<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 June 30, 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
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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
Page
----
Part I. Financial Information
Item 1.
Condensed consolidated statement of income -
three and six month periods ended
June 30, 1998 and 1997 3
Condensed consolidated balance sheet -
June 30, 1998 and December 31, 1997 4
Condensed consolidated statement of cash flows -
six months ended June 30, 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 5.
Other Information 9
Item 6.
Exhibits and Reports on Form 8-K 9
Signatures 10
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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 Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Services (leasing and other) $143,819 $140,412 $286,056 $276,745
Net sales 71,211 71,496 124,588 121,079
-------------- -------------- -------------- --------------
215,030 211,908 410,644 397,824
Other income 4,607 4,538 14,930 9,170
-------------- -------------- -------------- --------------
219,637 216,446 425,574 406,994
Costs and expenses
Cost of services 80,851 82,088 159,139 159,298
Cost of sales 60,074 62,698 104,591 105,673
General and administrative 15,334 14,664 30,146 28,629
Interest 17,748 19,400 36,363 38,445
-------------- -------------- -------------- --------------
174,007 178,850 330,239 332,045
-------------- -------------- -------------- --------------
Income before income taxes 45,630 37,596 95,335 74,949
Provision for income taxes
Current 10,183 12,573 29,405 23,551
Deferred 7,971 621 8,031 3,366
-------------- -------------- -------------- --------------
18,154 13,194 37,436 26,917
-------------- -------------- -------------- --------------
Net income $ 27,476 $ 24,402 $ 57,899 $ 48,032
============== ============== ============== ==============
</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>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 93,402 $ 99,709
Accounts receivable, primarily due within one year 78,078 72,959
Inventories 88,779 71,395
Prepaid expenses and deferred charges 14,259 13,675
Advances to parent company,
principally at LIBOR plus 1% 165,539 177,705
Railcar lease fleet, net 1,538,184 1,578,433
Fixed assets, net 165,651 163,309
Investment in aircraft direct financing lease 34,204 35,341
Other assets 30,147 17,138
---------- ----------
Total assets $2,208,243 $2,229,664
========== ==========
Liabilities, Deferred Items and Stockholder's Equity
- ----------------------------------------------------
Accounts payable $ 20,925 $ 18,636
Accrued liabilities 249,929 196,119
Borrowed debt, including $108,666 due within
one year ($66,382 at December 31, 1997) 886,840 925,038
---------- ----------
1,157,694 1,139,793
Deferred income taxes and investment tax credits 437,650 494,871
Stockholder's equity
Common stock and additional capital 113,035 113,035
Retained earnings 499,864 481,965
---------- ----------
Total stockholder's equity 612,899 595,000
---------- ----------
Total liabilities, deferred items and $2,208,243 $2,229,664
stockholder's equity ========== ==========
</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>
Six Months Ended
June 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 57,899 $ 48,032
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 60,538 55,032
Deferred taxes 8,031 3,366
Gain on disposition of railcars and other fixed assets (1,157) (1,081)
Other non-cash income and expenses 783 1,340
Changes in assets and liabilities:
Accounts receivable (3,170) (1,748)
Inventories (15,080) (503)
Prepaid expenses and deferred charges (500) (1,191)
Accounts payable and accrued expenses 1,431 (12,574)
--------- ---------
Net cash provided by operating activities 108,775 90,673
Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets (114,410) (135,767)
Decrease (increase) in advance to parent 17,522 (35,423)
Net disposal of other assets -- 5,163
Purchases of businesses, net of cash acquired (16,841) --
Proceeds from disposals of railcars and other fixed assets 3,165 3,221
--------- ---------
Net cash used in investing activities (110,564) (162,806)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt -- 300,000
Proceeds from sale-leaseback transactions 130,018 --
Principal payments of borrowed debt (91,990) (186,698)
Cash dividends (40,000) (33,000)
--------- ---------
Net cash (used in) provided by financing activities (1,972) 80,302
