<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
[ X ] OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
[ ] OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-5666
-----------------------------
UNION TANK CAR COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-3104688
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
225 West Washington Street, Chicago, Illinois 60606
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(Address of principal executive offices)
Registrant's telephone number, including area code: (312) 372-9500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
There is no voting stock held by non-affiliates of the registrant. This report
is being filed by the registrant as a result of undertakings made pursuant to
Section 15(d) of the Securities Exchange Act of 1934.
Included in this filing are 10 pages, sequentially numbered in the bottom center
of each page.
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<PAGE>
UNION TANK CAR COMPANY AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. Financial Information
Item 1.
Condensed consolidated statement of income -
three months ended March 31, 1998 and 1997 3
Condensed consolidated balance sheet -
March 31, 1998 and December 31, 1997 4
Condensed consolidated statement of cash flows -
three months ended March 31, 1998 and 1997 5
Notes to condensed consolidated financial statements 6 - 7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Part II. Other Information
Item 1.
Legal Proceedings 9
Item 6.
Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Revenues
Services (leasing and other) $142,237 $136,333
Net sales 53,377 49,583
------------------- -------------------
195,614 185,916
Other income 10,323 4,632
------------------- -------------------
205,937 190,548
Costs and expenses
Cost of services 78,288 77,210
Cost of sales 44,517 42,975
General and administrative 14,812 13,965
Interest 18,615 19,045
------------------- -------------------
156,232 153,195
------------------- -------------------
Income before income taxes 49,705 37,353
Provision for income taxes
Current 19,222 10,978
Deferred 60 2,745
------------------- -------------------
19,282 13,723
------------------- -------------------
Net income $ 30,423 $ 23,630
=================== ===================
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------- -------------------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 101,387 $ 99,709
Accounts receivable, primarily due within one year 69,539 72,959
Inventories 74,813 71,395
Prepaid expenses and deferred charges 13,047 13,675
Advances to parent company,
principally at LIBOR plus 1% 181,819 177,705
Railcar lease fleet, net 1,527,992 1,578,433
Fixed assets, net 163,364 163,309
Investment in aircraft direct financing lease 35,527 35,341
Other assets 16,872 17,138
------------------- -------------------
Total assets $2,184,360 $2,229,664
=================== ===================
Liabilities, Deferred Items and Stockholder's Equity
- ----------------------------------------------------
Accounts payable $ 22,992 $ 18,636
Accrued liabilities 188,614 196,119
Borrowed debt, including $56,841 due within
one year ($66,382 at December 31, 1997) 872,620 925,038
------------------- -------------------
1,084,226 1,139,793
Deferred income taxes and investment tax credits 495,711 494,871
Stockholder's equity
Common stock and additional capital 113,035 113,035
Retained earnings 491,388 481,965
------------------- -------------------
Total stockholder's equity 604,423 595,000
------------------- -------------------
Total liabilities, deferred items and
stockholder's equity $2,184,360 $2,229,664
=================== ===================
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
1998 1997
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,423 $ 23,630
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 30,059 27,325
Deferred taxes 60 2,745
Gain on disposition of railcars and other fixed assets (603) (350)
Other non-cash income and expenses 314 714
Changes in assets and liabilities:
Accounts receivable 2,586 (256)
Inventories (3,850) (3,219)
Prepaid expenses and deferred charges 603 2,399
Accounts payable and accrued expenses (8,903) (15,174)
---------------- -----------------
Net cash provided by operating activities 50,689 37,814
Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets (60,375) (44,262)
Increase in advance to parent (5,687) (115,988)
Increase in other assets - (235)
Proceeds from disposals of railcars and other fixed assets 1,585 1,516
---------------- -----------------
Net cash used in investing activities (64,477) (158,969)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt - 150,000
Proceeds from sale-leaseback transaction 88,570 -
Principal payments of borrowed debt (52,953) (11,472)
Cash dividends (21,000) (16,000)
---------------- -----------------
Net cash provided by financing activities 14,617 122,528
Effect of exchange rates on cash and cash equivalents 849 (768)
---------------- -----------------
Net increase in cash and cash equivalents 1,678 605
Cash and cash equivalents at beginning of year 99,709 71,915
---------------- -----------------
Cash and cash equivalents at end of period $101,387 $ 72,520
================ =================
Cash paid during the period for:
Interest (net of amount capitalized) $ 19,199 $ 10,801
Income taxes 19,646 15,508
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
1. UNION TANK CAR COMPANY (the "Company") is a wholly-owned subsidiary of
Marmon Industrial Corporation ("Marmon Industrial"). Marmon Industrial is a
wholly-owned subsidiary of Marmon Holdings, Inc. ("Marmon Holdings"),
substantially all of the stock of which is owned, directly or indirectly, by
trusts for the benefit of certain members of the Pritzker family. As used
herein, "Pritzker family" refers to the lineal descendants of Nicholas J.
Pritzker, deceased.
2. The accompanying unaudited condensed consolidated financial statements
include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation. These interim financial
statements do not include all disclosures normally provided in annual
financial statements. Accordingly, they should be read in conjunction with
the consolidated financial statements and notes thereto in the Company's
1997 Annual Report on Form 10-K.
The 1998 interim results presented herein are not necessarily indicative of
the results of operations for the full year 1998.
