GATX Corp (GATX) 2007 Q3 法說會逐字稿

Good morning. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to the GATX third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you. I would now like to turn the call over to our host Rhonda Johnson, Director of Investor Relations. Miss Johnson?

Thank you, Jennifer. Good morning everyone, and thanks for listening in to our third quarter conference call. With me today are Brian Kenney, president and CEO of GATX Corporation, and Bob Lyons, senior vice-president and chief financial officer. I'll provide a brief overview of results highlighted in our press release earlier this morning and then we'll open up for your questions. First, I'd like to remind you that any forward-looking statement made on this call represents our best judgment as to what may occur in the future. We've based the forward-looking statements on information currently available and disclaim any intention or obligation to update or revise these statements to reflect subsequent event or circumstances. The company's actual results will depend on a number of competitive and economic factors, some of which may be outside the control of the company. For more information, I refer you to our 2006 Form 10-K filing.

Now let's revenue the numbers. Today, we reported net income from continuing operations of $63.9 million or $1.21 per diluted share for the third quarter 2007 which included a $9.4 million or $0.17 per diluted share tax benefit from a change in statutory tax rates in Germany. In the third quarter of '06, we reported net income from continuing operations of $43.6 million or $0.76 per diluted share. Year-to-date, we reported net income from continuing operations of $144.4 million or $2.63 per diluted share including that benefit from the German tax rate change that I just mentioned. This is compared with $122.7 million or $2.13 per diluted share in the same period in 2006 which includes a $5.9 million tax or $0.10 per diluted share tax benefit from a change in Canadian statutory tax rate. Our third quarter results were exceptional benefiting in particular from very high remarketing income in both railend specialty.

As noted in our press release, the areas we have highlighted in the past year, in particular, the markets for construction related rail cars and ethanol tank cars have shown continued weakness and we're now seeing signs of softness spread across the rail market and to other car types.. While these market changes have not had a material impact on our rail operations in the short-term, we continue to monitor these developments as they relate to longer term results. It is also important to note that we are optimistic that any weakness in the market will provide GATX with an opportunity to capitalize by expanding our investment activity. Our utilization and our fleet is still high 97.9% and we've had continued success renewing cars with customers. The renewal lease rates on a basket of our most common car types improved 17% over the expiring rates and lease terms were extended to a record average of 78 months in the quarter. While nominal lease rates generally remain high, we have seen signs of rates flattening and in some instances beginning to remain high.

In addition, and as we've discussed before, as we go forward, we expect average expiring rates to rise making future comps more difficult. Maintenance expenses were a challenge in a quarter as both the cost and volume of repairs, especially done by those railroads increased in the quarter. In particular, there's been a market increase in the number of wheel sets changed out typically for brand new sets. We're working to mitigate these rising costs by working with regional railroads to capture railcars and undertake the changeouts on our own. Thereby enabling us to control this cost more effectively.

In Europe, GATX rail Europe are wholely on tank car fleet and AAE Cargo, our freight and intermobile car joint venture has continued to advance both operationally and financially in response to the improving market as demand remains strong across all railcar types and backlogs that railcar manufacturers lengthened. Specialties marine joint ventures continue to provide outstanding returns from increasing charter, day rates, high demand utilization. We also formed a new joint venture with our current partner I.M. Skaugen to own and operate attractive new build, state-of-the-art multigas vessels. ASC continues to see solid demand in most of its markets, although gradually declining water levels on the Great Lakes and September weather delays impacted lots of our operations.

We were pleased to be able to complete our share repurchase program during the quarter purchasing a total of approximately 6.3 million shares under the $300 million program. With the improved results and particularly with the strong year-to-date remarketing income, we expect 2007 full year GAAP earnings to be at the higher ends of a range of $3.07 to $3.27 per diluted share. Operationally, our expectations are unchanged from the second quarter, but the updated GAAP per diluted share earnings estimates now include the $0.17 per diluted share from the change in German tax rates.

With that quick overview, we'll open up the call for your questions. Jennifer?

(OPERATOR INSTRUCTIONS) Your first question comes from John Hecht with JMP Securities.

Good morning, guys. Thanks for taking my questions. I just wanted to drill down in the price increase during the quarter. It was up from last quarter. And it was a pretty healthy number. If taking about the change from last quarter, some of your comments about getting - - I guess the comps if you will are going to become tougher, what should we expect going forward and then also, what happened in the market to cause an increase from last quarter?

