GATX Corp (GATX) 2011 Q4 法說會逐字稿

Good day and welcome to the GATX fourth quarter earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Jennifer Van Aken, Director in Investor Relations. Please go ahead.

Thank you, Michelle, and good morning, everyone. Thanks for joining us for the fourth quarter of 2011 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. As a reminder any forward-looking statement made on this call represents our best judgment as to what may occur in the future. We have based these 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, refer to our 2010 Form 1-K and the second quarter 2011, 10Q filings for a discussion of these factors. You can find these reports, as well as other information about the Company on our website, www.gatx.com. I'll keep my remarks brief this morning as Brian will provide some commentary on GATX's performance in 2011 and what to expect in the year ahead. After that, we will take questions.

Today we reported 2011 fourth quarter net income of $31.6 million or $0.67 per diluted share. This includes the aggregate positive impact of $1.9 million or $0.05 per diluted share from tax benefits and other items which are detailed on page 12 of the press release. This compares to 2010 fourth quarter net income of $19.5 million or $0.42 per diluted share which includes the aggregate positive impact from tax benefits and other items of $4.5 million or $0.09 per diluted share. For the full year 2011, net income was $110.8 million or $2.35 per diluted share including the aggregate positive impact of $15.8 million or $0.34 per diluted share from tax benefits and other items. Again, these items are detailed on page 12 of the press release. By comparison, 2010 net income was $80.8 million or $1.72 per diluted share including an aggregate positive impact of $6.2 million or $0.13 per diluted share from tax benefits and other items. The fourth quarter and full-year 2011 results are reflective of our favorable operating environment.

In rail, utilization was strong ending the year at 98.2% in North America and 97.1% in Europe. We maintained this utilization while achieving lease rate increases. During the fourth quarter, the lease price index improved to 13.2% resulting in a full year LPI of 6.9%, stronger than what we anticipated coming into the year. During 2011, we took delivery of more than 1,100 railcars ordered under our five year supply agreement. Total investment volume across GATX was $615 million in 2011 compared with $585 million in 2010. American Steamship Company carried 28.4 million net tons of cargo in 2011 compared with 28.0 million in 2010. Due to favorable weather conditions in the fourth quarter, ASC was able to make up a good portion of the volume lost due to a brief strike by the American Maritime Officers union in August.

Portfolio management also had a solid year. Asset remarketing results were improved and Rolls-Royce and Partners Finance had strong performance. In the coming year, leases on over 20,000 railcars are scheduled for renewal in North America. We expect the lease price index to be positive, likely in the positive mid-teens and for utilization to remain steady. We also anticipate continued asset remarketing opportunities and somewhat better demand at American Steamship Company. As we look to the year ahead, as noted in this morning's press release, we currently expect 2012 earnings to be in the range of $2.40 to $2.60 per diluted share. With that overview, I'll turn it over to Brian.

Thanks, Jennifer. Between the press release and Jennifer's comments, you should have a pretty good understanding of what drove our financial performance in 2011 and what to expect from an EPS perspective in 2012. So what I'll do is I'll briefly tough on a few strategic issues and then talk a little bit about how some of our tactics may change in 2012. As we have detailed repeatedly on prior earnings calls, our rail strategy during the downturn was to add railcars at the more attractive prices that were available in the down market and then to keep lease terms short in order to capitalize on an eventual market recovery. And that gross strategy was successful and it culminated in the largest railcar order in GATX's history in the first quarter of 2011.

It was also very fortuitous timing as the recovery in the rail market accelerated beyond our expectations in 2011, and that was just as we were taking delivery of the new cars under the new committed order and just as we were remarketing cars that we added to the fleet during the downturn. So if you combine the new deliveries, a large number of existing cars renewing, and rapidly increasing lease rates, you have the reason for rails' better than expected performance in 2011. These same factors will be the main drivers for rails' increased financial performance in 2012. If I had to offer a data point in support of that optimistic view, it's where we stand on our committed railcar order that we placed in 2011. Not only did we place 100% of our 2011 deliveries with customers at attractive prices and terms, we actually already sold out on our 2012 deliveries and we're working on placing our deliveries well into 2013. So, so far, so good.

