GATX Corp (GATX) 2009 Q3 法說會逐字稿

Good day and welcome to the GATX third 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.

Thank you, Gwen, and good morning, everyone. Thanks for listening in to our third quarter conference call. With me today are Brian Kenney, President and CEO of GATX and Bob Lyons, Senior Vice President and Chief Financial Officer. I will provide a brief overview of the results highlighted in our press release earlier this morning and then we will open up for your questions. First I would like to remind that any forward-looking statements made on the call represents best judgment as to what may occur this the future. We based these forward-looking statements on information currently available and disclaim any intention or obligation up to date 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 maybe outside the control of the company. For more information, I refer you to our 2008 form 10K and the second quarter of 2009 10Q filing.

Today, we reported net income of $19.6 million or $0.42 per diluted share for the third quarter of 2009. This compared to net income of $73.9 million or $1.46 per diluted share in the third quarter of 2008, which benefited from $24.4 million or $0.48 per diluted share income from the sale of European real estate, the reversal of environmental reserves in Europe and unrealized gains related to certain interest rate swaps at GATX European railcar affiliate AAE. Year to date, we reported net income of $59.9 million or $1.24 per diluted share including unrealized after tax losses of $18.5 million or $0.38 per diluted share related to the AAE interest rate swaps. These results compared to year to date in 2008 of $165.9 million or $3.31 per diluted share including aggregate benefits of $26.4 million, or $0.52 per diluted share from the action as in Europe I just mentioned as well as reversal of tax reserves in the first quarter of this year.

Our third quarter results reflect the challenging operating environment we continue to face. Rail fleet utilization ended the third quarter at 95.9%. A good result but one that was achieved in an environment of very competitive pricing. The renewal rates in the lease price index were 8.5% below expiring lease rates and we continue to shorten lease terms 39 months on average for LNI renewals in the quarter. Scrapping gains dropped sharply year over year as expected, despite scrapping a similar number of railcars. The scrap gains dropped from $26.3 million to $6.3 million in the first nine months as the year as scrap prices are off more than 60% from their unprecedented peaks in 2008. Lower steel prices reflected in lower price for new railcars. Precisely how low is yet to be determined as virtually no new railcar orders have been placed with the manufacturers. This could prevent an opportunity for GATX and we continue to focus on opportunities to deploy capital wisely in this environment.

The marine environment both internationally with marine joint ventures at specialty and in our ASC shipping operations on the Great Lakes remains depressed. While our Marine joint ventures continue to provide a solid return on investment, charter rates remained at lower levels in the last few years having immediate impact on income. While there are glimmers of potential improvement in the Great Lakes field industry as a handful of (unaudible) furnaces previously idled are being brought back on line, the shipping volume across the Great Lakes industry are off 50%, from the prior year. We continue to expect 2009 full year earnings in the $2 range. This guidance excludes the $0.38 per diluted share unrealized losses from the AAE interest rate hedges year to date that I mentioned earlier.

Steps were taken in recent years to position the company to manage through the downturn including extending lease terms to reduce renewal exposure in any given year. Selling more volatile car types at a attractive valuations and retraining from placing large speculative orders at high evaluation should service well as we negotiate this challenging market. The committed long-term nature of our leases provides stable cash flows and support for operations and we continue to believe GATX is not only positioned to manage through a challenging cycle but to capitalize on investment opportunities that provide attractive returns for our shareholders. With that quick overview, I would like to open up the call for your questions. Gwen?

Thank you(Operators Instructions) We'll go first to Art Hatfield with Morgan Keegan.

Morning everybody. Just a quick question. I'm trying to remember to last cycle, but what some of the kind of early indicators of the term were. What typically improved first is a prize or is it terms on lease renewals? Any thoughts there?

It really is the two key items to look at really are utilization and the LPI weight change. What we saw during that last cycle is when that LPI stopped getting worse and started to level off, then you started to see some floor and recovery in both rate and utilization. But you really need utilization to kind of lead the charge.

I would add you are also looking for customers to start talking about wanting to add cars. Although utilization was high in the third quarter and there were a lot customer orders, very little of that was done, in fact none of that was done by customers wanting to add to fleets, as opposed to us displacing a competitor for instance or perhaps helping a customer upgrade their fleets. So, until you see customers talking about adding new cars, that even increase utilization and firming rates don't mean a whole lot.

