Good day ladies and gentlemen, and welcome to the GATX Third Quarter Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to today's host, Ms. Jennifer McManus. Please go ahead ma'am.

Thank you. Good morning, everyone, and thanks for joining GATX's third quarter earnings call. I am joined today by Brian Kenny, President and CEO; and Bob Lyons, Executive Vice President and CFO. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from statements or forecast. For more information, please refer to the risk factors discussed in GATX's Form 10-K for 2016. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. I will quickly recap our third quarter financial performance, and then hand it over to Brian for a short discussion on the house of the North American railcar leasing market. Today, GATX reported 2017 third quarter net income of $49 million, or $1.25 per diluted share. This compares to 2016 third quarter net income of $95.7 million or $2.36 per diluted share. Year-to-date 2017, we reported net income of $159.9 million or $4.04 per diluted share. This compares to net income of $226.2 million or $5.09 per diluted share for the same period of 2016. 2017 year-to-date results include a net after tax gain from the exit of portfolio management, and reinvestments and other items of $1.1 million or $0.03 per diluted share which is recorded in the second quarter of 2017. The 2016 third quarter and the year-to-date results also include the positive impact from a number of tax adjustments and other items all of which are detailed in our press release. Despite challenging market conditions, our third quarter financial results reflect continued execution by our team in the face of an ongoing oversupply of existing railcars and a large manufacturing backlog. Rail North America's fleet utilization remained strong at 98.5% at the end of…

Thanks Jen. So before we take your questions, we thought it might be helpful for me to address what GATX thinks about the pace of recovery in the North American railcar leasing market. So thus far this year our fleet utilization, as well as absolute lease rates has fared better than we thought coming into the year. As you know, we recently projected that fleet utilization would drop a few points due to car over supply especially in co-market but also due to extreme weakness in the legacy of 30,000 gallon tank car market, as well as the high-pressure tank car market. But as you've seen thus far utilization has remained at 98.5% and that's down just 4/10 of a percentage point. So our commercial team has done a great job keeping those cars on lease and earning revenue in a difficult market. On the lease rate side, we originally projected that our lease pricing index would be down 30% or more in 2017 and year-to-date that number is around 27%. So it’s a little bit better than we expected. Now we derive that LPI forecast by assuming the absolute lease rates across the fleet would be flat in 2017 but that our average expiring rate would continue to climb. So the slight positive variance you see in LPI is due to the fact that absolute lease rates after being largely flat in the fourth quarter of 2016 through most of 2017 have now gone up about 3% in the third quarter on a fleet wide basis. But given that they're still down 27% from the expiring rate this year, it's obviously nothing to celebrate but at least it's headed in the right direction. So I call this fleet statistics to your attention because it highlights the question that we…

[Operator Instructions] And we will take our first question from Allison Poliniak with Wells Fargo.

I just want to touch base on that last note. You obviously spoke to the speculative orders. These rates look like they are finally even modestly rate of inflecting higher. I mean how aggressive are these guys being in trying to get these assets utilized and do you see it that as a risk as we enter 2018 here for you?

Yes, it's definitely a risk. I mean if you look at absolute lease rates, yes there were up in the quarter, I don't want to get too granular but up around 3% as I said across the fleet, a little bit more for tank cars, a little bit less for freight cars but as I said still dramatically lower than the prior peak and lower than where we would need them to be to invest. So, what we're seeing is, is competitors to be extremely aggressive on every new car opportunity. A lot of them have lower utilization than we do, so it's very competitive not only in lease rates, lease rates themselves but also in other terms they offer. So it’s a pretty competitive out there. And what you worry about is you’re finally start to see its bottom out maybe turn up a little bit, but there's still backlog out there and there's still orders being announced and we’re not seeing being in this business for 120 years we’re not seeing that catalyst out there that’s says demand is going to pick up.

Utilization you played out better then you expected, you haven’t seen that dropping utilization that you thought you were, I mean is that something we should be thinking about for Q4 or is it a fairly decent level for you guys as we exit the year?

