliates' earnings)Income taxes (includes $3.1 related to affiliates' earnings)12.2
Net incomeNet income$53.4
Net income$38.8
                      
Net Gain on Asset Dispositions                      
Asset Remarketing Income:                      
Net gains on disposition of owned assets$10.9
 $—
 $1.8
 $—
 $—
 $12.7
$4.2
 $—
 $—
 $—
 $—
 $4.2
Residual sharing income0.2
 —
 8.7
 —
 —
 8.9
0.3
 —
 0.3
 —
 —
 0.6
Non-remarketing net gains (1)1.5
 0.8
 —
 —
 —
 2.3
0.2
 1.1
 —
 —
 —
 1.3
Asset impairments(1.9) —
 —
 —
 —
 (1.9)
$10.7
 $0.8
 $10.5
 $—
 $—
 $22.0
$4.7
 $1.1
 $0.3
 $—
 $—
 $6.1
                      
Capital Expenditures                      
Portfolio investments and capital additions$127.6
 $33.1
 $—
 $5.5
 $0.1
 $166.3
$149.1
 $34.6
 $—
 $4.1
 $0.8
 $188.6
                      
Selected Balance Sheet Data at December 31, 2017        
Selected Balance Sheet Data at December 31, 2018Selected Balance Sheet Data at December 31, 2018        
Investments in affiliated companies$6.8
 $—
 $434.2
 $—
 $—
 $441.0
$0.2
 $—
 $464.3
 $—
 $—
 $464.5
Identifiable assets$4,915.0
 $1,332.9
 $582.8
 $286.7
 $305.0
 $7,422.4
$5,236.6
 $1,363.2
 $606.8
 $297.8
 $112.3
 $7,616.7
__________
(1) Includes net gains from scrapping of railcars.

GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)








Rail North America
 

Rail International
 
Portfolio Management		 

ASC
 Other GATX Consolidated
Rail
North America		 

Rail International
 
Portfolio Management		 

ASC
 Other GATX Consolidated
Six Months Ended June 30, 2018           
Six Months Ended June 30, 2019 
          
Revenues                      
Lease revenue$437.1
 $104.6
 0.5
 $2.0
 $—
 $544.2
$439.7
 $106.1
 $0.5
 $2.1
 $—
 $548.4
Marine operating revenue—
 —
 7.9
 62.1
 —
 70.0
—
 —
 2.5
 71.5
 —
 74.0
Other revenue35.9
 4.2
 0.5
 —
 —
 40.6
49.8
 3.8
 0.4
 —
 —
 54.0
Total Revenues
473.0
 108.8
 8.9
 64.1
 —
 654.8
489.5
 109.9
 3.4
 73.6
 —
 676.4
Expenses                      
Maintenance expense132.2
 23.7
 —
 7.3
 —
 163.2
135.8
 23.3
 —
 7.8
 —
 166.9
Marine operating expense—
 —
 8.5
 41.6
 —
 50.1
—
 —
 8.6
 44.5
 —
 53.1
Depreciation expense123.3
 27.9
 3.7
 3.6
 —
 158.5
128.7
 28.2
 3.3
 3.5
 —
 163.7
Operating lease expense25.7
 —
 —
 —
 —
 25.7
27.4
 —
 —
 —
 —
 27.4
Other operating expense14.4
 3.0
 0.3
 —
 —
 17.7
12.8
 2.8
 0.2
 —
 —
 15.8
Total Expenses295.6
 54.6
 12.5
 52.5
 —
 415.2
304.7
 54.3
 12.1
 55.8
 —
 426.9
Other Income (Expense)                      
Net gain on asset dispositions58.8
 2.7
 0.6
 0.1
 —
 62.2
40.3
 0.9
 0.6
 —
 —
 41.8
Interest (expense) income, net(61.3) (17.6) (5.0) (2.8) 4.6
 (82.1)(68.3) (20.0) (5.5) (3.0) 3.2
 (93.6)
Other expense(2.1) (7.5) —
 (0.1) (1.4) (11.1)(2.6) (0.4) —
 (0.2) (0.6) (3.8)
Share of affiliates' pre-tax income0.3
 —
 33.3
 —
 —
 33.6
—
 —
 37.8
 —
 —
 37.8
Segment profit$173.1
 $31.8
 $25.3
 $8.8
 $3.2
 242.2
$154.2
 $36.1
 $24.2
 $14.6
 $2.6
 $231.7
Less:                      
Selling, general and administrative expenseSelling, general and administrative expense91.1
Selling, general and administrative expense91.2
Income taxes (includes $6.3 related to affiliates' earnings)36.0
Income taxes (includes $7.0 related to affiliates' earnings)Income taxes (includes $7.0 related to affiliates' earnings)31.0
Net incomeNet income$115.1
Net income$109.5
                      
Net Gain on Asset Dispositions                      
Asset Remarketing Income:                      
Net gains on disposition of owned assets$54.1
 $—
 $—
 $0.1
 $—
 $54.2
$36.5
 $—
 $—
 $—
 $—
 $36.5
Residual sharing income0.4
 —
 0.6
 —
 —
 1.0
0.2
 —
 0.6
 —
 —
 0.8
Non-remarketing net gains (1)4.3
 2.7
 —
 —
 —
 7.0
3.6
 0.9
 —
 —
 —
 4.5
$58.8
 $2.7
 0.6
 $0.1
 $—
 $62.2
$40.3
 $0.9
 $0.6
 $—
 $—
 $41.8
                      
Capital Expenditures                      
Portfolio investments and capital additions$285.6
 $64.1
 —
 $15.8
 $1.5
 $367.0
$204.3
 $106.8
 $—
 $18.4
 $1.9
 $331.4
                      
__________
(1) Includes net gains from scrapping of railcars.


GATX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)








Rail
North America
 

Rail International
 
Portfolio Management		 

ASC
 Other GATX Consolidated
Six Months Ended June 30, 2018           
Revenues           
Lease revenue$437.1
 $104.6
 $0.5
 $2.0
 $—
 $544.2
Marine operating revenue—
 —
 7.9
 62.1
 —
 70.0
Other revenue35.9
 4.2
 0.5
 —
 —
 40.6
Total Revenues473.0
 108.8
 8.9
 64.1
 —
 654.8
Expenses           
Maintenance expense132.2
 23.7
 —
 7.3
 —
 163.2
Marine operating expense—
 —
 8.5
 41.6
 —
 50.1
Depreciation expense123.3
 27.9
 3.7
 3.6
 —
 158.5
Operating lease expense25.7
 —
 —
 —
 —
 25.7
Other operating expense14.4
 3.0
 0.3
 —
 —
 17.7
Total Expenses295.6
 54.6
 12.5
 52.5
 —
 415.2
Other Income (Expense)           
Net gain on asset dispositions58.8
 2.7
 0.6
 0.1
 —
 62.2
Interest (expense) income, net(61.3) (17.6) (5.0) (2.8) 4.6
 (82.1)
Other expense(2.1) (7.5) —
 (0.1) (1.4) (11.1)
Share of affiliates' pre-tax income0.3
 —
 33.3
 —
 —
 33.6
Segment profit$173.1
 $31.8
 $25.3
 $8.8
 $3.2
 $242.2
Less:           
Selling, general and administrative expense91.1
Income taxes (includes $6.3 related to affiliates' earnings)36.0
Net income$115.1
            
Net Gain on Asset Dispositions           
Asset Remarketing Income:           
Net gains on disposition of owned assets$54.1
 $—
 $—
 $0.1
 $—
 $54.2
Residual sharing income0.4
 —
 0.6
 —
 —
 1.0
Non-remarketing net gains (1)4.3
 2.7
 —
 —
 —
 7.0
 $58.8
 $2.7
 $0.6
 $0.1
 $—
 $62.2
            
Capital Expenditures           
Portfolio investments and capital additions$285.6
 $64.1
 $—
 $15.8
 $1.5
 $367.0



Rail North America
 

Rail International
 
Portfolio Management		 

ASC
 Other GATX Consolidated
Six Months Ended June 30, 2017           
Revenues           
Lease revenue$452.9
 $89.5
 $2.4
 $2.0
 $—
 $546.8
Marine operating revenue—
 —
 18.0
 54.1
 —
 72.1
Other revenue42.1
 2.7
 0.8
 —
 —
 45.6
Total Revenues495.0
 92.2
 21.2
 56.1
 —
 664.5
Expenses           
Maintenance expense136.2
 19.7
 —
 6.9
 —
 162.8
Marine operating expense—
 —
 15.0
 35.9
 —
 50.9
Depreciation expense118.7
 23.0
 3.5
 4.1
 —
 149.3
Operating lease expense29.8
 —
 —
 1.2
 —
 31.0
Other operating expense14.4
 2.4
 0.6
 —
 —
 17.4
Total Expenses299.1
 45.1
 19.1
 48.1
 —
 411.4
Other Income (Expense)           
Net gain on asset dispositions34.5
 1.6
 10.8
 —
 —
 46.9
Interest (expense) income, net(59.6) (16.0) (4.6) (2.5) 3.5
 (79.2)
Other (expense) income(3.2) (2.6) 2.3
 0.8
 (0.4) (3.1)
Share of affiliates' pre-tax income (loss)0.3
 (0.1) 23.9
 —
 —
 24.1
Segment profit$167.9
 $30.0
 $34.5
 $6.3
 $3.1
 241.8
Less:           
Selling, general and administrative expense85.3
Income taxes (includes $5.7 related to affiliates' earnings)45.6
Net income$110.9
            
Net Gain on Asset Dispositions           
Asset Remarketing Income:           
Net gains on disposition of owned assets$32.0
 $—
 $1.8
 $—
 $—
 $33.8
Residual sharing income0.3
 —
 9.0
 —
 —
 9.3
Non-remarketing net gains (1)4.1
 1.6
 —
 —
 —
 5.7
Asset impairments(1.9) —
 —
 —
 —
 (1.9)
 $34.5
 $1.6
 $10.8
 $—
 $—
 $46.9
            
Capital Expenditures           
Portfolio investments and capital additions$230.4
 $51.8
 $—
 $12.8
 $0.3
 $295.3
            

__________
(1) Includes net gains from scrapping of railcars.




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


OVERVIEW


We lease, operate, manage, and remarket long-lived, widely-used assets, primarily in the rail market. We report our financial results through fourprimary business segments: Rail North America, Rail International, Portfolio Management, and American Steamship Company (“ASC”("ASC").


The following discussion and analysis should be read in conjunction with the MD&AManagement's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2017.2018. We based the discussion and analysis that follows on financial data we derived from the financial statements prepared in accordance with U.S. Generally Accepted Accounting Standards ("GAAP") and on certain other financial data that we prepared using non-GAAP components. For a reconciliation of these non-GAAP components to the most comparable GAAP components, see “Non-GAAP"Non-GAAP Financial Measures”Measures" at the end of this item.


Operating results for the three and six months ended June 30, 20182019 are not necessarily indicative of the results we may achieve for the entire year ending December 31, 2018. 2019. In particular, ASC's fleet is inactive for a significant portion of the first quarter of each year due to winter conditions on the Great Lakes. In addition, asset remarketing income does not occur evenly throughout the year. For more information about our business, refer to ourAnnual Report on Form 10-K for the year ended December 31, 2017.2018.



