GATX Corp (GATX) 2009 Q4 法說會逐字稿

Good day, everyone. Thank you for holding and welcome to the GATX 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, Kevin, and good morning, everyone. Thank you for taking time during the busy earnings season to join us for our fourth-quarter and 2009 year-end 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 will provide a brief overview of the numbers and then Brian will discuss 2009 and the year ahead.

Before we begin I would 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. 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. I refer you to our 2008 Form 10-K and our second quarter 10-Q filed with the SEC for a discussion of the most important of these factors.

Today we reported fourth-quarter net income of $21.5 million or $0.45 per diluted share, which includes a net positive benefit of $5.2 million or $0.10 per diluted share from a tax benefit from realized foreign tax credits, partially offset by unrealized after-tax losses associated with interest rate swaps at our European rail affiliate, AAE.

This compares to 2008 fourth-quarter net income of $28.9 million or $0.58 per diluted share, which includes unrealized losses on the interest rate swaps of $6.1 million or $0.12 per diluted share.

For the full year 2009, net income was $81.4 million or $1.70 per diluted share, including a net negative impact of $13.3 million or $0.27 per diluted share related to the AAE interest rate swaps and the foreign tax credit I previously mentioned. By comparison, 2008 net income was $194.8 million or $3.88 per diluted share, including $23.2 million or $0.45 per diluted share of benefits associated with state tax reserve reversal, a sale of real estate and environment reserve reversal in Europe.

Our 2009 results reflect the ongoing, challenging market and as we look at the year ahead and as noted in our press release, we currently expect 2010 earnings per share to be in the range of $1.50 to $1.70 per diluted share.

Rather than have spend a significant amount of time on this call recounting the numbers for 2009, which we have done already throughout the year, we thought it would be more beneficial to have Brian Kenney provide some comments around the general market environment and the challenges and opportunities we see ahead in 2010.

So with that, I will turn it over to Brian.

Thanks, Rhonda. As we said in the earnings release, we are operating in some of the most difficult markets we have seen in decades. If you look at the rail market, railcar loadings in 2009 were down 16% from the prior year -- actually down 20% from the peak level in 2006. As I am sure you have read there is hundreds of thousands of railcars sitting idle across the industry.

If you look at the marine side, charter rates on oceangoing marine vessels had a dramatic rate decline. That was really at the end of 2008 into 2009 as a result of the economic downturn, and we saw some sectors experience rate declines of 80% or more. That was from their 2008 peak.

On the Great Lakes shipping industry, as we said in the press release, there was the lowest amount of iron ore tonnage carried since 1938. That was really due to steel manufacturing capacity utilization bottoming out at around 35% in 2009.

The capital markets; there was obviously a lot of disruption. That eased as the year progressed but still there were a number of liquidity issues for our customers. A lot of them, or some of them, requested financial relief from lessors like GATX and others.

Lastly, we faced a number of cost pressures that range from market-driven higher credit spreads to increased rail maintenance and compliance expense worldwide. So it was an extremely difficult environment. Despite that I think we maintained high asset utilization, especially relative to our competitors.

We realized meaningful cost reduction. We have stayed very liquid and we have excellent access to the capital markets. And our employees, particularly our commercial team, they spent the last four years laying the groundwork for excelling in a down market. When the downmarket came with a vengeance, they continued to outperform their competitors.

But having said that, we still ended 2009 with earnings at 50% of the prior year's levels and our markets, although they are more stable, showed very little signs of improvement. So a little more color around our 2010 earnings guidance.

In Rail, as we said in the press release, we have continued to experience significantly lease rate pressure. Our lease pricing index, which gives you a general idea of the negative or positive, for that matter, pressure on lease rates, was down almost 19% in the fourth quarter. And we expect that index to deteriorate a little further in 2010.

We are very fortunate that we extended lease terms so dramatically during the strong market of the last few years so in 2010 we only have about 15% of our fleet up for renewal. But despite that action, the longer -- obviously the longer the market remains weak, the greater impact the lower rates will have on our top line.

Adding to the revenue pressure and earnings pressure in 2010 in Rail, we expect weaker earnings at our freight car joint venture in Europe. We are going to experience higher maintenance expense in Europe resulting from increased inspection and replacement procedures on wheels sets. And we have increased ownership costs, or expect them, as we look to increase our global rail investment at advantaged prices.