Bob, when you talk about the LPI not getting worse is that rate of change issue or like for instance in Q3 you saw the rate of change get less bad than Q2. Is that a positive or does that need,- the absolute change need to be positive?

Well, first of all you have to see a trend, Art, and I wouldn't take the third quarter as an indication. It did get less worse, but that was not the expectation and wouldn't be our expectation going forward in the next few quarters. There was some car types, some unusual renewals in there that skewed that number a little bit. We would have expected it to be around where it was in Q2 or little bit worse. Yes. It is that we are looking for that some point that it will stop getting worse on a quarterly basis and level off and that will be a good indication that things are have bottomed. Understanding it's way too early to call a recovery in the near future. With that said, we hear the railroad's taking cars out of storage. Are you seeing any certain car, any particular car types, tightening up from a supply/demand? They are, but that's whey meant with my comment. For instance, well ethanol, as a for instance, we talk a lot about the over ordering and over supply of ethanol cars in the last few years. A lot of those are going back to work now. The reason being there is pretty favorable trends in corn prices, natural gas prices, sugar prices. Price of Brazilian ethanol. Exports going to Brazil. So, ethanol cars are starting to go back to work as an instance and utilization of that fleet is increasing in the industry. And rates are coming up. But if you look at that, it's dramatically below where it was a couple of years ago when most of these people made the investment, so it's hard to get excited. There are a couple of car types looking better. What you want to make sure is you continue --

Troy, that's what you mean by adding new cars, not necessarily bringing cars back that are in storage but increasing the size of the fleet.

Exactly. And that's what we are looking for and see little of is people adding cars to their fleet.

That's all I have right now, thanks.

We will go next to Paul Bosner with Warnbow Research

Good morning. Question on scrapy activity in the quarter than what your expectations are, both for yourselves going forward, but also for the industry. And some of the impacts that could have, when we do eventually merge from the downturn.

Well, we scrapped, Paul, we scrapped about 1300 cars in the quarter. In about a thousand last quarter. Fourth quarter will be somewhere likely in that same range. Don't see a material change or no plan for material change in that number. So that's fairly ordinary scrapping rate for us given the age of our fleet. Cars normally coming out of their useful life. As the industry, it's tougher to get a gauge on that, people definitely are scrapping cars. There is no doubt about that. I don't have a industry benchmark that I could point to. to give you some idea of what rate that scrapping is occurring in.

Okay. Also, over ASC, I don't think Q4 is usually lighter volume, not expecting a bigger recovery there, but if you could talk about profitability there. Anything you could do next year? Anything you could do to take out additional costs to get to 2010, even if volume is slightly improved to make the business any more profitable.

There are some costs we can take out. It's not really in terms of SG&A. SG&A is very low there. It's more. You look at operating costs a lot closer, especially winter work and fitouts and what you do - In other words, if you don't see the revenue actually materializing, you are not going to do for instance a whole lot of winter work in preparation for a vessel until you are absolutely sure it's going be working. Where in opposed in the past year, you might take a little risk there, so that the vessel is ready to go. You won't speculate as much going forward. You can do something on the operating cost side. And that's simply waiting for demand to actually materialize as opposed to anticipating it.

Ok, just I guess last question here on, you might have mentioned in your comments about placing, you could give up with favorable deal to make a long term purchase from manufacturers. Is that something you would do, and you want to see the market starting to turn first or gauge if you got really good deal tomorrow. If you could just tell us how you look at that.

That's the most important question. Obviously we look at a lot of different things. We look at where steel prices are. How aggressive the manufacturers are getting, how creative they are getting. And as you just adjust, you also look for when you see light at the end of the tunnel. And you try to get that timing perfect. You're not going to get it perfect. I think, given how bad the market has been over the last year, we are going to be pretty sure we see some light at the end of the tunnel before we go place that big order. Because even if you get a great deal from a cost perspective, you don't want to deliver new cars in the storage. So, you have to be confident that you'll place whatever volume you take in the initial years of a perspective order. I would love to be able to, as far as when that happens, I don't know what to tell you. At the beginning of this year, I talked about how the manufacturers weren't exactly beating down our door. I would say they have gotten more aggressive and multiple manufacturers are interested now. I say keenly interested now in doing a transaction with us. And we have multiple conversations going on. But as far as timing, I can't help you there. I love to be able to say a year from now that I placed a long-term railcar order because that would mean that we probably saw light at the end of the tunnel.

