GATX Corp (GATX) 2009 Q1 法說會逐字稿

Good day, and welcome to the GATX first quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Rhonda Johnson, Director of Investor Relations. Please go ahead, ma'am.

Thank you, chad, and good morning, everyone. Thanks for listening in to our first 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. Before we get to your questions I'll give you a brief overview of the numbers which were provided in our press release this morning.

First I would like to remind you any forward-looking statement made on this call represents our best judgment as to what may occur in the future. We base that forward-looking statements on information currently available and disclaim any intention or obligation to update or revise these statements to reflect subsequent events 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 2008 Form 10-K filing.

One final housekeeping note, tomorrow is our annual shareholders meeting to be held at the Northern Trust Building at the corner of LaSalle and Monroe in downtown Chicago. The meeting begins at 9 a.m. central. For those of you unable to attend slides from Brian Kenney's presentation to shareholders will be posted on our website, www.gatx.com.

Now let's turn to the first quarter numbers. Today we reported net income of $27.6 million, or $0.56 per diluted share, compared to 2008 first quarter net income of $51.8 million or $1.03 per diluted share. The first quarter of 2009 includes the negative impact of $11.6 million, or $0.23 per diluted share from the fair value adjustment related to certain interest rate swaps at our AAE Cargo affiliate and the 2008 first quarter includes a $6.8 million or $0.13 per diluted share benefit from reversal of tax related reserves.

Our markets are challenging as we expected in the first quarter. As noted in recent railroad earnings announcements and evidenced by traffic statistics on the last page of our press release, North American rail market has slowed substantially during the last six months and the slowdown has been broad-based across commodities and car types. Like everyone in today's environment, our customers are dealing with the difficulty of forecasting in this volatile economy, making fleet planning difficult, and the fact is certain customers are facing financial stress. Fortunately, we have limited the number of cars exposed for renewal this year and our commercial team is doing a solid job of renewing and assigning cars in this environment.

North American fleet utilization did decline 1.4% to 96.5% if the first quarter 2009 and the decline generally reflects challenges in most car types, although more so on freight. The rail cars in our lease price index renewed at rates 5.5% lower than their expiring lease rates, and average renewal term was 45 months.

The European rail market is also presenting challenges. However our wholly owned tank car fleet primarily serves the more stable and robust mineral oil or petroleum products market and therefore our utilization and renewal success have held up well. Our European team has done a great job extending or renewing the leases, already locking up a majority of the cars up for renewal in 2009. Our affiliate AAE Cargo is facing more substantial pressures as the drop in international trade and demand has impacted the need for intermodal freight wagons which is the focal point of AAE's fleet.

Specialty reported $23 million in segment profit in the first quarter of 2009, down from $30 million in 2008. The marine markets declined in the fourth quarter of 2008, and remain significantly lower than the strong markets of the past few years, accounting for most of the decline in segment profit year over year. We have seen rate recovery in certain marine markets, but in general they remain well below the highs of recent years. Marketing income was comparable to the prior year due primarily to residual sharing income from the managed portfolio.

American Steamship Company began the 2009 Great Lakes sailing season in early April. As you know, the first quarter is the off season on the Great Lakes as weather and ice halts the movement of ships, and as a result any income contribution at ASC is small in the quarter. Marine operating revenue in the first quarter of 2009 was significantly lower than 2008, as there were no operations in January this year, due to the steep decline in demand in the fourth quarter 2008. ASC anticipates a significant drop in customer demand in 2009, particularly in its largest segment, iron ore shipments, as the steel industry has idle capacity in response to the decline in the auto and construction markets.

During the quarter we resumed our share repurchase program under our 2008 authorization, purchasing approximately 1.7 million shares for around $30 million. We also invested $79 million in assets, primarily new rail cars in North America and Europe. We continue to look for the right investment opportunities for GATX, and we do so from a position of strength, so we are being patient.

As for our 2009 guidance, we have reiterated the EPS range we outlined back in January. Just to refresh, we anticipate net income in the area of $2.50 per diluted share in 2009 excluding fair value adjustments that I mentioned previously. There remains substantial variability around this estimate due to a number of uncontrollable factors, including the price of scrap steel and asset prices and increased financing costs. However, we remain committed to capitalizing on this uncertain market and strengthening our position for the long-term benefit of our shareholders.

So with that quick overview, Brian, Bob and I are ready to take your questions. Chad?

(Operator Instructions). We'll take our first question from Robert Napoli with Piper Jaffray.

Thank you, good morning. Did I hear that right, you bought 1.7 million shares during the quarter?

Yes that's correct.

At about $17.60 per share. It is nice to be able to buy under book value. What are your thoughts with the stock having rebounded as much as it has? Are you going to be more cautious on the buy back at this price? Or what are your thoughts around continuing on the buy back?

Rebound's a relative term, Bob. It doesn't feel like much of a rebound when we look back over the last couple of years to see how we have tried to position the Company and where the stock has been. So we are going to continue to be opportunistic in looking up through these investment holes in our own stock as well as in rolling stock. All right.