Well where we get we did better than expected once again coal - it is what is, I am not getting excited about keeping coal cars on leased if I am doing in that lease rate of $5 a month right it doesn’t - it’s better than having them returned and incurring the storage cost, but it doesn't really mean anything for revenue. But where the surprise came for us where we did a little bit better was in that legacy 30 market as well as the high pressure market. So we’re able to keep cars on lease there and that was meaningful to results that’s why revenues were little higher while we’re pushing up our guidance to the high-end of the range. As far as fleet utilization going forward I think in the fourth quarter we still do have a lot of coal renewals. So utilization is still a risk. I don't think it’s much of a risk as it was obviously coming into the year. Next year will talk about in January, but yes it’s continuing ongoing risk just as the market appears to have bottomed out here, we’ll see if these speculate deliveries actually start coming next year.

And then just lastly lease term extended obviously this quarter, is that were mix related or something I guess fundamental that’s driving that?

Nothing fundamental. It does vary quarter-to-quarter and general since most of our car types are below that long-term equilibrium rate, we’re going to try to keep terms low. There's obviously exceptions in certain car types, but in general that's the case.

And we would take our next question from Matt Elkott with Cowen.

So it's good to see the lease rates improvement in the third quarter, but that's a quarter that saw a few unusual events two hurricanes and also we had CSX that had some service issues which may have prompted some shippers to have to lease their own cars. So I was just wondering if you guys have a sense of - if any of this improvement in the third quarter and lease rates was partly attributable to the hurricanes and not CSX’s service issues?

First of all, we have a number of facilities and hundred employees down the Gulf and they’re all safe, but we didn't really have much damage in our facilities so we got pretty lucky there. As far the commercial side, we did not see a lot of customer request for cars even in the immediate wake of the hurricanes. Perhaps there could be impacting some of the car loading data, but it also might be too early to tell. So we’ll see once customers have assessed the damage when construction or reconstruction gets back in full swing, but in the wake of the hurricanes we haven't seen anything on the commercial side. In fact it's been a little tougher to load our network and we’re wondering if that's because of some of the disruption from the hurricane. So nothing positive in the short-term on the CSX side really our direct exposure to them was around 400 cars, they were all returned the vast majority of that has been in boxcars. We do think that our shipper, our customer dissatisfaction has been high. They've actually tried to ship some of - from the traffic or away from the around the truck which is difficult to do. If it showed us anything in terms of increased demand the CSX situation that was probably in the boxcar fleet. We have seen some increased demand from boxcars that maybe related, but nothing widespread across our fleet yet.

And going forward, there's going to be probably a couple of years of rebuilding post the hurricanes and that something that you guys are thinking about, you know looking back at similar events in history is it easy to - it’s probably not easy but is it even possible to kind of gauge how much of the benefit the rebuilding could have in the next year or two or even three years?

And that's a good part about a very diverse fleet like ours. It could affect in a number of ways. So centers beams for lumber and for small cube which has already had a nice increase in 2017 due to increased frac sand loadings. They carry a lot of commodities related to the construction industry as well so you could see further strength there. Variety of different tanker types difference carry out. So there's a number of ways that could impact our - a very diverse fleet like ours. Going back to Katrina and those, I don't really remember everything off the top of my head but that was also doing a pretty tough market. It's a good question but I feel good about having a diverse fleet if that business does take off.

And then also I had a question on lease terms which you guys have done a great job making sure that you move in the same direction as rates. But as rates remain stubbornly low with the exception of the - in the third quarter for a prolonged period of time, is it becoming increasingly difficult to keep terms down as customers want to down lock-in at low rates for longer times and that if you want to keep your fleet utilization from declining materially. Is this why we saw the average term go up in the LPI further - decline further in the second quarter and is there something that we should expect going forward?

No, that’s a very good question. I would say the more the larger, more savvy customers that also have big fleets and own railcars they do and we’ve seen some of them trying to lock-in for longer terms to be sure. Obviously, we don't want to do that, but that’s also if you look at on the other side, it’s also a good sign that people really look at, I better lock-in now or try to lock-in now because the market looks like its bottom up maybe going up from here. So that's not necessarily bad news but as far as the movement in the term in the quarter like I said it's really I wouldn't read anything into that.