DISCUSSION OF OPERATING RESULTS


The following table shows a summary of our reporting segments and consolidated financial results (in millions, except per share data):
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30
2018 2017 2018 20172019 2018 2019 2018
Segment Revenues              
Rail North America$237.7
 $243.0
 $473.0
 $495.0
$241.2
 $237.7
 $489.5
 $473.0
Rail International54.4
 47.8
 108.8
 92.2
55.7
 54.4
 109.9
 108.8
Portfolio Management4.1
 8.9
 8.9
 21.2
0.6
 4.1
 3.4
 8.9
ASC53.3
 48.7
 64.1
 56.1
61.9
 53.3
 73.6
 64.1
$349.5
 $348.4
 $654.8
 $664.5
$359.4
 $349.5
 $676.4
 $654.8
Segment Profit              
Rail North America$64.2
 $74.9
 $173.1
 $167.9
$85.8
 $64.2
 $154.2
 $173.1
Rail International12.8
 16.6
 31.8
 30.0
21.3
 12.8
 36.1
 31.8
Portfolio Management11.4
 19.8
 25.3
 34.5
11.9
 11.4
 24.2
 25.3
ASC8.0
 6.5
 8.8
 6.3
12.1
 8.0
 14.6
 8.8
96.4
 117.8
 239.0
 238.7
131.1
 96.4
 229.1
 239.0
Less:              
Selling, general and administrative expense46.2
 42.6
 91.1
 85.3
45.1
 46.2
 91.2
 91.1
Unallocated interest (income) expense, net(2.0) (0.3) (4.6) (3.5)
Unallocated interest (income) expense(1.5) (2.0) (3.2) (4.6)
Other, including eliminations1.2
 0.1
 1.4
 0.4
0.4
 1.2
 0.6
 1.4
Income taxes ($3.1 and $2.7 QTR and $6.3 and $5.7 YTD related to affiliates' earnings)12.2
 22.0
 36.0
 45.6
Income taxes ($3.5 and $3.1 QTR and $7.0 and $6.3 YTD related to affiliates' earnings)19.1
 12.2
 31.0
 36.0
Net Income
$38.8
 $53.4
 $115.1

$110.9
$68.0
 $38.8
 $109.5

$115.1
              
Net income, excluding tax adjustments and other items (non-GAAP)$44.6
 $52.3
 $120.9
 $109.8
$65.2
 $44.6
 $106.7
 $120.9
Diluted earnings per share$1.01
 $1.35
 $2.99
 $2.79
$1.86
 $1.01
 $2.97
 $2.99
Diluted earnings per share, excluding tax adjustments and other items (non-GAAP)$1.16
 $1.32
 $3.14
 $2.76
$1.78
 $1.16
 $2.89
 $3.14
              
Investment Volume$188.6
 $166.3
 $367.0
 $295.3
$184.1
 $188.6
 $331.4
 $367.0

The following table shows our return on equity ("ROE") for the trailing 12 months ended June 30:
2018 20172019 2018
ROE (GAAP)31.0% 17.3%11.3% 31.0%
ROE, excluding tax adjustments and other items (non-GAAP) (1)13.3% 15.8%12.4% 13.3%
_________
(1)See "Non-GAAP Financial Measures" at the end of this item for further details.


Net income for the first six months of 2019 was $109.5 million, or $2.97 per diluted share, compared to $115.1 million, or $2.99 per diluted share, in 2018. Results for the first six months ended June 30, 2019, included a net deferred tax benefit of 2018 compared to $110.9$2.8 million, or $2.79$0.08 per diluted share, related to an enacted corporate income tax rate decrease in 2017.Alberta, Canada. Results for the six months ended June 30, 2018 included costsa net negative impact of approximately $5.8 million, (after-tax)or $0.15 per diluted share, attributed to costs associated with the closure of a railcar maintenance facility at Rail International and results for the six months ended June 30, 2017 included a net gain of approximately $1.1 million (after-tax) from the planned exit of the majority of Portfolio Management's marine investments (see "Non-GAAP Financial Measures" at the end of this item for further details). Excluding the impact of these items, net income increased $11.1 million compared to the prior year. The increase was driven by higher asset disposition gains at Rail North America, higher lease revenue, resulting from more railcars on lease, and the positive impacts of foreign exchange rates, both at Rail International, as well as higher income from affiliates. These positive impacts were partially offset by lower lease revenue at Rail North America, due to fewer railcars on lease and lower lease rates, as well as lower residual sharing fees from our managed portfolio and lower marine operating results at our Portfolio Management segment.
Net income was $38.8 million, or $1.01 per diluted share, for the second quarter of 2018 compared to $53.4 million, or $1.35 per diluted share, in 2017. Results for the second quarter of 2018 included costs of approximately $5.8 million (after-tax) associated with the closure of a maintenance facility at Rail International, and results for the second quarter of 2017 included a net gain of approximately $1.1 million (after-tax) from the planned exit of the majority of Portfolio Management's marine investments (see "Non-GAAP Financial Measures" at the end of this item for further details). Excluding the impact of these items, net income decreased $7.7$14.2 million compared to the prior year. The decrease wasyear largely due to lowerthe timing of asset disposition gains, andwhich were lower lease revenue at Rail North America, duein the current year.

Net income for the second quarter of 2019 was $68.0 million, or $1.86 per diluted share, compared to fewer railcars on lease and lower lease rates, as well as lower residual sharing fees from our managed portfolio. These$38.8 million, or $1.01 per diluted share, in 2018. Results for the second quarter of 2019 included a net deferred tax benefit of $2.8 million, or $0.08 per diluted share, related to an enacted corporate income tax rate decrease in Alberta, Canada. Results for the second quarter of 2018 included a net negative impacts were partially offset by higher lease revenue, resulting from more railcars on lease, andimpact of $5.8 million, or $0.15 per diluted share, attributed to costs associated with the positive impactsclosure of foreign exchange rates, botha railcar maintenance facility at Rail International as well as(see "Non-GAAP Financial Measures" at the end of this item fo further details). Excluding the impact of these items, net income increased $20.6 million compared to the prior year largely due to the timing of asset disposition gains, which were higher income from affiliates.in the current year.


Segment Operations


Segment profit is an internal performance measure used by the Chief Executive Officer to assess the performanceprofitability of each segment in a given period.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 as well as expenses that management believes are directly associated withbased on what we believe to be the financing, maintenance, and operation of the revenue earning assets.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. These amounts are included in Other.

We allocate debt balances and related interest expense to each segment based upon predetermined debt to equity leverage ratios. The leverage levels are 5:1 for Rail North America, 3:1 for Rail International, 1:1 for Portfolio Management, and 1.5:1 for ASC.We believe that by using this leverage and interest expense allocation methodology, each operating segment’s financial performance reflects appropriate risk-adjusted borrowing costs.




RAIL NORTH AMERICA


Segment Summary


Rail North America experienced more favorable railcar demandDuring the quarter ended June 30, 2019, conditions in the second quarter of 2018,North American railcar leasing market continued to be challenging, as railroad velocities increased, railroad car loadings increaseddecreased, and railroad velocity decreased relative to 2017. Although lease revenue remains under pressure due to continued railcar oversupply and a large railcar manufacturing backlog, Rail North America continues to perform well.the supply of new railcars entering the market remained robust. At June 30, 2018,2019, Rail North America's wholly owned fleet, excluding boxcars, consisted of approximately 102,900 cars. Fleet103,600 cars, and fleet utilization excluding boxcars, was 98.9%99.5% at June 30, 2018,

2019, compared to 98.2%99.4% at the end of the prior quarter, and 98.8%98.9% at June 30, 2017.2018. Fleet utilization for our approximately 16,00015,900 boxcars was 92.8%94.1% at June 30, 2018,2019, compared to 93.5%95.2% at the end of the prior quarter, and 90.2%92.8% at June 30, 2017.2018.


For the second quarter of 2018,2019, an average of approximately 101,300104,100 railcars, excluding boxcars, were on lease, compared to 101,200104,600 in the prior quarter and 102,800101,300 at June 30, 2017.2018. The decreaseincrease in railcars on lease in the currentcompared to prior year is largely due to our ongoing purchases of new railcars under our supply agreements with Trinity Industries and American Railcar Industries, as well as the acquisition of railcars from ECN Capital Corporation, partially offset by railcars that were sold or scrapped, consistent with our ongoing strategy to optimize the composition of our fleet.scrapped. During the second quarter of 2018,2019, the renewal rate change of the Lease Price Index (the "LPI", see definition below) was negative 16.1%2.8%, compared to negative 11.6%positive 5.2% in the prior quarter, and negative 21.4%16.1% in the second quarter of 2017.2018. Lease terms on renewals for cars in the LPI averaged 4140 months in the current quarter, compared to 3439 months in the prior quarter, and 3241 months in the second quarter of 2017.2018. Additionally, the renewal success rate, which represents the percentage of expiring leases that were renewed with the existing lessee, was 78.6%85.3% in the current quarter, compared to 76.7%83.6% in the prior quarter, and 75.1%78.6% in the second quarter of 2017.2018. Railcars that are returned by our customers may incur transitional costs, including additional repairs and related service prior to being leased to new customers, which may increase maintenance and associated expenses.

In 2014, we entered into a long-term supply agreement with Trinity Rail Group, LLC ("Trinity"), a subsidiary of Trinity Industries that took effect in mid-2016. Under the terms of that agreement, we may order up to 8,950 newly built railcars over a four-year period from March, 2016 through March, 2020. We may order either tank or freight cars; however, we expect that the majority of the order will be for tank cars. As of June 30, 2018, 6,663 railcars have been ordered, of which 4,325 railcars have been delivered. On May 24, 2018, we amended our long-term supply agreement with Trinity to extend the term to December 2023. We agreed to purchase an additional 4,800 tank cars (1,200 per year) beginning in January 2020 and continuing through the expiration of the extended term. Pricing will be on an agreed upon or cost-plus basis subject to certain adjustments and surcharges specified in the agreement.

As of June 30, 2018,2019, leases for approximately 8,850 railcars in our term lease fleet10,600 tank cars and freight cars and approximately 1,2801,900 boxcars are scheduled to expire over the remainder of 2018.2019. These amounts exclude railcars withon leases expiring in 20182019 that have already been renewed or assigned to a new lessee.