Okay. Just on the utilization trend, down 1.4% in the quarter. We have heard some of the rail car companies say 20% to 25% of all cars are not utilized in the United States. And it seems like a very large number. So some have suggested that you won't be able to lease another car in 2009. Can you talk about the trend in utilization? The market a little bit, with that many, do you agree there are may thane many cars that are unutilized in the market?

Absolutely. There are lots of cars unutilized in the market. The class one reports pretty good information generally about what's parked. But you have to remember to look more closely at the competition of those cars that are parked. A lot of them are intermodal cars, box cars, cars geared to the auto industry, et cetera. Our fleet is generally comprised of tank cars, as you know. I think should be just over 60% of the fleet. So we have a better mix of cars. And we saw, given the environment, fairly solid renewal success in the first quarter, just over half of the cars up for renewal we were able to renew. Others went on lease to other customers, on assignment. So as we came into the year I said utilization would come down at least a couple hundred basis points off 98% where we started the year and we are still looking at that. In terms of being reasonable, we expect to be in that mid 90% range for utilization.

You expect to be in the 90% range by the end of the year?

Mid.

Mid? Okay. Just on a remarketing income, the residual sharing income, can you explain it? Is that a more predictable piece of remarketing income? And that it's based upon future lease payments? Or what is the lumpiness? Is there anything that is sort of non-lumpy, I guess within remarketing?

Well the residual income is income that we generate when assets are sold out of the managed portfolio. So it's excellent income for us, because we have been managing the asset for some period of time with the expectation that at some point in the future we could realize the upside. So the fee residual sharing income is us realizing the upside because the owner has opted to sell the assets. It tends to be unpredictable because we don't own the assets, we don't have an interest in the assets, other than the residual piece, the residual upside. So it bounces around from quarter to quarter but it's very good income for us and the reason we are in the business of managing assets for third parties.

Okay. And now who is, when you are generating remarketing income, who is actually, I mean in this market, who is active in buying rail cars from you guys?

Well it was both rail and marine, Bob.

Yes, I understand.

I would say in probably both cases, the most of that income was generated by transactions where the user and the asset purchased the asset from off of a lease.

Okay. And last question. Just on the pricing trends. How much have prices come down, just over the last, over the last few months? Like where are prices today versus a year ago? Where do you expect that gap to go to?

Are you talking lease pricing?

Yes. Lease prices on rail cars.

Actually if you look back over a year ago, the decline has not been that dramatic. And actually the nominal rate in the first quarter was pretty good, and not that much of a drop from the fourth quarter. But you also have the phenomenon of the cars that are coming off lease, the lease, the expiring rate is going up. So that helps or also relieves that pressure on the negative 5.5% we saw during the quarter.

Then on rail cars themselves, I understand there is so many different types, but how much have rail cars prices come down? Are they coming down enough that you guys are getting interested in making a purchase?

We are always interested in making a purchase. I would say that discussion is more theoretical at this point. But I can it give you a little bit of color there because we do have a rail car order, where the price of the car moves with the material component. So, if you look at that particular order, our material surcharge ist due to the drop in the price of steel, it's come down 10% to 15%. The other thing you look at is manufacturing margin, and a couple of years ago at the peak we estimate that was probably in the mid teens for a lot of manufacturers. So if an order right now you wouldn't be willing to pay much in terms of manufacturing margin, so you put those two together you could say the price of a typical tank car could be down 20% or more. Once again more of a theoretical discussion but I don't think it's far off. On the freight cars, it depends on the type of car. I would say it's at least that.

What does it take for you to want to make a major order at this point? It's a good question. It's obviously an objective of ours to do so that when manufacturing margins are low and there is some glimmer of recovery in the market you are never going to get that timing exactly right, but we are constantly examining when we think it's the right time. We are looking at steel pricing, component pricing, how aggressive the manufacturers are getting, are we seeing some signs of a rail recovery starting, or at least bottoming out. And lastly, and this is important to us, we look for some creativity on the part of the manufacturers working with us in this type of market. We haven't seen that over the last few years. I'm starting to see that now, particularly with one, where they'll work with you. So it is a big objective of ours. There is nothing to announce but we are going to work hard at it and try to get the right timing on it. Thank you.

And we'll take our next question from John Hecht with JMP Securities.

Good morning, guys. Thanks for taking my questions. Understand the ASC division with the demand for iron ore way down that the revenues could be under pressure there. But it appears that costs are very variable in that segment. Is it reasonable to think that you could break even, or even eke out a profit in any quarter, even under severe demand constraints in that segment?

Yes, John. We will absolutely generate a profit at American Steamship this year, under even the most challenging of scenarios that we are looking at right now.

Okay. And then the rail affiliate line, you have had two quarters of losses, due to some fair value changes, et cetera. What's the best way to think about a normalized earnings rate there?

Well the after tax amount after that fair value adjustment was $11.8 million, I believe. Pre-tax it is about $14.5 million I would add that back to the share of affiliates line. I think you come in at a range of about $5 million when you do that, and that is the kind of normalized run rate I would look at going forward, John.

