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Executives

Jennifer Van Aken – Director, Investor Relations

Brian Kenney – President and CEO

Bob Lyons – Executive Vice President and CFO

Analysts

Art Hatfield – Raymond James

Steve O’Hara – Sidoti

Steve Barger – KeyBanc Capital Markets

Matt Brooklier – Longbow Research

John Reilly – South Ferry Capital

Barry Haimes – Sage Asset Management

Kristine Kubacki – Avondale Partners

GATX Corp. (GMT) Q2 2012 Results Earnings Call July 19, 2012 11:00 AM ET

Operator

Please standby, we are about to begin. Good day, everyone. And welcome to the GATX Second Quarter Conference Call. Today’s call is being recorded.

At this time, I’d like to turn the conference over to Jennifer Van Aken, Director, Investor Relations. Please go ahead.

Jennifer Van Aken

Thank you, Ann, and good morning, everyone. Thanks for joining us for the second quarter conference call. With me today are Brian Kenney, President and CEO of GATX Corporation; and Bob Lyons, Executive Vice President and Chief Financial Officer. I’ll give a brief overview of the results provided in our press release earlier this morning, and then we’ll take questions.

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 maybe outside the control of the company. For more information, refer to our 2011 Form 10-K 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.

Today we reported 2012 second quarter net income of $23.5 million or $0.49 per diluted share. This includes the negative impact of $15.3 million or $0.31 per diluted share from tax adjustments and other items which are detailed on page 12 of the press release.

This compares to 2011 second quarter net income of $26.4 million or $0.56 per diluted share, which includes the positive impact from tax adjustments and other items of $6.2 million or $0.13 per diluted share.

Year-to-date 2012, we reported net income of $53.8 million or $1.13 per diluted share, including the negative impact of $17.5 million or $0.36 per diluted share from tax adjustments and other items. Again, these items are detailed on page 12 of the press release.

Year-to-date 2011, we reported net income of $46.3 million or $0.98 per diluted share, including the positive impact from tax adjustments and other items of $12.6 million or $0.27 per diluted share.

At the end of the second quarter, GATX’s North American fleet utilization was 98.3%, and utilization in Europe was 96.3%. The renewal rates for railcars in the lease price index were 23.9% above expiring lease rates and lease terms were 59 months on average for renewals in the quarter.

The renewal success rate in North America remains strong in the mid 70% range, which is reflective of the continued strong demand for many car types in the GATX fleet. In particular, we continued to see strong demand across our tank car fleet. We are seeing ample opportunity to lock in attractive rates on long-term leases and will continue to pursue this objective.

American Steamship Company has moved more tonnage year-to-date 2012, compared to the same period of 2011, driven by increased demand for iron ore shipments by steel manufacturers. ASC expects to move modestly more volume in 2012 than in the prior year.

Portfolio Management had another solid quarter, benefiting from strong results at Rolls-Royce and Partners Finance, and improving charter rates for the ocean-going marine joint ventures operating in the ethylene market.

During the second quarter, investment volume was nearly $240 million, primarily in rail and inland marine assets. Rising asset prices make it more challenging to find economically attractive investments in secondary market assets, but our team is doing an excellent job of executing on select opportunities.

In addition, rail cars delivering under our multi-year order program are insignificant demand and we will continue allocating these cars on long-term leases to some of our strongest customers.

As we noted in the press release, we are raising our full year 2012 earnings guidance to a range of $2.65 to $2.75 per diluted share. The increase is based on the continued strength in rail and excludes any impact from tax adjustments or other item.

So, with that overview, we’ll go to your questions. Ann?

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions) We’ll take our first question from Art Hatfield with Raymond James.

Art Hatfield – Raymond James

Good morning, everyone.

Jennifer Van Aken

Good morning.

Art Hatfield – Raymond James

Hey. Just a couple quick questions and I want to see if I understand that, but I want to start with the American Steamship. It looks like I think the numbers that I had calculated in the quarter that roughly revenue year-over-year was up about 34% ballpark and it looks like in your stats, tonnage was up about 17%. So is it fair to say that pricing is kind of the difference there and that you’re pricing mid-teens type pricing increases at American Steamship this year?

Bob Lyons

Art, it’s Bob. We have seen favorable pricing environment at American Steamship. I can’t comment specifically on the percentage rate increases, but it has been a very good environment for us.