John, it's Bob Lyons. I think that is driven more by the 17% in the third quarter versus the 14% in the second quarter. It's actually driven a bit more by the level of the expiring rate, was particularly low in the third quarter versus the second quarter. So you see the percentage increase between the two quarters. That's really the main driver of the change. Going forward, as Rhonda mentioned, we expect through, as we get through 2008, the expiring rates will continue to move up as we then we'll be renewing cars that were put on during a better environment. So the comparables will get a bit more challenging, but that's the phenomenon we've been talking about for quite some time.

I'd add if you talk about general pricing, you have to say general because it does differ on a car-type basis, but generally freight car, absolute these rates have been coming down over the last couple of quarters and tankcar rates are hanging in there.

And the other detail I'd like to get from you guys on this, I guess, just headlines out there talking about some of the ethanol [glut] and how many [idle] cars might be associated with that. Is that working through the system in an orderly fashion or will that cause potential bit of a volatility in pricing in the coming months?

I think it will cause some volatility in pricing in the coming months. If you look - - please take a minute here and look at the production and how it's ramped up over the last five years. In 2001, ethanol production was 1.7 billion gallons. That's tripled by 2006 and 2007 will be up close to seven. So a lot of production, a lot of capacity coming on. There's another, depending on what you listen to, 120 plants under construction with another $6 billion of capacity. A lot of supply, a lot of capacity, being built and demand certainly hasn't kept pace for a variety of reasons. You've seen the price of ethanol fall because of that.

In addition, if you look at our ethanol customers, their costs have been going up. Cost of [corn], cost of energy, cost of building a plant, for that matter, is going up. You see the reaction for the last couple of months has been for them to delay of all those plants that i mentioned being under construction. And we see with our customers, you saw some public announcements like Verizon cancelling their plan. So yes, it's going to be a rocky year or two for ethanol producers. Obviously, that will work it's way through to the main manufacturers that built the cars, as well as left [ore] that release them. And that's why we're saying, our estimate is about maybe 4,000 cars in the industry are [idle] right now. But if you go to our fleet, which is about 5600 cars, 3,000 gallon cars that carry ethanol. About half of those in ethanol service.

Utilization is still pretty high. In fact, we only have 19 new cars that are idle right now. We feel pretty good about our strategy which has been to lease to the very large players in the industry because we kind of expected there might be this shakeout. There's a consolidation or some kind of restructuring in the industry. I think we'll also like our strategy will be in pretty good shape. We do have cars delivering next year though. We have cars renewing. I think pricing will definitely be impacted there, but we feel pretty good about our ability to place those cars. In longer term, we feel good about the market because we do think this will work its way through.

And on that, with respect to the idle cars and capacity to certain markets, are you seeing changes with pricing for new cars? if you go for spot order for instances is pricing shaking out the [dollars] have been pretty consistent.

On the freight car site, yes. I could definitely say if you go look at spot, there's a lot of idle capacity for freight cars right now and there wasn't a year or two ago. And yes, those new car cost would come down if you place an order, but you have to put it into perspective. For most of those freight car types that we participating. Car cost was up 40% or more over the last couple of years and now it's probably down 10 from that peak. It's not as if you'd want to rush out and place a big order on freight cars. It really hasn't come down to the extent it went up. On tank cars, much less so in terms because there's more backlog there and prices have not generally come down on the new car side.

Even with the, the idle cars you have out there, you haven't seen any--

You know, I don't want to get too specific. There are some instances of availability out there and I think, if you actually went out and tried to capture some of that, you'd get a better cost, but it's nowhere near the reduction you've seen on the freight car side.

Okay, I'll get back into the queue. Thanks very much.

Your next question comes from Rick Shane with Jefferies.

Hi guys. Thanks for taking my question. Can you help us understand a little bit better? Rhonda talked about the fact going forward you're going to try to control the costs on the wheelset replacements a little bit better. Can you explain the mechanics of - - the way it's working now and what you expect to do? My understanding what these were full service leases and I assumed that that meant you were actually replacing the wheelset yourself. It doesn't sound that way. we hope you understand that.

Well, it's both. The railroads are able to replace if for us at bay. They have a bunch of readers across their network. If it exceeds a certain reading, they can take that wheel out themselves and they charge us for that. The cost of that wheel that the railroad replaces for a new wheel has gone up literally 50% over the last couple of years. You're seeing that reflected in the volume, the cost changes done by the railroad. So obviously, we don't like that. We've tried to do over the last couple of years and get out ahead of that.