Paul it's Bob. I would add to that you know our history, when we did place a long-term order at a very low point this the market during the last cycle in 2002. But I would just point out there is no one benchmark we could look to or data point we could look to that caused us to make that decision. It's a host of industry factors and really just a feel and a sense you are getting from your customers.

And it will involve some risks.

Yes

Ok, thanks a lot. That's helpful.

We'll go next to John Hecht with JMP Securities.

Good morning, guys thanks for taking my questions. Can you guys tell us if you didn't, I'm sorry I missed it if you did tell us, what the release rates were during the quarter?

We don't disclose the release rate, John. We gave you the LPI number which was down 8.5%. In terms of absolute numbers we don't normally disclose that.

Are you talking about the renewals?

I'm sorry the renewal portion. That was the number I was looking for.

The renewal success was almost 53%. And then again, that's not all the activity obviously since we had very few cars going idle. We had additional 25% that we placed on assignment to another customer. So we really only had that very small number of cars going in to inventory at the end of the quarter which is reflected in utilization.

3% on (inaudible) which is consistent with what we saw at the second quarter. Yes. That's flat with last quarter. Can you guys remind me what the lease rules were going to be in 2010?

Lease renewals?

Yes.

We had about call it between 15,000, 15,500 scheduled for renewals, this year. 2010, we haven't put a specific number out yet but slightly above that. So, basically in the same ballpark. Then but keep in mind going out, in the future years that number will go up materially. Given the weak renewal terms we are entering in to right now.

Okay. And Bob, I know you can get this from the 10Q when it's up, can you give us a quick update on CapEx commitments and debt terming out through 2010 at this point?

Sure. 2010, is a really light year on both of those fronts as of right now. Committed CapEx will be in 2010, as we stand say would be less than 30. 30 a very very light committed CapEx calendar for 2010. On the debt maturity schedule, the same, we have one $230 million note that will mature in April of 2010. And beyond that, there is maybe another $50 million total. So we are looking at a very light debt maturity schedule I would say both for 2010 and 2011.

Okay. The final question. I sure you can't speak to any specifics, but you mentioned asset prices coming down. We known of potential distressed sellers out there. Can you just give us characterize the opportunities in terms of portfolio acquisitions at this point?

Well it's hard to. The one we always get asked about is CIT for instance. There is nothing we can tell you that you don't read in the paper every day. There are a lot of fleets out there that are owned by people that may not want to be in the business or distressed financially. I can't make them sell us our rail fleet. All we do is make sure that people know we are interested and we are interested in everything that comes up for sale in the market. And try to stay in touch on every situation. There is really not a lot of color I can give you there because for the most part, those situations you can read it just as well as I can every day.

I guess, are the bid/ask spreads narrowing or sellers more willing than they were three months ago. Is it still kind of where you were three months ago?

Interesting question. I don't think we know the answer to. That I would doubt it. I would say that the bid/ask is still pretty wide.

Thank you guys very much.

We will go next to Robert Napoli with Piper Jaffray.

Thank you. Good morning. What size transaction would be too large for you? Where would be sweet a spot, would be the largest type of deal that you would look to do? I don't think you would look to double your portfolio, which you would do if you bought the entire CIT portfolio.

Let me let both Bob and I answer this. From my perspective , I think GATX would like to buy cars and not people and systems. As far as size, Bob, I mean ratings

Really, size -- it's all relative to how the transaction is financed. And capitalization on the company going forward. Obviously infrastructure can handle a lot. But we would also be looking at what's the right position for GATX to be in from a standpoint of our ratings, capital structure, debt profile, everything else. There is a lot of different elements that will come in to play. Just folding cars in to our system, we can do a lot of that. We can do a lot of that. (inaudible) transaction we completed at the end of 2008, in terms of car size and total assets that was about a $230 million transaction. That was a good size deal. We can obviously do more than that. But it needs to be financed appropriately.

The CapEx you did this quarter, is there a breakout in where that -- in what you bought. Can you give color on what you are buying today? In the third quarter and looking at the fourth quarter?

