Jennifer Van Aken - Director of Investor Relations Brian A. Kenney - Chairman, Chief Executive Officer and President Robert C. Lyons - Chief Financial Officer and Executive Vice President Thomas A. Ellman - Executive Vice President and President of Rail North America.

Justin Long - Stephens Inc., Research Division Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division Michael J. Baudendistel - Stifel, Nicolaus & Company, Incorporated, Research Division Matthew S. Brooklier - Longbow Research LLC Doug Dyer - Heartland Advisors, Inc.

Steve Barger - KeyBanc Capital Markets Inc., Research Division Bill Baldwin Stephen O'Hara - Sidoti & Company, LLC.

Good day, and welcome to the GATX First Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Jennifer Van Aken. Please go ahead, ma'am..

Thank you, Renée [ph]. And good morning, everyone. Thanks for joining us for the first quarter 2014 conference call. With me, today, are Brian Kenney, President and CEO of GATX Corporation; Bob Lyons, Executive Vice President and Chief Financial Officer; and Tom Ellman, Executive Vice President and President, Rail North America.

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 2013 Form 10-K for a discussion of these factors. You can find this report, as well as other information about the company, on our website, www.gatx.com.

I will give an overview of the results provided in our press release earlier this morning. And after that, we'll open it up to questions. Before I get into the numbers, there are a couple of items noted in our press release that I want to point out. The first item is a change in the depreciable lives of our North American railcar fleet.

This change, effective January 1, 2014, was based on a review of the economic lives and usage of our railcars. On average, we extend the depreciable lives of the fleet by approximately 2 years. The impact of this change in the first quarter was an after-tax benefit of $3.5 million, or $0.08 per diluted share.

To reflect the full year impact of this change, we are increasing our 2014 full year earnings estimate to the range of $4.15 to $4.35 from the previously provided range of $3.85 to $4.05. The second item I want to mention is regarding the fleet of approximately 18,500 per diem boxcars acquired in late March.

These railcars are excluded from the fleet statistics provided in the earnings release and will be excluded from our discussions regarding GATX's North American railcar fleet performance on the call this morning. We essentially took full control of this fleet on April 1, and we are integrating the fleet into our operations.

This per diem fleet has characteristics that differ from most of GATX's term lease fleet. Therefore, as we move forward, we will determine the best metric to provide to give you a snapshot of this fleet. Now on to the first quarter results. Today, we reported 2014 first quarter net income of $42.1 million, or $0.90 per diluted share.

This compares to 2013 first quarter net income of $27.1 million, or $0.57 per diluted share, which includes the negative impact from Tax Adjustments and Other Items of $1.3 million, or $0.03 per diluted share. Details relating to Tax Adjustments and Other Items are detailed on Page 8 of this morning's press release.

These results are reflective of the continued robust demand for tank cars in North America and improving demand for freight cars. Rail North America's fleet utilization was 98.5% at the end of the first quarter, and we continue to achieve very strong lease rate increases on long-term renewals.

In the first quarter, the renewal rate change of GATX's Lease Price Index was 33.9%, and the average renewal term was 62 months. During the quarter, our renewal success rate was very high, more than 85%. We continued to selectively sell certain railcars and generated more than $20 million in asset remarketing income.

We were also active on the investment side as we acquired the previously mentioned boxcar fleet, made other secondary market investment, and continued to take delivery of new railcars under our committed purchase program. Rail International had a solid start to the year.

The European tank car leasing market remains stable, and GATX Rail Europe continue to take delivery of new tank cars and scrap older equipment during the quarter. American Steamship Company's navigation season is delayed due to the ice coverage on the Great Lakes. ASC is currently operating 12 vessels and expect to operate 14 this season.

Portfolio Management's results were driven primarily by the performance of the Rolls-Royce & Partners Finance affiliates. The joint ventures now have a portfolio of more than 400 engines with a net book value that exceeds $2.6 billion. One final note before we take questions, tomorrow is our annual Shareholders' Meeting.

