Christopher LaHurd - Director, Investor Relations Brian Kenney - Chairman, President & CEO Robert Lyons - EVP & CFO Thomas Ellman - EVP and President, Rail North America.

Justin Long - Stephens Mike Baudendistel - Stifel Matt Brooklier - Longbow Research Art Hatfield - Raymond James Steve O'Hara - Sidoti & Company Justin Bergner - Gabelli & Company Ken Newman - KeyBanc Capital Markets Kristine Kubacki - Avondale Partners.

Good day everyone and welcome to the GATX Fourth Quarter Conference Call. Today's call is being recorded. And at this time, I would like to turn the conference over to Chris LaHurd. Please go ahead..

Thank you. Good morning, everyone, and thank you for joining us for our fourth quarter and 2015 year-end conference call. With me today are Brian Kenney, President and Chief Executive Officer; Bob Lyons, Executive Vice President and Chief Financial Officer; and Tom Ellman, Executive Vice President and President of Rail North America.

I'll provide a very brief overview of the numbers and then Brian will discuss 2015 as well as the year-end. Following Brian’s comments we’ll open it up for Q&A. Before we begin, any forward-looking statement made on this call represents our best judgment as to what may occur in the future.

We've 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 2014 Form 10-K for discussion of these factors. You can find this report as well as other information about the company on our website, www.gatx.com. Today, GATX reported 2015 fourth quarter net income of $58.2 million or $1.37 per diluted share.

This compares to 2014 fourth quarter net income of $58.5 million or $1.30 per diluted share. 2015 fourth quarter results included net negative impacts from the exit of Portfolio Management’s marine investments which we outlined at the end of the third quarter and other items of $3 million or $0.07 per diluted share.

We reported net income of $205.3 million or $4.69 per diluted share for the full year 2015. This compares to net income of $205 million or $4.48 per diluted share for 2014. 2015 full year results including net negative impact from the exit of Portfolio Management’s marine investments and other items of $29.6 million or $0.68 per diluted share.

So rather than me go through a deeper 2015 review, we got to be more beneficial, more valuable for Brian to discuss 2015 and the challenges and opportunities we anticipate in 2016. So, with that I’ll turn it over to Brian..

Yes, thanks Chris. So, what I want to do is provide some color on our 2016 earnings outlook. Now obviously these are very vital time, among other things we’ve a slowing Chinese economy, we’ve falling commodity prices, we’ve oil prices below $30 a barrel.

We’re facing in industry with an oversupply of railcars and you have the worst start to the year in the history of the U.S. financial markets. But despite all that we’re entering the year in great condition.

As Chris outlined and as you saw in the press release, our worldwide rail business has another record year in 2015 and we’re sitting here today with North American fleet utilization over 99%, we have almost all of our 2016 new car delivery is placed. We have a much more number of existing car scheduled for 2016 compared to prior years.

So, I think we’ve positioned the fleet very well to a stand this weaker market. So, let’s go into some detail on the outlook for North American rail. In today’s market absolute lease rate for most car types are declining. So obviously, you can expect to realize the record lease rate increases that we produced over the last two years.

But having said that because of the way we structured our fleet and our lease term over these last few years we still expect to see many instances of lease rates increasing over expiring rates when cars renew in 2016. And sitting here today we expect our lease price index to show a flat to slightly positive renewal rate change in 2016.

On the fleet utilization side again we’re sitting here today at 99.1% utilization that’s full utilization of our fleet. We do expect utilization pressure given 2016’s weaker market and obviously it’s hard to predict with certainty, but we currently anticipate utilization will trend down but remain in the high 90s throughout 2016.

On the investment side we expect a similar level of railcar investments this year compared to 2015 again almost all those new cars are already placed with customers, so younger and larger fleet will contribute to revenue in 2016.

The net effect on revenue in North American Rail if you combine the placement of new cars delivering with flat to positive renewal rates on the existing fleet and then somewhat lower fleet utilization it will result our expected result in 2016 revenue that is slightly higher than 2015.

The next driver worth mentioning is net maintenance expense in 2015 and again this year. We’ll continue our strategy to move more maintenance into our own network in a way from certain third-party providers particularly true for tank car maintenance.

We find that safety and quality is much higher when we perform the maintenance internally and with the strides and efficiency we’ve made over the last few years we perform that maintenance more cost effectively internally as well, so we’ll continue that strategy.