Now offsetting that negative pressure is the expectation of higher asset remarketing income as well as scrap proceeds because the asset and credit markets have improved from their low last year, and we do expect higher tank car revenue in Europe. Our European tank car business, while encountering market difficulties, they certainly weren't to the extent we encountered them here in the US. They have had good performance towards the end of 2009 and we expect strong utilization and rate performance from them in 2010.

So the net result of all that is we expect moderately lower segment profits in our Rail business in 2010.

Moving to Specialty, we do have continuing earning weakness at our marine joint ventures due to those rate pressures I talked about a few minutes ago. We are going to have higher ownership costs because we expect to, once again, invest in these advantaged prices in these type of markets, and there is going to be improved asset remarketing. It looks like there will be fewer customer credit issues as the capital markets have improved.

The net effect is that we us expect a small segment earnings increase in Specialty in 2010.

At American Steamship, we are seeing some customer optimism that is relative to 2009 and we do expect to ship higher iron ore tonnage. In addition, we will be more conservative in how we manage our winter repairs and putout schedule. These expenses should decrease in 2010 based on the tonnage we expect to ship in 2010. So we do expect higher segment earnings in 2010 in ASC.

Well, that is a directional summary for each segment in 2010. That results in our consolidated outlook in the range of $1.50 to $1.70 that is in the press release. I do want to touch on a few other topics impacting our outlook; these are more from a qualitative perspective.

First, as you know, as we said in the past concerning economic outlooks, we pay more attention to what our rail customers are saying about their business than we do -- as opposed to economic forecasts. Right now there is not a lot of customers looking to add new railcars to their fleet.

If you look really throughout the year, much of our utilization success came in the form of displacing our competitors' cars, upgrading our customers fleets, which is good but it's not as exciting as new car demand. But we do see some positive signs out there. Railcar loadings are slowly increasing. Rail -- excuse me, rate and utilization on certain car types have increased and customers are operating their fleets at a bare minimum at this point.

So, yes, there is a lot of idle cars out there in the industry, but if the economy improves -- I mean, you combine that with the retirement of older cars and the fact that our fleets at our customers are at a bare minimum, you could get good demand for a lessor with the equipment and the service capabilities of GATX as this market turns around.

On the cost side, we will continue to manage aggressively, both on the operating and SG&A areas, but on the SG&A side it's highly unlikely you will see another large decrease in SG&A in 2010 similar to what you saw in 2009 where it was 25%. I would rather focus much more on SG&A efficiency and in 2010 that focus will be on producing growth opportunities at the advantaged prices that might be available in this type of market.

That really brings me to my last comment, which also is my biggest disappointment. It concerns investment opportunities. Outside of the Allco fleet acquisition that we pulled off at the end of 2008, we haven't been able yet to generate a significant investment at the lower market values in today's rail market.

Whether it be the variety of rail portfolios that have not moved from their troubled parents to the lack of secondary market activity in 2009 and the rail market in general to the availability of credit that would entice these owners to sell, very few assets have changed hands in this down market. And that is frustrating given that we positioned GATX and our balance sheet to capitalize on those opportunities.

Nevertheless, we will stay the course. We will continue that pursuit in 2010 and actually, I think, remain optimistic that we will successfully find a way to grow our fleet.

So that is it. Let's go ahead and open it up to questions.

(Operator Instructions) Bob Napoli, Piper Jaffray.

Thank you and good morning. On your biggest disappointment, Brian, I guess that is obviously what I think a lot of us are looking for. I mean seeing some of these troubled companies be able to restructure, like a CIT and --. But are you seeing any signs to lead you to believe that some of these portfolios could be closer to becoming available at reasonable prices? Has it been that they are not available or that the bid/ask is too wide?

Without getting into specific opportunities, the market was tested for a number of them over the last couple of years and the bid/ask was too wide. I still remain optimistic that some of them of them, at least a few of them, will have to change hands. But we can't just count on that and throw too many resources.

I think we remain involved and very close to any process that might start, but at the same time I think what -- the other opportunities we are chasing are management opportunities. If you think about it, yes, we haven't been able to make an acquisition outside of the Allco portfolio, but none of these portfolios have changed hands. It's not like we lost out on them, they just didn't go.