Also, John, if you go back a couple of quarters you'll see that the hedge has been around for well over a year. There wasn't any in the first quarter of last year. But then it did move around a bit in second, third and fourth quarters.

John another point I would add, too, is that run rate going forward, as we indicated, and Rhonda mentioned in her opening comments, particularly within rail, a big portion of their shared affiliate income is from AAE, which is our cargo rail car leasing company affiliate in Europe, and that business will be under increasing pressure in all likelihood as the year progresses.

Okay and can you give us a sense, of the cars -- and forgive me if you have already stated this in another way -- but of the cars which leases ended during the quarter or came up for renewal, what was the re-lease percentage of that base?

Just over 50%, John.

What was that in Q4, if you can remind me?

In the same range. Maybe slightly higher. Strong times it was as high as close to 80% and during very challenging times it can be even 50% or even below. It came in just above that in the first quarter. But it's very challenging when we have to be price competitive to make that happen.

Absolutely. And then the last question is a broader question. We have seen a little bit more mixed economic data through the media lately. And I just want your guys' opinion or your interpretation of what you saw going on during the quarter. Were you seeing things stabilized in terms of the customer demand or the pricing as the quarter went on, were you seeing things get worse at a more rapid pace in the three months?

That's a good question. I would say during the first quarter, we saw the bad news accelerate. It seemed as if some of our customers were waiting to see how their year would pan out before they started to make car decisions, and probably from mid to late February it started to get a little worse and accelerate. Before that I would say we were running ahead of expectations and now we are running more about where we expected coming into the year. And in general, we are looking at current results but we are also looking at what customers are saying about their business. As far as a recover, I would say that customers are not seeing any general recovery out there.

Now there are pockets, in our business. For instance fertilizer customers are saying they are going to have a stronger second half. Surprisingly, Dupont came out this week, a very weak chemical sector, and talked about their demand bottoming out in the first quarter and inventories are down, should have stronger performance as the year goes on. But I would say that is more sporadic and in general I wouldn't say customers are saying their business is looking up, going forward.

Okay. Thank you guys so much.

Thank you. We'll go next to Art Hatfield with Morgan Keegan.

Good morning, everybody. Thanks for taking my questions. Bob, you had mentioned, I think you were talking about the renewal success rate being a little bit above 50%. I was playing with some numbers and I was getting a little bit higher number, but I was excluding the 620 cars that came back from bankruptcy. Is the number you gave including those?

No, Bob, it's not. They would be on top of the cars that come back just at the end of lease term when the customer opts not to keep the car.

Okay so the 51% or so you gave, the renewals include that 620?

No. Exclude, Art.

Okay. Okay I'm sorry. Thank you. And then, given the share repurchase in the quarter, at the end of the quarter, what's the appropriate shares outstanding?

Well, I think if there was no more share repurchase this year, and it just stopped at the end of Q1, which we said is not the case in terms of us continuing to look opportunistically, for the full year the share count would be just under 49 million shares for the full year.

Okay. Okay. And then, I was looking at, I was a little bit confused on the balance sheet. I was looking at the shareholders's equity being down in the quarter and knowing that you repurchased shares. And if you did so, correct me if I'm wrong, but given the profit and the fact that you were buying shares below book value, wouldn't it be more appropriate that shareholder's equity increase in the quarter?

Essentially the income that we generated during the quarter, Bob, was all offset by the amount of the share repurchase. So just on that basis you would be flat. Then on top of that there is adjustments that go on every quarter including currency translation adjustments that run through the equity account and that has also contributed to some of the decrease in the equity.

Okay. And finally, Brian, you talked a little bit about going into the market and placing a large order. But can you talk about what you are seeing in the secondary market? Any potential fleet purchases?

Sure. I can tell you what happened in the first quarter, which is nothing. And almost, as far as we could tell, maybe a few hundred rail cars changed hands in the market in the first quarter. So there was almost no activity. I think one thing you are seeing, there is a lot of troubled fleets out there, a lot of troubled companies that happen to own rail car fleets that are doing okay. And there may be pressure on them to sell it but on the other hand given the state of the capital markets and the lack of buyers that would show up, I think people are reluctant to pull the trigger there.

So we are still going to pursue that pretty heavily and we are. But we are also trying to be a little more creative and do what we have already talked about on the call, which is try to approach these people and say we'll manage your portfolio for you until times are better and then we'll help you sell it. So we are pursuing that avenue, as well, given the state of the capital markets. That process of selling somebody on that has a pretty long gestation period but I think we could make some headway there.

Are you the lone person out there with the willingness and the ability to go out into the market or are there other people that can be purchasers right now?

You know a little biased here. I think we are definitely the best. I don't think it's a very crowded market but there are others that will do that, yes.

Okay. Okay. Thank you, that's all I have got today. Thanks.

Our next question comes from Rick Shane with Jefferies & Company.

Good morning, guys. Couple questions here. So there is $446 million of debt maturing this year. Where is your debt currently trading? And what are your expectations at this point in terms of how you are going to replace that?