Looking at tank car qualifications that are due this year and that’s a major maintenance cost driver, it’s a few hundred cars lower than in 2015, so offsetting that maintenance decrease from lower compliance work will have more cars entering the network for commercial reason.

So primarily lower renewal success, more assignment of cars to other customers. That’s on a net basis maintenance expense in 2016 will be flat to slightly higher than it was last year. And the last factor worth mentioning for North American rail is remarketing income.

We’ll continue to optimize our fleet, we always do to secondary market sales of railcars, we did it every year to the last downturn, we’ll do it again in 2016. But given where the markets going we don’t expect to see the values nearly as high as what we realized last year and that remarketing income will be down materially in 2016.

So, the net effect of slightly higher revenue, increased ownership costs to new car investment, flat to slightly higher maintenance and then much lower remarketing income resulted North American rail fling the profit that we expect to be down in 2016 in the range of 10% to 15% from last year.

Looking international rail and specially GATX rail in Europe, they’ve been performing very well financially in a difficult market for a number of years and they’ve been monetizing their fleet in that process, both those trends will continue in 2016.

Their new car investment level will be down somewhat from last year but we still expect fleet growth this year and that fleet growth along with small lease rate increases on the existing fleet should result in higher revenue in 2016.

Now that revenue increase will be offset somewhat by higher ownership costs from going into fleet as well as higher maintenance expense really did scheduled car revisions.

Offsetting the operational improvement international rail with the effect of the stronger dollar and so the net effect of all these factors is that rail international segment profit is expected to be relatively flat in 2016.

Moving onto Portfolio Management, [aspirants] and leasing partnerships with Rolls Royce performed very well in 2015, they also had robust investment volume as well, they had it over 300 million of engines to the portfolio last year. And they also recognized attractive gains in disposing of all their engines from the portfolio.

We expect a similar year financially for the Rolls Royce’s partnership this year.

Also within Portfolio Management this year we’re going to complete the strategic of the marine assets once again, keep in mind that those assets are different than the ones we’re exiting – the ones we’re exiting are different than the American Steamship segment, it’s unrelated.

So apart from the gains on the sale from completing the strategic exit from marine in 2016, the marine assets will no longer contribute to Portfolio Management’s earnings going forward and the net effect is that we expect Portfolio Management to show a flat segment profit in 2016 on a normalized basis.

At American Steamship they had a very tough year financially in 2015, their iron ore volume that they carried dropped 4.5 million tons from the prior year that was driven by decline in domestic steel production obviously, average capacity utilization for domestic steel mills was 60% in 2015 as compared to 75% the prior year.

And if you look at the primary drivers, you had global excess steel manufacturing capacity, increased imports, the stronger dollar, we don’t think those conditions are going to improve in 2016 and thus we’re expecting that ASC will carry similar volume this year as they did last.

However, we expect that this tonnage will be carried in 11 vessels as opposed to the 13 that sailed in 2015 and that will result in significant savings from – you avoid substantial cost that you would ordinarily incur to fit out those two additional vessels for the sailing season.

And thus we expect American Steamship profit be up, it could be up 20% or more in 2016, but that’s off a pretty low base from 2015.

And then moving to corporate, on the SG&A side we expect SG&A to drop in 2016 by about 3% to 5% that’s due in part to the savings from that early retirement program that we implemented in the fourth quarter of 2015 that program alone should generate 3 million plus savings per year for the foreseeable future.

We’ve a tight control on SG&A and general tighter task control across the organization will allow us to decrease it in 2016 as well.

And then lastly, we took on last debt to finance our growth in 2015 by using those sales proceeds from exiting the marine business within Portfolio Management and since we maintain a target leverage for our business segments that will result in less interest expense allocated to the corporate segment in 2016 and that will mean about a $10 million difference positive year-over-year.

So, if you consolidate all that segment guidance you result in the 2016 total net income for GATX that we currently expect to be somewhat lower than last year. But in EPS that is essentially flat for 2015 and that’s how we arrive at that annual guidance of 525 to 545 per diluted share.

So that’s a little more color on the guidance as I said, these are difficult economic times, but sitting here today we started discussing the beginning of this downward trend in the railcar leasing market on these calls back in mid 2014 and then we produced record earnings in ’14, record earnings in ’15, we’re projecting to be close again in ’16.