It will be held in downtown Chicago at the Northern Trust building, which is at the corner of LaSalle and Monroe. The meeting begins at 9:00 a.m. Central Time. Slides from Brian Kenney's presentation will be posted to our website, www.gatx.com. With that brief overview, we'll open it up for questions.

Renée [ph]?.

[Operator Instructions] And we'll take our first question from Justin Long with Stephens..

I was wondering, first, if you could comment on the announcement from Transport Canada yesterday, and how they're called to retrofit or phase out some of the DOT-111s in flammable service in the next 3 years. It could impact your business.

And then, just in general, with some of the recent hearings on tank car regulation here in the U.S., could you just update us on how these discussions have been progressing and the next steps for that process?.

Sure. It's Brian. I can take that. Really, 2 things happened in Canada yesterday. Transport Minister Raitt signed a directive banning the use of what we refer to as A515 tank cars for dangerous goods service in Canada. Those are older cars, generally more than 30 years old, and they have weaker steel and no reinforcement along the bottom of the tank.

There's been some experience in the industry of these cars pulling apart. So I think her directive said either you can't load them or if they are loaded, you have 30 days to get them unloaded, and so they can't be used anymore. And to size that for you, there's about 5,000 of those cars in the North American industry.

We have about 1,500, but only about 700 of those are in that dangerous goods service. And we have, as far as we can tell, less than 100 of those cars currently in or traveling to Canada. So it's not a big issue for GATX, that immediate order she signed.

The second part, of what she talked about, was the rule that she intends, I think, to finalize this summer, so very soon. And that will require that all crude oil and ethanol transported in Canada after May 1, 2017, needs to be transported in a car that meets that CP-1232 design that was adopted in October 2011. So that's what she said.

We don't have the detail yet. We'll work with her staff to get that, and we're gathering our fleet data. So I don't have the exact numbers here, but we have a very small number of cars traveling in ethanol service in Canada, if any.

And as far as crude, I don't think there's a large number of cars in Canada that we have that aren't already at that CP-1232 standard. So -- but she did put that out there. And then, of course, generates the question, what about the harmonization between the U.S.

and Canada? And to that point of what's the dialogue in the U.S., so you have Canada saying what they're going to do. It's a very fluid situation in the U.S. It seems to change day-to-day, as far as to what the regulators are focusing on.

I think since it's working on the rulemaking that we anticipate will revise -- have a revised standard for new cars to be built, as well as any retrofit or phase-out requirements for the older-design existing cars.

And we think that rulemaking will likely also address what commodities are covered, as well as the relevant time periods to get the retrofit or phaseout done. But it does seem almost certain that in the U.S. as well, there'll be a retrofit or phaseout of these older DOT-111 cars that carry crude that were in service prior to the new design.

So -- and what the Fed's doing is really just a continuation of what they started last September with their advanced notice that propel this rulemaking. And so, we're waiting and we're urging them to give us some certainty here. As far as the schedule, which was your other question, I went to the Secretary of Transportation in March.

We understand it got sent to OMB last Friday, on the 18th. They generally have 3 months to clear it. So it's possible, we can have these new rules by the end of the year..

Okay, great. That's really helpful, Brian.

And the discussions, I mean, do they still seem to be focused on the tank cars that are in -- or the DOT-111 tank cars that are in flammable service? Are you seeing it narrow just to the crude cars, specifically? I think some of the numbers I've seen, which suggest there's about 80,000 tank cars in flammable service today.

Is it -- is that still the population that's being discussed?.

And that's -- and then, when I say fluid, that's why it's kind of hard to pin that down. You're right. There's about 100,000 cars in the industry that are in flammable service. About 80,000 of those, the number you just referred to, is that old design, prior to CP-1232. The ones that are most in the crosshairs are the non-jacketed old cars.