So if you look at the motivation there, especially with the capital markets earlier last year, I think they thought if they held an auction very few people or maybe only one would show up, so they just didn't do that. So we are pushing management of those fleets as well. Those are very long gestation periods to get those types of transactions done, but that is another way to pursue them. And we are doing both.

Okay. The SG&A this quarter had dropped pretty significantly. Was that a reversal of some bonuses accruals or was that a run rate? What is -- what would we look at in the quarterly run rate of SG&A expenses?

Good morning, Bob. It's Bob Lyons. The fourth-quarter SG&A number is not a run rate. You kind of hit the nail on the head that it was some incentive compensation accruals that occurred throughout the course of the year that were reversed in the fourth quarter because we did not achieve the targets that we had internally. Hence, the bonus payouts by and large are dramatically reduced or largely eliminated.

And there were a couple other year-end accruals that were trued-up that were favorable. So I don't -- I wouldn't use the fourth quarter as a run rate. I think a run rate is going to be modestly higher than that for 2010.

So it's still below the 35, the third quarter -- somewhere in between the fourth and the third quarters?

Yes, I think that is fair.

Okay. And just on utilization and incremental pricing, my last question, let others in, but has price -- you have done a great job keeping up your utilization. Pretty shocking in this environment, but obviously you are doing it at least some on pricing.

Has pricing -- did pricing continue to deteriorate through the quarter? Certainly we see the same signs of stability in the industry on shipments and car loadings that you do, but has pricing stabilized in line or with that or should we see some more pricing diminution in 2010?

This is Brian. On the lease pricing you will see that come down. That is close to slightly lower rates versus 2009 and versus the expiring, but also the fact that the expiring rate on leases that renew in 2010 will be higher. So that is why we publish that statistic because it shows you the revenue pressure.

As far as absolute rates, Bob, they appear to have bottomed out. There is a few car types that still have a lot of pressure, but in general it appears to have bottomed out. As I said, there are a couple of car types where they are increasing, albeit off of very modest levels.

The example I use would be ethanol. The ethanol fleet, where there was thousands of idle cars as we have talked about a year ago, at least our fleet is to pretty close to 100% utilized. Rates are coming up, but once again off a pretty low level. So there are those instances where there is some recovery here. But in general I would say things have stabilized, but you don't see a lot of improvement out there.

Great, thank you.

James Ellman, Seacliff.

Good morning, couple of quick questions. Could you go into a little detail about the costs of storing cars that are not currently being utilized, particularly as this storage starts to become long-term for some of them? Also, could you talk about what is going on in the production of new cars and how that might affect the business going forward?

I can talk about production of new cars. That is something we always look at is when to place the order, how big to make it, when is the right time. We are in constant conversation with manufacturers and internally actually about the right time for a tank and freight car order, a multi-year one similar to the one we did last time. Those internal and external discussions continue.

Obviously margins have come down dramatically since there is very little backlog at any manufacturer right now. But before you place that big order, obviously you want to see some light at the end of the tunnel as far as the ability to place a number of cars. I feel like we are a lot closer to that point. As I said last quarter, I would love to be saying in 2010 at some point in 2010 that we would place that big, advantaged, long-term order for both tank and freight cars.

And what about -- could you just comment on that vein on what sort of production do you expect to see for the industry this year versus the demand that is coming through for new cars?

The last I saw was about 10,000.

10,000 cars I think is what the industry is estimating at this point, but we haven't seen where the backlogs are at the end of the fourth quarter yet. That will be coming out.

And do the end-users need 10,000 new cars at this point?

Well, you are always going to be scrapping cars out of the fleet. So that is not even really a replacement number in terms of the number of cars that would likely be scrapped out of the fleet just aging out of the fleet.

I will just comment on your first question regarding storage costs. It's not a big number for GATX. You have seen market quotes anywhere from $2 per car per day up to $10 per car per day depending on where you are in the country. We did a good job of securing when the market was very strong capacity for being able to store our cars, so it's not a big item for us.

Okay. And does that price per day change over time in terms of additional maintenance or anything like that that takes place as the cars are stored for longer periods of time in a weak economy?

No.

Very good. Thanks a lot for the time.

John Hecht, JMP Securities.