We are also going to continue to push hard to increase lease rates in 2012. Just as we did in 2011. However, as the lease rates approach and exceed what we believe are attractive long-term averages on various car types, we are going to pay more attention to lease term in 2012. The desire, of course, is to lock in some of these attractive rates for as long as possible. So as we move through the year, you will hear us talk about trading lease term -- lease rate I should say for longer term, and I want to emphasize that when I say trading lease rate for term, I'm not talking or suggesting that we expect to see lease rate decreases. I'm referring to the size of the lease rate increase we will seek versus the length of the term we will try for. Obviously the answer is we'd like both much higher rates and longer term, but it's going to be a trade-off to monitor as we move through the year.

Moving to growth for a minute. Obviously that was an important and successful focus of ours in the weak market over the last few years, however, as the rail market continues to improve, asset prices will increase. In fact they already have increased, and attractive fleet growth beyond our existing committed railcar order will become more challenging. And that's just the way our business works. Increasing railcar values are great for current results and not so great for discipline growth. So we will focus hard on growing our fleet in North America, especially to support our best customers; but it's probable that our growth focus will also shift somewhat to our European tank car business where the lease rate factors are in better alignment with car cost, as well as focusing on emerging rail markets where potential growth rates are generally much higher. So that's how we are thinking about the rail business.

I wanted to touch on American Steamship for a minute. Although they did have a solid year from a buy-in perspective, as Jennifer already referred to, they did have to deal with the short strike from the AMO union in August that did impact their operations in the third quarter. We never want to get to that point with any of our unions, but in this case we really had no choice. We had a severe cost disadvantage relative to our competition on the lakes that had different unions. The good news is we are pleased to announce that we very recently reached an agreement with the AMO that works for both sides. It will make ASC costs competitive with any competitor on the lakes and still protect the wages and benefits of our union members. As you have noticed the last few years, we have had at least three vessels tied up and out of operation and sometimes a lot more than that depending on demand and high operating costs; but with this new agreement, we hope to get some of these vessels back sailing profitably in the coming years and even create some jobs in the process. So good news at American Steamship. And if North American auto demand increases as some forecast suggest, it could be a strong 2012 for ASC.

I should also comment on our former specialty segment, now renamed Portfolio Management. In recent years you've heard us talk about trying to establish a growing and diverse industrial equipment finance platform as part of that specialty segment. The business was profitable and even in the severe downturn, it generated very few losses; but despite the best efforts of the IAF team, achieving consistent investment volume was challenging due to an increasingly competitive landscape in this market, in particular banks aggressively pursue this market and they have driven down pricing to unattractive levels given our cost of capital. So continuing to pursue this type of investment and make it a significant contributor to GATX is just not the best use of our resources and we have elected to cease that activity. So going forward the portfolio management segment will manage our nonrail joint ventures, such as the marine JVs, the JV with Rolls-Royce, our gas compression joint venture, and they're also going to manage the leasing portfolios for our third-party customers. You will see occasional investment in this segment especially in the domestic marine market where we have done very well. But in general, this segment is going to be a lot more about generating profits from existing ventures and investments than it will be about generating significant growth.

And lastly, we need to continue to focus on operating efficiencies and once again with particular focus on continuing the efficiency gains we have produced in our rail maintenance network over the last few years. In the next few years, we are going to see scheduled tank car compliance work increase; and entering that period, we want to be as efficient and as safe as possible. So there you have it. We feel we are squarely in the middle of the up part of the rail cycle. We feel we have put ourselves in an excellent competitive position. We are intently focused on continuing to improve profitability to a level above the prior peak. And perhaps most importantly, we are looking ahead at improved strategies and tactics as market conditions change. So with that, let's go ahead and open it up to questions.