But all -- everything in flammable service, I think, is on the table. What you are seeing is Canada saying crude oil and ethanol. For instance, the AAR position just addresses crude oil. The RSI position, which we're a part of, addresses both crude, ethanol and other Packing Group I and II commodity.

So it's really unclear, and everybody has a different plan. And that's one of the things that's hard to determine is what the scope of this will be right now. But certainly, all flammable cars, of which we have about 13,000, are up for discussion..

Okay, great. As a follow-up, looking at your guidance, your updated guidance for 2014, I think at the midpoint, it was an EPS increase of about $0.30.

I just wanted to clarify, was that increase solely from the change in depreciation? Or was there something else that drove that increase?.

No, that was the primary. This is Bob. That was the primary driver to the change in the guidance, the annualized benefit from that depreciation change..

Okay, Bob. And then, one last one. I just had a general question, it might be helpful in thinking about the impact of a potential non-tank recovery and how that can impact your business. If you look at your overall railcar fleet today, it's roughly 60% tank, maybe 40% non-tank.

But if we were to think about the contribution to segment profit, what's the approximate breakdown between those 2 pieces?.

Yes. Justin, we haven't, and we don’t break that out separately. We aggregate the tank and freight car fleet, and we'll continue to do so. I think, historically, the fleet has been at 60-40 balanced, but it's actually more. With the recent acquisition of the boxcars, it's moved closer to 50-50..

And we'll take our next question from Art Hatfield with Raymond James..

Brian, when you comment on the -- you think that it's possible we can get rules by the end of the year.

Are you talking about final rules or the initial proposed rules?.

Well, it's possible we could have final rules by the end of the year. I certainly know they're getting a lot of pressure to do that. But it did go to OMB last Friday, from what we hear. So that typically is a 90-day process, and then they would publish it and it would be out there for comments.

So it's certainly feasible we could have something by the end of the year..

Okay, okay. Kind of going back to the results from the first quarter. And I can't remember, when you guys gave guidance at the beginning of the year, if you had given us a range of, and I haven't even had a chance to look my notes yet, giving us a range on what you expect the gains on asset dispositions would be for the year.

But Q1 was a little bit, actually, quite a bit higher than what I was looking for.

Can you kind of help me kind of how I should think about that for the balance of the year? Was Q1 higher than normal quarter for the year? And should we see that decline as we move throughout the rest of the year?.

Yes, Art. It's Bob. I would not annualize Q1 in terms of the remarketing income. For the full year, this year, we -- the guidance we gave is that we expect that remarketing income in 2014 to be modestly lower than where it was in 2013. We happen to get, in the first quarter, a pretty sizable piece of that. So I wouldn't annualize it.

Last year, it was a little bit flipped, if you recall the remarketing income. At least, within rail, was relatively light during the first half of the year, and then it was larger in the second half of the year. And that just have to do with the timing of planned sales..

And we'll take our next question from Mike Baudendistel from Stifel..

I just wanted to ask high-level with the addition of the boxcars in the quarter, if you could talk to us a little bit about your strategy on the portfolio management of your railcar fleet.

Is it more of a diversification strategy? Was that an area that you expect rates to improve over time and the assets were attractively priced? Or just anything to tell there..

Yes. This is Tom Ellman. You actually hit a lot of the reasons right in the body of your question. It was an area that our portfolio was a little bit light on. We had about 2,000 cars prior to this transaction. And we really try to maintain a diversified fleet. So it was a chance to add to that portion of the portfolio.

We did feel we always invest opportunistically, and we found this to be an attractive opportunity to pick up some assets at the right price. And overall, what's been going on in that market, in the boxcar market, is over time, you've seen quite an attrition of the fleet. Back in the 1970s, there were over 0.5 million boxcars in North America.

As recently as 2008, we had about 190,000. And at the beginning of this year, we had 130,000. So over time, there have been less and less boxcars. And the traffic that needs to move in those boxcars has declined, but not at that same rate. The parts of the boxcars that we purchased primarily move packaging material, container board.