So I think that’s a good indication of how we’d use the up market to protect our fleet as the market turns down. I would also address quickly the issue of capital allocation, I think everyone on the call is aware of GATX’s commitment to return capital to its shareholders both consistently in a various form.

2016 will mark the 97th consecutive year of dividend and payments by GATX and that’s a record that few companies can match. And in addition, if you look at the last 10 years we’ve also repurchased almost 17 million shares of GATX stock that returned another 750 million to shareholders by that method.

Now, we repeatedly explained to investors the actions that we took in the strong market last few years in order to lock in as much committed revenue as possible. As you saw in the press release that committed revenue now amounts to over $4 billion.

So that amount of committed revenue combined with the record financial performance that we post the last few years that really helps solidify our commitment to continue to return capital to our shareholders in the coming years and equally important it allows off the flexibility pursue attractively priced assets.

And they inevitably come up for sale in the weak rail market. So, I’ll just close by assuring you that I’m acutely focused on maintaining that right balance of growth and returning capital to the shareholders. So, let’s go ahead and open it up to questions..

[Operator Instructions] And we’ll take our first question today from Justin Long with Stephens, please go ahead..

Thanks and good morning guys.

I wanted to start with the question on the guidance, you mentioned the expectation for remarketing income in North American rail to be down materially in 2016, but could you talk about the order of magnitude you expect and also as we think about a railcar demand environment that's progressing more towards replacement levels.

What would you view as a normalized level of remarking income for your business?.

Justin it’s Bob Lyons. Thanks for your time this morning. So, this past year as you know from the results in the financials, we did about $67 million of remarketing income at rail. In North America we told you, coming end of the year was going to be a strong year and it was.

As we look out into 2016, I think right now it looks to be somewhere in the range of $40 million versus the $66 million or $67 million from last year. That's still a very healthy number and reflective of the fact that even with packages we are putting out in marketplace today we will continue to see interest in our assets.

And we will see how that progresses during the course of the year. I also think unlike last year what was more heavily weighted to the beginning of the year it will be evenly spaced during the course of the year.

And even if you go far enough back and look at 2009 and 2010 to that period in the marketplace when it was extremely stressed, and the financial markets were extremely stressed we still did $20 million, $30 million of remarketing income in those years. So $40 million is a very reasonable number..

Okay, great, that's really helpful. And second question I wanted to focus on some of the things Brian said on capital allocation given the prior buyback program is wrapped up, I thought there was a chance we could see another authorization on the quarter.

Should we read into that that maybe there is more opportunity in terms of the acquisitions that you are seeing in the market or are you still contemplating another buyback program?.

That's really more due to timing than anything else Justin. Our Board meeting is next week. The regularly scheduled January meeting is next Friday. So that's when our Board will contemplate both the dividends and we typically look at dividend increases at this time of the year and the stock buyback.

And I can tell you we’ll contemplate an authorization, the last authorization we had was for $250 million, we completed that this past year as we noted in the press release. We will contemplate another authorization in that same level.

And I could see that being completed in a similar pattern to what we did with the last authorization over a two-year period. Again, I have to reiterate the granting and authorization to the Board decision, but it is our expectation we will present the Board with the proposal..

Okay, great.

And I would assume since nothing has been announced that's not included in the guidance number, the EPS guidance you gave?.

No, we are assuming in the guidance that we gave that there would be some authorization and action under that authorization in 2016..

Okay and does that assume a similar program that $250 million program like you mentioned over two years?.

Yes, correct, somewhere in that range. And again, it's the Board’s discretion, but yes that has been contemplated already and obviously gives more as the stock prices that we have been buying the stock back at levels higher than this and I am comfortable with that.

We would like to buy rail assets as you know and given where the stocks are trading today we will look at all alternatives for capital allocation, but that one looks very attractive..

Okay, thanks Bob. And last question if I could sneak one more in, given some of the demand uncertainty and macro fears, I mean, you alluded to some of that in your remarks, but I wanted to ask about your comfort with the balance sheet.

When you stress test the model do you feel comfortable with the amount of leverage on the business today even if we were to slip into a recessionary period in the broader economy?.

Yes, absolutely. Given where our leverage is today, it's interesting, we normally get questions about trying to take leverage up a little bit. We have managed that conservatively, we have a solid investment grade rating that matters a lot to us particularly in markets where the financial markets get a little bit more stressed.