And just one final question, you guys just under 13,000 flammable liquid tank cars in the fleet. Is it fair to say that most of these leases were initiator renewed in the 2012 through 2015 timeframe. And how does the Canada topline revenue headwind look from a renewal perspective of these cars in each of the next couple of years, will there be an outside headwind in 2018 or 2019 or 2020 just trying to get a sense of that?

That's probably too far ahead. The problem with giving schedule renewals I know we do it we try not to but we’re kind of forced to but the problem is that change is so rapidly in a down market because you're doing a lot more short-term leases moving that number. In general on the 30,000 gallon tank cars of flammable service, I mean we remember at the peak lease rates were well over $1000, you know there's still dramatically lower than that, dramatically lower than our long-term rate that would be attractive to us. And obviously we don't see that changing in the next couple of years. There's some talk of increased demand out of Canada for crude by rail, but honestly I think most of our customers would like to probably would fill that with DOT 117. And to prove that concept, you could look at what was carrying crude oil three years ago, I think it was 30,000 or 35,000 legacy cars and today that number is literally in the hundreds if at all - people are looking to the new car.

And we would take our next question from Prashant Rao with Citigroup.

Brian, thank you for all the color on how you’re thinking about in the current market, and as we head into 2018. I kind of wanted to get a sense of now that the remarketing income program for the package it's pretty much run and looking at the guidance sort of being at 4.60 or slightly above. The implication is that we could see a 4Q what might be a core rate for EPS probably lower than maybe what some of investors were expecting. So I just wanted to get a sense we should be thinking about kind of like a core EBIT EPS generation or accretive marketing income. And then how do we think about that going into 2018 is that the right kind of run rate or what are some of the puts and takes we should be considering as we kind of maybe think about that on cadence basis?

This is Bob Lyons. It certainly won't be a run rate. There is a few factor here going into the fourth quarter that lead to the guidance that we've given today. One you hit on, the obvious one which is remarketing activity is largely done for the year in terms of the planned activity. So if you're just going kind of bridging from the third quarter to the fourth quarter, that’s a roughly 8 million pre-tax number that we’re not expecting would be there in the fourth quarter. Also you have American Steamship which had a very good third quarter but we’re coming into a much more difficult operating season for American Steamship so if history repeats itself, their segment profit will drop materially in the fourth quarter it always does. In addition to the remarketing income that we generate from - on the rail side of the portfolio, we also generate remarketing income at our Rolls-Royce and affiliate joint venture. We have roughly 5 million, maybe 6 million of that in the third quarter. They had a very good result. We are not expecting that again in the fourth quarter, that's just due to timing again at similar the rail remarketing. And even more lumpy than rail remarketing given the size and net book value of the assets. We are also likely as Brian had alluded to, we still have a number of coal renewals here in the fourth quarter. We expect a number of those cars will be coming back to us, we haven't decided exactly what we will do with those cars yet. There is a possibility we may just given the overhang in the market we may scrap all those cars out and some of those may scrap out a loss. We’ll go through the process of looking that - looking at that in the fourth quarter. So while we've had scrapped income year-to-date, that may not be there in the fourth quarter just given that coal overhang. And we’ll see a little bit of a takedown in lease revenue as we’re seeing sequentially each quarter with the renewal. So there is a number of factors coming into play in the fourth quarter that lead to that full year guidance that we're giving but certainly not indicative of what we would expect for 2018 or annualizing that for 2018.

And just quick follow-up call, the coal cars that are coming - how big is that portfolio that’s coming back in 4Q and what’s the timing on the remainder of the coal fleet? Is there more in the coming quarter or what be a near term headwind that we should be factoring in?

Yes, so there is about 1600 last revenue in the fourth quarter of this year. And as a reminder, there was about half of our coal fleet up for renewal this year.

And then just one final one taking the step back, as I take sand cars and the strength of sand cars this year out is - the lease rate for the fleet and the tank cars are up maybe 3% sequentially I don’t know what you said, Brian. Is everything else - wholesale could we call it flat or is there anything where there are other maybe incremental inquiries where you see some promise of what might drive the next 100 or 200 basis points of sequential improvement for the fleet or are we still waiting for that if we take out - if you take that percent and causing those portions of the tank cars where you’re seeing some uptick from bottoms?