Both by changing wheels ourselves and using reconditioned wheels. As well as working with short line and switching railroad to get out ahead of that and use our reconditioned wheels. So we're attacking it that way. We're also challenging a lot of those readings from the railroad side. But let's be serious, that's a pretty tough thing to do. We are trying to proactively deal with it, but it's a cost that's risen dramatically over the last couple years. We're not happy with the progress there. We're still seeing a high volume of wheels change and cost continue to go up.

And just to be clear, those are not just cars leased to railroads they can change out. That's any car going down their rails, no matter who it's leased to or who owns it.

Okay. I understand, got it. The other question is, and I just want to circle back on a comment, Bob, that you made, if we were to look at the, assuming that the leases the cars that are being released right now based on the history were on sort of five to six year leases and what you're saying is that those cars are being released up about 17% this quarter and that was a good metric especially given where it was last quarter. How much, you'd made the comment that car prices are up 40%, is that on an apples to apples business? So car prices are up about 40% over that timeframe and lease rates are up about 17 or 18%?

The reference to the 40% was a car cost number. And you know, just in general, if you're thinking, have these rates kept pace with car costs? The answer to that is no, they have not.

Okay, thanks exactly what I was trying to figure out. Okay, thank you. That's it.

Your next question comes from Art Hatfield with Morgan Keegan.

Good morning, everyone. This is Logan in for Art. A lot of my questions have been answered. I just wanted to see if I could drill in on kind of the guidance that's kind of implied for the fourth quarter. I know if you back into it, it looks like a $0.44 to $0.64 number. I know you expect to come into the high end range, somewhere $0.60 to $0.64. Can you tell me what kind of assumptions are included in that number? What kind of asset remarketing? What kind of remarketing in your share of affiliates? It's been pretty high for the last couple of quarters. i just want to see what you're lind of expecting for the fourth quarter.

Sure, Logan, and i think that the short answer to that is we're anticipating very little remarketing activity in the fourth quarter either at wholly owned asset or through our oint ventures or through managed assets. What we see going forward, we talked about that number can be a bit volatile, but based on what we see right now over the balance of the year, we don't see very much remarketing activity at all.

Okay, so from a core earnings, X3 marketing, it's similar to what you saw in the third quarter.

Right, that also assumes American Steamship operates through the fourth quarter. continues to operate fully through the fourth quarter. Some of that is weather dependent. Now the big number there, the big variants number would be on the remarketing line.

Okay, great. Thanks guys.

Your next question comes from Paul Bodnar with Longbow Research.

Real quick follow-up to that. Why is the remarketing income going to drop off so much this fourth quarter? Little activity in the marketplace or what's going on behind that?

Sure, the remarketing activity, and just to remind folks too when we look at for example at this quarter generating almost $29 million of remarketing income. That's from a handful of very discrete events, discrete marketing events. We don't undertake hundreds or thousands of remarketing events in a quarter. These tend to be lumpy and very large and you know, based on, for example, in the third quarter, some of that activity was generated to lessees exercising their purchase rights at the end of a lease particularly on vessels. We can look forward at least a few months and see what we see coming up for renewal. Based on what we see, we don't see that remarketing opportunities or events occurring in the fourth quarter.

Okay and secondly on the other line, affiliate earnings in the quarter also came in a bit on the higher side, is that a number to kind of look at going forward, you're going to start operating that at a higher level. Is that income from Rolls Royce joint venture? What's going on behind that too?

Actually, the largest item, I wouldn't use that as a run rate going forward, because there was a remarketing events within one of our joint ventures. People who spend around GATX may remember the joint venture we did years ago, that partnership is in the process of being wound down. Assets were sold by that partnership and generated a pretty sizeable, almost $9 million pretax gain through that partnership. So that would not be a recurring item.

Okay, thanks. And I also just wanted to kind of follow-up on some of the impact from the ethanol cars and the excess in the market. As you look at the backlog, there's more coming online here over the, basically the next year, 18 months, and you know, going into a situation where there's already excess cars. Ken, is there a threat to those cars get change from say a 30,000 gallon tanker to a car to transport coin or something and really spilling the weakness really more broadly across tank cars. Do you see that as a real threat?

Not really. No, I think, it's a good question and remains to be seen how people react who have these large orders outstanding for 30,000 gallon tank cars. There are other uses for that car by itself. They can use carry life petroleum products and other commodities, it doesn't just carry ethanol. But whether they have the ability with the manufacturer or to place different types of cars, it remains to be seen or start getting cancelled or switched. You don't really know. It'll be interesting to watch. One of the reasons why this market is a little bit unsettled and probably will remain so almost for the next year or two.