Sure. In rail, which was probably $110 million or so of total CapEx number, $185 million CapEx number for the quarter, majority of that railcars we had under prior committed purchase program. So renewal equipment. We also bought some $20 million worth of cars off of -- through another (unaudible) So that was a secondary market transaction. In specialty, we did some industrial equipment financing and also an additional investment in our Rolls Royce and partners joint venture.

Ok. thank you. And on the pricing front, looking at the increases in pricing and the terms if you look back at your business over the last several years, it looks like your toughest comps are going to be next year. Is that on the pricing front. It's going to get more difficult through the balance of this year and throughout 2010. Is that a fair?

Sitting where we are at today, Bob, I think that's a fair assessment.

Okay. How do you guys view supply -- not a lot of railcars being built. Looks like we are getting this gradual improvement in the economy, and how long do you think it takes supply/demand to get in balance and under maybe different scenarios. What are you guys seeing on that front?

Once again we don't look at very rarely look at any forecasts because they don't mean anything to us. What means is important to is what our customers are saying. As I said earlier, nobody is really talking about adding to their fleet in any significant fashion. Absent that and absent pick up economic activity it will take a while a few years of scrapping without a pickup to get the fleet back in balance. And that's just our fleet. That's the industry's fleet.

Okay. That's it, thank you.

Thank you.

We will go next to Mike Grendale with North Land Securities.

You guys have done $0.42, $0.43 a quarter for the last couple of quarters. Can you help us kind of think about is that the level you guys think you can operate at in this environment going forward? And what are some of the positives that could help that and the negatives working against it?

What I would say, Bob, there is given that we generate revenue both through our lease income, marketing income, joint venture income, it's very difficult for us to predict quarter to quarter. We don't give quarterly guidance as you know. There is a reason for that. It's because our numbers can bounce around a little bit. I'm hesitant to lock in to a run rate. I would note that the last couple of quarters were pretty low in terms of remarketing, Fourth quarter will probably be the same. But on a go forward basis, we will have to, as far as 2010 goes, we will be back to you in early January and layout for you, how we see that year unfolds.

What are you hopeful for 2010? What do you need to go right?

Well there is a couple of things to think about when you're considering 2010. First of all the lease, look at the railcar lease portfolio itself. That's somewhat of car craft carrier, even if things fundamentally begin to improve, you are still going to face lease income challenges in the rail portfolio given the phenomenon around the rollover of the leases. So that piece of the business kind of has its own cycle to it. We are also on the marine side, ocean going and American steamship, much more of that business is spot business. So to the extent things improve or don't, in 2010, you will see that impact pretty quickly as we have this year, in the income contribution from those segments. I would say wild card is remarketing income. Which is very difficult to predict driven large by by asset value in the secondary market and the ability of buyers to get access to capital to actually transact.

Taking a -- Mike taking a more global view, I mean this company is tied to the economy. Right? You need to pick up on economic activity to really move the numbers. We don't know when that is coming. We are not seeing it. Customers are not telling us a about that. Absent that. I mean, everything, remarketing, lease rates, utilization, it's all tied to economic activity. And we don't see that yet. Absent that, the only thing that could move the needle is an acquisition. And we've talked about our struggles to drive fleets of peoples hands in the past. People don't seem to be wanting to sell out there. And the last thing we can affect is cost. We've reduced cost pretty significantly on the SG&A side and on operating cost side.

Sure, no, that's been strong. And then lastly, can you remind us when you and how you think about the dividend? The last two quarters you've paid out a healthy percentage of net income. You have very good liquidity. So it's not really a problem from that side. How do you think about that dividend? When do you address that? Yearly? quarterly?

Obviously the dividend is very important to our shareholders and we recognize that fact. We've paid it without interruption every quarter since 1919 as you see in all marketing propaganda. So we know how important it is to our shareholders, but what I'd say is that's the board level decision yearly reviewed at the beginning of each ear. January, February time frame. In terms of what to do with the dividend on a go forward basis. And that would probably be a reasonable schedule to think about this year as well.

Fair enough. Okay. Thanks, guys.

We will go next to Steve Marsh with Citizens Trust.

Good morning you all. One question regarding, Rhonda, you mentioned 39 months for the lease portfolio. Is that what you are currently contracting with your customers or that's the overall portfolio as things stand now?