Our debt doesn't trade very often. So it's a little difficult to draw a real line on where debt's trading. Credit spreads are high, they have remained high. They are starting to grind in, for everybody. But it's a slow process. When we look at the maturity this year of which there are two large ones, a May one and a June one, May's 120, June's 250, we have ample resources available to meet that through a number of different means, whether it's term debt financing and/or the very large credit facilities we have standing behind us today that are substantially unused.

We will look to do term debt, though at some point, and that could be a combination of both secured and unsecured. And the unsecured side of that will just be opportunistic and see where spreads are and what the market sentiment is at various points through the year.

Got it. And do you think at this point there would be appetite for secured debt comparable to what you did in November?

Yes.

Okay. The comment was made about the escalators on the committed CapEx. The committed CapEx, by my numbers, is $356 million. It sounds like there are two transactions there, two contracts there, one has escalators, one does not, is that correct?

Correct.

And they are roughly the same size. So that $356 million of committed CapEx, assuming a 10% to 15% decrease in steel surcharges, could come down to $15 million or $20 million, is that a reasonable calculation? 10% to 15%, assuming on a $120 million deal or $130 million deal -- excuse me, $170 million deal?

That's a good question. I'm pretty sure that most of that steel price decrease happened by the end of the year. So I would say most of that's already reflected in that number.

The other thing I'd mention, Rick, is that during the first quarter, keep in mind of the $350 million we did about $70 million of it in the first quarter.

And also, Rick, the $350 million, $50 million represents specialty, and $100 million is in Europe. So the North American contracts that we are talking about are the remainder. That's helpful.

And actually, regarding the $100 million in Europe, can you talk about funding that please?

They have their own credit facilities in Europe and their funding is already squared away for this year.

And what's the cost on that facility?

Relative to what financing costs are here, it's very attractive.

Great. Thank you. So that $100 million is fully funded out of that facility in Europe?

Yes.

Okay. Thank you, guys.

And we'll take our next question from Paul Bodnar with Longbow Research.

Yes, I just wanted to see if we could find out a little bit more on what else to expect for the rest of the year in terms of bankruptcies and any cars that may come back on that. I don't know if the 620 cars is from one of your large chemical customers this quarter or if that is still out there pending?

Actually those were from customers that had filed in the fourth quarter of 2008. In the first quarter of 2009, there were a handful of very small accounts that did file. But you are talking customers with cars in the 100 or 150 and less in terms of the cars that they have on lease from GATX. And many of those obviously we would work with and try to make sure we keep the cars on lease. So it's going to be an issue we continue to work with customers that have to go that route. But we don't anticipate anything out there that would result in us changing our outlook at this point in time. There was nothing major in the first quarter. No big customers.

Okay. Then in terms of the, just as I'm looking what your revenue per car was US-wise and outside, on the US side, it looks like some of the renewals or some of the cars came back, the tank cars probably stayed out there more. So just in terms, as I look at that number it looks like it sequentially ticked up slightly, if I look at it across your fleet. Would that be accurate?

Well and also keep in mind in the first quarter, you are going to get, in 2009 you are going to get some benefit for all of the cars that you released and the strong market in 2008 they continue to work their way into our numbers in 2009.

Okay. If I'm looking at, you mentioned maybe a 50% re-leasing to current customers. How would that breakdown, or if you can give any detail by car type? Is the chemical and tanker cars significantly better than the other car types?

We don't break it down by car type. But I can tell you from a generic standpoint the tank side of this continues to hold up better than certain freight car does. Even, as well, when you look at the total number of cars in a given year the mix is very similar to the overall fleet with about 60% tank and 40% freight.

Okay. Thanks a lot.

We'll go next to Paul Strumwasser with BCC. It is actually Jacob Strumwasser with BCC.

Hi, you guys there?

We are here.

Do you guys guide to utilization rate?

I said it would be in the mid -- expectation right now is it would be in the mid 90% range, the 95% range.

Okay and that's looking out for all of 09 or for?

That's correct.

Okay. So that's for all of 09? Are you able to give me any indication of the cars that came off lease, and their renewal rates?

Well, that would be factored into what I said was the renewal success rate being just over 50% of cars that came up that the first quarter. But then you have got to keep in mind on top of that, some of the cars you are getting back, you are actually putting out to other customers, so it all factors into the utilization rate.

Got it. And to better understand the $0.23 item, that's effectively a hedge on LIBOR, correct?

There is a few different instruments. But generally, AAE does all of its own financing for their own accounts. We don't guarantee anything there. So, it's basically fixing their financing costs within a range on planned future financing.

On planned future financing? Okay. So but it's not clear whether that's a bet on LIBOR one way or the other? It's just some sort of hedge on their financing going forward?

Right. They are essentially trying to fix their financing rate in the future with that.

Right, they place the order, they try to lock in the economics by locking in at a straight line on the financing side.

Got it, okay. So mid '90s and 50%, and mid 90s is if we look at '09, I don't know if you guys are able to give me your industry insight into this. But if we look at '09 as being part of this cycle that we are going through, is this, in saying a mid '90s utilization rate, are we guiding to trough in '09, and perhaps a pickup in 2010, or is it up in the air whether it gets better or worse?