Art Hatfield – Raymond James

Is that business mostly, my understanding is it predominantly contractual and if that’s the case, is it fair to say, what we saw in Q2 is should be something we could see the rest of the year or am I wrong about my thinking about it being mostly contractual?

Bob Lyons

No. It is mostly contractual. We expect a very solid year or second half of the year for American Steamship. The only two things I would point out, one is, we did move a disproportionately higher percentage of iron ore during the second quarter, which is a higher margin move for us.

We would expect to see a more kind of traditional balance during the second half of the year or we’ll still be the majority of it, but we’ll move more coal and limestone too. And then also we have in the fourth quarter a lot of the activity is really weather dependent.

Art Hatfield – Raymond James

Right.

Bob Lyons

Last year in the fourth quarter, we had a great operating environment with very good temperatures and very little wind. So we were able to operate almost straight through the fourth quarter and we’ll have to just see what this year entails.

Art Hatfield – Raymond James

Just one last thing on ASC that, can you talk about how we can think about, how the strike maybe impacts the year-over-year comps this year relative to the last year?

Bob Lyons

Well, I’d say in the, through the second quarter, there wasn’t a significant amount of strike expense incurred yet. That really was in the first part of July…

Art Hatfield – Raymond James

Okay.

Bob Lyons

… where we had the operational disruption, and we -- as we talked about last year, at year end, it was probably in the maybe $3 million range total when you look at it over the full year. But most of that was really incurred in July.

Art Hatfield – Raymond James

Okay. Thanks on that. Just thought I would move to the rail group then, my recollection and I really didn’t have a good chance to go back and look at the long-term. But the quarter that we just ended, that was the best performance of the LPI that I can remember and maybe ever. Can you talk a little bit about what was going on there, because my and I recall, last quarter you had discussed the possibility that you didn’t expect to repeat the performance we had seen in Q1? So, is the market kind of surprising you with where it’s at or were you just trying to be kind of conservative within your guidance or your thought process coming out of Q1?

Brian Kenney

No. It’s Brian. It’s fair to say that we have been pleasantly surprised by the strength and it’s in the tank car market.

Art Hatfield – Raymond James

Right.

Brian Kenney

I mean, the tank car fleet’s almost fully utilized, as you know, it’s driven at this point mostly by the demand for petroleum and we’re seeing very healthy price increases in that, on the tank car side. And that’s really across the tank car fleet, there’s no real car type that I would single out as being weak, not very strong.

Art Hatfield – Raymond James

Yeah. That’s helpful. And does the market, I go back to the ethanol boom and how that was kind of really focused in a select segment of the tank car market. But you just mentioned, you’re seeing a much broader base demand? But is it fair to say that this market is for tank cars is one of the healthiest you’ve ever seen and if that is the case, what are the factors you think that could cause this to slowdown or is this a, are we at the beginning or maybe a multi-year trend based on some of the changes that have occurred in the U.S. economy over the last couple of years?

Brian Kenney

Well, we see no slowdown in that demand for crude for sure. But there’s always things that can affect it. People can bring on more capacity that’s been relatively constrained to this point. I know Greenbrier announced a slight capacity increase on tank. I just think in their earnings release actually, but that’s relatively minor, I think it was 1500 additional cars.

Art Hatfield – Raymond James

Right.

Brian Kenney

But more capacity could come on. Another thing, its -- we are not seeing it yet, but ethanol producers are under stress right now with their corn crop projected to be what it is which is down from the initial estimates.

Remember that travels, the ethanol travels in the same type of car. So those cars could become available for crude service and that might take some of the gas off those huge pricing increases.

But right now the demand looks strong. We don’t see any difference. But it’s very important to point out that just like we were very careful during the ethanol boom, we are being very selective during this boom as well. As you know we are pushing turnout dramatically, you saw that in the numbers in the quarter.

Art Hatfield – Raymond James

Right.

Brian Kenney

And we are being very careful about who we leased to, their creditworthiness and the term that we leased those cars to them for.

Art Hatfield – Raymond James

Okay. Great. That’s all I got today. Thanks for your time.

Operator

We’ll take our next question from Steve Barger with KeyBanc Capital Markets. I apologies actually it’s Steve O’Hara from Sidoti.

Steve O’Hara – Sidoti

Hi. Good morning.

Jennifer Van Aken

Good morning.