No, That's what the renewals that we did in the third quarter we did at an average of 39 months. The overall portfolio typically stays somewhere around four years. It's really hard to move that needle. You have to really rollover a lot of leases to move that around. And so in a lower market you're around four years. We've extended lease terms significantly over the last few years. You're a little above four years probably on average at this point. But that usually shows up in our 10K.

Okay. Thank you very much.

We will go next to Rick Shane with Jefferies.

Hi, guys, thanks for taking my questions. Last statistics we have there were $34 million of committed purchases headed into 2010. Has that number changed?

If anything, Rick, it has come down a little bit. We will take delivery of some of those cars this year.

Terrific, debt maturities 2010 or $284 million, I assume that that's now covered by the $300 million debt deal you did earlier this quarter?

We have ample liquidity based on committed cash flow and liquidity facilities to run wealth through 2010, through 2011 really for that matter.

Without needing to access the markets again.

Correct. Revolvers essentially unused, which doesn't mature until the spring of 2012. And obviously we have strong cash flow and portfolio proceeds as well.

Terrific, that's helpful. Can you go through, and the expirations in the US are pretty well documented. Can you go through the lease expirations in Europe in 2010 and put that in context with the US expirations as well?

As we pointed out the European lease portfolio is very different than it is here in North America. Where we have average term of four years, they have average term of two years. For the portfolio, it does turn much faster in Europe at wholly owned bank car business. In the freight car business that we have an interest in. So, you could envision that turning roughly a third of their portfolio in a given year.

Okay. Great. That's about 40,000 cars in Europe.

In total. Correct. Both wholly owned and owned by our affiliate.

Terrific Last question, I mean, I suspect you guys are very aware of the committed purchase from some of your competitors. Is there an opportunity to as you're competitors are feeling so much distress to step in and buy their spots in the queues at very attractive prices. Is that one of the opportunities out there for you?

We have not had those conversations with our competitors. I would think the manufacturer at some point if that was in the cards would come and entertain that idea with us.

Are you aware of any big orders that are out there that could be available?

No. Not really.

Guys thanks very much.

We will go next to Ariel Shea with Laidenburg.

Hi, How are you? I feel funny asking this how Rick presented the last question, as much that renewal rollover in US is pretty well defined, I'm confused. Just trying to sort through these different numbers. So, if the average life was four years and so then you would look at a quarter as a portfolio rolling each year. Now but over the last couple of years you've been shortening it. Just I up with clear when you said earlier for your renewals in 2010, if you said it was 15,000 or 50,000? Maybe we could start with that and see what we can get in terms of trying to understand where the schedule is in terms of US renewals.

Sure. Ariel, It's Bob. That's a number I want to clear up. It's 15,000, 1-5. That's on the fleet of about 111,000 cars.

Okay.

Really in that he did of shortening lease terms, just keep in mind that's a phenomenon in the last three or four quarters, that we have been focused on, or that lease terms that been shortening. Prior to that it stretched out materially.

But just so that I can understand, if 15,000 off of 100,000 cars, 15%, I would think if the old terms were five years, it would be 20%. How -- is that because the numbers that you scrapped also, is that the difference?

Basically it has to do with what the full profile works out over the course of the last couple of years. As I mentioned before, 2011, 2012 and 2013, will have sizable renewal schedules within those years. Significantly larger than a 15,000 or 16,000 we are looking at today.

Okay of the 15,000, that's outside of what you intend to scrap?

Correct.

Or you will scrap from that as well?

Well, we would scrap from the entire fleet and so yes. Depends on the prospects for that each car coming up for renewal. In terms of the you were asked about that as well, I want to try and dig down. In terms of the different fleets that are out there potentially I believe available for a bulk sale, without commenting on the quality of the portfolio or your interest, can we go through which ones they there are. The ones that I was aware of was the AIG, the City, and CIT portfolios. I'm not sure if they've been sold or if there are additional portfolios out there that are on the market or available.

I can tell you that all three of those definitely are still in the railcar leasing business today. They have not sold. We are not aware of any process underway or books on any of those portfolios.

Okay.

Okay. I guess that's my question. We covered the European on the last session. Thank you so much. I really like this disclosure in terms of the roll forward and the utilization. It's very helpful.

Thank you.

We will go next to Tamer Olmeden with Rose Advisors.