Thank you. (Operator Instructions) Art Hatfield, Morgan Keegan.

Good morning, this is Derek Ribian in for Art. How are you?

Good.

We have seen a quicker turnaround in the lease price index than originally you had anticipated and then continued strength since then. Can you just talk about where the absolute lease rates stand today, maybe relative to peak levels when you were signing contracts north of 60 months? Then, can you speak as to how far we have to go back to get to those levels?

Yes. As usual that's a car type by car type answer, so as not to frustrate you, let's talk about general service tank cars, which are the backbone of our fleet and our largest car type. Looking at the peak rates of a couple years ago, from the peak in, say, 2008 down to the bottom in late 2009, lease rates had dropped over 50%. Now, since then they have come back up dramatically, but if I look at where they are now versus the peak, they are still well short of that, perhaps 20% or more. So, if you look at the revenue upside in our most common car type, it's still considerable moving forward.

But other car types that have -- in the best example and we have talked about this in the past conference calls, are the 30,000 gallon tank car. There's an example where lease rates fell 75% from the peak in 2008 to the bottom in 2009, and now they are right back up at that peak that you saw in 2008. That's increasingly the case for various car types. Those are the car types where we are trying to push term. But still, there's considerable upside in our fleet because of the composition of our fleet and the fact that we haven't reached peak in some of our most common car types, but lease rates are absolutely increasing as we move through the year.

Okay. Great. Second question is, just on the Shell opportunities. Can you remind me how much you're doing currently with that business? Then, what kind of interest are you seeing from your customers?

Well, currently we have a few hundred cars in that service. I think what we said before is we will likely do more, but we are certainly not looking to skew our fleet to service that particular market.

We are being very careful. There's a lot of inquiries around that market. We are trying to do business with the best customers and trying to push it out for the longest terms. We are being very careful how we approach that market in some ways. We've said this on prior calls, it's starting to feel a little bit like the ethanol market did during the prior peak, so we are going to be just as careful here as we were there. But it's definitely driving industry performance.

All right. Great. Then, just finally on scrapping gains. You're coming off of two strong years of [gains] related to scrapping railcars. What kind of level should we expect to see in 2012? Do you expect to get back to some 2009 level closer to $10 million, or 2010 closer to $18 million, or how should we think about that?

I would say it's closer to the 2010 level, Derek.

Okay.

$18 million to $20 million, somewhere in that range.

All right. Great. Thanks for the time.

Thank you.

Steve Barger of KeyBanc Capital Markets.

You mentioned in the release it's going to be hard to find cars for growth due to rising asset prices, but if you did find a customer where the economics made sense, are build slots available today? Or how long would it take you to get a car if you did order it today?

Well, obviously, in our committed purchase program, we are sold out well into 2013. We can order cars above that, just in the spot market, but if you look at backlogs in the market right now in the tank car market, it's still over a year, 12 to 15 months.

Right.

Freight car, it's actually come down a little bit. I think it's more in the 6 to 12 month range, so it takes a while to get those cars delivered, which is a good thing once again for current results. It's not like we are giving up growth in the US. There's different tactics you can use. In general even though you may not like the price you're paying for that car because it's escalated considerably over the past few years.

Lease rates are also pretty high and if you can lock in those lease rates for a very long period in that initial lease term, you can essentially amortize that cost. So that's an example of a tactic you can use to continue to make investment. You also can look increasingly at the secondary market and for -- people sell cars. It's a very active secondary market and people sell cars for various reasons, exposures, the inability to place -- they just don't have the same marketing capability we do. There's various reasons we can get a hold of cars at attractive valuation, so we look at the secondary market a lot. So, definitely not giving up, but just an indication it will be more difficult as asset prices increase.

Right. Well -- and to your earlier point about focusing on term rather than rate, what kind of commitment would you need to see to have -- generally speaking, to have the economics make sense for -- to place additional new car orders?