Yes, first off tank cars are up a little more than 3%, freight cars up a little less like - small queue that probably gone up 100% this year at least. So they are pretty close to an investment type rate. As far as other car type, there's some strength in very small tank car type certain asset cars things like that but look across the fleet there's nothing else where we're saying boy, that's really going to drive some meaningful differences here.

And we will take our next question from Justin Long with Stephens.

So Brian you mentioned lease rates were a little bit better sequentially but I was curious if you could speak to how inquiries for the North American railcar fleet have trended recently. I know that something that you guys track pretty closely, so during the third quarter did you see a pickup in inquiries or the quality of this increase?

No, nothing that I would get on the call and pound the table about. I think it's been fine - and the way I would point you to, is we're still sold out for '17. We're sold out well into '18 in fact into the third quarter. So there is there. I would say they picked up this year but I wouldn't think it was tremendous pick up anymore in the third quarter.

And secondly I wanted to ask about the rate of scrappage in North America. If you go back historically and just look at that data, is there a certain level of scrap prices where you start to see a meaningful positive inflection in the scrappage rate. I know it's something that can vary a lot by hard type but I wanted to get your view if there was a high-level way to think about that trend?

So over the last, you know since the last downturn back in 2008, I don’t know if it's all scrapping but as far as cars that have left the national fleet. So it's probably averaging about 50,000 cars a year. More recently it's been in the 30 to 40 range. This year it's probably on track for that. Scrap rates increased during 2017, they were 200 or below at the end of ’16, they were up to like I think 265, 285 in the third quarter. But they have come back down again in October. So great question, we really like to see that increase bounce see that meaningfully increased until you're into the 300s of more, than hopefully you will start to see some more serious attrition international fleet.

Justin there isn’t a dollar level with which you know the switch gets flipped, and you see incrementally less or more scrapping activity with the fleet, our size we’re always going to be scrapping cars usually 2500 to 3000 a year going to come out of the fleet if they’re just going to age out but every dollar increase in that scrap price helps and hopefully causes other lessors as well to look at idle inventory and potentially scrap it out of the fleet.

And lastly as you think about some of the new entrants that have come into North America, at what point do you think they start to feel more pain as it relates to higher maintenance costs? I know maintenance is something you view as a competitive advantage but I'm just curious when you expect to see that competitive advantage become a little bit more apparent?

Can you ask a different question, the problem with that of course is cars are – specially tank cars are relatively maintenance-free for a period of time and you don't see that first 10 qualification become due for 10 years though somebody really added to their fleet in the ethanol boom say in the mid-2000 they’re starting to feel that right now. But the crude oil boom is going to be a little more, if you had a lot due to that, it’s going to be little later.

And we would take our next question from Matt Brooklier with Buckingham Research.

I wanted to dig in just a little further on the increase sequentially in terms of lease rates across your fleet. You indicated that, I think, tank cars were up a little bit more than that 3%. Can you talk to maybe some of the tank car categories or commodities that potentially drove that sequential increase a little bit above what you saw, I guess, for the average fleet?

Across the tank car fleet, once again I will make it too granular, it was pretty widespread across the tank car and that’s the good news in the quarter, once again I hate to talk about good news and rates are down 27% for the year but as far as absolute rates bouncing up in the quarter, it was pretty widespread across the tank car fleet.

And your best guess is that's just a function of continued Class 1 volume growth? Was there some sort of like supply event, maybe some flammable cars that got scrapped? I'm just trying to think through the puts and takes here.

Yes and that’s exactly, that's why I'm not calling it a trend yet because of the quarter. So we’re not getting overly excited about that and again as I said there's no demand catalyst out there that says this is really going to take off, the best thing to point to is small cubes right there was a demand catalyst there with the increase in frac sand used earlier this year and you say okay that fleet got used up really quick, it’s 100% utilized. That’s the issue that we’re seeing, I mean things this period have bottomed out, they have come up a little bit. Some people are trying to lock in term but there's not demand catalyst out there that's obvious to us, this is going to be great now. Back in the mid-2000s it was ethanol and the late in 2012 to 2014 it was crude oil, I can’t point anything like that now saying while this is really going to drive that demand in lease rates up.