But I am very comfortable with the way the balance sheet is today, where leverage is today. In addition to using this up-market to extend term in our railcar portfolio we have done the same thing on the balance sheet side.

The average life on our debt today is about 7.5 years that was about 3.5 years going into 2008 and our weighted average cost to debt today is under 4%. So, I feel we are in an excellent position particularly given as Brian noted the committed lease revenue was north of $4 billion..

Okay, great, I will leave it at that. Thanks for the time and congrats on the execution in a tough environment..

Thanks..

And we will take the next question from Matt Brooklier from Longbow Research. Please go ahead..

Hi thanks and good morning.

So, you mentioned in the release your lease rate expirations being at a lower level in 2016, but could you give a little bit more color in terms of the number if you have it, how that compares to 2015 and maybe on a historical basis what the average lease rate expiration has been?.

Yes Matt, I will let me hit on both exposure and expiration. So, 2016 renewal exposure it's only 12,500 cars. 15,000 cars were to expire in 2016 but we early renewed about 2,500 of those. So obviously, this reduces the actual exposure for the year. And just for comparison purposes we saw that number around 17,000 for 2015..

Okay.

And if we look out to 2017 are we anticipating expirations are still that kind of this lower end level or are you able to look out that far?.

Yes, I think you got to be careful projecting beyond a year because it really depends on this year's activity. And for instance if certain car types that we do renew are at a rate that we don't really like for long term that much we are going to go shorter on there.

So it's very hard to start projecting out more than a year because it depends on this year's commercial activity..

Okay that's helpful.

I guess can you talk to some of the other potential cost levers that you can pull as we are going into a moderating environment, you talked to the early retirement program that you have offered in fourth quarter, but I am just curious to hear if there is any more offsetting potential factors as things potentially continue to moderate?.

Well, SG&A is the main cost lever that we can control, I think a lot of people expect to say maintenance as well, but a lot of that is commercially driven and just driven by the structure of your fleet.

Now it happens to be a light year where compliance in 2016 its projected to be kind of light again in 2017, but if commercial activity is such that there is a lower renewal success rate and a lot of assignments to new customers you could see maintenance go up beyond where we project. So that's a risk factor.

So really it’s SG&A as far as what you can impact directly and quickly on the cost side.

And again, I think if you normalize 2015 by pulling out that $9 million charge because that really doesn't, it's going to have a big decrease in SG&A in 2016, but you have to pull that charge out and I think that gets to about $183 million normalized SG&A and I think we can hit that by 3% to 5% in 2016..

Okay. And your comments regarding pulling more of your maintenance specifically for tank cars in-house is that just – is that something that you are – something you were planning on already or is that a reflection of I guess outsource maintenance cost starting to rise as kind of the North American network is getting tighter.

I am just curious to hear kind of the thought process in terms of the drivers with taking more of your maintenance costs in-house?.

We have been doing it a lot. We did in 2015 to a great extent. We are going to do it again over the next, continue that over the next year. It's really a strategy because we believe our quality and our delivery is much higher internally that's been our experience versus third-party providers or at least most third-party providers.

And we worked very hard getting more efficient within our own network and now we are to the point where we’re lower cost that are external providers as well. So yes, that's a strategy to continue to pull inside..

Okay, helpful appreciate the time..

Our next question is from Mike Baudendistel with Stifel. Please go ahead..

Thanks and good morning.

I wanted to ask you on your agreement with Trinity, I think you said that you have commitments from customers to take delivery, take the lease of equipment 2016, do you have much visibility beyond 2016 since it's a multi-year agreement?.

Yes and actually there is two agreements. So the 2011 agreement is coming to the end we have placed practically all cars from that.

We just have little over 100 cars left and then we had a second agreement that we did in 2014 for 8,950 cars that agreement, the deliveries pick up starting August 2016 and on that agreement we have placed between 10% and 15% of the cars, so we mentioned on the call we placed pretty much all the cars through 2016 deliveries and we placed a handful 2017..

Great. That’s helpful.

And then another question on your press release, [indiscernible] I am interpreting this correctly, it sounds like in 2016 you may or may not be purchasing equipment in the secondary market depending on the trajectory of the prices of that equipment but maybe you have to see if it has come down a little more further until you invest more heavily, am I interpreting that correctly?.