The following table shows Rail North America's segment results (in millions):
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30

2018 2017 2018 20172019 2018 2019 2018
Revenues    




    




Lease revenue$217.6
 $225.7
 $437.1

$452.9
$218.8
 $217.6
 $439.7
 $437.1
Other revenue20.1
 17.3
 35.9

42.1
22.4
 20.1
 49.8
 35.9
Total Revenues237.7
 243.0
 473.0

495.0
241.2
 237.7
 489.5
 473.0
              
Expenses    




       
Maintenance expense64.1
 68.5
 132.2
 136.2
67.0
 64.1
 135.8
 132.2
Depreciation expense61.8
 59.7
 123.3

118.7
64.4
 61.8
 128.7
 123.3
Operating lease expense12.7
 14.8
 25.7

29.8
13.7
 12.7
 27.4
 25.7
Other operating expense7.5
 6.3
 14.4

14.4
6.4
 7.5
 12.8
 14.4
Total Expenses146.1
 149.3
 295.6

299.1
151.5
 146.1
 304.7
 295.6
              
Other Income (Expense)    




       
Net gain on asset dispositions4.7
 10.7
 58.8
 34.5
32.1
 4.7
 40.3
 58.8
Interest expense, net(31.1) (28.5) (61.3)
(59.6)(34.1) (31.1) (68.3) (61.3)
Other expense(1.2) (1.2) (2.1) (3.2)(1.9) (1.2) (2.6) (2.1)
Share of affiliates' pre-tax income0.2
 0.2
 0.3

0.3
—
 0.2
 —
 0.3
Segment Profit
$64.2
 $74.9
 $173.1

$167.9
$85.8
 $64.2
 $154.2
 $173.1
              
Investment Volume$149.1
 $127.6
 $285.6

$230.4
$105.3
 $149.1
 $204.3
 $285.6


The following table shows the components of Rail North America's lease revenue (in millions):
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30
2018 2017 2018 20172019 2018 2019 2018
Railcars$188.9
 $197.1
 $379.5
 $395.9
$191.2
 $188.9
 $383.5
 $379.5
Boxcars19.0
 18.7
 38.3
 37.4
18.4
 19.0
 37.8
 38.3
Locomotives9.7
 9.9
 19.3
 19.6
9.2
 9.7
 18.4
 19.3
Total$217.6
 $225.7
 $437.1
 $452.9
$218.8
 $217.6
 $439.7
 $437.1


Lease Price Index


Our LPI is an internally-generated business indicator that measures lease rate pricing on renewals for our North American railcar fleet, excluding boxcars. We calculate the index using the weighted averageweighted-average lease rate for a group of railcar types that we believe best represents our overall North American 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, weighted by fleet composition. The average renewal lease term is reported in months and reflects the average renewal lease term of railcar types in the LPI, weighted by fleet composition.



chart-b09dc9843d295d5cb7d.jpgchart-9c94e1e1a3db5dd592e.jpg


Rail North America Fleet Data


The following table shows fleet activity for Rail North America railcars, excluding boxcars, for the quarter ended:
June 30
2017		 September 30
2017		 December 31
2017		 March 31
2018		 June 30
2018		June 30
2018		 September 30
2018		 December 31
2018		 March 31
2019		 June 30
2019
Beginning balance103,672
 104,007
 103,692
 103,730
 102,597
102,597
 102,890
 103,420
 105,472
 104,830
Cars added1,224
 637
 786
 1,226
 1,231
1,231
 1,381
 3,120
 617
 661
Cars scrapped(640) (854) (600) (673) (720)(720) (431) (387) (662) (377)
Cars sold(249) (98) (148) (1,686) (218)(218) (420) (681) (597) (1,560)
Ending balance104,007
 103,692
 103,730
 102,597
 102,890
102,890
 103,420
 105,472
 104,830
 103,554
Utilization rate at quarter end98.8% 98.5% 98.2% 98.2% 98.9%98.9% 99.2% 99.4% 99.4% 99.5%
Average active railcars102,760
 102,555
 102,078
 101,208
 101,330
101,330
 102,056
 103,387
 104,613
 104,089



chart-7065084da1d3564c921.jpg
chart-a42d2f2f11e5529eaa8.jpg


The following table shows fleet statistics for Rail North America boxcars for the quarter ended:
June 30
2017		 September 30
2017		 December 31
2017		 March 31
2018		 June 30
2018		June 30
2018		 September 30
2018		 December 31
2018		 March 31
2019		 June 30
2019
Ending balance17,138
 16,555
 16,398
 16,227
 16,007
16,007
 15,859
 16,220
 16,006
 15,921
Utilization90.2% 92.4% 92.6% 93.5% 92.8%92.8% 94.7% 94.2% 95.2% 94.1%


Comparison of the First Six Months of 20182019 to the First Six Months of 20172018


Segment Profit


In the first six months of 2018,2019, segment profit of $154.2 million decreased 10.9% compared to $173.1 million increased 3.1% compared to $167.9 million infor the same period in the prior year. The increasedecrease was driven by higherlower net gains on asset disposition gainsdispositions in the current year and lowerhigher maintenance expense, partially offset by lowerhigher repair revenue, lease revenuetermination fees, and lower termination fees.lease revenue. The timing of asset remarketing income varies throughout the year.


Revenues


In the first six months of 2018,2019, lease revenue decreased $15.8increased $2.6 million, or 3.5%0.6%, primarily due to fewermore railcars on lease, andincluding the railcars acquired from ECN Capital Corporation, partially offset by lower average lease rates. Other revenue decreased $6.2increased $13.9 million, largely a result of lowerdue to higher repair revenue and higher lease termination fees in the current period, partially offset by higher repair revenue. Other revenue in 2017year, which included $7.8 million of compensationreimbursement for damage to a group of returned railcars. The expenses to repair these railcars are recognized as incurred.that were scrapped.



Expenses


In the first six months of 2019, maintenance expense increased $3.6 million, driven by more tank qualifications in the current year, as expected, and other repairs. Depreciation expense increased $5.4 million due to new railcar investments, including the railcars acquired from ECN Capital Corporation. Operating lease expense increased $1.7 million, resulting from new leases on railcars entered into during the prior year, as well as the elimination of the deferred gain amortization for sale-leaseback transactions in accordance with the new lease standard. See "Note 2. Basis of Presentation" and "Note 4. Leases" in Part I, Item 1 of this Form 10-Q for further detail regarding the impact of the new lease accounting standard. Other operating expense decreased $1.6 million due to lower switching, freight, and storage costs resulting from higher utilization.

Other Income (Expense)

In the first six months of 2018, maintenance expense decreased $4.0 million, largely due to fewer repairs performed by the railroads and fewer railcars undergoing regulatory compliance repairs. Depreciation expense increased $4.6 million due to new railcar investments and the purchase of railcars previously on operating leases. Operating lease expense decreased $4.1 million, resulting from the purchase of railcars previously on operating leases in both 2018 and 2017.

Other Income (Expense)

In the first six months of 2018,2019, net gain on asset dispositions increased $24.3decreased $18.5 million, attributable toas more railcars were sold at a lower average net gain per railcar. Net scrapping gains were also lower in the current year due to fewer railcars scrapped and lower scrap prices, as well as highera scrapping gains resulting primarily from a higher scrap price per ton. The net gains on asset dispositions realized inloss related to the first six months of 2018 representrailcars subject to the majority of management's expected amount for the full year.lease termination noted above. Net interest expense increased $1.7$7.0 million, driven by a higher average interest rate and a higher average debt balance.balance as a result of investment volume in both years. Other expense increased $0.5 million, primarily due to costs related to the early termination of a secured credit facility.


Investment Volume


During the first six months of 2018,2019, investment volume was $285.6$204.3 million compared to $230.4$285.6 million in the same period in 2017.2018. We acquired 2,319930 newly built railcars and purchased 45366 railcars in the secondary market in the first half of 2018,2019, compared to 1,8232,319 newly built railcars and 12245 railcars purchased in the secondary market in the same period in 2017.2018.


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, and whether such cars areas well as newly manufactured railcars or those purchased in the secondary market.


Comparison of the Second Quarter of 20182019 to the Second Quarter of 20172018


Segment Profit


In the second quarter of 2018,2019, segment profit of $85.8 million increased 33.6% compared to $64.2 million decreased 14.3% compared to $74.9 million infor the same period in the prior year. The decreaseincrease was driven by lower lease revenue,higher net gains on asset dispositions in the current year, as well as lower asset disposition gains,higher repair revenue and lease revenue, partially offset by lowerhigher maintenance expense. The timing of asset remarketing income varies throughout the year.


Revenues


In the second quarter of 20182019 lease revenue decreased $8.1increased $1.2 million, or 3.6%0.6%, primarily due to fewermore railcars on lease, andincluding the railcars acquired from ECN Capital Corporation, partially offset by lower average lease rates. Other revenue increased $2.8$2.3 million largely a result ofdue to higher repair revenue,revenue.

Expenses

In the second quarter of 2019, maintenance expense increased $2.9 million, driven by more tank qualifications in the current year, as expected, as well as higher material costs, partially offset by fewer repairs performed by the railroads. Depreciation expense increased $2.6 million due to new railcar investments, including the railcars acquired from ECN Capital Corporation. Operating lease expense increased $1.0 million, resulting from new leases on railcars entered into during the prior year, as well as the elimination of the deferred gain amortization for sale-leaseback transactions in accordance with the new lease standard. See "Note 2. Basis of Presentation" and "Note 4. Leases" in Part I, Item 1 of this Form 10-Q for further detail regarding the impact of the new lease accounting standard. Other operating expense decreased $1.1 million due to lower fees in the current period.switching, freight, and storage costs, resulting from higher utilization.


ExpensesOther Income (Expense)


In the second quarter of 2018, maintenance expense decreased $4.4 million, largely due to fewer repairs performed by the railroads and fewer railcars undergoing regulatory compliance repairs. Depreciation expense increased $2.1 million due to new railcar investments and the purchase of railcars previously on operating leases. Operating lease expense decreased $2.1 million, resulting from the purchase of railcars previously on operating leases in both 2018 and 2017. Other operating expense increased $1.2 million, driven by higher switching, storage, and freight costs.

Other Income (Expense)

In the second quarter of 2018,2019, net gain on asset dispositions decreased $6.0increased $27.4 million, attributable to fewermore railcars sold and locomotives soldhigher net scrapping gains in the current year, partially offset by higher scrapping gains due to more railcars scrapped and a higher scrap price per ton.year. Net interest expense increased $2.6$3.0 million, driven by a higher average interest rate partially offset byand a lowerhigher average debt balance.balance as a result of investment volume in both years. Other expense increased $0.7 million due to costs related to the early termination of a secured credit facility.




RAIL INTERNATIONAL


Segment Summary
 
Rail International, composed primarily of GATX Rail Europe ("GRE"), produced solidcontinued to produce strong operating results in the first six months of 2018.2019. In Europe, we are seeing gradual, broad improvement across the chemical, petroleum, and freight markets. GREdemand for new cars was successful in maintaining high fleet utilization across all railcar types in the second quarter of 2018.steady. Railcar utilization for GRE was 97.8%98.9% at June 30, 2018,2019, compared to 96.7%98.9% at the end of the prior quarter and 95.7%97.8% at June 30, 2017.2018. In addition, Rail India and Rail Russia benefited from more cars on lease as they continue to expand their fleets.


In the second quarter of 2018, GRE recorded $8.6 million of expense attributable to the closure of a railcar maintenance facility in Germany.