Okay, thanks a lot.

Your next question comes from Michael Cowen with the Nova Capital.

Hi, thanks for taking my question. Quick question for you, what's the outlook in Europe for lease rates? Are you expecting those to begin to see double digit rates at some point or you know, I know their market tends not to be as aggressive as ours through the cycle?

That's exactly right. It hasn't been as aggressive. We're starting to see larger rate increases actually on both sides, tank and freight. Larger increases on the freight side. In general, that market is doing outstanding. We see good investment there. Very strong across our core industries of petroleum, mineral oil, and chemicals and on the inner modal side. Very good performance. Rates are going up, utilization is high. It has not experienced the weakness you see in the U.S. at all. In fact it's going in the other direction.

Right would you anticipate beginning to see double digit increases or is that sort of a year away and knowing the historical dynamics of that marketplace?

We've seen some double digit increases on the freight side, but they're a little more careful over there, say growing and developing market not to alienate customers. So I can't really answer whether we'll have that ability to push everything to double digits.

Okay, and then not to sort of belabor the remarketing, what I was wondering, given the dynamics you're talking about, in terms of sort of to some degree lower lease rates and sort of increasing supply, is it logical to assume that, just remarketing income is likely to be sort of lower over the course of the next, two to three years over the cycle? Is that normally what happens?

Right now we are, I would put this, this year in the extraordinary category in terms of remarketing income. Total year-to-date of 56 plus all of last year was in the 47, 48 range, so unusually high and I wouldn't anticipate that keeps pace going forward over the course of the next couple years.

The other thing that we've talked about in the past is the fact that in rail, the asset remarketing income is coming primarily from cars that we don't feel good about longer term. And so, we're, you know, we analyze the fleet, take a look at those cars that are kind of at the bottom tier that we don't think are going to hold up during the next cycle. Those are the cars we've been selling over the last couple of years. Eventually you run out of those kinds of cars, so that's where we've been in terms of remarketing in rail.

So in addition to sort of kind of, you know, kind of a lumpy kind of cyclical high, you also have sort of the dynamic of, within the context of your own fleet optimization, it's unlikely that, that you'll get quite the same benefit in the future?

Yep, that's a fair statement. A lot of what, as Rhonda mentioned, a lot of what we focused on is optimizing the fleet, positioning and taking out cars we believe to be volatile. A lot of that heavy lifting is done.

Great, thank you for taking my questions.

Once again, ladies and gentlemen, if you would like to ask a question, please press star then the number 1. Your next question comes from Bob [Beech]with Abbott.

Good morning. In regards to the investment in the JV for the gas vessels. Can you elaborate how much is being invested? How many vessels? Where they're going to be put to use? And what sort of returns you expect on them?

There's four multigas vessels being constructed with our partner. They're being constructed at a ship yard our partner controls in China. We're taking that risk to achieve a much more attractive vessel cost relative to other places to build in the market. Projected returns are very high. It's a very strong market for LPG and ethyline in the shipping industry and it looks like it's going to be strong for quite some time. In addition, these vessels have the capability to carry LNG which we think could be interesting market over the next couple of years.

This could he investment is with an existing partner where we've had tremendous success and high level of confidence and organizations. It has been excellent. The existing joint venture we have with them is a tremendous return generator for GATX for many years past.

So the funding for the vessels will be when and how much?

We haven't disclosed the total amount of the funding for the vessels. It'll be done, essentially with construction financing through the joint venture and then with equity contributions from the partners, but we haven't specifically or publically laid that information out nor would we want to given the competitive nature right now in that marketplace for new build.

And then how about the delivery dates?

First one is scheduled early -- I'm sorry, third quarter of '08 and then thereafter, spaced out probably three, four months thereafter.

Okay, sorry to be -- built sequentially or are they being - - in terms of...

They won't all deliver at once.

Right, okay. In regards to your fleet, some expectations on your backlog of orders and deliveries over the next 12 to 18 months?

In railcars?

Yes.

Well, right now, our committed purchase program that we've had in place for a number of years, essentially winds down early in 08. We have layered in, as we've announced early this year, an order for 1,000 cars a year with ARI, with an option for more beyond that, but we have not been a big speculative order or carry a big speculative order book right now. So if you look at the total backlog of railcars to be delivered, we're not a substantial piece of that by design.

Understood. I know you folks have been talking about the cost of cars and you've been conservative in terms of running ahead on any speculative orders, particularly at the prices cars have been offered at.