And then can you remind us what your fleet looks like on the small cube hopper side, the total number? And then maybe if you could talk to how many cars you think you have in sand service right now?

Yes Matt, there’s about 6000 small cubes in our fleet and about half of those are in frac sand service.

And then looking at ASC, you talk to a pickup in terms of iron ore and shipments. And I realize there's obviously some seasonality in the numbers as well. But any inkling as to what drove the pickup in terms of, I guess, demand for iron ore and the increased shipments that you saw?

Yes there is – there is I would assume you’re talking about ASC, so we saw some short-haul, some short term short-haul or I’m sorry longer haul iron ore moves, some of that is export related, some of that’s the year-end inventory build that hadn’t been anticipated initially. So again no big secular driver you can work to, to say that we've reached a new level there in terms of demand, well certainly capitalizing on the opportunity both from having vessel capacity available to move products and capitalize on some term for rate opportunities as well has been a nice contributor there in the third quarter.

And we would take our next question from Art Hatfield with Ensign Peak. Please proceed.

Thanks for taking the question and I apologize upfront Brian, my questions are little nuance but it's about the cycle and as I look at kind of where we were at the peak of the cycle to where we are today, I kind of view it as a relatively soft landing and one of the things that kind of comes to mind as we go to that, I'm just not speaking to the leasing market but the building, the manufacturing market as well as in relationship to the leasing market and I think about your comments about the financial entrants coming into the market and I think about it currently as for them being a very rational decision that even in a difficult railcar market, they’re still able to get yield relatively speaking to other options that they have that is attractive. So I guess here's the question if and when interest rates actually do start to move higher and these financial participants can go get yield elsewhere is that the capitulation moment that needs to occur to finally start to get some of the slack out of the industry?

Obviously, first welcome back Art.

Thank you.

But it could be, it’s hard for me, I don’t have that crystal ball but it also could be, I would just speak to you little bit on that positive yield it kind of depends on how you define yield, if you buy into a fleet and the utilization starts drop, I don’t know if you call that a positive yield situation but and you have seen some people exit the business in the past year and some of them in loss. So that we could already be seeing some of that but increasing interest rates probably wouldn't hurt that situation but I think more likely the way it's worked in the past is that people realize that the railcar market is not quite as attractive as it appeared to be at the top of the market when they got in and utilization starts to suffer and lease rates are as we described today and then they move on to other things. Now that hasn't happened, this one has been a little different this year, I mean some people have exited, there is some noise about some other people exiting, but hasn’t been the mass exit that you saw during last downturn and that’s because the capital market are so much stronger this downturn and so people are still showing up at these opportunities and last time we had our pick because nobody wanted to invest and they didn't have the capital to do so. So I will it’s different and more difficult this time to take advantage of those situations but as far as what drives I think as I said in my opening it’s going to be while this returns is not as great as I thought it could be as I deliver all these new cars until market that doesn’t need them.

And I would add to that, we’re not unfamiliar with the financial buyers, we know some of them well and we've heard from some that they’re kind of in that early phase of realizing that this is a leasing business and cars come back that go idle. We’re starting to deal with that and really try to contemplate what that means. But certainly was not in the model and they made the initial investments.

Have you seen participants that you hadn’t seen before that appeared to act more irrational than some of the kind of historic financial participants?

No, not really. I mean everybody who has idle fleet tries really hard to put it back to work.

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

Just going through, I know you had noted some of the things that you're kind of calling out and so just, I just want to make sure I understand. So based on the guidance you're looking for on the zero remarketing income and then I guess a pretty significant drop in ASC sequentially which I think is seasonally a much tougher quarter for them and then I did you call out the amount of the roles remarketing income or gains having in that portfolio.

Yes, they had about on a pre-tax basis fee is about $5 million each of the last couple quarters yes, with that’s we’re not counting on that in the fourth quarter.

And then the railcar orders going forward can you just remind us that you what your current order book looks like in, the makeup of those orders if that's changed, the card types order just kind of the usual state affairs. Thank you.