I would say it's more up in the air. You might have heard me say earlier we go by what customers are saying and there is not a whole lot of optimism out there on the customer front save for a few pockets. That is the $64,000 question. I don't know if it's going to get better in 2010. I would say there is certainly no indication of a widespread improvement in 2010 right now.

Got it. The last question is for the deals you guys did, referring to the scrap deals, were those beginning negotiations last quarter and finished out this quarter? Or were those beginning this quarter and finished this quarter? I'm trying to get a sense of what happened to pricing between the two quarters.

Right. And well, in general, on the scrap side, there really isn't much of a negotiation. It's just a spot business. So that would be what, we don't negotiate advance scrap rates in advance. They are typically much more spot oriented. So what happened in the quarter reflects what happened with scrap rates during the quarter.

Essentially, you saw a steep decline in the fourth quarter in scrap rates and then there was some recovery early in the quarter. You know, net-net you were probably, on average, about the same in the fourth quarter and the first quarter. But we did see the scrap rates come down again at the end of the quarter. The thing to think about is we are always scrapping cars, they are always going to age out of the fleet. Basically, we are just doing straight line depreciation over 30 years to a de minimus scrap value. So whatever happens with scrap prices, there is always going to be a little bit of a gain you see when you scrap the car.

Got it. Thank you.

And we'll go next to Majid Kahn with Cobalt Capital.

Hey, guys, I'm sorry to keep harping on this. But could you explain the AAE charge one more time? And maybe specifically like what do you expect this to look like in the future? Is this just one time and done, or -- ?

No. Actually it was there last year, as well. It was second, third and fourth quarters last year had some volatility as well, as interest rates started to move around pretty dramatically. It's essentially AAE is fixing their financing rate on future debt offerings. And with interest rates dropping as dramatically as they have, there is obviously like anybody's swap portfolio a negative mark to market. The difference here is these don't qualify for hedge accounting so they are running through AAE's P&L. And in terms of -- yes, there is likely to be some volatility on that going forward.

Got it. Okay. And it seems like just looking at the car balance, and the utilization, is doing some rough math. If I use your 50% of the cars that came off, got released, it seems like you guys lost 2,300 cars worth of utilization. So is it fair to assume that you had about 4,500 cars come off lease this quarter?

No. Actually the first quarter number was lower than that. We have 15,000 for the full year, first quarter is a little bit lighter than the balance of the quarters, so call it 3,500 cars roughly. I don't have the number exactly here sitting in front of me.

Got it. That is good enough.

Again, 50% is the number of cars that renewed with the same customer. There are additional cars that were then assigned to a new customers so that has an impact on your calculation, as well.

Got it. Okay. So that's the difference. All right. And then can you talk a little bit about release rates? Like when these cars are going back? It seems sequentially on an average basis, I think Paul mentioned the average lease income per car slightly picked up. So are the renewal rates pretty decent as these cars come off lease?

I would say that relatively speaking, yes, the rates are okay. But they are down 5.5% versus the old rate. It is extremely competitive out there. And we are holding utilization in there well, we are being very competitive on rates. And they are going to continue to move down as the year progresses. That is without doubt.

The absolute rate is coming down, as well, not just the renewal rate versus the expiring rates. It is pretty widespread.

Got it. And then on Norfolk Southern's call yesterday, they said things are pretty bad. But they expect, hopefully, volumes to stabilize sometime in the back half and to see a recovery based on stimulus flowing into the economy from the government. I'm wondering, what is your visibility like? If that's to happen, when do you guys start seeing some of that pickup?

Well I would say in general, to reiterate a point Brian made, we look very closely at what our customers are telling us. And that would be our indication that things have firmed up and potentially will start getting better. But right now we are just not seeing a lot of conviction from our customer base.

Yes, if that indeed takes hold as infrastructure spending you'll see it, especially in the construction-related rail cars, so some being cement cars, plastic fill cars, things like that will pickup. But right now, it's still a hope, as you said.

Got it. Fair enough. And then last silly question. On the tax rate, it moves around a lot. What's a sustainable, is this quarter is 30%ish kind of around right for the Company?

Yes. For the full year basis I would use maybe just a tick higher than the first quarter rate.

Got it. Perfect. All right. Thank you, guys. Good quarter.

Thank you.

Our next question comes from Jordan Hymowitz with Philadelphia Financial.

Hey guys. A couple of questions. First of all, your utilization, you said averages 95% for the year, so should I imply that to mean it should tick down towards like 92 by the end of the year?

No, it would finish the year in the range of 95%.

Finish the year. So the average is then higher?

Yes. We started at 98.

Okay. Okay. Because you said it a little differently before. So finish at 95 percent?

Yes.

Second question is the lease verse owned in the container market today, even though containers are down a lot, the leasing companies aren't down as much because they are taking shares because the container companies can't get financing. Is there a similar dynamic in your companies? In other words are you finding that the companies you lease to, that might have bought cars before, want to lease more now for capital flexibility, or that's not the same dynamic?