Good morning, guys. Thanks for taking my question. Real quick in terms of the guidance, what type of tax rate should we forecast for or are you assuming I guess?

John, it's Bob Lyons. What I would assume for 2010 is around 30%, 31%. It's relatively low given the fact that we generate now significant income internationally, which is taxed at a lower rate.

Okay. Can you refresh us on how many railcars leases matured in 2010? And in addition to that can you give us some context of for recent cars I guess in Q4 which had leasing, the lease mature? What was the kind of perceptive replacement in terms of going back into the market and getting released for those cars?

Sure, this is Rhonda. We have got 17,000 cars up for renewal in 2010. Those are spread -- as you know, they come in small lots throughout the year, so they are spread fairly evenly throughout the year.

At the end of the -- during the fourth quarter we had about a 55% renewal success, meaning that the car stayed in place with the existing customer. We additionally had another third or so going to -- assigned to new customers. So you are somewhere around 75% or 80% that were renewed.

John, it's Bob. I would add, too, that our assumption for 2010 regarding renewal success rate is just a little bit higher than what we experienced in the fourth quarter.

And was the fourth quarter slightly higher than the third quarter, if I remember?

Yes.

Okay.

A couple hundred basis points.

Okay. And then, Brian, you referred to -- where you are investing it sounded like you were focused in the specialty category given opportunistic or attractive asset prices. What kind of investments would those be?

Well, it's a variety of investments similar to what they have done the last few years around inland marine -- marine in general, inland marine in particular -- gas compression equipment. There is some transportation equipment.

You know, generally asset classes that we have long experience in very long-lived, widely-used assets that are critical to the customer. It has been a tough investment environment over the last year or so because people just weren't adding -- there wasn't a lot of CapEx out there. We are starting to see that turn around. We are seeing some signs there as well.

Okay. The last question if I just add the $5 million -- is it fair from an affiliate -- a run rate of shared affiliate earnings to just add back the $5 million loss on swaps? You are running a $10 million to $12 million or $13 million kind of core run rate or is there something else in there maybe from a seasonal perspective that we need to consider?

No, nothing from a seasonal perspective, John.

Okay. Thank you guys very much.

Art Hatfield, Morgan Keegan.

Morning, everybody. Just real quick, Brian, can you comment on if there is anything we can read into the fact that lease term renewals in terms of months have kind of been increasing the last couple quarters?

I don't think so in general. For most car types that are experiencing this pressure we have tried to push it lower. That is not always easy to do. It was easier to do a year ago because most customers didn't have a lot of visibility into their business, so they didn't want to commit to assets for long periods of time.

I would say in general, once again, we always caveat everything by saying it's on a car type by car type basis and that is why it tends to move around during a year. But the fact that it's stretched out little bit means it's harder to do that and maybe the customers are starting to see -- get a little more confident about what their business looks like.

And they are trying -- some of the more sophisticated ones are trying to lock in these low rates for as long as they can.

Good, good, that is helpful. In 2010 last I recall your purchase commitments were somewhere around $30 million, $35 million. Is that still the case for the year?

Yes, Art.

And then, Bob, cash flow from operations for the year, you didn't release a cash flow statement. Can you kind of give us a rough number what that was?

Sure. The full cash flow and everything obviously will be coming out with the 10-K, but it was around $265 million.

Okay, thank you. And then just a couple more. Brian, you had mentioned about maintenance expense in Europe increasing. What about North America? I know a few years ago you were talking about a coming maintenance bubble. Are we through that and is 2010 a year where we can see that maintenance number flatten out a little bit?

I think in the US, yes, it will flatten out a little bit. We are still in the bubble. There is still -- the HM 201 in particular, which is the tank test that happens after the first 15 years. There was a lot of ordering obviously back in the late '90s. Those cars are all coming in for their first structural inspection.

We have been talking about that bubble. We are in the middle of it actually. I think 2010 it levels out; 2009 was a big jump.

Okay. And then maybe 2011 that can start to decline a little bit?

I believe so. I don't have it in front of me, but 2009 was a big year.

Okay. And then finally, on ASC just looking at Q4 revenue the rate of decline dropped dramatically. I think revenues were down only about 21% versus 63% in the first three quarters. Anything unusual going on there? Is it just that you are finally starting to see some better volumes and steel utilization has picked up?