Yes, sure our existing supply agreement from 2014 we trade it’s for about 9000 cars I think it deliveries are and in early 2020. We placed about 5000 of those at this point I said replaced out well in the next year and most of that is tank cars and I'm trying to think a mix there's really I can't think if anything that stands out or anything I’d want to say for competitive reasons on this call but there's certainly nothing that’s different than what we usually take delivery of there.

And then just on the - I think the number of boxcars continues to, to drop I mean is that just those cars aging getting older and you euthanizing them on the way.

Yes, we've scrap some cars out of it fleet for sure we've also sold them too. And so we’ve seen some opportunities there in the 2,300 car range to sell some cars at attractive valuation to users.

And we would take our next question from Jordan Hymowitz with Philadelphia Financial.

Which any of the residual value gain is a result of the nuclear power residuals.

No, we did have a very large one last year $20 million last year 2016.

And how you recognizing that like quarterly re-evaluated, annually evaluated something like that.

Only happens when a facility is either sold or a new long-term lease is put in place.

And could you remind us how many of them are left because its seven or eight or.

Now it’s fewer than that and that the $20 million gain realized last year was in high end of what we would expect going forward.

So, you’ll say how many are left at this point.

Three or four.

And we would take our next question from Justin Bergner with Gabelli & Company.

First question relates to the Rolls-Royce affiliate remarketing income. I think you said Bob that it had been running about $5 million per quarter for last couple quarters but I guess if that's the case then the sequential increase in the affiliate earnings of about close to $4 million sort of stands out I'm not sure if I heard you correctly before about the remarketing gains being $5 million a quarter and then my interpretation is correct.

Well yes it is correct from the stands at the second and third quarter, first quarter was late but if you look at where we're at year-to-date on a pretax income basis for Rolls-Royce it’s about $39 million total pretax income our share, and we expected that full year number to be right around 50. We still expect that to be the case so, they generate $10 million here in the fourth quarter that would be absent any remarketing income that would put us right where we thought we would be for the year.

So, if I look at the $12.3 million of Rolls-Royce income in 2Q if that included I guess close to $5 million of remarketing income that would've made the non-remarketing income a little bit late versus I guess the annual pace, so was there anything that was sort of anomalous in 2Q maybe instead of being anomalously positive in 3Q.

No, nothing significant. There are other items that go into that whether its provision for loss and loss recoveries, that can be in the $1 million, $2 million range in a given quarter so, that is not just operating income and remarketing income. It could have a swing factor in any one given quarter. Like the key point as we expect fourth quarter to be around $10 million somewhere in that range.

And Brian building on your sort of comments from earlier, I think you sort of called out two factors sort of a lack of demand growth in terms of railcar loads and deliveries exceeding scrappage and I guess the third one the fact that wasn't discussed was sort of utilization. Have any of those sort of key drivers worsened over the last three months or you just sort of making these comments to suggest that despite some lease rate improvement you know things don't necessarily look like they’re getting materially better?

No, what I’m saying its supply driven downturn this time. There's no obvious demand catalyst that will snap us out of that and as you continue to throw surplus railcars with the problem, it’s going to prolong the recovery that’s a summary of that rent I want at the beginning of the call.

And then on the utilization front nothing materially changing there that would add to your comments earlier?

No, it’s actually a little bit better than we thought we done a nice job but commercial team has done a great job keeping our cars employed. Now like I said, we’re not too excited. It's better having coals cars not come in and be stored then you know that's good, but it’s not anything exciting as far as revenue goes over the next couple of years, but keeping the tank car fleet utilized despite this market weakness has been outstanding and that's the source of the upside we’ve seen this year in our earnings.

And then in terms of Tier 1 railroad utilization increasing or decreasing the demand for railcars no real material change for your view there over the last three or six months?

I think the isle fleet in the industry is actually down just a kick but nothing meaningful there. I think it went [19 from 21].

And we would take our next question from Steve Barger with KeyBanc Capital Markets.

Brian earlier in the call you said it's been a little tougher to load the network and it could be hurricane related if it's not that what would you think it could be?

That could be a positive if customers are unwilling to give up their cars. So there's a number of things that you really have to see if the multi-quarter trend like I said people wanted to lock up for longer lease term that’s tough with these lease rate but potentially a good sign. Cars that are unexpired writers also and people want a decision there that could be a good trend. So I think some of this is what ticked up lease rates in the quarter, but I want to see it happen for multi-quarters before we get excited. And once again with the supply overhang you know it would be easy to derail no pun intended at this point.