Steve O’Hara – Sidoti

Can you just talk about, I think what are your competitors had noted that, they had a number of cars moving over the next couple of years and I think their order wasn’t sold out as yours is through 2013.

And I’m just wondering, do you think that’s, and I think it was primarily a tank order. I’m just wondering is that a difference that maybe specific car types or do you think maybe they are pushing price a little more than you guys are, if you could just talk about that a little bit?

Brian Kenney

I don’t really have specifics on what they are doing. I assume you’re referring to CIT.

Steve O’Hara – Sidoti

Correct.

Brian Kenney

Okay. While it’s unclear how much of that order they announced, was a new order versus a compilation of other earlier smaller orders, so we don’t really know. And so you should see comment from them.

But I think it just reflects a different procurement strategy than ours. We try to be counter cyclical and place large new car orders when the market is in a down cycle and others try to place orders across the cycle. It’s just a different approach.

Steve O’Hara – Sidoti

Okay. And then, I guess in terms of the LPI, it would appear that you are maybe seeing some benefit from 2009 renewals and maybe some headwinds from 2007, is that fair to say? And what you see maybe next year in terms of when do those renewals, when is maybe a less favorable renewal mix come into play if at all?

Brian Kenney

Oh! (Inaudible) what you’re saying, you mean in terms of the expiring rate on those cars that renewing?

Steve O’Hara – Sidoti

Yeah.

Brian Kenney

That’s a -- that did come down in 2012 from 2011 due to the very phenomena you mentioned, which is we placed cars in the down market on very short-term leases. So we didn’t lock up those substandard rates on a long-term basis. We are seeing benefit from that in 2012.

For the rest of the year, I believe that expiring rate is relatively steady. So I don’t think you’ll see a pickup just from the expiring rate for the last half of this year. But pricing remains strong, even if pricing kept out where it is today, you’d see similar LPI numbers for the last half of the year.

Steve O’Hara – Sidoti

Okay. Thanks very much.

Operator

And now we will go to Steve Barger with KeyBanc Capital Markets.

Steve Barger – KeyBanc Capital Markets

Thank you. Good morning. I know that lead times are really long right now at the OEMs, but have you been in the market checking prices and is there any change out there that makes you think that you -- there is -- that you want to get involved in buying more cars?

Brian Kenney

As I just said, generally our strategy is to place the big long-term order as the market is in the down cycle or recovers or starting to recover. It’s unlikely that you’ll see a lot of new car volume for GATX with prices the way they are. They have increased substantially, I’d say for tank cars. Cost out there in the market for a spot order is higher than the prior peak.

Steve Barger – KeyBanc Capital Markets

Right.

Brian Kenney

And for freight cars, it’s probably equal to a little less than the prior peak out there in the market for a spot order. Given that pricing, our car cost, I would say, it’s unlikely you’ll see us go out there and place a sizable new car order.

In fact, the only way we’d really consider that is if we could have a -- we wouldn’t do it on a speculative basis. If we had somebody locked up for a very long-term at an attractive rate where we could amortize that cost then we consider it, but it’s unlikely in this market.

Steve Barger – KeyBanc Capital Markets

Right. I understood. And just from your market knowledge, are tank car prices still going up sequentially quarter-to-quarter, or those started to top out from the OEMs?

Bob Lyons

I haven’t seen our latest order data. I think in general, it’s been steady increases over the last year or so for the market cost of the tank car.

Steve Barger – KeyBanc Capital Markets

Okay.

Bob Lyons

But with steel starting to show some signs of weakness and scrap prices coming down, it’s something we’re definitely going to watch over the next six months.

Steve Barger – KeyBanc Capital Markets

Got it. Okay. And just a question on the guidance, historically, you’ve put up at least half of the EPS in the back half and I think you just said, that LPI should be the same, running at these rates, which I know is more future periods. But is -- will the earnings cadence be different this year than it has been in past years?

Brian Kenney

Yeah. Based on the guidance we’ve given, Steve, that would be correct. And the biggest driver to that is remarketing income. We came end of the year, 2011 we had remarketing income of $45 million. We indicated at the beginning of the year that we would eclipse that number by a modest amount. And if you look at it year-to-date we’ve already achieved $37 million of remarketing income. That will not happen in the second half of the year.

Steve Barger – KeyBanc Capital Markets

Got it. Okay.

Brian Kenney

And then that really is the big driver.