The following table shows Rail International's segment results (in millions):
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30
2018 2017 2018 20172019 2018 2019 2018
Revenues              
Lease revenue$52.2
 $46.2
 $104.6
 $89.5
$53.9
 $52.2
 $106.1
 $104.6
Other revenue2.2
 1.6
 4.2
 2.7
1.8
 2.2
 3.8
 4.2
Total Revenues54.4
 47.8
 108.8
 92.2
55.7
 54.4
 109.9
 108.8
              
Expenses              
Maintenance expense11.2
 9.7
 23.7
 19.7
11.2
 11.2
 23.3
 23.7
Depreciation expense13.8
 11.8
 27.9
 23.0
14.2
 13.8
 28.2
 27.9
Other operating expense1.5
 1.2
 3.0
 2.4
1.3
 1.5
 2.8
 3.0
Total Expenses26.5
 22.7
 54.6
 45.1
26.7
 26.5
 54.3
 54.6
              
Other Income (Expense)              
Net gain on asset dispositions1.1
 0.8
 2.7
 1.6
0.5
 1.1
 0.9
 2.7
Interest expense, net(8.9) (8.1) (17.6) (16.0)(10.1) (8.9) (20.0) (17.6)
Other expense(7.3) (1.1) (7.5) (2.6)
Share of affiliates' pre-tax loss—
 (0.1) —
 (0.1)
Other income (expense)1.9
 (7.3) (0.4) (7.5)
Segment Profit
$12.8
 $16.6
 $31.8
 $30.0
$21.3
 $12.8
 $36.1
 $31.8
              
Investment Volume$34.6
 $33.1
 $64.1
 $51.8
$73.7
 $34.6
 $106.8
 $64.1


The following table shows fleet activity for GRE railcars for the quarter ended:
June 30
2017		 September 30
2017		 December 31
2017		 March 31
2018		 June 30
2018		June 30
2018		 September 30
2018		 December 31
2018		 March 31
2019		 June 30
2019
Beginning balance23,131
 23,180
 23,227
 23,166
 23,004
23,004
 23,124
 23,234
 23,412
 23,531
Cars added288
 179
 197
 63
 245
245
 258
 281
 185
 491
Cars scrapped or sold(239) (132) (258) (225) (125)(125) (148) (103) (66) (55)
Ending balance23,180
 23,227
 23,166
 23,004
 23,124
23,124
 23,234
 23,412
 23,531
 23,967
Utilization rate at quarter end95.7% 95.6% 96.8% 96.7% 97.8%97.8% 98.4% 98.8% 98.9% 98.9%
Average active railcars22,024
 22,215
 22,290
 22,237
 22,407
22,407
 22,759
 22,949
 23,105
 23,480


chart-1fbbf54f9552563da75.jpgchart-d68b63d39d39586ba4b.jpg\


Comparison of the First Six Months of 20182019 to the First Six Months of 20172018


Foreign Currency


Rail International's reported results of operations are impacted by fluctuations in the exchange rates of the foreign currencies in which it conducts business, primarily the euro. In the first six months of 2018,2019, a strongerweaker euro positivelynegatively impacted lease revenue by approximately $10.3$6.9 million and segment profit, excluding other income (expense), by approximately $5.2$3.2 million compared to the same period in 2017.2018.


Segment Profit


In the first six months of 2018,2019, segment profit of $36.1 million increased 13.5% compared to $31.8 million increased 6.0% compared to $30.0 million infor the same period in the prior year. The increase was largely due to the positive impactabsence of foreign exchange rates,the railcar maintenance facility closure costs recorded in the prior year, as well as more carsrailcars on lease, partially offset by the railcar maintenance facility closure costs.negative impact of foreign exchange rates.


Revenues


In the first six months of 2018,2019, lease revenue increased $15.1$1.5 million, or 16.9%1.4%, as the revenue from more railcars on lease was partially offset by the impact of foreign exchange rates. Other revenue decreased $0.4 million, primarily due to more cars on lease,lower repair revenue.


Expenses

In the first six months of 2019, maintenance expense decreased $0.4 million, primarily due to lower workshop costs, due in part to the elimination of expenses associated with the maintenance facility in Germany that was closed in the prior year, as well as the impact of foreign exchange rates. Other revenue increased $1.5 million, drivenThese positive impacts were offset by higher repair revenue.


Expenses

In the first six months of 2018, maintenance expense increased $4.0 million, primarily due to higher wheelset costs and other maintenance expenses, as well as the impact of foreign exchange rates, partially offset by fewer railcars undergoing regulatory compliance repairs. Depreciation expense increased $4.9$0.3 million, driven byas the impact of new railcars added to the fleet as well aswas partially offset by the impactsimpact of foreign exchange rates.


Other Income (Expense)


In the first six months of 2018,2019, net gain on asset dispositions increased $1.1decreased $1.8 million, attributable to higherlower railcar scrapping gains.gains, due to fewer railcars scrapped in the current year. Net interest expense increased $1.6$2.4 million, due to a higher average debt balanceinterest rate and a higher average interest rate.debt balance. Other expense increased $4.9decreased $7.1 million, driven by lower net litigation costs related to the Viareggio matter, which reflected insurance proceeds received in the current year, and the absence of the railcar maintenance facility closure costs recorded in the prior year. These decreases were partially offset by the favorablenegative impact of changes in foreign exchange rates on non-functional currency items and derivatives.items.


Investment Volume


During the first six months of 2019, investment volume was $106.8 million compared to $64.1 million in the same period in 2018. In the first six months of 2018, investment volume was $64.1 million compared to $51.8 million in the same period in 2017. In the first six months of 2018,2019, GRE acquired 308676 railcars, Rail India acquired 306707 railcars, and Rail Russia acquired 2426 railcars, compared to 288308 railcars at GRE, 138306 at Rail India and none24 railcars at Rail Russia infor the same period in 2017.2018.


Our investment volume is predominantly composed of acquired railcars, but may also include 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.


Comparison of the Second Quarter of 20182019 to the Second Quarter of 20172018

Foreign Currency


Rail International's reported results of operations are impacted by fluctuations in the exchange rates of the foreign currencies in which it conducts business, primarily the euro. In the second quarter of 2018,2019, a strongerweaker euro positivelynegatively impacted lease revenue by approximately $3.7$2.9 million and segment profit, excluding other income (expense), by approximately $2.2$1.2 million compared to the same period in 2017.2018.


Segment Profit


In the second quarter of 2018,2019, segment profit of $21.3 million increased 66.4% compared to $12.8 million decreased 22.9% compared to $16.6 million infor the same period in the prior year. The decreaseincrease was largely due to the absence of the railcar maintenance facility closure costs recorded in the prior year, as well as more railcars on lease, partially offset by more cars on lease and the positivenegative impact of foreign exchange rates.


Revenues


In the second quarter of 2018,2019, lease revenue increased $6.0$1.7 million, or 13.0%3.3%, due toas the revenue from more carsrailcars on lease as well aswas partially offset by the impact of foreign exchange rates. Other revenue increased $0.6decreased $0.4 million, driven by higherprimarily due to lower repair revenue.


Expenses


In the second quarter of 2018,2019, maintenance expense increased $1.5 million, primarilywas comparable to prior year as lower workshop costs, due in part to higher wheelset costs, as well asthe elimination of expenses associated with the maintenance facility in Germany that was closed in the prior year, and the impact of foreign exchange rates partiallywere offset by fewer railcars undergoing regulatory compliancehigher repairs. Depreciation expense increased $2.0$0.4 million driven byas the impact of new railcars added to the fleet as well aswas partially offset by the impactsimpact of foreign exchange rates.


Other Income (Expense)


In the second quarter of 2018,2019, net gain on asset dispositions increased $0.3decreased $0.6 million, attributable to higherlower railcar scrapping gains.gains, due to fewer railcars scrapped in the current year. Net interest expense increased $0.8$1.2 million, due to a higher average debt balance and a higher average interest rate. Other expense increased $6.2decreased $9.2 million driven bydue to lower net litigation costs related to the Viareggio matter, which reflected insurance proceeds received in the current year, and the absence of the railcar maintenance facility closure costs recorded in the prior year. These decreases were partially offset by the favorablenegative impact of changes in foreign exchange rates on non-functional currency items and derivatives.items.




PORTFOLIO MANAGEMENT


Segment Summary


Portfolio Management's segment profit is primarily attributable tocomprised of income from the RRPF affiliates. The RRPF affiliates, are a group of sixteen 50% owned domestic and foreign joint ventures with Rolls-Royce plc (or affiliates thereof, collectively “Rolls-Royce”"Rolls-Royce"), a leading manufacturer of commercial aircraft jet engines. Segment profit included earnings from the RRPF affiliates of $33.3$37.8 million and $15.9$19.6 million for the six months and three months ended June 30, 2018,2019, compared to $23.5$33.3 million and $12.3$15.9 million for the same periodsperiod in 2017.2018. As of June 30, 2018,2019, the RRPF affiliates owned 461 aircraft spare engines with a net book value of approximately $4,537.8 million, compared to 452 aircraft spare engines with a net book value of approximately $4,435.6 million at December 31, 2018 and 449 aircraft spare engines with a net book value of approximately $3,966 million, compared to 432 aircraft spare engines with a net book value of approximately $3,764$3,965.6 million at December 31, 2017.June 30, 2018.

As we have disclosed previously, we made the decision to exit the majority of our marine investments, including six chemical parcel tankers (the "Nordic Vessels"), most of our inland marine vessels, and our 50% interest in the Cardinal Marine joint venture. As of December 31, 2017, we had completed all planned sales of the marine assets, including our 50% interest in the Cardinal Marine joint venture.


Portfolio Management continues to own otheralso owns marine assets, consisting primarily of five liquefied gas-carrying vessels (the "Norgas"Specialized Gas Vessels"), previously referred to as the Norgas Vessels. During the second quarter of 2019, the prior commercial management agreement with Norgas Carriers Private Limited expired, and a new agreement was entered into with Anthony Veder Group B.V. ("Veder"). The Norgas Vessels specializeVeder, based in the Netherlands, owns and operates a fleet of specialized gas-carrying vessels under contracts and charters with customers in the oil and gas industry. As a result of this transition, the Specialized Gas Vessels were idle for a significant portion of the second quarter of 2019. However, we expect future operating results to improve as the Specialized Gas Vessels commence operation pursuant to the new commercial agreement. The Specialized Gas Vessels are utilized to transport of pressurized gases and chemicals, such as liquefied petroleum gas, liquefied natural gas, and ethylene, primarily on shorter-termshort-term spot contracts for major oil and chemical customers worldwide.


Portfolio Management's total asset base was $628.8 million at June 30, 2019, compared to $606.8 million at December 31, 2018, and $606.0 million at June 30, 2018, compared to $582.8 million at December 31, 2017, and $595.5 million at June 30, 2017.2018.