Well, we are always looking for investment opportunities both in the new and secondary market. In 2015, we were a net seller because we found the prices attractive in that market and we were less of a net buyer, as the market changes we will have to continue to monitor that but it's something that we look for in every market..

Okay, thanks that's all from me this morning. Thank you..

We will go to Art Hatfield with Raymond James..

Hey morning. Thanks for taking the time this morning. Brian I kind of hope, I don't know if I am going to ask this right. But, I kind of want to get your feel for how you see a potential downturn.

It seems to me that as we entered this period, we have got a difficult economic backdrop as you noted, but we also ended up with enough seamy high new railcar backlog and we know that some of that has been pushed out in the later years then we could – you could almost make the argument that the beginnings are good portion of the next up-cycles as already in the book and we may see an extended period of very weak new car orders, would you characterize kind of those dynamics as we enter this period as something that could bring about much worse carnage in the industry than we saw in the 2008, 2009 recession?.

Yes, I would say, it's certainly possible because remember we have been talking before demand started to dropping, we started to have these economic uncertainties that you are seeing in today's market. We have been talking about the oversupply especially in the energy portion of our market for year and a half.

So this to us was a supply driven downturn and now it's been exacerbated a little bit by potential economic weakness out there. So yes, it seems that going into this period of weakness there is a lot more in the way of oversupply than there was going into the last one. The last one seemed to be more demand driven, but Tom do you --.

No, I would absolutely agree with that but one thing I would point out though from a GATX perspective is because the upturn that came before was even stronger than the last upturn. We were able to put out even more cars at [indiscernible] GATX is entering it a little better prepared..

And to that question and I agree with your assessment you guys have done a great job of prepping yourself for this when do you get – one answer to that way because I know you don't want to get too far out but when does it get – when does the length of the downturn start to where you start to feel some significance pain, is that something where we would have to see this continue into mid part of 2017 or does it take you all the way to 2018? How should we think about that?.

Well, I think given the – well it depends Art, I don't know it's very hard to have visibility it's very volatile market out there in terms of where lease rates are going for instance.

I think if we can protect our utilization, we will be in very good shape for a number of years and that's going to, for large extent it's going to depend on how exacerbated this oversupply situation is and where the demand is going.

On the rate side given current trends it's going to be much more difficult but that works its way through the fleet much slower. So, really the big and it's true for 2016 as well.

We say we are projecting it's going to trend down a little bit but it's going to stay in the high 90s, if we can maintain it where it is today that's an upside to this earnings guidance. If we can't and situations are tougher that immediately hits us quicker and that's down side to earnings guidance.

And the second order affect to that we have already referred to it as the maintenance side, if utilization drops maintenance is going to go up as well because it depends on the type of car returns at some step, but generally there is more fleet activity, there is more cars entering the maintenance network, there is more cars going to different customers that drive higher maintenance expense.

If it’s higher than expected utilization, we’ll have lower maintenance expense. So utilization is a big risk factor for 2016 and really for any rail business at all. On the rate side things are trending down, we’re projecting a positive, slightly positive LPI this year.

2017, you can do the math if rates continue down it’s not going to be positive anymore..

Right..

So, it’s hard to look out and see how bad it’s going to be and how – and when it’s going to finally hit us, but eventually our long terms expire as well and things starts to get tough..

Okay that’s helpful, I appreciate that. Couple of other questions.

First, are you starting to see any pressure on new car prices?.

Yes, okay. The answer is yes and it comes from two different areas, one the component cost of steel prices that go into the cost for the builders are coming down and then obviously in this environment that’s more people chasing fewer deals, the pricing power of the builder is not where it had been..

Okay.

And is that moving down faster just kind of a study decline or is that car type specific?.

Like every question it varies by car type, but I would say that in totality market rates for the cars are coming down at a good pace..

And this is my final question.

Again I appreciate time and this maybe way too early to have an answer to, but are you starting to see or sense that some competitors out there that got real aggressive with the energy upturn who are starting to feel some real pain?.

Too early, too early to tell Art, a lot of people ask me about that especially in terms of acquisitions or pickup assets in the secondary market when will they be at the right price and as I think about that generally when we have been successful there it’s been out of bankruptcy or troubled financial situation.

So I don’t see that yet and so I would imagine, we still have to wait a while and wait for some pain to develop..