Some of it moves beverages. Those parts of the market tend to move with GDP. And we think the supply/demand dynamic is pretty attractive now with that attrition that's happened over time.

And then, positioning ourselves with these existing assets, when there is another opportunity to add new cars to the fleet, we'll be well positioned controlling that installed base..

Great. That's great detail. Also, wanted to ask on covered hoppers, noticed the orders were very strong in the first quarter, sort of consistent with your comment on demand there.

Where you part of that ordering? And related to that, was any of that improved demand dynamic just related to the surge in grains and sort of this they're super struggling to get grain to market and is some of that expected to go away? Or do you feel that's going to continue to surge?.

Yes. One of the things we've been talking about recently and the last several quarters is, how the overall strength of the market's been driven by the tank car side, and we've been waiting for improvement in freight cars. We are absolutely seeing that.

One area that has been very strong and continued to be strong in the first quarter was small cube covered hoppers that move frac sand, primarily, and cement. That demand has continued to be very strong through the first quarter. And that was actually the biggest single piece of ordering activity that you saw in the first quarter.

But grain also has been strong, and some of that has to do on a much smaller scale, with the attrition phenomenon that I talked about. The peak mid-cube covered hopper fleet, the car type that moves grain, was about 288,000 cars. It got down to about 255,000 cars.

And with a good harvest and investment not occurring in a large scale in that area, when we saw a little uptick, new cars had to be ordered. The new car lift helps with the existing fleet as well. And then, as far as our participation, we invest throughout the cycle.

We look for opportunities to invest in all car types, and covered hoppers are a part of our investment portfolio..

Okay. And then, just one last one for me related to the discussion on regulations earlier. The chairwoman at the highway safety board seemed pretty pessimistic about sort of timing on the U.S., maybe not as optimistic as you by the end of the year.

Can you just comment on how many of those 13,000 cars you had in flammable liquid service do touch Canada if, say, Canada is far ahead of the U.S.

on the regulations front?.

I'm sorry.

You want to know many of the total flammable liquid cars go into Canada?.

That's right. If you have an estimate there..

Yes. Order of magnitude, it's significantly more in the United States than Canada. It's not something we track the movement between them because the way we look at it and the way everybody manages the fleet, it's really a North American market. And that's why the harmonization that Brian alluded to in his comments is so important.

Eventually, it's highly likely the regulations will indeed be harmonized. And exactly how much time they spend in each area won't be the key driver..

And we'll take our next question from Matt Brooklier with Longbow Research..

Can you remind us of what percentage of the fleet right now is covered hoppers?.

Yes.

Give or take, well, it depends on which covered hoppers, are you primarily interested in the small cube covered hoppers, or all covered hoppers, period?.

I'll take whatever numbers you have..

Yes. The small cube covered hoppers, which was the big demand driver, we have a little over 6,000 of those in our fleet.

The total covered hopper portfolio, I think is, Jennifer, help me, 15%, 20%?.

If we include all of them, including like specialty covered hoppers and pneumatic covered hoppers, it's a little over 20%..

Okay..

Okay. So 20% is the total covered hopper number, which also includes medium, large and, I guess, some specialty covered hoppers..

Correct..

That's right..

Okay. Maybe if you could also provide some color in terms of what other freight cars are starting to show some momentum here.

And also, if there's a specific equipment categories that you feel, and you talked to boxcars as being one class, where there's been either a lot of attrition over the past couple of years or multiple years or there's, in general, been underinvestment, and you think these cars are getting potentially ready for a demand upswing?.

Yes. Just in general, across all the freight car types, there's been limited investment the past several years. So we would anticipate general investment opportunities across the board.

In the first quarter, specifically, we already hit on 2 of the 3 main areas where we saw significant improvement, the small cube covered hoppers, the grain type covered hoppers. The one we didn't touch on is coal.

And historically, coal is still, overall, in a challenging place from a total utilization and total rates that are achievable in the market. But compared to recent history, a very significant improvement. We now have about 70 idle coal sets in the market. The peak was about 300. And even as recently as last quarter, we were at about 150.