Correct.

In recent periods.

The strategy there has been to place enough orders to fulfill our customers base needs and not get speculative beyond that to the extent we had an earlier question about car costs coming down the freight car side to the extent they do come down since it looks like a weaker market. We're in position to take advantage of that now.

So on that to the degree that you're out marketing aggressively for additional business or customers. Would you by then by definition, with not much, in your backlog yet to be built, would you need to simultaneously go out then and purchase cars around the same time?

Yes, I mean, right now on the freight car side that's be easy. On the tank car side it's a little more challenging although there certainly isn't all of a sudden in the last six months or so, spotty availability has come about. We expect that to probably increase if this market continues. So I guess the answer is, yes. We've have to, to the extent we see more business, we'll have to order more cars.

On the remarketing program did that include any tankcars?

There were tankcars included in the railcars that were sold during the course, year-to-date, but no uh, nothing of note or a particular type to discuss. Generally older, less sub optimal cars. Smaller cars.

And just an update of your fleet. How many are non-tankcars?

About 60% tankcars and about 40% other.

And that means you're ethanol is little less than 10% of tankcars, I guess.

Ethanol capable, correct. Ethanol service would be about 5%.

Do you see that number changing at all in the next few years?

Part of the order we have outstanding has some ethanol cars. Depending, it's hard to tell, it depends on what else we do in the market. Secondary market acquisitions, but I wouldn't expect a huge increase, no.

Are your terms on the ethanol cars, are they generally different in terms of term than your average?

I would say no. Not to my knowledge. As we place new cars, we try to extend everything out as we've talked about inaccessantly.

Your typical term has been rising the new contracts, what's the actual length of the term that's enabling you to increase it to your 6.5 year average now?

Sorry, I didn't really understand the question. The average of these terms on renewals in the third quarter was almost 78 months.

So that was a renewal number?

Exactly.

The overall fleet remains somewhere around four years. It's really hard to move that needle on 111,000 car fleet. So typically at the bottom of the cycle you'd see it below four and now it's probably a bit above four.

So you would still expect in the course of a cycle there would be points in time that would be difficult to get more than four years?

There may be points in the cycle where you want to go less than four years.

Certain of the freight car types, If we start to get them, they become really competitive, we'll get as aggressive as anybody, but you want to keep that short.

Okay, so you don't, you don't see any particular secular dynamics that over time necessarily change the term of the average car that you're leasing?

Well, you know, to Bob's point, we'll go shorter to the extent it makes sense, but to Ronda's point it's hard to move the needle, we've extended the needle so far on renewal but it's been slow. It'll be slow if you go the other direction too.

Okay. Outside of the wheels that you've been replacing, you talked about those expenses, are there any other foreseen expenses that are somewhat out of the ordinary that you're looking at the next 6 to 12 months?

Nothing on the magnitude of the wheelset changeouts that we've seen. But I would note, excuse me, over the next few years, there'll be a number of cars due for their ten-year client work, or 15-year, excuse me. That's based on the high level of cars that we bought from the mid-1990s through the late 1990s. A lot of those will be coming up for compliance review over the course of the next few years.

And if you could just remind me, what was your utilization low at the last [prof] and do you have any expectation on where it might be over the next 12, 18 months?

The last low at the bottom of the cycle was 90%. That doesn't sound too bad. It sounds like a B+ or A-. It can be a very expensive and rather painful process to do that. And all of the steps that we're trying to take right now to extending the lease term, optimizing the fleet by selling cars we don't think will hold up during the cycle, trying to contaminate -- capture some of these rates higher, we're trying not to find ourselves at 90% at the bottom of the next cycle.

Okay, and would you expect the next few quarters, utilization should still continue to trend down as the last seal?

A lot of that is dependent on you know the car types up for renewal and everything else. But I would say in general it'll be a bit more of a challenging utilization market certainly over the course of the next year. Where that plays out, we don't know yet, but as Rhonda mentioned, we've taken a lot of steps to take the volatility, some of the volatility out of the portfolio, but I want to be clear that, and straight with everyone that it's, as we said in the release, it's a more challenging environment right now so it's logical we would see some tick down in that number.

Last two questions: Do you plan to institute a further repurchase program?

Obviously that's a board level decision and one that you know, we'll continue to look at prepurchase alternatives right along with all the other capital allocations, alternatives we have in front of us, but I wouldn't comment any further on that right now.

Okay and then on the American Steamship, give us some comments on the pricing for that business and whether you expect the income to be up next year?