3. As more fully described in the Company's 1997 Annual Report on Form 10-K,
under an arrangement with Marmon Industrial, the Company is included in the
consolidated federal income tax return of Marmon Holdings. As a member of a
consolidated federal income tax group, the Company is contingently liable
for the federal income taxes of the other members of the group.
4. The Company and its subsidiaries have been named as defendants in a number
of lawsuits, and certain claims are pending. The Company has accrued what it
reasonably expects to pay in resolution of these matters and, in the opinion
of management, their ultimate resolution will not have a material effect on
the Company's consolidated financial position or results of operations.
5. Foreign currency translation adjustments and transaction gains and losses
are assumed by the Company's parent. For the three months ended March 31,
1998 and 1997, Marmon Industrial absorbed losses of $266 and $19,
respectively.
6. The Company's Canadian subsidiaries periodically enter into foreign currency
forward contracts to hedge against U.S. dollar exposures. Foreign currency
forward contracts, all with initial maturities of less than one year,
amounted to $1,000 at March 31, 1998 and $1,500 at December 31, 1997.
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<PAGE>
7. Summarized Financial Information of Procor Limited
Summarized consolidated financial information for the Company's wholly-owned
subsidiary, Procor Limited, in thousands of U.S. dollars, is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------- -------------------
<S> <C> <C>
Balance Sheet:
Railcar lease fleet, net $187,830 $189,814
All other assets 218,248 215,403
Borrowed debt 116,753 121,009
All other liabilities 158,577 158,143
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Statement of Income:
Services and net sales $26,654 $22,878
Gross profit 9,201 8,548
Net income 3,554 3,128
</TABLE>
8. In March 1998, the Company entered into a sale-leaseback transaction with a
trust for the benefit of an institutional investor pursuant to which it sold
and leased back an aggregate of $88,570 in railcars. The Company has an
option to purchase all or a portion of the railcars at a fixed purchase price
on (i) January 2, 2009, (ii) March 30, 2014 (the base term lease expiration
date) and (iii) March 30, 2021 (the end of the optional lease renewal term).
9. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130), effective for fiscal years beginning after December 15, 1997. The
Company has no items of other comprehensive income present and therefore SFAS
130 does not apply to the Company.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
1st Quarter 1998 versus 1997
- ----------------------------
Service revenues increased $5.9 million primarily due to the effect of railcars
added to the lease fleet.
Sales revenues increased $3.8 million. Slightly more than half of the increase
resulted from the Company's sulphur service processing operations with the
remaining increase primarily due to increased fastener sales.
Other income increased $5.7 million primarily due to the sale of certain rights
retained as a condition of the May 1996 sale of a storage facility used in the
liquefied petroleum gas storage operations.
Income tax provision as a percentage of income before income taxes increased
primarily due to a higher effective foreign tax rate.
Financial Condition
- -------------------
1998 versus 1997
- ----------------
Operating activities provided $50.7 million of cash. These funds, along with the
proceeds from the sale-leaseback transaction were used to provide financing for
railcar additions, service borrowed debt obligations and pay a dividend to the
Company's stockholder.
Management expects future cash to be provided from operating activities, long-
term railcar financings and collection of funds previously advanced to parent
will be adequate to provide for the continued expansion of the Company's
business and enable it to meet its debt service obligations.
-8-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to "Business - Environmental Matters" in the
Company's Annual Report on Form 10-K for the year ended December 31,
1997 for a description of certain environmental matters.
Item 6. Exhibits and Reports on Form 8-K
b. No report on Form 8-K was filed during the quarter ended March 31,
1998.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION TANK CAR COMPANY
REGISTRANT
Dated: May 8, 1998 /s/ R.C. Gluth
------------------------------
R.C. Gluth
Executive Vice President,
Director and Treasurer
(principal financial officer
and principal accounting
officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the March 31, 1998 condensed consolidated balance sheet, condensed consolidated
statement of income for the three months ended March 31, 1998, and the notes
thereto, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 101,387
<SECURITIES> 0
<RECEIVABLES> 73,695
<ALLOWANCES> 4,156
<INVENTORY> 74,813
<CURRENT-ASSETS> 0<F1>
<PP&E> 3,046,221
<DEPRECIATION> 1,354,865
<TOTAL-ASSETS> 2,184,360
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 872,620
0
0
<COMMON> 106,689
<OTHER-SE> 497,734
<TOTAL-LIABILITY-AND-EQUITY> 2,184,360
<SALES> 53,377
<TOTAL-REVENUES> 205,937<F2>
<CGS> 44,517
<TOTAL-COSTS> 122,805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,615
<INCOME-PRETAX> 49,705
<INCOME-TAX> 19,282
<INCOME-CONTINUING> 30,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,423
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0
<FN>
<F1> The Company issues financial statements utilizing a non-classified balance
sheet.
<F2> The Company's revenues are derived primarily from railcar leasing.
<F3> The Company is a wholly-owned subsidiary.
</FN>
</TABLE>