Yes, Art, it's Bob Lyons. We did see some volumes pick up in the fourth quarter, particularly the deeper we got into the fourth quarter we saw some additional iron ore movements, some additional vessel demands. So it was -- the fourth quarter was definitely the busiest that ASC had experienced all year.

Whether or not that carries fully into 2010 is yet to be determined. We are seeing and hearing optimism from our customers, but we are preceding I would say fairly conservatively in how we are going to fit the (technical difficulty) for utilization in 2010. We want to see that carryover materialize before investing significantly in the winter work expense.

If you can refresh me, I think I recall that pricing for '09 despite the downturn was going to be okay. If that is true, how does 2010 look with regards to pricing?

We would expect the same. I think pricing held up fairly well given the environment.

It's more mixed than 2010, but it's certainly not plummeting.

Right, okay. Thank you. That is all I got today. Thanks, guys.

Peter Jacobs, Ragen MacKenzie.

Good morning, everybody. I wanted to go back to the CapEx or the investment spending question that was asked earlier. On the $30 million to $35 million number that was cited, can I think of that as the line item that is in your cash flow statement that is aggregated called portfolio investments and capital editions, as this is what is committed to that line at this point?

That is correct. That is committed railcar orders for 2010. Now obviously we are anticipating that actual CapEx for 2010 will be significantly north of that number, and we are optimistic that we will be able to find investment opportunities. But with regards to what we are committed to today, that is the number. It's very low.

What about other maintenance CapEx? I think you had mentioned something about some investments that were required in either Specialty or ASC earlier, too. So when I think about an aggregated, committed CapEx investment spending number, what should I be thinking about?

Well, the other maintenance expense runs right through the income statement. You can pull that number out off the income statement.

Okay. So really you are really committed to getting them -- just trying to drive this home so I know I understand it -- is that $30 million to $35 million is basically committed. Anything on top of that would be in the context of portfolio additions, opportunistic acquisitions, things like that, correct?

Correct.

Yes, there is some maintenance expense -- I shouldn't say maintenance expense, but maybe it's spending that is capitalized at Rail, and at ASC for that matter. But it's immaterial.

Okay. So that is just going to be a huge, huge decline this year. Going back to --

No. Wait, wait. Sorry, Peter, I just -- that is what we are committed to, okay? And our expectation is we will invest, find investment opportunities well in excess of the $35 million that is committed in 2010. If all we invest in 2010 in new equipment is $35 million we will be extremely disappointed.

Okay, got it. Thank you very much. And then share repurchases, anything you can say about that if there is anything on the docket for the upcoming year?

We have some capacity available under our existing authorization. We did do -- repurchased about $55 million worth of stock in the first quarter last year, about 2.8 million shares. But we will be opportunistic and continue to look at the capacity we have available under the existing authorization.

Nothing was done in the fourth quarter?

Correct.

Okay. And how much is left in terms of the authorization, if you could remind me please?

$68 million.

$68 million. Okay, thanks a lot.

Matt Vittorioso, Barclays.

Thank you. Could you just give me a quick snapshot of your total liquidity as it stood at the end of the year, just the different facilities and whatnot?

Sure. We had net commercial paper outstanding at the end of the year of about $30 million, so very low short-term debt position as of year-end. We have a $550 million revolving credit facility that is totally unutilized that backs commercial paper. So you could net the $30 million of CP outstanding against that so you would have $520 million of capacity.

That facility doesn't mature until the spring of 2012. So we have a very large facility standing behind us that is essentially all unutilized. Then on top of that obviously we have the ongoing cash flow that the business generates and portfolio proceeds, which are in the $300 million to $400 million years in a regular basis.

Our only debt maturity, I would point out, in 2010 of anything of note is about -- is a $230 million maturity in April. That is a very light year for us in terms of debt maturity.

Okay, so you have roughly $500 million, I would say, of unused facility capacity, maybe a bit more and of course you generate cash throughout the year. But I guess that would be offset by what you were saying earlier where you expect to invest in CapEx and fleet additions throughout the year.

If we look at your appetite for acquisitions or fleet additions currently, would you be willing to do purchases that exceed your current availability? You would be out in the debt market. Or are we looking at something smaller than that?