So significant improvement in coal as well..

And we'll take our next question from Doug Dyer with Heartland Advisors..

So far, you haven't given any estimates for what the potential costs of tank upgrades can be, and I can understand that you're probably waiting for some more concrete numbers and guidelines.

What do you have to see before you can come up with an estimate for us?.

Well, we have to see what the exact retrofit is required and for what cars. But it could easily run into the tens of thousands of dollars. And I'll let Tom chime in. But in general, we did invest heavily, for instance, in the old 30,000-gallon tank cars during the ethanol boom. So our fleet is probably, on average, older than others.

So I would -- and I think I said this before, we'd probably be less likely to do a very expensive retrofit on our fleet because it just wouldn't make sense, but I don't know if you could think of any..

Right, yes. Again, the key complication is exactly what's the scope of the retrofit. But if you looked at doing things like adding a jacket to non-jacketed cars and adding head shields to the very expensive items, as Brian said, you'd easily be in the tens of thousands of dollars.

And a very wide range I'm going to give you, but a reasonable range might be to think of something between $30,000 and $80,000. I mean, it is a big, big range, depending on the scope..

[Operator Instructions] We'll go to Steve Barger with KeyBanc Capital Markets for our next question..

Just a modeling question.

Given some of these regulatory changes that we're talking about, or anything else that's going on in the market, is there going to be a negative impact to SG&A on a year-over-year basis? Or is this something that you feel like you can handle with existing assets?.

No. There wouldn't be any impact on SG&A, Steve..

Okay.

And given the change to the depreciable life, is D&A of $60 million per quarter a good number going forward, then?.

That's a reasonable number..

Okay. And I don't want to get too much into kind of out year guidance.

But just conceptually, given the economics from the existing fleet and the newly acquired fleet and how the other segments are working, once you comp out on this remeasurement of D&A, can you get back to growing EBITDA in the high single-digit range the way the portfolio is working?.

We, as you know, we don't really drive back to an EBITDA number. So I don't have that sitting here in front of me, but we kind of put the depreciation number to the side for a moment. Commercially and operationally, the first quarter very much kind of played out the way we anticipated.

And the full year would continue to be in the range that we had previously laid out. I do want to circle back though real quick, Steve, to your prior question about D&A. Just recall that in the first quarter, American Steamship doesn't record any depreciation.

So you'll see that again in the third through fourth quarter -- the second through fourth quarter..

And we'll take our next question from Bill Baldwin with Baldwin Anthony Securities..

Can you provide any color as to, if you're seeing any activity coming out of the petrochemical sector with their planned and scheduled heavy capital investment program during the next several years, are they lining up their railcar requirements at this point in time?.

Yes. One of the benefits that we've been talking about with both natural gas and crude oil in North America is the long-term benefit that we're going to see on the end products, which has been GATX's core fleet for a long time that come out of the refining process and that use those raw materials.

We are seeing -- the biggest place you see is in some of the plastic pellet cars that people are starting to make inquiries on and take some order positions..

Would you basically say that, that order trend is probably, still for the most part, still in front of us?.

Yes. But a lot of that, really, I think, is because on the supply side, there's just been so much demand for tank cars moving crude oil that there hasn't been the capacity, really, on the tank car side, for a lot of other car types. So I think that's a fair assessment.

But one important thing is the scope and scale of those are unlikely to be as large as the -- unlikely to be nearly as large as the crude oil, Bill..

And we'll take our next question from Steve O'Hara with Sidoti & Company..

In the past, you've talked about the recovery being bifurcated, and good demand in tank is kind of offset by, let's say, weaker demand in the freight car types. And I'm just kind of curious, in terms of, do you see that -- it seems like that seems to be improving.