The following table shows Portfolio Management’s segment results (in millions):
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30
2018 2017 2018 20172019 2018 2019 2018
Revenues              
Lease revenue$0.2
 $1.2
 $0.5
 $2.4
$0.2
 $0.2
 $0.5
 $0.5
Marine operating revenue3.5
 7.4
 7.9
 18.0
0.1
 3.5
 2.5
 7.9
Other revenue0.4
 0.3
 0.5
 0.8
0.3
 0.4
 0.4
 0.5
Total Revenues4.1
 8.9
 8.9
 21.2
0.6
 4.1
 3.4
 8.9
              
Expenses              
Marine operating expense4.2
 7.4
 8.5
 15.0
4.0
 4.2
 8.6
 8.5
Depreciation expense1.9
 1.8
 3.7
 3.5
1.7
 1.9
 3.3
 3.7
Other operating expense0.1
 0.3
 0.3
 0.6
0.1
 0.1
 0.2
 0.3
Total Expenses6.2
 9.5
 12.5
 19.1
5.8
 6.2
 12.1
 12.5
              
Other Income (Expense)              
Net gain on asset dispositions0.3
 10.5
 0.6
 10.8
0.3
 0.3
 0.6
 0.6
Interest expense, net(2.7) (2.4) (5.0) (4.6)(2.8) (2.7) (5.5) (5.0)
Other income—
 —
 —
 2.3
Share of affiliates' pre-tax income15.9
 12.3
 33.3
 23.9
19.6
 15.9
 37.8
 33.3
Segment Profit
$11.4
 $19.8
 $25.3
 $34.5
$11.9
 $11.4
 $24.2
 $25.3


The following table shows the net book values of Portfolio Management's assets (in millions):
June 30
2017		 September 30
2017		 December 31
2017		 March 31
2018		 June 30
2018		June 30
2018		 September 30
2018		 December 31
2018		 March 31
2019		 June 30
2019
Investment in RRPF Affiliates$396.1
 $439.5
 $434.2
 $449.1
 $462.1
$462.1
 $474.8
 $464.3
 $479.8
 $495.6
Owned assets199.4
 177.3
 148.6
 148.8
 143.9
143.9
 140.1
 142.5
 138.5
 133.2
Managed assets (1)45.8
 43.9
 41.6
 37.9
 36.0
36.0
 34.1
 32.3
 30.4
 28.5
________
(1)Amounts shown represent the estimated net book value of assets managed for third parties and are not included in our consolidated balance sheets.


RRPF Affiliates Engine Portfolio Data


The following table shows portfolio activity for the RRPF affiliates' aircraft spare engines for the quarter ended:
June 30
2017		 September 30
2017		 December 31
2017		 March 31
2018		 June 30
2018		June 30
2018		 September 30
2018		 December 31
2018		 March 31
2019		 June 30
2019
Beginning balance404
 405
 409
 432
 437
437
 449
 439
 452
 462
Engine acquisitions3
 5
 27
 9
 17
17
 3
 19
 11
 3
Engine dispositions(2) (1) (4) (4) (5)(5) (13) (6) (1) (4)
Ending balance405
 409
 432
 437
 449
449
 439
 452
 462
 461
Utilization rate at quarter end94.8% 96.1% 94.7% 94.5% 94.7%94.7% 96.8% 96.9% 96.8% 97.0%



chart-28349c6963dd5a34bb2.jpg
chart-2ebdba9f61765bc7aad.jpg


Comparison of the First Six Months of 20182019 to the First Six Months of 20172018

Comparisons of reported results for the current year and prior year are impacted by the sale of marine investments.


Segment Profit


In the first six months of 2018,2019, segment profit was $25.3$24.2 million, compared to $34.5$25.3 million for the same period in the prior year. The decrease reflects the absence of operating incomea lower contribution from the marine assets sold during 2017 and lower residual sharing fees from the managed portfolio,Specialized Gas Vessels, partially offset by higher RRPF affiliate income.


Revenues


In the first six months of 2018,2019, lease revenue decreased $1.9 million, primarily duewas comparable to the impact ofsame period in the sales of leased assets in 2017.prior year. Marine operating revenue decreased $10.1$5.4 million, due to lower revenue from the Norgas Vessels andSpecialized Gas Vessels. In the absencecurrent year period, utilization of revenue from the marine assets that were sold in 2017. The revenue from the Norgas Vessels declined as a result ofvessels was lower charter rates, due to decreased demand andidle time associated with the transition to a new vessels that have entered the market.commercial manager, as discussed above.


Expenses
    
In the first six months of 2018,2019, marine operating expense decreased $6.5 million, primarily due to the absence of the marine assets that were sold in 2017. Depreciation expense and other operating expense werewas comparable to the same period in the prior year, as operating expenses continued to be incurred despite the Specialized Gas Vessels being idle for a portion of the current year.



Other Income (Expense)


In the first six months of 2018, net gain on asset dispositions decreased $10.2 million. Net gains of approximately $1.8 million were recorded in the first six months of 2017 associated with the planned exit of marine investments. Excluding this item, net gain on asset dispositions decreased $8.4 million in the first six months of 2018 due to lower residual sharing fees from the managed portfolio.

In the first six months of 2018,2019, income from our share of affiliates' earnings at RRPF increased $9.4$4.5 million, primarily due todriven by higher netasset remarketing income and higher operating results. The increase in asset remarketing income resulted from higher disposition gains on engines sold and stronger operatingsold. Operating results drivenwere higher as a result of the contribution from additional engines on lease, as well as an early termination fee recognized in the current year, partially offset by higher depreciation expense on engines, addeddue to a change in the fleet.useful life of certain engine types.


Comparison of the Second Quarter of 20182019 to the Second Quarter of 20172018

Comparisons of reported results for the current quarter and prior year quarter are impacted by the sale of marine investments.


Segment Profit


In the second quarter of 2018,2019, segment profit was $11.4$11.9 million, compared to $19.8$11.4 million for the same period in the prior year. The decreaseincrease reflects the absence of operatinghigher income from the marine assets sold during 2017 and lower residual sharing fees from the managed portfolio,RRPF affiliates, partially offset by higher RRPF affiliate income.a lower contribution from the Specialized Gas Vessels.


Revenues


In the second quarter of 2018,2019, lease revenue decreased $1.0 million, primarily duewas comparable to the impact of the sales of leased assetssame period in 2017.2018. Marine operating revenue decreased $3.9$3.4 million, due to lower revenue from the Norgas Vessels andSpecialized Gas Vessels. In the absencecurrent year period, utilization of revenue from the marine assets that were sold in 2017. The revenue from the Norgas Vessels declined as a result ofvessels was lower charter rates, due to decreased demand andidle time associated with the transition to a new vessels that have entered the market.commercial manager, as discussed above.


Expenses
    
In the second quarter of 2018,2019, marine operating expense decreased $3.2 million, primarily due to the absence of the marine assets that were sold in 2017. Depreciation expense and other operating expense werewas comparable to the same period in the prior year.year, as operating expenses continued to be incurred despite the Specialized Gas Vessels being idle for a portion of the current quarter.


Other Income (Expense)


In the second quarter of 2018, net gain on asset dispositions decreased $10.2 million. Net gains of approximately $1.8 million were recorded in the second quarter of 2017 associated with the planned exit of marine investments. Excluding this item, net gain on asset dispositions decreased $8.4 million in the second quarter of 2018 due to lower residual sharing fees from the managed portfolio.

In the second quarter of 2018,2019, income from our share of affiliates' earnings at RRPF increased $3.6$3.7 million, primarily due todriven by higher netasset remarketing income, partially offset by lower operating results. The higher asset remarketing income resulted from higher disposition gains on engines sold and strongersold. The decrease in operating results driven bywas due to higher depreciation expense due to a change in the useful life of certain engine types, which more than offset the contribution from additional engines added to the fleet.on lease.




ASC


Segment Summary


ASC continues to see strong demand for its services. During the first six months of 2018,2019, ASC deployed 10benefited from favorable sailing conditions and high water levels, allowing the vessels carrying 9.0to operate more efficiently. In the first six months of 2019, ASC carried 9.9 million net tons of freight, compared to 11 vessels, carrying 9.59.0 million net tons during the first six months of 2017.2018.

In February 2019, one of ASC's vessels was damaged by a fire during winter maintenance. An assessment of the extent of the damage and potential outcomes for the vessel is ongoing; however, the ultimate impact is not expected to have a material adverse effect on operations or cash flows.


The following table shows ASC’s segment results (in millions):
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30
2018 2017 2018 20172019 2018 2019 2018
Revenues              
Lease revenue$1.0
 $1.0
 $2.0
 $2.0
$1.1
 $1.0
 $2.1
 $2.0
Marine operating revenue52.3
 47.7
 62.1
 54.1
60.8
 52.3
 71.5
 62.1
Total Revenues53.3
 48.7
 64.1
 56.1
61.9
 53.3
 73.6
 64.1
              
Expenses              
Maintenance expense6.7
 6.7
 7.3
 6.9
7.5
 6.7
 7.8
 7.3
Marine operating expense33.4
 30.6
 41.6
 35.9
37.0
 33.4
 44.5
 41.6
Depreciation expense3.6
 4.0
 3.6
 4.1
3.5
 3.6
 3.5
 3.6
Operating lease expense—
 0.4
 —
 1.2
Total Expenses43.7
 41.7
 52.5
 48.1
48.0
 43.7
 55.8
 52.5
              
Other Income (Expense)              
Net gain on asset dispositions—
 —
 0.1
 —
—
 —
 —
 0.1
Interest expense, net(1.5) (1.3) (2.8) (2.5)(1.6) (1.5) (3.0) (2.8)
Other income (expense)(0.1) 0.8
 (0.1) 0.8
Other expense(0.2) (0.1) (0.2) (0.1)
Segment Profit$8.0
 $6.5
 $8.8
 $6.3
$12.1
 $8.0
 $14.6
 $8.8
              
Investment Volume$4.1
 $5.5
 $15.8
 $12.8
$3.9
 $4.1
 $18.4
 $15.8
Total Net Tons Carried (000's)8,068
 8,503
 9,007
 9,537
8,704
 8,068
 9,902
 9,007


Comparison of the First Six Months of 20182019 to the First Six Months of 20172018


Segment Profit


In the first six months of 2018,2019, segment profit was $8.8$14.6 million, compared to segment profit of $6.3$8.8 million infor the same period in 2017.the prior year. The increase in segment profit was driven by improved rates, late 2017 sailing season surcharges realizedfavorable operating conditions and an additional vessel in 2018, and the absence of operating lease expense for a vessel returned in 2017, partially offset by higher operating expenses as a result of more operating days in 2018.service.


Revenues


In the first six months of 2018,2019, marine operating revenue increased $8.0$9.4 million, or 14.8%15.1%, primarily due to higher ratesvolume resulting from improved sailing conditions and late 2017 sailing season surcharges realizedan additional vessel in 2018. Higher fuel revenue, which is offset in marine operating expense, also contributedservice compared to the variance. The terms of our contracts provide that a substantial portion of fuel costs are passed on to customers.prior year.



Expenses


In the first six months of 2018,2019, maintenance expense increased $0.4$0.5 million, due to higher operating repairs anddriven by more winter work. Marine operating expense increased $5.7$2.9 million, largely driven by more overall operating days, as well as higher fuel costs. Operating lease expenseprimarily due to the impact of an additional vessel in 2017 included rent forservice during the lease of a vessel that was returned in 2017.current year.


Investment Volume


ASC's investments in each period consisted of structural and mechanical improvements to our vessels.


Comparison of the Second Quarter of 20182019 to the Second Quarter of 20172018


Segment Profit


In the second quarter of 2018,2019, segment profit was $8.0$12.1 million, compared to segment profit of $6.5$8.0 million infor the same period in 2017. In 2018, the prior year. The increase in segment profit was driven by improved rates,favorable operating efficiencies,conditions and favorable water levels.an additional vessel in service.

Revenues


In the second quarter of 2018,2019, marine operating revenue increased $4.6$8.5 million, or 9.6%16.3%, primarily due to higher rates. Higher fuel revenue, which is offsetvolume resulting from improved sailing conditions and an additional vessel in marine operating expense, also contributedservice compared to the variance.prior year.