There is certainly nothing that shows up because the demand for cars overall has gone down. If that's not out there it's not moving any numbers.

Historically, Jordan, on the tank car side, it's typically been a two-thirds leased market and a one-third owned, and it moves around a little bit but the needle doesn't move that dramatically on that mix.

You have 15,000 cars coming through this year. Is there another 5,000 someone mentioned to me in the managed business in Europe? Or no?

Well we have cars coming up for renewal in Europe, undoubtedly.

First of all, did your utilization include or exclude the managed business?

It excludes the managed business.

Could you say what utilization is including the managed business? How many cars are off lease?

I don't have that number here in front of me and it doesn't really affect our performance in any way.

My final and most important question is, we are now less than seven years away from your greatest residual sharing income thing on your nuclear power in 2017. Is there any way you could disclose any more in your portfolio what type of balance that could be? As nuclear power continues to gain share in this country those residuals we could quantify the balance of their value to you?

Again we don't own any of the assets there and there is restrictions on what we can disclose and can't disclose. The short answer to that, Jordan, is we can give you generally what we manage but we can't go into an awful lot of detail.

But even if you would just say we own interest in seven nuclear power residuals.

But we don't own them, Jordan.

But you have residual interest in them the same way you got this $3.1 million this quarter. Well maybe just a list of what residual interests you have in general, so people could quantify. Because none of this is highlighted on your balance sheet because they're just interest basically. Just what type of things, without being specific, your residual interest is?

Well, I'll make a commitment to you, Jordan, that I'll consider what else we might be able to disclose there as long as you commit to still be a shareholder in seven years.

Long-term.

Jordan, if you go to the presentation on our website, the big overview presentation, we do have a breakdown of the net book value of the managed portfolio, what the net book value is for the owners. And it shows you the rail, basically we are in rail and power assets and a little bit of air that we manage for other owners.

What presentation is that? I'm sorry.

There is an overview presentation that I update annually, it's on our presentations page up at the top. It is about a 60 or 70-page, try to give you as much information as I can on an annual basis on the operations of GATX.

Okay. By 2016 maybe we can get a little more details on it.

Definitely.

Let's set it as a mutual goal.

Our next question comes from Michael Cullen with Arrowhawk.

Thanks for talk taking my question. And Jordan, posting we are all around in 2016. So my first question is somewhat broad. But have you guys done analysis of the end use of the products that you move around? Obviously there is some that's very cyclical. Some of the tank stuff is very much less cyclical. But to try to get a sense of how much of what's going on is cyclical, how much could be somewhat secular in the sense of if consumers consume less, if auto manufacturers, manufacture 10 million or 11 million, if that's kind of the new level they find or what have you. I'm trying to be broad and open-ended with this. Could you provide any kind of thoughts along that process?

Sure. Yes we do. First of all we don't move it around but our assets move it around, our customers move it around except at AS, but yes we do and that influences our behavior especially our investment behavior. So these are very long-term assets. And if you have, as an example, tank cars that serve the chemical industry and you have had them for quite sometime and you see more of that capacity going overseas, you are going to try to lock up those cars with customers on leases that are as long as you possibly can. You'll try to move some of them out to other lessors if they have committed rentals. There is a number of tactics you use on existing assets based on that analysis you do of what commodities they're carrying around.

As far as the investment side, that definitely determines where we invest long-term. So yes there is a lot of analysis around the commodities that are carried, what the future of those is, and what that means for our assets and our investments, and our tactics on our existing fleet.

Without revealing the tactics that you are employing, can you talk about how that influences your view of the economy, or what your view on the world is in light of a lot of that?

Well sure. I mean, if you want to continue on the chemical side, obviously we have a big chemical exposure. It is in a variety of different commodities and different car types but in general over the last ten years you have seen a lot of chemical manufacturing capacity move out and a lot of it into the Middle East and to Asia, so those movements are changing. If you look at how that's influenced, forgetting about the taxes of our existing investments, how that's moved our investment, we are not investing as much in those car types, obviously -- at all in some cases. And you have seen some marine investments to take advantage of those product movements that have changed as far as the global pattern. Hence our marine joint ventures that carry some of those products out of the Middle East.

Okay. And then specifically, is there anything that you have seen as a result of, or any changes that you are making in terms, aside from the chemical side to it but just changes in consumer behaviors, or changes that might result in the amount of commercial and residential real estate construction, some of which is probably very, very cyclical, some of which may be secular. How you guys are viewing what's going on in the economy right now?

Fortunately we don't have a huge exposure. While it's certainly influenced our results to some extent, our utilization, we don't have massive exposure to the construction market. Or for that matter, really directly to the automobile market in terms of auto carriers and things like that. It is in our fleet, it is a diversified fleet but it is not a heavy exposure. As far as the consumer behavior, that gets a little too esoteric,a nd that could go on for a long time. I would think in general how that directly affects our business is more in Europe, through the AAE discussion we already had at the beginning of this conference call. So that is mostly almost predominantly intermodal.