And then, I guess I'm just wondering, where, in terms of the cycle, maybe where you think you are in terms of the cycle on the tank side, the freight side, and then in terms of maybe peak margins, where do you see those? Do you see those getting back to, and maybe you're kind of near there, anyway, the prior peak, and if you can kind of exceed that if you get both tank and freight moving at the same time..

Maybe I'll start with where we are in the cycles, and then let Bob or Brian add to it if they wish. On the tank car side, it's very fair to say we are at the top. We are at all-time highs on any way you want to measure the tank car market cycle. On the freight car side, it's fair to say we're improving.

One of the things that we look at, which is a reasonable measure of how strong demand is overall, is where our new car backlog is out to, how long do you got to wait for a new car, because that is the alternative to an existing car.

And for quite a while, on most freight car types, the time that you had to wait was simply time to get the material, time to add it to the production line. We're now generally speaking out into the first quarter or, in some cases, even in the middle of 2015. So we're starting to see that lengthen out.

Just for comparison's sake, the real strength of either the tank car or some of the very strong freight car markets, that gets a little closer to 2 years..

And as far as -- I think your question is about peak margins versus last time, and I would say the rail business, because of the strength in the tank market, is more profitable today than it was at the last peak in 2008.

The reason margins overall might have been higher back then because there were 2 components that don't exist today that were there in 2008, and one is we had more than $50 million of marine income, which is essentially 0 today..

That's within the Portfolio Management. It's after the ocean-going..

Right. And then, the second thing was scrap prices were very high back then, over $500 a ton in there. A little more than half of that today, and so we don't have as much scrap income. Absent those 2 factors, I think rail is much more profitable today and -- but that's not to say same we peaked here, though.

As everybody's pointed out in the call, tank is still very strong and freight car margins are coming up. So it still has legs, but I'd say we're already more profitable than we were in 2008 on the rail business..

Right. And I'd just had to add, too. I think the way we look at it conceptually is, we've gotten back almost to a peak net income level and expect to be there this year from a record standpoint. And that's largely without the benefit of significant contribution from freight. So to the extent that begins to come along, that will be positive..

Okay. And then, maybe just as a follow-up.

In terms of the tank car cycle, I mean, do you see -- I mean, so -- I mean, how long does the peak usually last? And I mean, do you see this peak being any different, just due to the energy issues and the petrochemical development that somebody else mentioned as well?.

Yes. At least, from my perspective, I would always bet on the cycle at some point. So we are in an all-time high. It's lasted for a few years now. But ultimately, supply and demand have a way of coming back in the balance. One really important thing to look at it is the supply side here. The industry can now build about 35,000 tank cars a year.

And the total tank cars in North America are about $330,000. So there's the capacity to replace the entire tank car fleet in less than 10 years. And a tank car might last somewhere in the order of 40 years. So at some point, when demand comes down a little bit, it's likely that the market will overshoot on the supply side.

And so, it's something that we're watching out for. Exactly when or how, that's a difficult question to answer. But at the highest level of your question, is something different this time? The length it lasts and the height of the market might be different. But at some point, the cycle should come back..

So I mean, in terms of that, I mean, that seems to be why you're -- or maybe a reason for kind of pushing term, I guess. And then, maybe yes or no on that.

And then, in terms of the LPI, maybe you mentioned this earlier, where I could have missed it, but when these box cars come into the fleet, is that going to skew the LPI? Or I mean, will you call that out if it does?.

Yes. I can answer that question. As of right now, the quarterly numbers that we provided don't include the boxcar fleet, and we've essentially just took control of that fleet within the last month. So we'll determine what the best metrics are on a go-forward basis. That business adds some different operational characteristics to it.

So we'll provide some benchmark information for you. But my assessment is, we'll continue to provide the LPI information on the term fleet the way you've seen it historically..

And to the first part of your question, it's Brian. Yes, that is why we're pushing term because when we see this type of tank car market, we generally push term. We try not to guess when it's going to turn.