Steve Barger – KeyBanc Capital Markets

Okay. Perfect.

Brian Kenney

Any of the planned bigger sales that we had coming into the year, we’ve achieved and done very well on.

Steve Barger – KeyBanc Capital Markets

Of this 700, I think you sold 723 cars in the quarter. Can you tell us what type that -- those were?

Bob Lyons

Not in specific, typically when we’re out selling cars, they are targeted at either car type or lease that we’ve identified for sale. There isn’t any one concentration of car type sold.

Steve Barger – KeyBanc Capital Markets

Okay. And just looking forward, I mean, you’re signing cars at very strong rates right now and then you, we know, pushing terms out very aggressively and locking in very good economics it looks like. Is there any structural reason why you can’t get back to the prior peak margins that you ran in the rail group, I think you are running around 29% gross margin for a stretch back in ‘07, ‘08?

Brian Kenney

No. There is no reason.

Steve Barger – KeyBanc Capital Markets

And does that given the cadence of how you’re signing cars, does that start to happen in the early part of 2013 or are even the latter half of ‘12?

Brian Kenney

Well, it is a nice try on guidance for ‘13. We are not ready to talk about it yet. You know, what I’m looking at this year is with the brains that we put out that we will see a double-digit ROE. So things are getting pretty healthy but there is no reason that we can exceed the prior peak, especially with the pricing the latest today. Now it has to keep up, but so far things look pretty good.

Steve Barger – KeyBanc Capital Markets

All right. I’ll get back in line. Thanks.

Brian Kenney

Thank you.

Operator

We’ll go next to Matt Brooklier with Longbow Research.

Matt Brooklier – Longbow Research

Hey, thanks. Good morning. You’ve seen a nice benefit from higher overall rate of lease renewals within your maintenance expense line. I was just curious as to what’s kind of is baked into your guidance with respect to the maintenance expense and lease renewals?

Brian Kenney

Well, I’ll let Bob talk about the guidance. In general, what you’re seeing is as you pointed out a very high renewal percentage. Not a lot of cars coming into the maintenance network in fact for year-to-date, I believe we repaired 2,500 fewer cars which is what’s driving that huge positive variance. That should continue but I’ll let Bob talk about the guidance.

Bob Lyons

Yeah. In terms of the renewal success rate, we’re -- when we looked at the forecast of the second half of the year we’re in the same ballpark as where we were in the first half of the year which is an extremely healthy renewal success rate.

Now, we do anticipate that we will have more compliance cars coming through the shop in the second half of the year for HM-201 recertification. So, the expectation or kind of what’s baked into our forecast is really that maintenance expense in the second half of the year will be modestly higher than it was in the first half of the year.

Matt Brooklier – Longbow Research

Okay. That’s helpful. And it’s very apparent that these rates on tank cars, very strong at this point in the cycle maybe you could talk a little bit more about some of the other cars in your fleet with respect to pricing and lease rates at this point.

Brian Kenney

It’s definitely a tank car driven market in terms of pricing. There is a little more upset on the freight car side and some clouds up there. You look at grain, with the weather in the Midwest there. They’ve taken down the estimates of the corn crop and there’s some possibility that grain cars become surplus later in the year. We don’t have a big exposure there. So I don’t think that really affects our numbers.

We’ve talked in prior quarters about small cube covered hoppers and most of those are carrying frac sand as far as the explosion in that market. It looks like there was some oversupply there. There still looks like there’s some oversupply there, but actually rates have hung in there pretty well.

Matt Brooklier – Longbow Research

Okay.

Brian Kenney

And I believe that’s something that actually has done a little better than we thought in the quarter and looks a little better for the last half of the year than we would’ve guessed. And then there’s a whole thing around steel with some steel weakness out there as well as potential strikes in the U.S. makers. So, there’s a couple of freight cars types where pricing could be a little weaker in addition to what we’ve already said about coal in prior quarters.

Matt Brooklier – Longbow Research

Okay. Thank you.

Operator

We’ll take our next question from [Stephen St. Pierre] with South Ferry Capital.

John Reilly – South Ferry Capital

Yeah. Good morning. It’s John Reilly at South Ferry. I was just curious more of a strategic question, but you guys are obviously sitting in a sweet spot and there’s going to be volatility in life and in the markets you deal with going forward. But it just seems to me with your stock where it is, there’s a tremendous opportunity here.