You're going to hate that answer too because, once again, it depends on the car type. But I will tell you, it's getting pretty long. If you place a spot order today, in a lot of cases we are trying to push new car terms out 10 years or more to really amortize that additional cost we're paying.

So, as you go through 2012, we should expect the average renewal term is going to extend quite a bit beyond what you're booking right now?

I think --

Yes. Go ahead.

The point Brian was making, on a new car that's kind of the term we are looking for. Remember, we have 20,000 renewals -- 20,000-plus, and we won't get 10 years on those renewals. So, we are looking for something, we finished the year I think right around --

49.

48 or 49 months in the fourth quarter. It could be up from that, but it's not doubling.

Yes. It really depends on what's up for renewal at a given point in time and where you are in that lease rate cycle.

One more and I'll get back in line. We all know the shale plays are strong contributors to the cycle. But just looking at your own specific fleet, can you talk about the themes or individual markets that you think are just going to be really big drivers of utilization and pricing? Maybe, touch on any areas that are potentially weaker for 2012.

Well, anything construction related remains weak -- so, aggregate, hopper, center beams, things like that. But when you talk about parts of our fleet where -- that are particularly strong, it's a difficult answer because not only we're 98.2% utilized overall on the tank car side, we are more like 99.5%. So, the answer is everything is pretty strong right now. If you look at what's particularly strong in the industry, you already mentioned some of those. I know the frac sand market, anything involving a 30,000 gallon tank car, you're seeing renewed strength in auto carriers. So, there are broader based increases in demand across our fleet but the fact is our fleet is in high demand, period.

If you think about the -- Steve, it's Bob just from the kind of the mathematical side of the equation here. Out of the cars we have idle, first of all we don't have many idle cars, call it 1,800 cars or so. But as we have indicated before, about half of those are center beam. So, when you back those out of the -- and they are not going -- some of those may not go to work for a while. So, when you kind of look at the rest of what's available, there's very little, and we are trying to capitalize on that dynamic.

Thanks. I'll hop back in line.

Paul Bodnar of Longbow Research.

Just wanted to see if we could get a little more detail on what's the lay of the land in Europe both on the tank car side as well as your other business there?

Sure. On the tank car side it's a very strong market. As you probably know, we have about 21,000 cars on our own platform, which is all tank cars in Europe. They have over 97% utilization, their primary markets of petroleum and chemical are very strong at this point. As we've said on prior calls, they never really experienced the downturn that we did in North America -- or that they did in the freight side in Europe. So, that business is chugging along. As I said, investment opportunities there are actually very attractive right now, and there's a big replacement cycle that's happening in Europe. People are upgrading to higher capacity, more efficient cars, so we are very bullish on the tank car business in Europe.

Freight car side, obviously more impacted. Traditionally that business had been a 99% utilization business. It took a beating in 2009, it's very dependent on container traffic and the economy in general. Effective utilization there right now is still probably around 90%. It has come back off the bottom, but it's been a very slow recovery. If you look at the macro situation in Europe, it looks like it's going to be a long slog out on the freight car side.

Okay. Just one other detail, anything in North America you -- I think you made some specific comments and maybe I missed this -- just on the grain market and what that looks like this fall, was it a little bit weaker than usual? Do you have any expectations there going forward?

Well, our grain fleet, if not 100% utilized is very close, and actually I think last quarter we talked about that's one of the car types where current lease rates were approaching the peak. I think it probably backed off a little in the fourth quarter but that -- I haven't got any color there other than that could have been the timing of the harvest. So, still a very strong car type for us with very strong rates.

Okay. Thanks a lot.

Steve O'Hara of Sidoti.

Could you just remind me how the sold out cars get priced in terms of the lease rates throughout the year? If they are sold out through 2012, how do the lease prices get calculated?