But one thing we have said over the last year though, and this is the complex thing to figure out right now, is we believe that the industry will get overbuilt on tank for crude oil. And then, we've been saying that for quite some time. So we think the cycle could turn a couple of years as new pipelines come in. We've been very vocal about that.

What throws that into a little bit more uncertainty is the regulatory side. So if a lot of cars have to exit the market, it's a little more uncertain as to how long this cycle will last. So it is a more complex equation this time around.

But yes, that's why we're extending term because we think tank car rates are very strong and offers a good return for GATX. So we might as well lock it in..

Okay. And I'm sorry, and then one more, if I could. And if you've said this, again, I apologize.

But in terms of you versus the industry, would you say you're -- kind of based on the discussions that are happening right now, would you say you're more or less impacted than the industry in general to the potential of these regulatory changes? Or is that just too tough to quantify?.

It's too tough to quantify until the rules come out. I will say that if the rules just focused on crude oil and ethanol, we have about 4,600 cars in that service. And that's a little light as a percentage of our fleet compared to some of the other big players..

And we'll take a follow-up question from Art Hatfield with Raymond James..

Brian, as we think about the -- and I know that we're speculating at the losses here.

But depending on what the regulators end up doing, are you in a position to actually benefit from the standpoint that if it's a retrofit cycle, that you've got the capacity in your maintenance facilities to take on some third-party work?.

That's an interesting question. And I will say that we are totally focused on doing our own fleet first and getting that perfect. And I really am not thinking right now of taking other people's cars and to do retrofits or compliance work. It's not that it's impossible, but we are completely focused on our own fleet first..

Understood. And again, I know this is speculative. But when a comment is made, a potential cost of retrofit or car could be $30,000 to $80,000. And I know this is -- it's difficult, because it depends on the car, the age of the car.

Just roughly speaking, maybe you have, maybe you haven't done this, but if it's kind of at the midpoint, let's say, $50,000, $60,000, what do you think rates -- lease rates would have to do to make that kind of investment economical?.

Well, I mean, as you pointed out, considerable speculation embedded in your question. The first question that we would have is, depending on the requirement of the retrofit, would we even do it? Or would you be better off replacing with a new car.

Then, if you're going to, calculating those -- it has to do with how much term you have left, how long the car would be viable to be in service upon doing the retrofit. There's just too many variables to come up with a number..

Well, let me ask this then. And I appreciate the answer. I know I put you in a box on that, to some degree. Let me ask this.

If we get into a situation where it is a high number and it makes no sense, how easy is it to transition these cars into other types of service? And what I mean by that is we may see a cycle where we need to build more oil cars, but the cars that are getting displaced can go into other areas of service, so you kind of have a net neutral impact on demand over the next several years as a result of how the regulations play out..

Yes. One of the things about tank cars in general is their ability to carry multiple commodities. So even today, the car types that are impacted, some of those are in Packing Group III, so less hazardous service. There is a possibility to put some of them in nonhazardous service.

The issue comes down with how many you could put in a different service, how big that market is compared to the crude and ethanol markets. So certainly, that cascading that you're talking about would happen, and we would look to do that.

Exactly how many you could move to a different service would be, in some degree, dependent once again on Brian's opening comments, on what the regulations impact..

The bottom line is -- having said that, we've already sold a decent amount of these cars that are subject to this. We've already placed some of those in other less hazardous service.

And we're also going through all the way to internal gyrations that are about, can you read packages of these things somehow for other service? So there's a gamut of things you can do, as Tom described, it just depends on how big the market is and what the ultimate retrofit is..

Yes. Unless where -- I guess, knowing what you've been able to do with these cars, I'm less worried about your direct impact, but maybe the alternative more indirect impact of the impact on lease rates in the overall industry..

Yes. And of course, we're trying to get ahead of that, but everybody else will be trying to redeploy their cars as well, so..

And it appears we have no further questions at this time..

Okay. I'd like to thank everyone for their participation on the call this morning. And I will be available this afternoon to answer any additional questions..

That does conclude today's presentation. We thank you for your participation..