Wouldn't comment yet on anything we're going through obviously our budgeting and planning process right now, so I wouldn't comment when I expect that to be next year, but in general very positive in terms of demand and also as being reflected in rates not just with ASC but across the shipping industry you're seeing rates move up. One challenge there is the lower lake levels, water levels on the lakes and that does have an impact on American Steamship. I would say it's a favorable environment and we're pleased with the rate increases we've seen to date.

Okay and actually one more question as far as strategic initiatives. With the gas vessels that you're in a venture with, are you looking for expand your lease portfolio or your operating portfolio in other areas beyond existing as you plan out the next two to three years?

I wouldn't expect a change in business mix, no. Right now, we're in long wide widely used assets. Marine and rail share a lot of the same commodities, customers and a lot of the same service characteristics. We like that business mix. We like industrial equipment finance and their long live while they use asset focus as well. I don't see getting into new asset classes. No I see more expansion of what we do geographically.

And remind me, are these the first gas vessels you've been involved with?

No. We have existing LPG ethyline carries with.

Okay, thank you.

Your next question comes from Bob Napoli of Piper Jaffray.

Good, good afternoon, I guess.

Hi.

Well nobody asked any of my questions. I do have a few left, I guess. In Europe, if you can give, what is, I know you gave some more information in your queues on the European business, but can you size up that business for me relative to the overall real business?

In terms of number of cars it's about 25% of the overall fleet and in terms of revenues it's starting to get closer to it. It's match what it does in terms of the overall fleet numbers.

Last year in the K we also laid out European revenue which was just worth of $100 million total, so it's a sizeable, very sizeable business for us.

What is the growth of that fleet? What do you expect the growth rate to be on that fleet?

It was a lot in the last 18 months. I mean, I think it was pushing 1500 cars on the tank car side because we saw an opportunity there, but in general it's been a few hundred thousand cars a year. I would expect that to continue and hopefully accelerate. It's true that new car cost are going up over there and we're starting to see capacity issues over there. The good part is, i think on both the tank car and freight car side. We got out in front of that and we're pleased with our order position there.

What do you have ordered in Europe?

I don't think we've disclosed that. Unfortunately it's a little tougher to be fully transport there because of partnership issues and others, but I would expect the same type of growth over the next couple years.

Do you see that becoming 35% of the total fleet or 50% over the next five years?

If you had asked me that a year ago, I would have probably said yes if current trends continue because it was getting so hard to invest in the U.S. and it was relatively attractive in Europe. Now, prices in Europe are going up and in the states they're coming down as far as new cars. So we'll do what makes sense from a new car cost perspective and market perspective, kind of a non-answer, but I'd love to grow both fleets.

Okay, on the marine, on the marine side, it seems maybe you're ramping up investments or looking harder at that business. Obviously, there's been a skyrocket in values in that area and demand and shipping and trade. What is your strategy on the marine business?

I would expect current market conditions continue and most of the forecasts you read, which of course doesn't mean that much, suggest that that will continue. It's going to be awful difficult to invest in blue water marine. What we've done will start with these LPG ethyline LNG carriers was a unique opportunity to get a very attractive [cuff] by building them in China. So I was happy with that. Once again, good for operating results, tough for investment.

Bob, I think I'd add to that, coming into the year, we are, we're very pleased with the joint venture, but overall, marine investment time is running below where we thought it would because of the asset prices.

Okay, and now, just on the share side, what did you say you acquired during the quarter? How many shares did you buy back? How many is left on the authorization?

The authorization is done.

And finished at the end of the quarter?

We completed it during the third quarter, correct. So full $300 million for 6.3 million shares.

Okay. You talked about, kind of put some size on a very volatile, the remarketing piece and this year obviously being well above average, but it's, it's always been a part of your business, I mean, if you think about next year, I just, I mean, I think some people may walk away thinking that well next year is going to be 25% of what, you know, 2007 is and I just don't know if you can try to, I mean, would half of this year's level be kind of a normal level? It seems to be like the asset values you have are, if you did a mark to market, it would be kind of the good story instead of the mortgage business of your asset values. So if you sell anything, you're getting pretty sizeable gains.

That's correct, Bob. I think the key point we talked about is we don't just sell things to generate gain. You know, we sell things because the market opportunity presents itself and the economics are attractive versus holding the asset. By and large in rail, a lot of the fleet optimization, we feel good about where we have the fleet today. There's likely still to be more sales, probably not to the extent they have over the course of the last couple of years. I don't want to put a band on where we expect remarketing gains to come in, I would be dramatically wrong one way or the other, but you were right, at some level we do generate remarketing income every year. It's could core to what we do.