Well in general, we protect ourselves as car costs increase, we make sure we are protected from a lease pricing perspective. That's probably the best way to put it. Because we have not -- builders are not quoting fixed rates. Our contract, our committed purchase order with Trinity is a cost plus. We place cars well in advance, car costs could increase between the time we place the order and the time the car is delivered. So, we make sure we are protected with the customer as far as indexing that lease rate to that car cost.

Steve, I would also add too, we are mindful of the funding cost side of that equation too. So, we take various measures to try to protect ourselves on that front. Everybody in the industry does things a little bit differently, so hence the reason we are probably a little bit -- not as specific in how we do that. But we are very comfortable that cars we are pricing today and putting into the fleet for committed delivery in 2013 will be a very good economics for GATX.

Okay. Then, as a follow-up, in terms of the -- let's see, you had mentioned funding costs. Has the dynamic changed in the industry where maybe your funding costs are more competitive to some of your biggest competitors than in the past?

I think where we saw the real power of having a solid credit rating, like we have, and the ability to access the capital markets when we need to was when the capital markets were most constrained back in 2008, 2009 and 2010. We were able to continue to invest and invest aggressively at times when others had to go to the sideline. So, we were able to buy a lot of cars during that time frame at really attractive prices when others just couldn't access the capital to do so. Right now the capital markets are pretty accessible for everybody. Just comes down to a question of coupon. But even on that front we feel we are in very, very good position.

Okay. Then, just finally on the ASC contract, is this something where you have to give a little something on rate and maybe you gain productivity, or did you actually gain on the rate as well?

The major issue for us in that contract was around productivity and manning, and I think we made significant strides there.

Okay. Thank you very much.

Matthew Dodson of Edmunds White Partners.

Can you talk just a little bit on the Steamship side? You talked about potentially bringing out capacity, and is that because you're seeing stronger demand? Or is that because you have better terms now with your unions and you are more competitive on a pricing standpoint?

Well, hopefully in the short term, I think it's going to be increased tonnage, and if you believe some of the auto forecasts out there, we should see increased tonnage in 2012. Longer term some of the older, less efficient vessels we have are now going to be more competitive, and over the longer term we hope to bring them out, whether it's in the same service or new service and make -- and have those profitably sailing. But in the near term in 2012, it will be more hopefully from increased tonnage.

Then, just relative to pricing, are you seeing the opportunity to push price at all since there's been a lot of consolidation in the industry, or is that not something that you have the ability to see?

Increased pricing does not stand out, it's really more tonnage driven on the Great Lakes. It's a very competitive market.

The last question I have for you just relative to that business is longer term, is that a business that you want to be in? What's the competitive advantage and how does it kind of fit with your other business?

Sure. Well, the asset base fits very well. We talk often about the fact that we like to invest in long [life], widely used assets that have a service component and that we know well. American Steamship's been in business for over 100 years. We have owned it since the early 1970s. We know the assets and the markets extremely well. We have a great competitive position. It is a bit of an outlier within GATX because it's the one business where we actually own the assets and operate, but it's a very solid performer for GATX. Obviously, we are a public Company, so everything is for sale every day. But it's a solid performer for GATX and we like the position we are in there right now.

Rich Fitzgerald of Jefferies Investment Advisors.

Just wanted to get your perspective on what you're seeing from the manufacturers, specifically their willingness to and interest in ramping up production to take advantage of what seems to be a pretty advantageous pricing environment.

Yes, it's a good question. There have been some capacity increases, in particular, two manufacturers have opened up some capacity primarily in Mexico. I don't have a great answer for how much capacity that adds, our guess is in the range of 5,000-plus cars. So, you have seen some new capacity come on board. But on the other hand, I already gave you the backlogs and they are still way out there, so it really hasn't had an impact on the market itself. But it's a great question because that's something we are always going to watch.

Then, just a quick follow-up. Conceptually the trade-off between pushing lease term and perhaps somewhat lower rate increases, I think make sense given the strength of the environment. I guess the question for you is to what extent is that just normal through the cycle portfolio management, and to what extent does it suggest that the visibility into further LPI strengthening from here, might be a little bit limited?