Expenses


In the second quarter of 2018,2019, maintenance expense was comparable to prior year.increased $0.8 million, driven by more winter work. Marine operating expense increased $2.8$3.6 million, primarily due to higher fuel costs, partially offset by the impact of fewer operating days. Operating lease expensean additional vessel in 2017 included rent forservice during the lease of a vessel that was returned in 2017.current year.


Investment Volume

ASC's investments in each period consisted of structural and mechanical improvements to our vessels.


OTHER


Other comprises selling, general and administrative expenses (“("SG&A”&A"), unallocated interest expense, and miscellaneous income and expense not directly associated with the reporting segments and eliminations.


The following table shows components of Other (in millions):
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30
2018 2017 2018 20172019 2018 2019 2018
Selling, general and administrative expense$46.2
 $42.6
 $91.1
 $85.3
$45.1
 $46.2
 $91.2
 $91.1
Unallocated interest (income) expense, net(2.0) (0.3) (4.6) (3.5)
Unallocated interest (income) expense(1.5) (2.0) (3.2) (4.6)
Other expense (income), including eliminations1.2
 0.1
 1.4
 0.4
0.4
 1.2
 0.6
 1.4


SG&A, Unallocated Interest and Other


SG&A increased $5.8$0.1 million for the first six months of 20182019 and $3.6decreased $1.1 million for the second quarter of 2018, both2019 compared to the same periods in the prior year. Both variances primarily due to higher information technology and employee compensation expenses, as well aswere driven by the absence of accelerated depreciation of leasehold improvements resulting fromrecorded in the prior year related to the early termination of the corporate headquarters office lease, for GATX's corporate headquarters.as well as lower pension expenses and outside legal expenses, partially offset by higher employee compensation and information technology expenses.


Unallocated interest expense (the difference between external interest expense and interest expense allocated to the reporting segments in accordance with assigned leverage targets)) 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, increased $1.0decreased $0.8 million for each of the first six monthsand three month periods of 2018 and $1.1 million for2019 compared to the second quarter of 2018, bothsame periods in the prior year. Both variances were driven by lower non-service pension expenses. The variance to the prior quarter was also positively impacted by the absence of expenses related to the prepayment of debt recorded in the prior year, as well as the positive impacts of foreign exchange on a foreign pension plan.exchange.


Consolidated Income Taxes


See "Note 7. 8. Income Taxes" in Part I, Item 1 of this Form 10-Q.




CASH FLOW AND LIQUIDITY


We generate a significant amount of cash from operating activities and investment portfolio proceeds. We also access domestic and international capital markets by issuing unsecured or secured debt and commercial paper. We use these resources, along with available cash balances, to fulfill our debt, lease, and dividend obligations, to support our share repurchase programs, and to fund portfolio investments and capital additions. We primarily use cash from operations to fund daily operations.


The timing of asset dispositions and changes in working capital impact cash flows from portfolio proceeds and operations. As a result, these cash flow components may vary materially from quarter to quarter and year to year. As of June 30, 2018,2019, we had an unrestricted cash balance of $237.4$286.6 million.


The following table shows our principal sources and uses of cash for the six months ended June 30 (in millions):
2018 20172019 2018 
Principal sources of cash       
Net cash provided by operating activities$206.7
 $223.8
$175.8
 $206.7
 
Portfolio proceeds149.0
 99.1
133.5
 149.0
 
Other asset sales20.9
 14.9
14.6
 20.9
 
Proceeds from sale-leasebacks—
 90.7
Proceeds from issuance of debt, commercial paper, and credit facilities297.2
 309.1
549.5
 297.2
 
Total$673.8
 $737.6
$873.4
 $673.8
 
       
Principal uses of cash       
Portfolio investments and capital additions$(367.0) $(295.3)$(331.4) $(367.0) 
Repayments of debt, commercial paper, and credit facilities(263.1) (301.5)(244.8) (263.1) 
Purchases of leased-in assets(39.1) (79.3)
Purchases of assets previously leased—
 (39.1) 
Payments on capital lease obligations(0.6) (1.8)(0.6) (0.6) 
Stock repurchases(25.0) (50.0)(82.4) (25.0) 
Dividends(35.7) (35.2)(36.2) (35.7) 
Total$(730.5) $(763.1)$(695.4) $(730.5) 


Net cash provided by operating activities of $206.7$175.8 million decreased $17.1$30.9 million compared to 2017. The decrease was driven2018. Comparability among reporting periods is impacted by lower fee income, which included $1.0 millionthe timing of residual sharing incomechanges in 2018 compared to $9.3 million in 2017,working capital items. In the current year period, higher operating lease, interest, and higher interestcompensation-related payments were partially offset by higher lease and repair revenue, as well as lower operating leaseincome tax payments lower taxes paid, andas compared to the positive impact of changes in foreign exchange rates.prior year period.


Portfolio proceeds primarily consist of proceeds from sales of operating assets and loan and finance lease receipts. Portfolio proceeds of $149.0$133.5 million for the six months of 2018 increased2019 decreased by $49.9$15.5 million from the prior year, primarily due to higherlower proceeds from sales of railcars at Rail North America, partially offset by lower proceeds from sales of marine assets at Portfolio Management.America.

Rail North America completed a sale-leaseback financing for 699 railcars in the second quarter of 2017.


Proceeds from the issuance of debt for the six months ended June 30, 20182019 were $297.2$549.5 million (net of hedges and debt issuance costs). In 2018, a $300-million,2019, we issued $500.0 million of 10-year unsecured financing was completed.debt and increased the amount of a term note by $55.7 million at Rail International. Debt repayments of $263.1$244.8 million for the first six months of 20182019 were $38.4$18.3 million lower than prior year. Repayments in both years consisted ofincluded scheduled maturity payments and the early retirement of certain debt issuances.obligations.


Portfolio investments and capital additions primarily consist of purchases of operating assets, investments in affiliates, and capitalized asset improvements. Portfolio investments and capital additions of $367.0$331.4 million for the first six months of 2018 increased $71.72019 decreased $35.6 million compared to 2017,2018, due to morefewer railcars acquired at Rail North America, andpartially offset by more railcars acquired at Rail International.


Purchases of leased-inWe did not purchase any assets of $39.1 million forpreviously leased during the first six months of 2018 decreased $40.2 million2019, compared to the same period2,467 railcars for $39.1 million in 2017. The decrease was attributable to a $24.0 million decrease at ASC, related to the purchase of a vessel in 2017 that was previously on lease, and a $16.2 million decrease at Rail North America due to fewer railcars purchased in 2018 (1,232 railcars in 2018 compared to 1,815 railcars in 2017).2018.


On January 29, 2016,25, 2019, our Boardboard of Directors (the "Board")directors approved a $300$300.0 million share repurchase program, pursuant to which we are authorized to purchase shares of our common stock in the open market, in privately negotiated transactions, or otherwise, including pursuant to Rule 10b5-1 plans. As of December 31, 2017, $80.0 million remained available under this program. On January 26, 2018, the Board approved an additional share repurchase authorization of $170 million, bringing our aggregate available repurchase authorization to $250 million. During the six months ended June 30, 2018,2019, we acquiredrepurchased 1.1 million shares of common stock for $83.3 million, compared to 0.4 million shares of common stock for $25.0 million compared to 0.8 million shares of common stock for $50.0 million during the same period in 2017.2018. Actual cash payments in any period consist of

those transactions that settled during the current period. As of June 30, 2018, $225.02019, $216.8 million remained available under the repurchase authorizations.authorization.


Contractual and Other Commercial Commitments


The following table shows our contractual commitments, including debt principal and related interest payments, lease payments, and purchase commitments at June 30, 20182019 (in millions):


Payments Due by PeriodPayments Due by Period
Total 2018 (1) 2019 2020 2021 2022 ThereafterTotal 2019 (1) 2020 2021 2022 2023 Thereafter
Recourse debt$4,445.8
 $71.5
 $550.0
 $350.0
 $564.3
 $250.0
 $2,660.0
$4,869.4
 $250.0
 $350.0
 $600.0
 $250.0
 $250.0
 $3,169.4
Interest on recourse debt (2)1,873.5
 83.1
 160.9
 146.5
 134.6
 114.0
 1,234.4
1,996.2
 100.4
 182.1
 170.2
 146.7
 135.4
 1,261.4
Commercial paper and credit facilities4.3
 4.3
 —
 —
 —
 —
 —
26.0
 26.0
 —
 —
 —
 —
 —
Capital lease obligations, including interest12.4
 0.8
 11.6
 —
 —
 —
 —
Recourse operating leases553.4
 37.9
 63.6
 64.4
 61.2
 52.8
 273.5
Finance lease obligations, including interest10.7
 10.7
 —
 —
 —
 —
 —
Operating lease obligations543.5
 27.0
 67.9
 66.3
 57.6
 54.8
 269.9
Purchase commitments (3)1,346.6
 335.5
 365.2
 191.4
 151.5
 151.5
 151.5
2,153.2
 433.4
 563.2
 376.5
 385.4
 394.7
 —
Total$8,236.0
 $533.1
 $1,151.3
 $752.3
 $911.6
 $568.3
 $4,319.4
$9,599.0
 $847.5
 $1,163.2
 $1,213.0
 $839.7
 $834.9
 $4,700.7
__________
(1)For the remainder of the year.
(2)For floating rate debt, future interest payments are based on the applicable interest rate as of June 30, 2018.2019.
(2)(3)Primarily railcar purchase commitments. The amounts shown for all years are based on management's estimates of the timing, anticipated car types, and related costs of railcars to be purchased under its agreements.


In 2014, we entered into a long-term supply agreement with Trinity Rail Group, LLC ("Trinity"), a subsidiary of Trinity Industries that took effect in mid-2016.Industries. Under the terms of that agreement, we may order up to 8,950 newly built railcars over a four-year period from March, 2016 through March, 2020. We may order either tank or freight cars; however, we expect that the majority of the order will be for tank cars. As of June 30, 2018, 6,6632019, 8,250 railcars have been ordered, of which 4,3256,754 railcars have been delivered. On May 24, 2018, we amended our long-term supply agreement with Trinity to extend the term to December 2023. We2023, and we agreed to purchase an additional 4,800 tank cars (1,200 per year) beginning in January 2020 and continuing through the expiration of the extended term. Pricing

On July 30, 2018, we entered into a multi-year railcar supply agreement with American Railcar Industries, Inc. ("ARI"), pursuant to which we will purchase 7,650 newly built railcars. The order encompasses a mix of tank and freight cars to be ondelivered over a five-year period, beginning in April 2019. As of June 30, 2019, 1,229 railcars have been ordered, of which 146 railcars have been delivered. The agreement requires ARI to deliver 450 railcars in 2019, with the remaining 7,200 to be delivered ratably over the four-year period of 2020 to 2023. The agreement also includes an agreed upon or cost-plus basisoption to order up to an additional 4,400 railcars subject to certain adjustments and surcharges specified in the agreement.
restrictions.