I think with the difficulty of comparisons, we've had some rather unique remarketing events in each of the last three years. In 2005 and 2006, we had you know, 12 million and 14 million from a single transaction in the managed portfolio and now we have the additional early buyout in the marine vessels and those are large and unusual, of unusual magnitude. So that's making the comparisons difficult going forward.

Okay and the German tax rate deal, does that have any long-term effect on your tax rate? And what is, is there any change to the outlook, the long-term outlook for your tax rate? We're using 35.8 is kind of a long term tax rate.

That's a reasonable number. It won't be affected by the change in the German tax rate which is from, they changed the rate from 41% to 33% effective in 2008, although we reverse our part of our deferred tax liability right away, that's the impact you see right here. On a go-forward business, obviously it's a benefit to us to have a lower tax rate, but I wouldn't put it in the material category.

Okay and on the freight cars, what percent of your portfolio is in freight cars today?

40% is freight and 60% tank.

Freight is a very broad, certain areas of freight are much weaker than others.

On each of our presentations on the website, we break out the freight car fleet and show you that we've got, the majority of those are about 25% in covered hoppers. The next largest is in open hoppers and gondolas and a very small piece that's other.

Okay, and last question, onto maintenance, actually two questions, but the maintenance expense on the wheel. Would you expect maintenance expense to flatten out next year versus this year? Decline because of the unusual increase you've had or what would be your outlook for maintenance expense?

I would expect it to increase due to a larger fleet about this compliance bubble on the tank car side. And so, in addition, until we figure out a way to control railroad repairs more effectively, I expect that to increase too. So in general, no, I'd expect it to be up next year.

Okay. then last question on the - - you're levered is something we talk about every quarter. You levered even when the buy back hasn't gone up. You still leveraged 2:1 you can probably leverage 4:5:1.

2.8:1 at is actually at quarter end. Just to shy of 3:1. The point is taken, Bob, I think we have had this conversation on a running basis for the last couple of years.

Just didn't know if you had any updated thoughts?

Our strategy has not changed. Our thought on that hasn't changed. We have capacity, we're looking to do that, to utilize the capacity in the best way long-term for the shareholder. Whether that be through more attractive investment opportunity which may present themselves. That's why we're holding some of the capacity obviously. We feel good about the position we're in right now to capitalize on those.

Thank you.

Your next question comes from Tom [McKled] with UBS.

We seldom talk about the electromotive LLC side. Brian, you'e about to give me some color there about, is there a cycle there where we could increase investment there or not? And also, is there any application on the electomotive side to Europe?

That answer would be no. We have some locomotive experience in Europe. The business you're referring to, as you know, we bought out our partner--

Right.

-- a couple years ago to take 100% ownership of that. We've done initial investment there and are happy about the levels of investment we've seen there, but there is any large fleets per se that we have our eye on or that would be a particularly good fit--

It's not a needle mover then, Bob?

No.

Thank you. That's it.

And your next question is from Phillip Walker with White Mountain.

Hi guys. Good morning. I'm glad we finally got on the record to question about leverage. We always get a kick out of that. You guys are doing the right thing. Saving up some dry power to hopefully get some of the best investment opportunities that you'll have over the next cycle in the short-term.

Couple of quick things. I wanted to ask about. Is specific to the 6.5 years, as far as the lease is pushing out on the rail business, what outs are there available to the lessees and if they can cancel lease, what type of financial renumeration would GATX get?

In general Phil, there is no out. It's a fixed term, monthly payable lease rate and there aren't early outs in the leases.

I would say some of our very large customers relatively push for those kind of outs and generally we tried to make it, have a decent penalty for when that happens, but I would say that's accurate. But in most cases, those are solid term leases.

Okay, that sounds good. The other thing I wanted to talk about, I think Brian you mentioned this, new car prices from say a few years ago to last year rose by 40%, declined by maybe 10% in the last year or so.

On the freight car side, yes.

Yes, expectation is that maybe there's more decline. I just want to understand as to how much real decline is there potentially given the trends in global raw materials?

That's a great question. I think at some point if, it really depends on what you think of the price of steel and components, right? A lot of that increase has been due to the cost of raw materials and a lot has been due to increasing margin at the manufacturers. I would think in this type of market that we're seeing on the freight car side, their margins coming down, but their costs aren't necessarily coming down at all. So there's a lot of thought internally to when you capitalize on the reduced car costs and it's probably not waiting for it to go all the way down if you think the cost of raw materials are going to stay where they are. It's probably just to the point where you think the margin is on an absolute minimal.