No. It's typical of the way we look at the marketplace. If you look at how we have managed rate and term -- or term over the past cycle, this is a process that we have undertaken before. We think we are fairly disciplined around when we believe the time is right to start looking at longer terms. There is quite a bit of analytics that go behind it. So, we feel good about that strategy and it's worked for us in the past. Conversely, at the end of 2008, 2009, and 2010, when the market was very weak, we stayed short and a lot of those cars will be coming up for renewal this year and next; and we feel we will do very well on those.

It's a great question because it's the endless internal conflict within the GATX fleet group about when to push term and when to really push rate. It's actually even a more complicated answer because you're also looking at your renewal and expiration profile. You don't want to have too much expiring at one time as an example. So, it's a calculus they do very well in the fleet group. But right now I would agree with Bob, it feels more like it's just standard way we manage our portfolio as opposed to a view on prices.

That was very helpful.

(Operator Instructions) The next question is a follow-up from Steve Barger.

Hey, thanks for taking my question. Sorry if I missed this, but can you give us any detail on the asset remarketing that occurred in portfolio management; just what did you sell there?

There were some marine assets that we sold within that portfolio. Then, I would say also, I mean, generally some diversified equipment. There wasn't any particular transactions that stand out. If there were any, it would be on the marine side where we captured some very good economics on a few assets.

Okay. To the earlier comment on required tank car maintenance, what percentage of the fleet needs to be worked on and how long does that take, what kind of work is required?

Well, what I was referring to specifically was the HM201 essentially tank integrity compliance work that's scheduled every 10 to 15 years. What we have seen is it peaked a couple of years ago, it came down 2009, 2010, it's been pretty flat. In 2011, we will be flat in 2012, then we will increase in 2013; but as far as the amount of cars that we touch in a given year, that's a massive number.

Yes. In terms of service events in a given year, Steve, that number is upwards of 80,000 service events in a given year. That doesn't mean we touch 80,000 cars, but --

Right.

The service end of the business is, as you know, very extensive and it's an around the clock activity at GATX.

If you look at what's driving maintenance, obviously it's the size of the fleet; it's where you are in the regulatory cycle, as we just talked about. It's the level of road repair activity, which has been increasing in the past couple of years especially around wheel replacements. The thing we always try to drive home, it's also driven by commercial activity. So, in a very strong market where you have 80% renewal rate like we saw in the fourth quarter, there's going to be less shop visits and lower maintenance. In the weak market a couple years ago, where there's a lot of customers returning cars and a lot of assignments, there's more shop visits and higher maintenance. So, when you look at this favorable year-over-year maintenance comparison in North America right now. It's a relatively static environment in terms of compliance events in the tank car fleet. You see a downward trend in the volume of general repairs and that's due to the strong commercial activity. That's being offset somewhat by higher railroad repairs, mostly driven by wheel change-outs. So, complicated answer but in general, what people neglect to realize is commercial activity to a large extent drives your repair activity as well.

That's great detail. I appreciate it. Thanks.

Kent Mortensen of Thrivent.

Maybe I missed this, but did you talk about how we should think about remarketing income for 2012 versus 2011?

Kent, it's Bob. No, we have not. Happy to do so. We had a very good year in terms of remarketing as you can see with $45 million. We are anticipating, given where asset prices are right now, liquidity in the secondary market, access to capital for buyers of GATX's assets that we'll have another very strong year in 2012, in that range or maybe even a little bit north.

Okay. I understand that the European market for tank cars is reasonably stable, but I'm assuming that given the financial distress over there amongst, perhaps, some of the owners of those cars or just financial institutions in general. Is there an opportunity there for you to be very aggressive? I mean, are there potentially some large amounts of assets that could be available in Europe for you to take advantage of?