And for aftermarket services that you may contract for outside your own network, are there any capacity or lead time issues I'm just trying to get a sense for parts and service availability as traffic is stepped up a little bit?

We’re more focused on doing more and more of our own fleet maintenance internally and that’s increased dramatically over last few years from roughly half to over 80% in tank and specialty freight now. We like to continue to do more of that and actually increase the capacity in our own network which we’re investing to do right now. As far as third-party, I mean we’ll do it for really big customers but at this point we’re not out trying to sell that capacity I rather just use it myself.

Understood, well and inside your network then is there a lead time changing at all for parts do you have any issues related to service the cars?

I have not heard of anything of that nature no.

And we would take our next question from Gordon Johnson with Axiom Capital Management.

This is James Bardowski in for Gordon. Just had a few follow-up questions here. First with respect to your cash balance it was down roughly about $85 million in the quarter which is typically a positive cash quarter. Can you just give us a little color on where do you deploy the cash what was mainly spend on?

The cash balance is not something I really look at from the standpoint as it moves around a lot quarter-to-quarter. There is no consistency to it because a lot of that has to do when we’re refinancing debt when we’re paying down debt or issuing bonds. So for example if we did a big debt issue at the end of the second quarter we’ve carried a huge cash balance until we pay down whatever maturity was coming up. So it’s just the ordinary working capital use of cash nothing significant, our next debt maturity is in February of 2017 and so maturity schedule in 2017 is very typical.

And then with respect to the lease rates as naturally we should expect a lower LPI going forward, presumably this would put pressure on the ROE and with that said, do you guys have any target to what you consider optimal fleet level particularly for the U.S. side?

Optimal fleet level…

North America fleet.

North America, correct, on the North American rollover basically what you’d like to manage that at?

No, there's no significant number that we have . We've never had a target number up or down. What we’re trying to do is generate the highest risk adjusted return for our shareholders on the assets we have on the fleet we have. And that factors into all of our new investment as well as selling assets on the secondary market. So there is no and there never has been a target fleet count.

Then quickly on the lease renewals, I think it was about 74% this quarter or last quarter nice job on that. How do you guys managing to keep that so high given the market conditions?

Well, I think there's a lot of reasons for that one is our service which we think and our relationships which obviously I’m not going to keep talking about that we've been doing it for 120 years but I think a lot of our successes what we structured during the up market as far as what is renewing now, I agree that there are a lot of coal renewals this year and we renewed more than our share, but once again not a great rates. But I think structuring it in the upturn so that we’re not facing a lot of the challenge renewals now has been key to keeping that renewal success rate high and just great work by our commercial team. And it’s been the good news from me this quarter was about 74%, 75% and it was in prior quarters you seen it a much different rate for tank and freight and both of them were right in that range this quarter so that’s a good sign from me.

And given my shoddy memory, how many coal cars do you guys have its about 2500, 2200?

We have about 6,000 coal cars in our fleet.

6,000 very low. Excellent. And then one more and I'll hand it back. You mentioned that there is no demand catalyst understandably but looking at the mix of railcar freights and it seems to be coal and nonmetallic minerals basically disproportionately carrying the weight for the industry – noting your 6000 car coal fleet how much of this is given benefit to your utilization rate and is there any intention to – for GATX to change the mix towards some of the higher demand cars versus staying overweight in your tankers?

No, we very much invested for long-term, and I don't want to beat this data but obviously that's why we didn’t invest heavily in crude by rail just because it’s a short-term trend didn’t mean much to us. As far as coal, yes, it probably helped on the utilization side I'd have to verify that but once again, I was putting them at really low rate, so still not that excited about it. So the return - in other words the return is still very poor on that asset despite the fact that they’re utilized.

And it appears there are no further questions at this time. I like to turn the conference back to our speakers for any additional or closing remarks.

Thanks everyone for their participation on the call and please feel free to contact me with any follow-up questions. Thank you.

And ladies and gentlemen, that does conclude today's conference. We’d like to thank everyone for their participation. You may now disconnect.