No, we would certainty be willing to do and interested in doing investments of any size. The existing capacity under those facilities I don't view as a restraint at all. The capital markets right now are pretty solid. Our access is very strong.

Did a large and very attractive financing just back in September on an opportunistic basis and very confident that we could tap the term debt markets on an unsecured basis as needed.

Very good. Thanks very much.

Rich Shane, Jefferies.

Thanks, guys, for taking my questions. Just a couple. How many cars are up for renewal this year in Europe and what is the total number of cars in Europe?

Total number of cars in Europe is about 20,000 cars. It's actually on the back page of the press release, if you want the exact number.

The average renewal term there is about -- it's much shorter than it is here, so it's about two years. So you can think of essentially a third of their portfolio is going to -- it does turn in any given year.

That said, the European market has been more stable than the North American market. Our European tank cars are primarily in the mineral oil business which as been quite stable. And when we look at 2010, we are actually anticipating a modest uptick in their utilization in 2010.

Great, that is helpful. Then there are 18 ships at ASC. How many of those 18 did you guys do full maintenance on last year and how many do you expect to do full maintenance on this winter?

Well, let's put it in context of dollars rather than the vessels themselves.

Okay.

Last year our total maintenance expense at American Steamship was about $16 million. We would expect a material reduction in that number in 2010 in the magnitude of a $5 million to $6 million reduction in that number in 2010 based on the vessels we anticipate fitting out this year.

Great.

Yes, at the end of the season we had 12 vessels in operation out of the 18. We are not expecting a huge tonnage increase next year, so that gives you an idea.

Okay. And is there leverage -- just so we know how to sort of map this within the P&L for ASC -- is there any leverage on the G&A side associated with this or does it just purely go through the maintenance line?

It's dwarfed by the leverage that you get from every one million tons of incremental iron ore tonnage.

Okay. And then final question, given what you guys saw last year in terms of utilization and volumes on the Great Lakes, what sort of -- if you maintain 12 ships in operation and do the maintenance there, what sort of incremental tonnage can you carry? How much capacity do you leave yourself, so we get a sense of basically how much almost free leverage there is?

We have plenty of capacity within those 12 -- let's just assume you ran the same 12 vessels in 2010, there is plenty of ample capacity in that 12 vessels to meet a nice uptick in demand.

Great. Guys, thank you very much. (multiple speakers) Sorry to cut you off.

That is okay. I just said we would be very pleased if that occurred.

Great. Thanks, Bob.

(Operator Instructions) Mike Grondahl, Northland Securities.

Hello, everyone. Just a couple quick questions. Brian, I think you talked about asset remarketing income and scrapping gains being higher in 2010. What was the reason that you thought those would be slightly higher or higher?

Well, the market hasn't improved dramatically obviously in terms of the market environment in rail, and so scrapping is still -- you will see a lot of scrapping in that kind of environment because you can't put cars to work and the scrap price is much higher than it was a year ago coming into the year. So that is the most obvious reason on the scrap side.

On the asset remarketing side, it's really due to the capital markets improving. So when you just go out -- when you see in the secondary market new competition for small portfolios or small parts of portfolios that are put up for sale, more people are showing up. So we would expect that we will have higher asset remarketing next year.

Basically the debt is -- more debt is available for other buyers' attention?

Yes, exactly. I think it's more the capital markets being better than it is people having some rosy outlook.

Okay, that makes sense. And then two expense questions. Is the maintenance expense of $73 million, is that a fair run rate or was there something unusual in there? I missed that. And then what was all in the $18 million of other expense?

On the maintenance expense, the fourth-quarter run rate I would not use that as a run rate. Actually a full-year basis, consolidated basis, we would expect 2010's number to be lower than that. Not materially, not by 20%, 30%, but it will be lower than that is our expectation.

Bob, lower than the run rate of the fourth quarter?

Yes.

Okay. Thank you.

And then your other question was on --?

The $18 million of other expense, what was all in there?

That encompasses things like car taxes and storage and foreign exchange, provision for losses and reserves. So what we saw in there was really the largest impact was due to foreign exchange. There was also some minor asset impairments.

Okay, thank you.

Gregory Macosko, Lord Abbett.

Yes, thank you. You mentioned in your comments that the rail customers don't want to add cars. Obviously, you said you were replacing competitors, etc. I just wondered if you might comment perhaps a bit on a comment made by one of the railroads.