Effect of exchange rates on cash and cash equivalents (2,546) (576)
--------- ---------
Net (decrease) increase in cash and cash equivalents (6,307) 7,593
Cash and cash equivalents at beginning of year 99,709 71,915
--------- ---------
Cash and cash equivalents at end of period $ 93,402 $ 79,508
========= =========
Cash paid during the period for:
Interest (net of amount capitalized) $ 37,643 $ 38,445
Income taxes 27,495 27,649
</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 six months ended June 30, 1998
and 1997, Marmon Industrial absorbed a gain of $800 and a loss of $11,
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 $5,024 at June 30, 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>
June 30, December 31,
1998 1997
------------------- -------------------
<S> <C> <C>
Balance Sheet:
Railcar lease fleet, net $178,683 $189,814
All other assets 204,123 215,403
Borrowed debt 100,371 121,009
All other liabilities 151,214 158,143
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Statement of Income:
Services and net sales $27,902 $27,876 $54,556 $50,754
Gross profit 8,265 10,104 17,466 18,652
Net income 5,037 4,106 8,591 7,234
</TABLE>
8. In June and March 1998, the Company entered into sale-leaseback transactions
with a trust for the benefit of an institutional investor pursuant to which
it sold and leased back an aggregate of $41,448 and $88,570, respectively,
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).
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
2nd Quarter 1998 versus 1997
- ----------------------------
Service revenues increased $3.4 million primarily due to the effect of railcars
added to the lease fleet.
Income tax provision as a percentage of income before income taxes increased
primarily due to a higher effective foreign tax rate.
Six Months 1998 versus 1997
- ---------------------------
Service revenues increased $9.3 million primarily due to the effect of railcars
added to the lease fleet.
Sales revenues increased $3.5 million. The increase primarily resulted from the
Company's sulphur service processing operations with the remaining increase
primarily due to increased fastener sales.
Other income increased $5.8 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 $108.8 million of cash. These funds, along with
the proceeds from the sale-leaseback transactions and the collection of funds
advanced to parent were used to provide financing for railcar additions,
acquisition of businesses, service borrowed debt obligations and pay dividends
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 5. Other Information
On April 29, 1998, approximately 9,600 metric tons of liquid sulphur
flowed through a crack that unexpectedly developed in the bottom of a
storage tank at a storage facility operated by a subsidiary of the
Company in Rotterdam, Netherlands, onto its property and the property
of its neighbors. Clean up operations are continuing. Based on
available information, management of the Company does not anticipate
that this matter will have a material adverse affect on the Company's
results of operations, financial condition or business.
Item 6. Exhibits and Reports on Form 8-K
b. Report on Form 8-K
On April 29, 1998, the Company filed a report on Form 8-K disclosing
that on March 18, 1998, the Company had entered into an Underwriting
Agreement with Salomon Brothers Inc relating to the issuance and sale
of $97,852,000 principal amount of Pass Through Certificates, Series
1998-A.
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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: August 12, 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 June 30, 1998 condensed consolidated balance sheet, condensed consolidated
statement of income for the six months ended June 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 93,402
<SECURITIES> 0
<RECEIVABLES> 82,406
<ALLOWANCES> 4,328
<INVENTORY> 88,779
<CURRENT-ASSETS> 0<F1>
<PP&E> 3,072,955
<DEPRECIATION> 1,369,120
<TOTAL-ASSETS> 2,208,243
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 886,840
0
0
<COMMON> 106,689
<OTHER-SE> 506,210
<TOTAL-LIABILITY-AND-EQUITY> 2,208,243
<SALES> 124,588
<TOTAL-REVENUES> 425,574<F2>
<CGS> 104,591
<TOTAL-COSTS> 263,730
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,363
<INCOME-PRETAX> 95,335
<INCOME-TAX> 37,436
<INCOME-CONTINUING> 57,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,899
<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>