That's a very perceptive question because it's starting to feel in Europe and probably more on the freight car side, but it's starting to feel in Europe like it did in the US back in late 2008 and 2009 where there's a lot of distress economically and some of the competitors aren't doing too well. We haven't seen anything come up for sale, but it's a good question because we will be very focused on probing that very issue.

Okay. Then, there's -- this cycle we've had kind of an increase with regard to manufacturers building their leasing operations and I know that's something that we have had to kind of keep an eye on. How is that trending at this point? Are you seeing them acting rationally at this point or any comments on that?

Sure, Kent. This is Bob. We definitely saw that during the real strong markets of '06, '07 and '08, definitely less so during the downturn. I would say today right now, we are seeing very rational behavior from the manufacturers, certainly haven't seen anything irrational.

Okay. And for -- you talked about 20,000 cars being up for renewal in 2012. What does that number look like in 2013?

Yes, we disclosed the year ahead, Kent. We don't go much -- farther out from that. It likely will go up but it's not like it's going to go from 20 to 30.

Okay.

For example, it's not that much of a stair step.

Okay. Excellent, great. Thank you.

Zahid Siddique of Gabelli & Co.

Couple of questions. First, could you provide a little bit more detail on the JV with Rolls-Royce, the engine JV?

Sure. What type of detail would you like? I'm happy to comment on it.

Meaning maybe what was your share of income and what is the number of engines that are part of the JV and the -- how the pricing works and profitability works.

Sure. I can't comment specifically on the profit stream from that joint venture because we don't break that out separately, but it is a very profitable investment for GATX. Within the Rolls-Royce and Partners Finance joint venture, there is roughly 350 spare commercial engines. It's over $2 billion worth of engines within that portfolio. The transaction, the leases themselves are -- they look very similar to railcar, a full service railcar lease. They are long term and they typically are backed by a service contract with Rolls-Royce, the parent company. So, they are effectively full service leases, very similar to what you might see in rail. The terms also in -- length of term would be very similar. That's one of the reasons that we -- when we sold our aircraft leasing business a number of years ago, we retained that piece of the business. It has a very attractive income return profile, but also the asset composition feels very much like a railcar.

Okay. That's helpful. Then, the other question I have is on the availability of any large portfolios. Is there anything out there -- I know you didn't have much in the recent quarters. Has that changed in any way?

In terms of the very big portfolios, can't really comment on that too much. We are not aware of any significant portfolios, right now, that are in the marketplace. Obviously, we are always looking. We look across the board at small packages that might be available on the secondary market, hundreds of cars up to thousands at a time. But the mega portfolios that people have talked about in the past, we are not aware that they are being shopped at this point.

Okay. The last question is on the orders that you have been placing for new cars. Is there a chance that you potentially could overshoot, if the economy slows down and you have a backlog of cars in your orders and you may not need them -- is that a concern that you have evaluated?

We certainly evaluated it before we placed the five year order that we did. We felt very comfortable at 2,500 cars a year. That would be a very manageable supply of cars really regardless of the environment, and we still absolutely feel that way.

Thank you.

Kyle Joseph of JMP Securities.

Congrats on a good quarter.

Thank you.

Just a few little follow-up questions. The ASC division had really strong revenue growth. How much of this was attributable to the favorable weather, if you could break that out? Or what would be a more normalized revenue growth year-on-year for the Company -- or for that segment?

Well, it's a little bit difficult given everything that went on there this year. I will tell you the fourth quarter was extremely favorable from a weather standpoint. We tend to look at it more in terms of tons.

Okay.

We moved at least a million tons more this year in the fourth quarter than we did last year in the fourth quarter. That's directly due to the fact that we had a steady flow of demand coming out of the strike. We certainly had contract customer requirements to fulfill, but also the weather was unusually favorable, particularly in December. When you normally would run into choppy weather and high winds and ice, we really had none of that in December, so it led to an excellent quarter.

Okay. To put that in perspective, the million tons, what was the total tonnage moved in the quarter? Just to see what percentage increase that was.