As a standalone, it just seems to me that the cost of capital that you’re being charged, I know, you just did bonds with the four handle, but there’s a whole lot of cash in this world that’s absolutely paying through the nose for any sort of certainty on a cash flow stream. And you’ve got a five-year U.S. dollar swap at 82 basis point and you guys are signing things up on 59 months, so five-year leases going up 24% in price.

And so, instead of having quarter-after-quarter people worried about tiny little things like whether your maintenance margin goes up or down five bps, wouldn’t it be in the best interest to shareholders to actually take this company and say, look, this is actually a two strips, a very certain income stream. And then obviously there could potentially be up and downs with the economy over a long-period of time.

But given what the need for yield in this world out of infrastructure funds, pensions, other types strategic, it just seems to me that the stock is extremely undervalued, and part of the reason it’s undervalued is it’s being shopped to the wrong audience and we’re having conference calls about things, which I understand are very important for the business, but at the end of the day, as a shareholder of this company, whether or not you guys miss or make earnings by a penny over quarter really doesn’t change the long-term value.

And the long-term value of this country -- of this company, I believe is substantially higher than where our trades and I was just curious if you’ve given a thought or would give a thought to actually shopping it to the proper audiences as opposed to kind of the way it’s thought of and covered right now?

Brian Kenney

Okay. You’re done. So I think what we’ve been really clear about in the past is that we will always do what is in the best interest of the shareholder and if we think there is a transaction out there that maximizes value for them, we will not hesitate to do it.

John Reilly – South Ferry Capital

Okay. No. I’m not and certainly not insinuating, you gentlemen are obviously doing a fantastic job managing this business and that’s clearly not what I was saying in terms of --all right and so please don’t think that that’s what I was insinuating. I just think that…

Brian Kenney

No. Quite -- we’re just talking about your comments as you talked about quarterly earnings. And we don’t talk about quarterly earnings. So I don’t know how familiar you are with GATX, but we don’t get into that quarterly earnings guidance. We manage the company on an economic basis, on a cash flow basis, because we have…

John Reilly – South Ferry Capital

I’m not saying you do it, but the audience, as far as you could tell by questions and analysts, analysts have to worry about Q3 and what they’re telling their clients about 2013 and what the next three months are going to look like. That’s just the nature of their business. So I’m not saying it’s from you, it’s just that’s why I was talking about the audience.

Whereas you have a big competitor who could care less about quarterly earnings and there are a lot of folks that value cash flow streams right now at extremely high levels that could probably care a lot less about quarterly earnings. So, I just think that -- I agree and I hear you, but I think that there may be a chance here to realize a lot more value than what we currently trade. That’s all.

Brian Kenney

Okay. Thank you.

John Reilly – South Ferry Capital

Thanks a lot, guys. Appreciate it.

Operator

(Operator Instructions) We’ll take our next question from Barry Haimes with Sage Asset Management.

Barry Haimes – Sage Asset Management

Good morning. Thank you. Have a couple of questions, one is, I wonder if you could give us a feel for the tank car industry. How much of incremental demand, let’s say, this year would be coming from the various shale areas? Is that a big percentage or incremental year-over-year demand?

And then secondly related to that, as you look out over the next two or three years, are there any increases in pipeline takeaway capacity that could change the supply demand for tank cars?

And then finally you talked a little bit about or alluded to the weakness in coal cars, but could you give us a little more color on maybe what rates have done this quarter versus last quarter and whether the number of surplus cars in the industry has changed much? So at least just sort of bottom or has it gotten little bit worse this quarter versus last? Thank you.

Brian Kenney

Okay. Let’s start with the demand for the petroleum side in the Bakken and the shale play. That is driving the tank car, the spectacular tank car demand in this country, absolutely. And we expect a lot more of that. That is most of the backlog that we see in the tank cars and the new orders are people trying to participate in that business.

As I said earlier, we also participate in that business. We have a big fleet of 30,000 gallon tank cars. Only half of our 30,000 gallon tank cars are in ethanol service, the rest are in a wide variety of commodities. So, we do participate in it but we have been very careful about what we do in response to the Bakken demand. The only place that was very creditworthy customers and only for very long terms at very attractive rates similar to how we handle the ethanol boom. But, yeah, that is driving tank car demand in this country. As far as coal…

Jennifer Van Aken

As far as coal, we talked about weakness in coal and in terms of how that’s going to impact GATX for this year. Our exposure there is actually fairly low on our wholly owned coal car fleet.