And last question I guess. As you think about the potential for the big buy or the big order, or the big opportunistic investment that GATX may make, have you guys lined up any type of financing that is not so much committed but there that you can call on when you say to somebody, "Okay, we have found the investment we want to make"? Can you talk about discussions you have had with lenders for a hypothetical transaction, for lack of a better way of saying it?

I would say for lenders, that discussion, I don't think there is a lot of discussion to have there. So I would say there hasn't been much. I can let Bob chime in. If we ever needed equity, I think there is plenty of sources for that. It's not anything I anticipate right now.

On the lender front I would say, if you think back to last year, we indicated in the third quarter that in association with an SG&A charge we took during that quarter that we had looked at some sizable portfolios, and you can assume we did that in conjunction with a number of different financial institutions, who would have been the financiers of that. We have a good stable of lenders who are very well versed in how we think about acquisition opportunity. Should something develop, those conversations could be reignited fairly quickly. The cost has gone up dramatically.

From the fall?

Yes. From summer of '08 it started to go up in the fall, but ye, absolutely. Like everything else.

And by dramatically, how many hundred basis points wider do you think that expense would be?

It's difficult to say because, again, part of it is a bit of a theoretical conversation. But it is in the hundreds of basis points, at a minimum.

Then last follow-up associated with that. Do you think that that financing availability would be limited to sponsors such as yourself, meaning who are more well regarded, or do you think people are willing to lend against the asset class and they'll evaluate it more on a transaction by transaction basis?

Well there is always the ability to finance lots of that for a rail car as you saw in the fall. A number of companies did that. But I would say in general, given the conservative posture of lenders these days on all fronts, somebody with a big established presence and 110 years of experience, as a borrower to execute that kind of transaction is far better than a special purpose vehicle that is set up to try to buy some assets and flip them.

Right. Thanks, guys. I appreciate you taking my questions.

Thank you.

(Operator Instructions) We'll go next to Matt Vittorioso with Barclays.

Good morning, guys. I was wondering if you could help me out with outlining basically your specific liquidity today. What is available on your revolver? We know what kind of cash you have. I didn't see that in your release. Could you help me out there? Could you look at the back page of the release.

If you look at the back page of the release, in our capital structure analysis that takes you down to leverage, there is a line in there, commercial paper outstanding net of unrestricted cash, which is about $66 million. At the end of the third quarter. We have $650 million of back-up line, so that would leave $595 million, roughly, of fully committed and undrawn back-up line.

That's $595 million of availability net of cash that you have currently?

Net of the cash.

Okay so $595 million of liquidity. And you have got what? $370 million of maturities coming due here in the second quarter, you'll just use your facilities I guess? Or did you say you were contemplating some term debt?

A couple of things. First of all don't forget we generate a lot of cash. So that will continue to come in. Last year, cash from operations and portfolio proceeds was over $500 million. It won't be at that level this year, but it will still be a sizable number and that will come in and help fund some of that. As I mentioned, yes we will continue to look at different term alternatives. But I don't have anything concrete at this point. It will be driven by where we think the best financing package is available.

Okay. And just another sort of housekeeping. Could you tell me, so I can reconcile free cash flow, what cash from ops was for Q1, CapEx, that sort of stuff. Do you have that in front of you?

CapEx was $79 million during the quarter. Cash from operations I don't have sitting right here in front of me of but keep in mind cash from operations is always very low in the first quarter every year, with about $30 million portfolio proceeds, with about $60 million.

6-0?

6-0, right. So $90 million between cash from ops and portfolio proceeds in the first quarter. Then the CapEx is $7 million.

Very good. Just lastly, a bit more conceptual. But I know you guys have worked hard, as you said in the past, to get ready for this downturn. Help me understand, I think the last bottom for utilization was somewhere around 90% or 91%. Just a quick couple of quick bullets on how this downturn, how you expect to see it better at the mid 90s being the bottom, or at least the bottom for this year. What are the steps that you took that make 95% the bottom?

Yes, we did that over the last few years by extending lease term dramatically and having less remarketing events in 2009 and 2010. So that was the main thing we did. We tried to extend that lease term. We also tried to have a little bit of a customer shift into customers that value your service more, and are more apt to renew historically. We tried to do that as well. So those are two examples of how we tried to set the table for this.

The other points I would make in terms of what was different this time around than last time around, we also, over the course of the last few years, sold a lot of cars into the secondary market. And we did that pretty aggressively. And we have not placed any very sizable long-term orders late in the cycle. And we did have that challenge for us back in '99/2000, we had a lot of cars on order that were coming in as the market slowed, which we don't have this time around.

Okay. Thank you very much.

We'll go next to Mike Marburg with Ramsey Asset Management.

Hi guys. I justify wanted to ask one to beat the dead horse one more time. With a lower proportion of cars renewing in the first quarter and you commented the news isn't positive, and the trends degrade a little bit, the utilization was down 1.5% in the first quarter. So to end the year around 95%, obviously, with that backdrop, it wouldn't appear that you would only drop another 1.5% for the rest of the year. Is there something I'm missing in terms of something to do with the renewal rates? Or how do you rationalize this?