Okay, got you. Thank you very much and good work.

Thank you.

Your next question comes from Barry [Haymes] with Sage Asset Management.

Hi. Just had a question within rail. Do you have a number for the year projection for what the CapEx will be on new cars? And do you have any thoughts as to where that number might be in '08 or what the range possibility might be in '08? Thanks.

Well you've got the number, I believe for the - - where we are year-to-date in the press release. You know last year we did just north of $500 million. I believe $540 million in rail. We would hope to be somewhere in that same range. Probably slightly below that this year. And much of what happens in 2008, given that, we don't have a big advanced order book. We'll be dependent on what we see in the marketplace. And to the extent, as Brian alluded to, if prices continue to creep down and we see opportunities, you know, we'll capitalize on those by stepping up the investment level.

Just a quick follow-up, if you just the tuck current '08 commitments, roughly, how much would that be of CapEx?

You're only talking about like 1,000 cars so it's not going to move the needle on that.

No, maybe, in the $100 million range.

Got it, thanks very much. Appreciate it.

Yes.

Your next question is from with Majid Khan with Cobalt Capital.

Hi. Just a follow-up on the margin question about the manufacturers. What do you think reasonable margin to pay is for the manufacturers and how far from it are you? I'm just trying to get at where do things have to go before you come into the market for the big order.

I don't - - that's probably a little too sensitive to talk about actually, but I think generally speaking, margins were probably double digits. You want to see that, I'd like to see it go away.

I think the other thing you can look for as a guide post on that is when we've announced orders and you haven't seen from us yet, you know, any very big speck orders.

Correct. Also, another follow-up on ethanol. I'm wondering, what's your outlook on the market in general? Like, what do you think the current situation in the market is, how many cars are needed to serve the buildout? How many cars exist?

It's a great question. it's one we rustle. Everybody rustless with a lot. As I look at all the industry data and plants under construction and all that capacity coming on, then you see the the state of the union address which says "35 billion gallons by 2017" and different numbers thrown around and saying, it's hard to tell. The chart I like to look at is one that ADM actually uses in their public presentations where they talk about gasoline consumption in the US being about 140 billion gallons a year. That 10% ethanol blend, that's 14 billion gallons. It seems like a pretty reasonable number. That's twice the capacity that's out there right now. Even if all those other plants were built, it wouldn't quite get there. So it certainly seems like this market will rationalize. They will just take a while.

So that's why I think our customers still remain bullish and therefore we are too on the long-term outlook. There's a lot of noise around that. You have a lot of political pressure starting for the first time. What they call, I think the barnyard lobby with meat and poultry producers and the cost of their feeds. There are so many factors. There's Brazil and their imports. We don't allow that now. But if that were to happen now that would change the cost and the pattern of how ethanol flow as well. There's different ethanol types, witchgrass and others that are being considered. There's a lot of things to consider, a lot of noise, but I come down to, whatever form it takes, I come down to, you're going to need a lot more capacity than you have now and for most of those options, you need railcars to transport that products.

What does 14 billion gallons mean for railcar needs?

Kind of the difficulty that you have is if you look at last year, we transported about 4.6 billion gallons using an ethanol fleet of 12,500 cars. You can try and do the math there and calculate what that gets you up to at 14 billion gallons, but the thing to remember is that that ethanol was not being transported that efficiently by the rails. You didn't see unit trains for example where every single car would be an ethanol car. That's a much faster load and unload when you have that kind of train. So there's a lot of different things that could happen that could decrease the number of cars that you need per millions of gallons. So it's, that's another hotly debated issue in the marketplace these days.

So the answer is we don't have the perfect Crystal ball be there, but we do have I think is the sound strategy we've had for quite some time. Which is to stick with the largest established producers that the extend there's any industry shakeout, I think they're the ones that are around. They're the ones that tend to renew leases and they're the ones that have generally pretty strong credit quality.

Got it, so it seems like a car is turning about 12 times an average per year. You think that's not very efficiently used right now?

No.

Okay. Strategy to stick with the big producers certainly sounds like a good one. Thank you for taking my questions.

Thank you.

Hey, Miss Johnson, are there any closing remarks?

No, just to say thank you everyone. I'll be available this afternoon for any additional follow-up questions.

This concludes today's conference call. You may now disconnect.