Yes, Hi. Thanks for taking my call. Can we go back to the lease not the renewal rate but the marginal utilization. I think the numbers I got 53% renewal success. Was it 25% placed on assignment?

25%, 30% or better that were assigned. So you are around 75% to 80% of the cars that are still that were up for renewal in that quarter. That are still with a customer whether it's the renewing customer or assigned to a new customer.

Ok. And how many cars were up for renewal in Q3?

There were.

4400 cars scheduled for renewal, roughly. 4000.

Okay. All right. I guess when I tried to model it out, I thought given sore the of the marginal utilization rate, utilization rate would go down more.

Well you have to remember that there are cars that are currently in inventory that are going to come out and go back to active status. So it's not just the cars that are renewing in the given quarter.

Okay. Then that number -- that's not part of the 75% to 80%. That's just -

Right.

Okay. Just another question on the tax rate for the quarter, it seemed a little low. Should we be expecting in the 30%s. It looks like it was 27%.

More normalized rate would be in the low 30%s.

Okay.

Obviously would be where the income is being generated. We do business in a number of low tax jurisdictions and contributed significant income this quarter. But a more normalized number would be in the low 30%s.

Does that mean in the North America that we are talking about Canada or Mexico more profitable.

And also European operations.

Ok. So European operations more profitable this quarter. Okay, great, thank you.

We will go next to Majid Kong with Cobalt Capital.

Hi, guys. Could you talk a little bit about the pricing on new railcars, if you're seeing anything compared with last year. I'm just wondering year-over-year what it's down.

We haven't placed a new order so it's all theoretical. But, generically speaking, given the reduction you would expect in manufacturing margin and the drop in steel prices and a smaller drop in component pricing, we, a guess around 20% upon a generic tank car. 20% drop in car cost over a year and a half, two years ago.

Then I think you mentioned what your customers are seeing. Is there any particular sector that's seeing relative strength at all? I keep hearing auto volumes are slightly up, and ethanol companies are bringing production back. Anything you're hearing on those things?

Yes That is true. We are seeing some pockets of relative strength. But relatively speaking, versus the beginning of the year. So, I would say they are strong in general. Yes, ethanol as I said earlier some of those car as lot of those cars are going back in to service across the industry. Plastic pellets markets a little better than it was, beginning of the year when it was terrible. But once again in general a lot of idle cars, rates are pretty bad compared to a year or two ago. As far as bright spots overall I would think maybe fertilizer is a little stronger than most as they look out into 2010. But, outside of that, not really.

Got it. I apologize for this question, but, I'm a little confused by the guidance. First of all, there is no incremental unrealized loss on the interest rate swap right. It's only $200,000.

Correct.

For Q3. So the $0.42 cents is kind of a clean number.

Correct.

So your $2 per share implies about $0.40 cents for next quarter. Is that right?

That's right in that ballpark, right.

Perfect. One last thing, what's the share count for this quarter. I'm just -- I take 19.6%, and I think release has $48 million, and that only gets me to $0.41 cents.

We can get you the exact number if you want. Obviously rounded but we can get you the right number. It's $48 million number out of press release, average number of shares during the quarter. Rounded number.

So it's not exact. Perfect. Good quarter, guys, thank you.

We will go next to Pete Jacobs with Raymond McKenzie.

Yes, good morning everybody. The first question, Brian or Bob, could you go back over the CapEx comments you had earlier. It was a little garbled at least on this end. When I'm thinking about committed capital additions and on going CapEx for 2010, and perhaps you can give a sense for 2001, what number should we think about? Not any extra things that you might do in adding to the fleet but what you have kinds of on the books now as you are thinking about it. When you are thinking about those numbers, 2010 is a small number, call it $20 million, $25 million for committed CapEx. 2011 there is nothing. Zero.

Anything in CapEx will be discretionary on our part.

The bear bones number is $25 million?

Pardon me?

The bear bones minimum is $25 million.

In 2010.

I'm thinking about the interest rate swaps or AAE cargo business. So there were unrealized losses the last couple of quarters there. How should we think about what that number could be going forward in the current text of over all interest rates? Could you help us there. And how might you suggest that we model it in the context of overall interest rates?