I think we said on our last earnings call, we had about 1,700 coal cars exposed during 2012. We had about 700 of those come up for renewal in the second quarter here. About two thirds of those came back to us, the rest were renewed. And then in terms of exposure for the remainder of year, we have about another 900 coal cars that we have coming up for renewal.

Bob Lyons

And as far as rates on those cars, they were being steady increases over the last year, year and a half and then you came into 2012. And we’ve seen those slip obviously dramatically and to the point where if you want some, we can put you in some nice ones.

Barry Haimes – Sage Asset Management

Okay. Thanks. And then just back on the pipeline takeaway capacity. Is there anything…

Brian Kenney

Yeah. That’s why we did -- sure, there is, and that’s the concern is that eventually pipelines commitment take that, that’s going to happen, which is why we are being very careful about how we do that business. It’s unclear how much it will take away but they will come in and they will get built and it will take it away.

That’s why you focused on having a very diverse set of customers and services for that type of car. And for the existing cars that go into that service, you try to push them out as long as you can at the highest rate possible and only deal with customers that value the relationship and are very creditworthy. So that’s how we approach markets where it looks like things are maybe a little too high.

Barry Haimes – Sage Asset Management

Great. Thanks very much. Great job.

Operator

And we will go back to Kristine Kubacki with Avondale Partners.

Kristine Kubacki – Avondale Partners

Good morning. Just a question, you talked a little bit about Europe in your press releases and you cited a still pretty strong market there, which I guess is a bit surprising if you read the headlines everyday. Can you talk about where the pockets of strength are and what your expectations are for that market?

Brian Kenney

Sure. It’s a -- we participate in the European rail market in two different ways and that delineates the strengths and the weakness right there. The tank car side is very strong, that’s our own platform. It’s a little shy of 22,000 cars, very high utilization, 96 plus percent. Their primary market is petroleum and that’s what remains very robust in Europe, the petroleum on the tank car side. We’re seeing high utilization, good demand for new high-capacity cars, scrapping of older and smaller cars. And it’s just a very strong market.

The other major market for the tank car business in Europe is the chemical side. That’s been a little bit more volatile over the last few years. It’s becoming more stable in 2012. There’s customer’s looking to reduce capacity because the economy there’s also considering -- others considering capacity additions and fleet modernization is occurring. So, it’s hanging in there pretty well. And in general, the tank car market and the tank car business for us is very strong in Europe.

On the other hand, we participate in the freight car market in Europe through our AAE joint venture that’s just shy of 25,000 cars, heavily intermodal. Highly dependent on the European economy and on container traffic, which has been down dramatically since 2009. Utilization is much lower there and I’d say that business is basically bumping across the bottom right now.

Kristine Kubacki – Avondale Partners

And I got a question on the Indian market then and I know you talk a little bit about that as well and your entry there. Can you talk a little bit how you’re going to step into that market? How many cars and what kind of car types and what you kind of expect for that market to grow there over the first five years of your entry there?

Brian Kenney

Sure. We received our license in May, first license actually granted leased rail classes in India was the GATX. We had also completed our first lease transaction in May. That transaction was for -- what they call rakes or train sets here in North America, about 45 wagons or 450 total cars on those 10 rakes.

Approximately $23 million and they were container flatcars. That’s going to be the market that we pursue initially. Other possibilities over the next couple of years include auto carriers and certain cars that carry, what I call, commodities such as steel and coal.

The attraction of GATX to India is not only is it a huge rail market, it’s obviously a relatively quickly -- relatively fast growing economy. They have approximately a 70-30 highway to rail split, as far as freight movement right now. Because of the tens of billions of dollars, they have earmarked for freight infrastructure on the rail side in India.

We think that’s going to reverse over the next 10 years. And there’s going to be tremendous demand for railcars and that’s why we’re invested in India. But initially it’s in the intermodal flats.

Kristine Kubacki – Avondale Partners

Okay. Very good. Thank you very much.

Operator

And with no further questions in the queue, I would like to turn the call back over to Jennifer Van Aken for any additional or closing remarks.

Jennifer Van Aken

I just like to thank everyone for your participation this morning. And I will be available all afternoon in case there are any follow-up questions. Thank you.

Operator

This does could conclude today’s conference. We thank you for your participation.

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