Art, if you go back to 2008, we started talking about the slowdown in early 2007, put up record earnings in ’07 and ’08 and really didn’t see robust activity from distress sellers really until late 2009, 2010 is really when it started to kick in..

And was some of that selling now related to more the bank crisis and people going into bankruptcy because of other things, do you need that type of scenario, this downturn or do you just think that you are going to see distressed assets because of the investment decisions people made over last few years?.

That’s a good question, I think if you look at the two fleets that we have added to our own image fleet, I think one was more rail distract and the other was the combination of what you are talking about..

That’s helpful and thanks for your time this morning, appreciate it..

We will go to Steve O'Hara with Sidoti & Company. Please go ahead..

Hi, good morning..

Good morning..

I was wondering if you could just quickly talk about in terms of the maybe the cars that come up in 2016, is it – would you say it’s more favorable than average in terms of where the market sits today? Then maybe it normally would be or is it less favorable or kind of just normal or average? And then just on the opportunity for investment, I mean are there areas that, are you really strictly looking in North America or other geographies and then are there let’s say pools of car types or something like that you may avoid or wait a little longer run ? Thank you..

I will start with the North American situation and let others address other geographies. I think your question maybe was in terms of mix of what is expiring in 2016 versus other years.

Our fleet is large enough and we focus enough on diversity that in general, the year 2016 is not much difference than any other year with one big exception and that’s anything related to the royal boom, we really went out of our way to have the less overall exposure in the near term to small cube covered hoppers which carry the sand and some of the tanker types that carry the crude oil.

So it’s a relatively lighter year there, conversely in coal that market has been challenged for awhile so we have been going relatively shorter term on coal cars so that’s maybe a little bit heavier..

Okay, thank you..

And as far as acquisitions beyond North America, Euro change stance over the last couple of years and it’s been unsettled market in Europe for a number of years and that was the knock of fleet which I think was around 10,000 cars that CIT picked up.

So, we constantly search and we poke but honestly we are looking more at organic growth in Europe from what we have been doing with existing customers, upgrading and monetizing their fleets. So, we are looking at new geographies, so Eastern Europe is big for us.

We already have a strong presence and the fleet is much older and need a replacement there. There are certain freight car types where the commodity flow is very stable and the fleets of incumbency are aging. So, I look at more organic growth right now being higher potential in Europe than in acquisition opportunity..

Okay.

And then just to the proceeds from the sale of Portfolio Management from the marine assets is that, do you expect that to fund the share repurchase agreement or just that pay down or what?.

Yes, dollars are really fungible, so I look at those coming in the door the same as other cash from operations or other portfolio proceeds. So, it really kind of commingled into the total mix of cash inflows, very strong cash inflows that we see in 2016.

And we will use those as we normally do to fund our hopefully continued growth in the fleet and looking for opportunities on that front dividend buyback etcetera..

Okay, and then lastly on the box car fleet, can you just talk about what utilization was in the quarter and maybe your outlook on that portion of the fleet?.

Yes, so the box car fleet continues to perform extremely well. We were over 97% for the year for the box car fleet. And going forward, we expect that to perform well. It’s in area that I don't think lot of incremental investment, but the assets that we have are continuing to do well..

Okay. Thank you very much..

We will now go to Justin Bergner with Gabelli & Company..

Good morning everyone..

Good morning..

I have a couple of questions here, I guess first to clarify an earlier comment on a question in regards to the number of railcars that are up for renewal, was that meant to be a North American number and was it inclusive of box cars or just x-box cars?.

That's the wholly owned North American number and that excludes box cars for comparative purposes to prior years..

Great, thanks, that's helpful. Second question was a more big picture question which is, what is the impact of sort of ongoing trends in rail utilization and perhaps weaker graph age due to low steel prices.

How is that sort of affecting the outlook for your business?.

I don't think it's really affecting the outlook for the business per say. You can see the impact it's out on the scrap income that we generate.

We break that out for you on the segment tables and the income statement and you can see that in 2015 scrap income was down quite significantly, fortunately it's not a significant driver of our overall segment profit, but definitely the numbers there were lower.

Tom if you have anything else you want to add on that?.

No. The one thing on the scrap price is, it does come into play when we look, car comes into shop and you have to make a decision on whether to repair or to scrap it. You look at the economics of what the car is going to continue to earn over its life and compare that to the scrap proceeds.