Short-Term Borrowings


The following table shows additional information regarding our short-term borrowings for the six months ended June 30, 2018:2019:
 Europe (1)
Balance as of June 30 (in millions)$4.3
Weighted average interest rate1.0%
Euro/Dollar exchange rate1.17
  
Average daily amount outstanding year to date (in millions)$4.3
Weighted average interest rate0.9%
Average Euro/Dollar exchange rate1.21
  
Average daily amount outstanding during 2nd quarter (in millions)$4.0
Weighted average interest rate1.0%
Average Euro/Dollar exchange rate1.19
  
Maximum daily amount outstanding (in millions)$11.3
Euro/Dollar exchange rate1.17
 North America (1) Europe (2)
Balance as of June 30 (in millions)$—
 $26.0
Weighted-average interest raten/a
 0.6%
Euro/dollar exchange raten/a
 1.14
    
Average daily amount outstanding year to date (in millions)$19.4
 $15.3
Weighted-average interest rate2.9% 0.6%
Average Euro/dollar exchange raten/a
 $1.13
    
Average daily amount outstanding during 2nd quarter (in millions)$—
 $19.7
Weighted-average interest rate—% 0.6%
Average Euro/dollar exchange raten/a
 1.12
    
Maximum daily amount outstanding (in millions)$130.0
 $28.2
Euro/dollar exchange raten/a
 1.12
__________
(1)Short-term borrowings in North America are composed of commercial paper issued in the U.S.
(2)Short-term borrowings in Europe are composed of borrowings under bank credit facilities.


Credit Lines and Facilities


We haveOn May 23, 2019, we entered into a new $600 million, 5-year unsecured revolving credit facility in the U.S. InUnited States, expiring in May 2024. The new credit facility contains two one-year extension options. This replaced our prior $600 million, 5-year unsecured revolving credit facility, which was terminated upon our entry into the second quarter of 2018, we extended the maturity on this facility by one year from May 2022 to May 2023.new credit facility. As of June 30, 2018,2019, the full $600 million was available under thethis facility. Additionally, we have aterminated our prior $250 million 5-year secured railcar facility and entered into a new $250 million 3-year unsecured revolving credit facility in the U.S. with a 3-year revolving period that maturesUnited States, expiring in May 2022. This new credit facility also has two one-year extension options. As of June 30, 2018,2019, the full $250 million was available under this facility.


Restrictive Covenants


Our $600 million revolving credit facility contains various restrictive covenants, including requirements to maintain a fixed charge coverage ratio and an asset coverage test. Some of our bank term loans have the same financial covenants as the facility.
  
The indentures for our public debt also contain various restrictive covenants, including limitations on liens provisions that restrict the amount of additional secured indebtedness that we may incur. Additionally, certain exceptions to the covenants permit us to incur an unlimited amount of purchase money and nonrecourse indebtedness.


The loan agreements for certain ofAt June 30, 2019, our European rail subsidiaries also contain restrictive covenants, including leverage and cash flow covenants specific to those subsidiaries, restrictions on making loans, and limitations on the ability of those subsidiaries to repay loans or to distribute capital to certain related parties (includinghad one outstanding loan agreement, which is guaranteed by GATX the U.S. parent company). These covenants effectively limit GRE's ability to transfer funds to GATX.Corporation.


We do not anticipate any covenant violations nor do we expect that any of these covenants will restrict our operations or our ability to obtain additional financing. At June 30, 2018,2019, we were in compliance with all covenants and conditions of all of our credit agreements.


Credit Ratings


The global capital market environment and outlook may affect our funding options and our financial performance. Our access to capital markets at competitive rates depends on our credit rating and rating outlook, as determined by rating agencies. As of June 30, 2018,2019, our

long-term unsecured debt was rated BBB by Standard & Poor's and Baa2 by Moody’s Investor Service and our short-term unsecured debt was rated A-2 by Standard & Poor's and P-2 by Moody’s Investor Service. Our rating outlook from both agencies was stable.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES


ThereThe adoption of the new lease accounting standard required changes to certain policies and estimates related to our lease accounting as lessee and lessor. See "Note 4. Leases" in Part I, Item 1 of this Form 10-Q for further details. Other than these impacts, there have been no changes to our critical accounting policies during the six months ended June 30, 2018.2019. Refer to our Annual Report on Form 10-K for the year ended December 31, 2017,2018, for a summary of our policies.



NON-GAAP FINANCIAL MEASURES
    
In addition to financial results reported in accordance with GAAP, we compute certain financial measures using non-GAAP components, as defined by the SEC. These measures are not in accordance with, or a substitute for, GAAP, and our financial measures may be different from non-GAAP financial measures used by other companies. We have provided a reconciliation of our non-GAAP components to the most directly comparable GAAP components.


Reconciliation of Non-GAAP Components Used in the Computation of Certain Financial Measures

Balance Sheet Measures

We include total on- and off-balance sheet assets because a portion of our North American railcar fleet has been financed through sale-leasebacks that are accounted for as operating leases and are not recorded on the balance sheet. Similarly, ASC's fleet previously included vessels that were accounted for as operating leases and were not recorded on the balance sheet. We include these leased-in assets in our calculation of total assets (as adjusted) because we believe it gives investors a more comprehensive representation of the magnitude of the assets we operate and that drive our financial performance. In addition, this calculation of total assets (as adjusted) provides consistency with other non-financial information we disclose about our fleet, including the number of railcars in the fleet, average number of cars on lease, and utilization. We also provide information regarding our leverage ratios, which are expressed as a ratio of debt (including off-balance sheet debt) to equity. The off-balance sheet debt amount in this calculation is the equivalent of the off-balance sheet asset amount. We believe reporting this corresponding off-balance sheet debt amount provides investors and other users of our financial statements with a more comprehensive representation of our debt obligations, leverage, and capital structure.

The following table shows total balance sheet assets (in millions):
 June 30
2017		 September 30
2017		 December 31
2017		 March 31
2018		 June 30
2018
Total assets (GAAP)$7,272.1
 $7,261.9
 $7,422.4
 $7,468.0
 $7,495.5
Off-balance sheet assets:         
Rail North America488.1
 471.3
 435.7
 411.7
 401.7
ASC0.5
 0.2
 —
 —
 —
Total off-balance sheet assets$488.6
 $471.5
 $435.7
 $411.7
 $401.7
          
Total assets, as adjusted (non-GAAP)$7,760.7
 $7,733.4
 $7,858.1
 $7,879.7
 $7,897.2
          
Shareholders’ Equity (GAAP)$1,443.0
 $1,470.2
 $1,792.7
 $1,839.7
 $1,817.6


The following table shows the components of recourse leverage (in millions, except recourse leverage ratio):
 June 30
2017		 September 30
2017		 December 31
2017		 March 31
2018		 June 30
2018
Debt, net of unrestricted cash:         
Unrestricted cash$(284.3) $(199.2) $(296.5) $(233.1) $(237.4)
Commercial paper and bank credit facilities15.7
 15.7
 4.3
 4.4
 4.3
Recourse debt4,261.2
 4,266.7
 4,371.7
 4,359.5
 4,397.9
Capital lease obligations13.1
 12.8
 12.5
 12.2
 11.9
Total debt, net of unrestricted cash (GAAP)4,005.7
 4,096.0
 4,092.0
 4,143.0
 4,176.7
Off-balance sheet recourse debt488.6
 471.5
 435.7
 411.7
 401.7
Total debt, net of unrestricted cash, as adjusted (non-GAAP)$4,494.3
 $4,567.5
 $4,527.7
 $4,554.7
 $4,578.4
          
Total recourse debt (1)$4,494.3
 $4,567.5
 $4,527.7
 $4,554.7
 $4,578.4
Shareholders' Equity (2)$1,443.0
 $1,470.2
 $1,792.7
 $1,839.7
 $1,817.6
Recourse Leverage (3)3.1
 3.1
 2.5
 2.5
 2.5
________
(1)Includes on- and off-balance sheet recourse debt, capital lease obligations, and commercial paper and bank credit facilities, net of unrestricted cash.
(2)Balances for December 31, 2017, March 31, 2018, and June 30, 2018, reflect the impact of the Tax Act recognized in the fourth quarter of 2017.
(3)Calculated as total recourse debt / shareholder's equity.


Net Income Measures


We exclude the effects of certain tax adjustments and other items for purposes of presenting net income, diluted earnings per share, and return on equity because we believe these items are not attributable to our business operations. Management utilizes net income, excluding tax adjustments and other items, when analyzing financial performance because such amounts reflect the underlying operating results that are within management’s ability to influence. Accordingly, we believe presenting this information provides investors and other users of our financial statements with meaningful supplemental information for purposes of analyzing year-to-year financial performance on a comparable basis and assessing trends.



The following tables show our net income and diluted earnings per share, excluding tax adjustments and other items (in millions, except per share data):


Impact of Tax Adjustments and Other Items on Net Income:
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30
2018 2017 2018 20172019 2018 2019 2018
Net income (GAAP)$38.8
 $53.4
 $115.1
 $110.9
$68.0
 $38.8
 $109.5
 $115.1
       
Adjustments attributable to consolidated pre-tax income:              
Costs attributable to the closure of a maintenance facility at Rail International (1)8.6
 —
 8.6
 —
Net gain on wholly owned Portfolio Management marine investments (2)—
 (1.8) —
 (1.8)
Costs related to the closure of a maintenance facility at Rail International (1)—
 8.6
 —
 8.6
Total adjustments attributable to consolidated pre-tax income$8.6
 $(1.8) $8.6
 $(1.8)$—
 $8.6
 $—
 $8.6
Income taxes thereon, based on applicable effective tax rate(2.8) 0.7
 (2.8) 0.7
—
 (2.8) —
 (2.8)
Other income tax adjustments attributable to consolidated income:       
Income tax rate change (2)$(2.8) $—
 $(2.8) $—
Net income, excluding tax adjustments and other items (non-GAAP)$44.6
 $52.3
 $120.9
 $109.8
$65.2
 $44.6
 $106.7
 $120.9


Impact of Tax Adjustments and Other Items on Diluted Earnings per Share:
Three Months Ended
June 30		 Six Months Ended
June 30		Three Months Ended
June 30		 Six Months Ended
June 30
2018 2017 2018 20172019 2018 2019 2018
Diluted earnings per share (GAAP)$1.01
 $1.35
 $2.99
 $2.79
$1.86
 $1.01
 $2.97
 $2.99
Adjustments attributable to consolidated income, net of taxes:              
Costs attributable to the closure of a maintenance facility at Rail International (1)0.15
 —
 0.15
 —
Net gain on wholly owned Portfolio Management marine investments (2)—
 (0.03) —
 (0.03)
Costs related to the closure of a maintenance facility at Rail International (1)—
 0.15
 —
 0.15
Income tax rate change (2)(0.08) —
 (0.08) —
Diluted earnings per share, excluding tax adjustments and other items (non-GAAP)$1.16
 $1.32
 $3.14
 $2.76
$1.78
 $1.16
 $2.89
 $3.14

The following table shows our net income and return on equity, excluding tax adjustments and other items, for the trailing 12 months ended June 30 (in millions):
 2018 2017
Net income (GAAP)$506.2
 $237.5
Adjustments attributable to consolidated pre-tax income:   
Costs attributable to the closure of a maintenance facility at Rail International (1)8.6
 —
Net loss on wholly owned Portfolio Management marine investments (2)—
 3.4
Railcar impairment at Rail North America (3)—
 29.8
Residual sharing settlement at Portfolio Management (4)—
 (49.1)
Total adjustments attributable to consolidated pre-tax income$8.6
 $(15.9)
Income taxes thereon, based on applicable effective tax rate$(2.8) $6.9
    