Couple things. One is we are going to continue to renew cars and work aggressively to do that. So we are confident that will continue. The first quarter number also had about a 60 basis point downdraft from cars returned through bankruptcy. And based on what we have right now, that we are working through with customers who are in that mode, we are hopeful that many of those cars will stick with the existing customers, albeit at lower rates. We won't have that same pressure in quarters going forward. But yes, it's a challenge. There is no doubt about it. We are very focused on trying to make sure we are getting that renewal success as much as we can and we'll be competitive on rates to make that happen.

So basically, if the renewal rates can improve, and if there are not other bankruptcy situations where they put the cars back to you, then that is what you need to accomplish. If that doesn't happen, there's nothing weird about the numbers or the amount of cars being renewed? There is nothing else I'm missing?

There is nothing beyond standard commercial activity of trying to keep the cars on lease, correct.

But you said renewal rates improve, which is unlikely in this environment. In fact, if we're trying to protect utilization I would expect them to deteriorate further.

Renewal lease rates?

Rates. Right. I meant the percent of cars.

You are talking about the success rate?

Success rates, yes.

Okay, thanks, guys.

We'll take a follow-up from Bob Napoli with Piper Jaffray. Mr. Napoli, your line is live.

I'm sorry. My questions were answered. Thank you.

We have another follow-up with Paul Bodnar with Longbow.

I just wanted to see if we could get a little more detail on your marine joint ventures in particular I guess in the quarter. I think there is some seasonality to that, but basically what to expect for the rest of the year, if that should tick up slightly sequentially but still below last year, or what your thoughts are.

Marine joint venture income will be down in 2009 for sure because it was record rates through the third quarter of last year. In general, deteriorated dramatically in the fourth quarter, almost across-the-board. What we have seen in the first quarter is rates tick up generally at most of these joint ventures. I wouldn't say that is a trend yet after one quarter. In fact, there are some vessels where we think we'll see further deterioration. Anything that carries clean petroleum products, for instance. It did tick up, that's just because it was an awful bottom there in the fourth quarter. So rates are still very weak. I don't see any trend yet. And the good news is we got into all these vessels at a cost and with rate assumptions that in almost every case were still higher then. So I like the return on it but it definitely is weak, compared to prior years.

So if I'm thinking through 2Q through the rest of the year, 4Q and first quarter this year, you had $10.5 million call it in each quarter of affiliate earnings there. Would you expect that to remain pretty close to those levels, or anything that would impact that positively going forward?

There's nothing unusual expected in there going forward. You know, picking the run rate is a little tough given what's going on and what may be going on with rates. But it's not unreasonable.

Okay if rates go up it may come in a little better than that?

Yes. Correct.

But not a significant $5 million shift one way?

No.

Thanks. That was it for me.

Thank you.

We'll take our next follow-up with Jacob Strumwasser from BCC.

Hey guys. Help me understand something and explain to me what I'm doing wrong on my math. Last quarter you guys had 112 -- 976,000 cars at the end of the quarter at a utilization rate of 97 .9%, so that meant you had 110.6 cars used at the end of the quarter. At the end of this quarter, you guys had 112.326 cars at a utilization rate of 96 .5%. So that gets me to 108.4 cars used.

Yes.

That would imply 2,200 cars were incrementally unutilized. You guys said, though, that 3,500 cars came off lease, which would mean to me that 63% of cars that came off lease were incrementally unutilized, which is not a 50% release rate.

First of all, I think you need to, if you just look at the idle car count between 12-31-08 and 3-31-09, you are going to get about a 1,600 car increase in idle cars. About 600 of those, 670, I think, were actually cars we got back from bankrupt customers. The balance were cars that were up for renewal, but did not get renewed with an existing customer.

Okay. So that's how I make the, okay. So that gets me to, okay. Okay.

Chad, I think we have time for one more question.

Thank you, we do have one more follow-up from Art Hatfield with Morgan Keegan.

Good, I was hoping it was going to be me.

I thought you might have moved onto the next call by now.

Actually you are my last one of the day but I have been going straight since 7:00 this morning. But you are the best, we saved the best.

It is ugly out there.

Just a real quick thing. The SG&A expense line, it was kind of a sizable drop from Q4, and from Q1 last year. Anything unusual going on there? How should we think about SG&A expense for the rest of the year?

I go back to the starting point on SG&A of being on a normalized basis of about $158 million last year after you back out some of the one-time expenses we had. And we have indicated we expect to be, hopefully, at least 10% down from that number. So that would put you in the low 140s. And those reductions are fairly broad-based across all cost types, compensation, what have you. And so, your run rate will pick up a little bit as the year moves on. But we are still confident we'll be in that low 140 range.

Okay, that's very helpful. Thank you again. That's all I have.

At this time I will turn the call back over to the speakers.

Thank you, very much, Chad. And thanks, everyone, for participating. I'll be available this afternoon should you have any additional questions.