The scrap prices are down it makes it relatively more likely that you would repair a car than scrap it..

Okay, great, thank you.

And on the rail sort of utilization trend, I mean is that still, is improving rail utilization still a headwind for the tank car and railcar demand or is that sort of stabilizing?.

Yes, so I think maybe talking about improved rail road performance?.

Justin Bergner:.

.:.

Yes, okay.

So rail road performance when it performs well car types that move relatively more miles are more impacted than the ones that move relatively less so the core historical part of GATX’s fleet tank cars, specialty covered hoppers are impacted relatively less car types like intermodal and coal that move more miles are impacted relatively more.

As long as railroad operations stay very fluid and very strong you are going to see that as a headwind on those high mileage car types. What that's going to mean going forward is difficult to say because there is a lot of things that are out of the railroads controls in that regard. The most important of which is weather.

So, the railroads certainly are going to try to maintain that performance but see what happens..

Great, thank you.

I will ask one more and then get back in the queue which my final question for now is, your affiliate earnings within Portfolio Management were up strongly year-on-year and I guess you are suggesting the Rolls Royce joint venture can hold flat next year, why were the earnings up so strongly in the fourth quarter and why is the engine leasing market looking better than the aircraft leasing market where we have heard trends are rolling over fairly substantially?.

Yes, keep in mind too also we are – we talk about aircraft engine we think it's a spare aircraft engine leasing business so the dynamics there are little bit different than those that are coming out with and wing with new airframe.

Rolls did have a another particularly strong year it was up a little bit in the fourth quarter as they had some remarketing events too in the fourth quarter so that flow through positively, I assure that.

Looking out over the course of the next few years we expect to continue strong performance there operationally as we well as some opportunities to remarket some engines. We have a very big installed base north of 400 engines, almost 425 engines today, $3 billion asset base there of high quality equipment with very high utilization.

Historically, what we have seen is airline need their spares to run their air-life.

And while they may be able to turn back aircraft from time to time typically the spares that are in their network they need to have in a network and even in challenge times they continue to make lease payments on those and need the spares to operate the airline in total..

Thank you..

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

Hey good morning. It's Ken Newman for Steve. First question is on free cash flow in 2016.

You may have touched on this little bit earlier in the call, but can you remind me how are you guys looking at CapEx as it relates to 2016, is that going to be similar to 2015 levels or should we expect that to be higher or lower?.

In total we had about – we had just under $715 million of total CapEx spread across all the business segment obviously with the majority of that rail, North American rail, Europe, as we look out to 2016 we see a similar number. And obviously, we will be opportunistic if we see more attractive assets in the secondary market.

We are certainly in the position we can capitalize on those but what we are thinking today we will be in the same range as 2015..

Got it. And then, you talked a little bit about the headwinds for lease rates in terms for the entire portfolio.

I was curious could you give a little bit more detail on what you are seeing in the environment for non-energy tank cars rather than just the energy?.

Yes. So in looking at the demand drivers there’s a few different aspects some of which impact the entire fleet, some of which impact just the portion of it. The overhang of excess builder capacity impacts every car type and the non-energy car types are no exception. But what has held up pretty well there is demand.

The railcar loadings are down across the board but they are down pretty modestly in those non-energy tank car types, so those have been hanging in there pretty good particularly on the existing car side we have talked before about how the customer has a car switching it out is a tough situation.

So the switching car [indiscernible] disrupted to the operations to those who would expect that hang in there pretty good on the existing car side, new car opportunities in that area are going to be really heavily competed for because there is going to be relatively less places to put those new cars with the pretty big supply mix..

Got it and I guess this is the follow-up, can you tell us how many of those non-energy railcars or non-energy tank cars are existing in the fleet today, if you could break out the energy cars for us?.

Yes, so order of magnitude we have little under 60,000 total tank cars and cars in the energy market are maybe a quarter of that. So three quarters give or take..

Perfect. Thanks. .

And we will now take the next question from Kristine Kubacki with Avondale Partners..

Good morning. My question something we used to talk about quite a bit, is this, I guess on a few conference calls ago you talked about that you probably replace cars that were impacted by the regulations rather than retrofitting.

I was wondering if you could just give us a little color on if that thought process is changed and if you are accelerating any timing given kind of the environment we are in at this point..