Other income tax adjustments attributable to consolidated income:   
Impact of the Tax Act (5)(315.9) —
Foreign tax credit utilization (6)—
 (7.1)
Total other income tax adjustments attributable to consolidated income$(315.9) $(7.1)
    
Adjustments attributable to affiliates' earnings, net of taxes:   
Net gain on Portfolio Management marine affiliate (2)—
 (0.6)
Income tax rate changes (7)—
 (3.9)
Total adjustments attributable to affiliates' earnings, net of taxes$—
 $(4.5)
Net income, excluding tax adjustments and other items (non-GAAP)$196.1
 $216.9
Return on Equity (GAAP)31.0% 17.3%
Return on Equity, excluding tax adjustments and other items (non-GAAP) (8)13.3% 15.8%
 2019 2018
Net income (GAAP)$205.7
 $506.2
Adjustments attributable to consolidated pre-tax income:   
Costs related to the closure of a maintenance facility at Rail International (1)0.9
 8.6
Total adjustments attributable to consolidated pre-tax income$0.9
 $8.6
Income taxes thereon, based on applicable effective tax rate$(0.3) $(2.8)
Other income tax adjustments attributable to consolidated income:   
Income tax rate change (2)(2.8) —
Impact of the Tax Act (3)(16.5) (315.9)
Foreign tax credit utilization (4)(1.4) —
Total other income tax adjustments attributable to consolidated income$(20.7) $(315.9)
Net income, excluding tax adjustments and other items (non-GAAP)$185.6
 $196.1
Return on Equity (GAAP)11.3% 31.0%
Return on Equity, excluding tax adjustments and other items (non-GAAP) (5)12.4% 13.3%
_______
(1)In the second quarter of 2018, Rail International recorded expenses attributableExpenses related to the closure of a maintenance facility.
(2)In 2015, we made the decisionDeferred income tax adjustment due to exit the majority of our non-core, marine investments within our Portfolio Management segment. As a result, we recorded gains and losses associated with the impairments and sales of certain investments.an enacted corporate income tax rate decrease in Alberta, Canada.
(3)Impairment losses inAmounts attributable to the fourth quarter of 2016 related specifically to certain railcars in flammable service that we believe have been permanently and negatively impacted by regulatory changes.
(4)Proceeds were recorded in the third quarter of 2016 as a result of the settlement of a residual sharing agreement related to a residual guarantee we provided on certain rail assets.
(5)Amount shown represents the estimated impact of corporate income tax changes enacted by the Tax Cuts and Jobs Act recorded in the fourth quarter of 2017. The ultimate impact of the Tax Act may differ from these estimates, due to, among other things, changes in interpretations and assumptions made by us, additional guidance that may be issued by the U.S. Department of the Treasury, and actions that we may take.2017 (the "Tax Act").
(6)(4)Benefits in the fourth quarter of 2016 attributable to the utilization of foreign tax credit carryforwards.credits.
(7)Deferred income tax adjustments due to enacted statutory rate decreases in the United Kingdom in the third quarter of 2016.
(8)(5)Shareholders' equity used in this calculation excludes the increases resulting from the impact of the Tax Act, as described above.Act.



Balance Sheet Measures

A portion of our North American railcar fleet is financed through sale-leasebacks that are accounted for as operating leases. Prior to 2019, these railcar assets were not recorded on the balance sheet. Under the new lease accounting standard adopted on January 1, 2019, GATX records these railcar operating leases on the balance sheet as right-of-use assets with corresponding amounts for operating lease liabilities.

Prior to 2019, we reported total on- and off-balance sheet assets in our calculation of total assets (as adjusted) because we believed it provided investors a more comprehensive representation of the magnitude of the assets we operated and that drove our financial performance. In addition, this calculation of total assets (as adjusted) provided consistency with other non-financial information we disclosed about our fleet, including the number of railcars in the fleet, average number of cars on lease, and utilization. We also provide information regarding our leverage ratios, which are expressed as a ratio of debt (including off-balance sheet debt) to equity. The off-balance sheet debt amount in this calculation was the equivalent of the off-balance sheet asset amount. We believe reporting this corresponding off-balance sheet debt amount provided investors and other users of our financial statements with a more comprehensive representation of our debt obligations, leverage, and capital structure.

Because the railcar operating lease assets and associated liabilities are now recorded on the balance sheet, beginning in 2019, the prior non-GAAP measure is no longer applicable.

The following table shows total balance sheet assets (in millions):
 June 30
2019		 March 31
2019		 December 31
2018		 September 30
2018		 June 30
2018
Total assets (GAAP)$8,353.1
 $8,240.2
 $7,616.7
 $7,517.4
 $7,495.5
Off-balance sheet assets (1):         
Rail North America—
 —
 430.2
 432.6
 401.7
Total off-balance sheet assets$—
 $—
 $430.2
 $432.6
 $401.7
Total assets, as adjusted (non-GAAP)$8,353.1
 $8,240.2
 $8,046.9
 $7,950.0
 $7,897.2
          
Shareholders’ Equity (GAAP)$1,834.8
 $1,809.2
 $1,788.1
 $1,838.0
 $1,817.6
________
(1)Off-balance sheet assets apply to each of the quarters in 2018. In accordance with the new lease accounting standard, off-balance assets are no longer applicable beginning in 2019.


The following table shows the components of recourse leverage (in millions, except recourse leverage ratio):
 June 30
2019		 March 31
2019		 December 31
2018		 September 30
2018		 June 30
2018
Debt and lease obligations, net of unrestricted cash:         
Unrestricted cash$(286.6) $(248.4) $(100.2) $(254.5) $(237.4)
Commercial paper and bank credit facilities26.0
 15.9
 110.8
 ���
 4.3
Recourse debt4,832.5
 4,768.1
 4,429.7
 4,397.3
 4,397.9
Operating lease obligations454.5
 456.3
 —
 —
 —
Finance lease obligations10.6
 11.0
 11.3
 11.6
 11.9
Total debt and lease obligations, net of unrestricted cash (GAAP)5,037.0
 5,002.9
 4,451.6
 4,154.4
 4,176.7
Off-balance sheet recourse debt (1)—
 —
 430.2
 432.6
 401.7
Total debt and lease obligations, net of unrestricted cash, as adjusted (non-GAAP)$5,037.0
 $5,002.9
 $4,881.8
 $4,587.0
 $4,578.4
          
Total recourse debt (2)$5,037.0
 $5,002.9
 $4,881.8
 $4,587.0
 $4,578.4
Shareholders' Equity$1,834.8
 $1,809.2
 $1,788.1
 $1,838.0
 $1,817.6
Recourse Leverage (3)2.7
 2.8
 2.7
 2.5
 2.5
________
(1)Off-balance sheet recourse debt applies to each of the quarters in 2018. In accordance with the new lease accounting standard, off-balance sheet recourse debt is no longer applicable beginning in 2019.
(2)Includes on- and off-balance sheet recourse debt, commercial paper and bank credit facilities, and operating and finance lease obligations, net of unrestricted cash.
(3)Calculated as total recourse debt / shareholder's equity.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk


Since December 31, 2017,2018, there have been no material changes in our interest rate and foreign currency exposures or types of derivative instruments used to hedge these exposures. For a discussion of our exposure to market risk, refer to "Item 7A. Quantitative and Qualitative Disclosure about Market Risk" of our Annual Report on Form 10-K for the year ended December 31, 2017.2018.


Item 4.  Controls and Procedures


Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”"Exchange Act")). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective.


No changechanges in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended June 30, 2018,2019, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II - OTHER INFORMATION


Item 1.  Legal Proceedings


Information concerning litigation and other contingencies is described in "Note 11. 12. Legal Proceedings and Other Contingencies" in Part I, Item 1 of this Form 10-Q and is incorporated herein by reference.


Item 1A.  Risk Factors


Since December 31, 2017,2018, there have been no material changes in our risk factors. For a discussion of our risk factors, refer to "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2017.2018.


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds


On January 29, 2016, the Board25, 2019, our board of directors approved a $300$300.0 million share repurchase program, pursuant to which we are authorized to purchase shares of our common stock in the open market, in privately negotiated transactions, or otherwise, including pursuant to Rule 10b5-1 plans. As of December 31, 2017, $80.0 million remained available under this program. On January 26, 2018, the Board approved an additional share repurchase authorization of $170 million, bringing our aggregate available repurchase authorization to $250 million. The share repurchase authorizations doprogram does not have an expiration date, dodoes not obligate the Company to repurchase any dollar amount or number of shares of common stock, and may be suspended or discontinued at any time. The timing of share repurchases will be dependent on market conditions and other factors.

No stock repurchases were completed during the second quarter of 2018. As of June 30, 2018, $225.02019, $216.8 million remained available under the repurchase authorizations.


The following is a summary of common stock repurchases completed by month during the second quarter of 2019:
Issuer Purchases of Equity Securities
  (a) (b) (c) (d)
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
April 1, 2019 - April 30, 2019 23,014
 $77.22
 23,014
 $258.2
May 1, 2019 - May 31, 2019 263,350
 $75.25
 263,350
 $238.4
June 1, 2019 - June 30, 2019 290,155
 $74.57
 290,155
 $216.8
Total 576,519
 $74.99
 576,519
  






Item 6.  Exhibits


Exhibit
Number
 
Exhibit Description
Filed with this Report:
10.1
First Amendment to Supply Agreement by and between GATX Corporation, as Buyer, and Trinity Rail Group, LLC, as Seller, dated May 24, 2018 (Note: Portions of this document have been omitted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission on July 27, 2018).
31A
Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a) (CEO Certification).
31B
Certification Pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a) (CFO Certification).
32
Certification Pursuant to 18 U.S.C. Section 1350 (CEO and CFO Certification).
101
The following materials from GATX Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018,2019, are formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at June 30, 20182019 and December 31, 2017,2018, (ii) Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 20182019 and 2017,2018, (iii) Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018, (iv) Consolidated Statements of Changes in Shareholders' Equity for the three months and six months ended June 30, 2019 and 2018, and 2017, and (iv)(v) Notes to the Consolidated Financial Statements.
Incorporated by Reference:
10.1
Five Year Credit Agreement dated as of May 23, 2019, among GATX Corporation, as borrower, Citibank, N.A. and BOFA Securities, Inc., as joint lead arrangers and joint book managers, Bank of America, N.A., as syndication agent, PNC Bank, N.A., U.S. Bank, National Association, Morgan Stanley MUFG Loan Partners, LLC and Keybank National Association, as co-documentation agents, Citibank, N.A., as administrative agent, and the lenders party thereto is incorporated herein by reference to Exhibit 10.1 of GATX’s Form 8-K dated May 23, 2019, file number 1-2328.





SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
GATX CORPORATION
(Registrant)
 
/s/ Robert C. LyonsThomas A. Ellman
Robert C. LyonsThomas A. Ellman
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer)




Date: July 27, 201829, 2019




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