Now that is not necessarily -- represent all your customers, but one of them said that they are going to cut their CapEx budget over the next several years. And they mentioned as railcar purchase not being -- that would be cut the most. Does that have any implication for you guys?

We do -- not to the extent of other lessors, we do have a lot of railroad customers. Most of -- majority of our customer base is the shipper community, but, yes, we do have railroad customers. There is -- most of the idle cars in the industry are at the railroads, so as their business picks up they will just put cars back to work that they already have.

Okay, thank you very much.

Bob Napoli, Piper Jaffray.

Do you have a feel for what prices are down for railcars at the manufacturers?

It's more of a guess until you place that big order, but if you look at -- on the margin at the peak the way we think about it was probably approaching 20% at these manufacturers. Now they have no backlog so it's approaching zero.

And then the price of steel, if you just take delivery of a railcar today, the price of steel is down from the peak as well. So from the peak a guess would be 20%, 25%, and more for certain car types.

Okay, do you -- it seems like coal car shipments are going to be very weak this year is kind of the suggestion. But you don't have in -- chemical cars, on the other hand, seem to be picked up more than some other types. But do you have many, much in the way of coal cars?

We have about 6,000 coal cars.

Okay. And do you -- is that an area that you see as being one of your weaker areas right now or into 2010?

Definitely, there is a lot of train sets out there idle. Our fleet is pretty highly utilized but in general the market is very tough right now.

Okay. You had other income in Rail this quarter which was like $5 million above what we were looking for. What is -- what is in that? Is it -- scrapping was only $3 million. I don't think it was scrapping, although scrap prices were up a little bit. What else was in there?

Yes, scrap did contribute to the increase there, Bob, and then also there was an increase in third-party repair revenue.

Is that a -- would we look to the third quarter as more of a run rate or --?

Yes.

Okay. Let's see, the -- Italy, any ramifications, any risks from the situation in Italy?

The situation really hasn't changed since we talked about it at the end of the third quarter. The investigation is ongoing and we are still cooperating with the European and Italian regulatory authorities. There is really not a lot of development on that side.

What you did see in the fourth quarter was a spike in European maintenance costs. That is an industry phenomenon. In the wake of the accident obviously there was a lot of attention paid to wheelset and maintenance and inspection, and there are revised -- I should say enhanced procedures, which are still evolving, in the industry around wheelsets. So we did have higher costs from wheelset inspection and replacement in the fourth quarter, as did the rest of the industry.

That will continue in 2010. It's kind of hard to give you guidance about how much since those regulations and those standards are still evolving.

Okay. Just -- your dividend, your payout ratio was -- I am sure it's well above where you would like it to be. We are cyclically, hopefully, bumping around trough-like earnings. But is there any risk or any thoughts around that dividend that there is any risk to that dividend?

We have a Board meeting next Friday. We will discuss -- we discuss it every quarter and it gets approved every quarter but there is a lot of discussion obviously at the beginning of the year given that is when we throw out our outlook. We understand the importance of the dividend to both us and our shareholders and that is pretty much all I can say at this point.

Okay. And then the Marine -- you did say that you expect Specialty earnings to be up year-over-year in 2010, I thought, as part of your -- up slightly.

Right.

And I guess in order for that to happen are you expecting the marine joint ventures to show improvement? What is driving the improvement in 2010?

Really don't see much in the way of improvements in terms of rates or just the general environment in our marine joint ventures, though I think they will still be down, not necessarily further in 2010, but still be struggling in 2010.

As I said in the opening statement, I think the increase will come more from better asset remarketing as well as a lack of credit issues at our customers since the capital markets have improved. And we have seen that abate somewhat as time has gone on.

One other item on that joint venture, or affiliate income line too, is just to remind people that we have a joint venture within specialty with Rolls-Royce and partners in the aircraft leasing business that has done well, has performed extremely well through the downturn. We are expecting another solid performance from them in 2010.

Great. Okay, thank you.

With that, there are no other questions in the queue so I will turn things back over to our speakers for any additional or closing remarks.

Thanks, Kevin, and thanks, everyone, for joining. I will be available this afternoon if you have any additional follow-up questions.

Ladies and gentlemen, thank you again for joining us. That will conclude today's conference call. Have a good day.