Yes. So first of all when you talk about what’s going on with the impacted cars, you got to divide up a little bit. So for legacy cars, cars that were ordered before October 2011, we do not anticipate retrofitting any of those that’s what we said few quarters ago, we continue to believe that.

And as far as we know there has been no or tiny amounts of activity in that regard in the industry as a whole. For the CPC 1232 sometimes called the good faith cars, cars ordered after October 2011, divide those into jacketed and non-jacketed cars.

The jacketed cars we will indeed retrofit because the cost to do that is just about $3,000 to $5,000 per car that will happen over a very long period of time. It will happen as those cars come into shop for some other reason. The challenging one to think about are the non-jacketed CPC 1232 cars. The retrofit is expensive.

It's probably on the order of magnitude $30,000 - $40,000. And so, there could be opportunities where that makes sense, but it will be case by case and at least from a GATX perspective unclear what we will do in that regard..

Okay that's fair.

And then just, I think we have nitpicked over almost every portion here but just could you talk a little bit about your locomotive that you are seeing there in North America in terms of utilization or how you are thinking about that fleets?.

I am sorry I didn’t hear, you cut out but I think you asked about the locomotive utilization is that correct?.

That's correct. Sorry about that..

Okay. Yes, so our locomotive fleet which is vast majority is lower horsepower four axle equipment has held up pretty well. The utilization has been fairly consistent overtime. Where we [sink] cars not utilized it's almost exclusively getting them through the shop.

Shop space is pretty constrained in that for that asset type and so when we see depths it’s primarily resulted getting locomotives through. What you are seeing more broadly not with the locomotive type [indiscernible] purchase is in the high horse power successful locomotives. There are big access in that market..

Thank you very much for the time..

And the next question will come from Art Hatfield with Raymond James. Please go ahead..

Actually just a couple of follow-up so one just can't come on the hills as Kristine's question about retrofit.

Is it possible that if you retrofit some of those non-jacketed CPC 1232s that it may extend the life of those cars?.

You mean beyond its statutory life?.

Yes..

No. .

Okay.

Actually the other question I have, I was more curious about was, we understand that the definition of utilization as cars are under lease agreement, do you ever get a feel for kind of what the real underlying utilization level is i.e., how many of those cars are not being used by your customers that are currently on lease?.

Yes that's pretty anecdotal unfortunately. If you recall during the last downturn the AAR started providing a statistics about cars that haven't moved in 60 days that was actually helpful that helped us get some of that but it's hard to do without that statistic..

They dispended reporting that number a while ago..

Right. No I know my question was going to be if in fact you had a good idea what these looks like relative to prior peaks as we are heading in the downturn, but can't answer it so thank you very much..

And we will now go to Justin Bergner with Gabelli & Company..

Thank you again. Just a couple of quick follow-up questions.

The early retirement program cost are those all in the fourth quarter 2015 or will we see lingering costs into 2016?.

They are just around the fourth quarter of 2015 in the SG&A line roughly $9 million pre-tax..

Okay. That’s helpful. And then, you mentioned that the corporate interest will go down because of proceeds on the marine side.

Does that flow through just the portfolio management segment or does it flow through all the segments?.

The interest cost that had historically been borne and that – at that in the corporate line item there, we get reallocated essentially back up to the other segments ratably..

Okay.

So we’ll see interest expense come down across the segments not just Portfolio Management?.

It would come down at corporate and up a little bit at the other segments..

Okay..

Consistent redistribution of that interest expense, from a consolidated standpoint it doesn’t have an impact, just geography..

Okay. And then finally I noticed the other revenue line item in rail North America was up sharply year-on-year.

Could you maybe talk a little bit more about that and is that something that’s going to continue going forward?.

It was up more in 2015 over 2014. Some of that is the better driver and that number is the maintenance revenue line item. We also had some situations where cars overturned at the end of lease, so retuned in a condition such that we can make a claim on those cars and that flows through that line. I wouldn’t expect it to be as strong in 2016..

Great, thanks..

And that’s all the time we have for questions, so that will conclude our Q&A Session for today and I will turn it back to Chris LaHurd for any additional or closing remarks..

Thanks everyone, I appreciate the time and please contact me if you have any questions. Thank you..

Thank you very much and that does conclude our conference call for today. I would like to thank everyone for your participation and have a great day..