It was -- in the fourth quarter of 2011 was 9.7 million tons.

Fourth quarter total.

Okay. So that -- yes, that's helpful. Thank you. Then, just to clarify, I think Jennifer said it earlier, you have purchased 1,100 cars on the Trinity agreement so far; is that correct?

That's how many we took delivery of in 2011.

Okay. So, you still have a lot more to take delivery of there. Just wanted to see what -- how many were left. Okay. Thank you for answering my question.

That will be on a calendar year too, so we will typically take delivery of the 2,500 that we are scheduled to take.

Right. Thank you.

Thanks.

Gregory Macosko from Lord Abbott.

With regard to Europe, you have basically 100% is tank cars, correct?

On the owned side, 100% is tank cars. We also have a joint venture on the freight car side, which is another 25,000 cars. We have about 37.5% on the joint venture.

Is there any -- does the joint venture limit you from becoming involved in anything other than tank cars in Europe and is that possible, or do you think about that?

We think about that but we are a good partner and we've -- anything we would get involved in Europe outside of tank cars, we would discuss with our joint venture partner.

Given the difficulty in the other part of the market, it sounds like it's tougher at this point, does it make sense for that joint venture to grow that piece as the joint venture, add cars or anything?

Right now the joint venture is not adding cars but we had an earlier question about that. It's something we should definitely look at as we go forward here because, as I said, it's starting to feel over there like it did in the US a couple of years ago where there's a lot of economic upsets. There's some lessors struggling, and it's unclear about their willingness to stay in the business. So, we will probe on the freight car side in Europe to see similar -- just to how we did in North America to see if anybody would like to make an exit of that business, which would be attractive to us. But right now there's nothing going on.

Yes. Okay. Then, with regard to the Rolls-Royce joint venture, are there engines being added to that venture periodically as basically as there's growth in the airline business?

Yes, there are, Greg, both within the joint venture. It's a self-financing joint venture, so it typically will be adding engines in a given year, new engines to the portfolio financed right out of its own bank lines and cash flow. Then, occasionally we look at opportunities that are large enough that would require some additional equity contributions from either ourselves or Rolls-Royce and we've done that in each of the last two years. So, the growth prospects there are very strong.

And is there -- and are you both committed to each other so you share any opportunities or does Rolls do it on its own or --?

No, this is Rolls' vehicle and the business -- it uses for its spare aircraft leasing business.

So, you are both on the same page when it comes to growing there, right?

Absolutely, and whatever we have contributed and whatever Rolls has contributed, we have matched dollar for dollar and we have been partners a long time.

Okay. Then finally, with regard to the railroads themselves, could you give me any sense of what you're feeling from the standpoint of their maintenance and their upgrade managing of their lines. Are we going through a cycle here where it is -- we maybe have peaked on it or do we expect more maintenance? I mean just as a -- kind of an indication of how those cars are just moving across the network.

Little difficult for us to comment specifically on the Class 1 maintenance programs but if you look at their public statements and kind of directionally what they are doing. They are continuing to invest very aggressively in their infrastructure and will continue to do so to try to enhance the efficiency of their lines. In certain cases they will continue to own some rolling stock and in other cases, they may look to redeploy some of that capital into other projects. So, we are certainly not seeing or hearing of any major change in philosophy to Class 1.

You don't feel any, shall we say, slowness or your customers don't feel slowness regarding just the movement relative to the maintenance or anything, or is there any issues there at all?

Not on the maintenance side. It's more of traffic issue.

Well, traffic -- (multiple speakers)

Velocity. That's more of a driver, but not on the maintenance side.

Okay.

We are not hearing that, no.

Okay. Thanks very much.

Okay.

Thank you. There are no further questions at this time. I'll turn the conference back to Ms. Van Aken. Please go ahead.

All right. Thanks, Michelle, and thank you, everyone, for your participation. I will be available this afternoon to answer any additional questions. Thank you.

Ladies and gentlemen, this does conclude the conference call for today.