Sure. First suggestion would be not to model it. It's in impossible to predict. What we will do is call it out for you. What I can tell you are rising interest rate environment. we will turn that number from a negative mark to market to a positive mark to market overtime. As interest rates begin to move back up at some point and your guess is as good as mine when that happens, you will see positive mark to markets. We will call those out as well.

Is there any point of time you are going to have a cash obligation associated with that swap?

Well there is always obviously quarterly paying swap. Cash obligations but in terms of a only if you terminated the swap. Which you have a sizeable cash obligation or cash inflow. When we are looking at that unrealized loss let's say you incurred in the first and second quarter, that actually would denote that cash outlay that you had during the quarter. Or just the total notional sum change and not the actual payment that you had to make which would have been smaller then. The actual cash payments you make are much smaller. That's the change in the value of the swap. Purely a (unaudible) and not a cash item.

Ok. Thank you I wanted to make sure I was looking at that correctly. Those are my questions, thank you.

Thank you.

We will go next to Cyrus Sadeek with Cedar Hill Capital.

Hi. Can you please go to more detail on your renewals. I think you said that will was some unusual renewals and special car types that help the LPI this quarter. I'm not going to go into specific detail. The LPI is designed to capture a generic pool of your most common car types. It does a very good job of that. Occasionally some renewals transactions booked a number of years ago that come up for renewal again in a given quarter and they can skew that number a little bit.

But in general it's still a very good indicator of the overall activity within the portfolio. I won't go in to detail on a specific renewal.

Ok. Can you also comment on I'm showing affiliate earnings, there was a nice little pick up this quarter, like $15.6 million. I think. There was like $12 million in rail and $3.6 million in rail, and $12 million in specialty. Can you explain that pick up. I think it was $5.9 million in total last quarter.

Part of the shared affiliates is affected by the AAE swaps. So, please keep that in mind where it does flow through. But I could tell you operationally, not much change second quarter to third quarter within our JV whether they be rail or marine. I would say that Rolls Royce and partners, which is our spare engine leasing joint venture with Rolls Royce had a very solid quarter. And their utilization is very strong.

Could you say most of the pickup was because of the swaps?

Yes.

Thank you.

We will go next to Mark Bishop with the Boston Company.

Sort of two questions. One relates to a prior question somebody asked. And you said something about how some cars still in inventory would eventually come out in to active status. And I didn't grasp that, does that some how effect your reported utilization rate? What does it mean to be in inventory or active status? Second thing, you said you wouldn't comment on unusual renewals. But I was wondering, so the unusual renewals you had I think you said helped the utilization a little bit. But did they help or hurt the LPI?

No impact on utilization, it helped the LPI a little bit.

It helped, okay. And with regards to your prior question, if a car is offer ramp, it's idle.

That's reflected in our utilization number. There is no inventory of cars held for sale. The numbers are very clean and it's a very basic calculation and utilization. The key point, there isn't a real simple formula I could walk you through now to roll you forward on utilization because we do get some cars back from customers, cars that were idle go back in to service. So, there is a number of moving parts. At the end of a quarter, it's a simple calculation. How many cars are off rent.

What was the point of the answer to the prior question when you said something like maybe something was still in inventory or does that mean -- it had been still at the customer, so even though it came off it didn't come off until the end.

Because that person was trying to afflict to an exact number off the renewal success rate, that it's not that simple.

Okay.

Cars that move from idle to active.

Okay, thank you.

We'll go next to Robert Napoli with Piper Jaffray.

Couple of quick follow ups. Did you buy back any stock in the quarter. And what are your thoughts assuming would you say that buy backs are kind of off the table until you see real improvement in the economy. I know you bought some when your stock was under pressure. If you give color on your thoughts on buy backs.

There were no repurchases, Bob in the third quarter. We had $70 million last under authorization. We can't comment on how that will be used other than we will be very judicious in how we think about utilizing that capital on a go forward basis. But the authorization is there and we will consider it from time to time. But no specific plans.

You did have a nice bump in book value per share. I'm assuming related to the currency, the weakening of the US dollar.

There was a little pick up from that, correct.

Okay. That's it, thank you.

And that concludes our question-and-answer session. I would like to turn the conference back to Mrs. Johnson for additional or closing remarks.

Thank you, Gwen. Thank you, everyone. I will available for the rest of the day for additional questions you may have.

Thanks everyone. That does conclude today's conference. We thank you for your participation.