<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, 1999
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
---------------------------------------------------
(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 11 pages, sequentially numbered in the bottom
center of each page.
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<PAGE>
UNION TANK CAR COMPANY AND SUBSIDIARIIES
FORM 10-Q
INDEX
Part I. Financial Information Page
----
Item 1. Financial Statements
Condensed consolidated statement of income -
three and six month periods ended
June 30, 1999 and 1998 3
Condensed consolidated balance sheet -
June 30, 1999 and December 31, 1998 4
Condensed consolidated statement of cash flows -
six months ended June 30, 1999 and 1998 5
Notes to condensed consolidated financial statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
Part II. Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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<PAGE>
PART 1. 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,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Services (leasing and other) $156,697 $143,819 $310,016 $286,056
Net sales 100,631 71,211 173,818 124,588
-------- -------- -------- --------
257,328 215,030 483,834 410,644
Other income 6,016 4,607 10,456 14,930
-------- -------- -------- --------
263,344 219,637 494,290 425,574
Costs and expenses
Cost of services 92,147 80,851 180,309 159,139
Cost of sales 87,417 60,074 148,354 104,591
General and administrative 19,378 15,334 37,114 30,146
Interest 18,328 17,748 35,373 36,363
-------- -------- -------- --------
217,270 174,007 401,150 330,239
-------- -------- -------- --------
Income before income taxes 46,074 45,630 93,140 95,335
Provision for income taxes
Current 13,227 10,183 26,543 29,405
Deferred 3,968 7,971 9,267 8,031
-------- -------- -------- --------
17,195 18,154 35,810 37,436
-------- -------- -------- --------
Net income $ 28,879 $ 27,476 $ 57,330 $ 57,899
======== ======== ======== ========
</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)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 71,489 $ 58,423
Accounts receivable, primarily due within one year 107,807 82,729
Inventories 85,337 90,123
Prepaid expenses and deferred charges 10,930 11,411
Advances to parent company,
principally at LIBOR plus 1% 208,572 130,940
Railcar lease fleet, net 1,622,415 1,575,014
Fixed assets, net 189,477 177,055
Investment in aircraft direct financing lease 33,625 32,629
Other assets 51,115 53,851
---------- ----------
Total assets $2,380,767 $2,212,175
========== ==========
Liabilities, Deferred Items and Stockholder's Equity
- ----------------------------------------------------
Accounts payable $ 23,345 $ 20,082
Accrued liabilities 245,155 252,897
Borrowed debt, including $43,914 due within
one year ($46,951 at December 31, 1998) 1,012,038 868,421
---------- ----------
1,280,538 1,141,400
Deferred income taxes and investment tax credits 449,817 437,693
Stockholder's equity
Common stock and additional capital 113,035 113,035
Retained earnings 537,377 520,047
---------- ----------
Total stockholder's equity 650,412 633,082
---------- ----------
Total liabilities, deferred items and
stockholder's equity $2,380,767 $2,212,175
========== ==========
</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,
----------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 57,330 $ 57,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 64,906 60,538
Deferred taxes 9,267 8,031
Gain on disposition of railcars and
other fixed assets (2,660) (1,157)
Other non-cash income and expenses 1,146 783
Changes in assets and liabilities:
Accounts receivable (22,448) (3,170)
Inventories 3,913 (15,080)
Prepaid expenses and deferred charges 728 (500)
Accounts payable and accrued expenses (8,709) 1,431
--------- ---------
Net cash provided by operating activities 103,473 108,775
Cash flows from investing activities:
Construction and purchase of railcars and
other fixed assets (117,209) (114,410)
(Increase) decrease in advance to parent (85,361) 17,522
(Increase) in other assets (115) -
Purchases of businesses, net of cash acquired (8,729) (16,841)
Proceeds from disposals of railcars and other
fixed assets 5,092 3,165
--------- ---------
Net cash used in investing activities (206,322) (110,564)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt 175,000 -
Proceeds from sale-leaseback transactions 13,200 130,018
Principal payments of borrowed debt (34,420) (91,990)
Cash dividends (40,000) (40,000)
--------- ---------
Net cash provided (used in) by financing
activities 113,780 (1,972)
Effect of exchange rates on cash and cash
equivalents 2,135 (2,546)
--------- ---------
Net increase (decrease) in cash and cash
equivalents 13,066 (6,307)
Cash and cash equivalents at beginning of year 58,423 99,709
--------- ---------
Cash and cash equivalents at end of period $ 71,489 $ 93,402
========= =========
Cash paid during the period for:
Interest (net of amount capitalized) $ 34,861 $ 37,643
Income taxes 31,961 27,495
</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 LLC ("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 1998 Annual Report on Form 10-K.
The 1999 interim results presented herein are not necessarily indicative of
the results of operations for the full year 1999.
3. As more fully described in the Company's 1998 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, 1999
and 1998, Marmon Industrial absorbed gains of $187 and $800, respectively.
6. The Company's foreign 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 $3,400 at June 30, 1999 and $3,365 at December 31, 1998.
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<PAGE>
7. Segment Information
<TABLE>
<CAPTION>
Consolidated
Railcar All Other Totals
---------- ---------------- ----------------
(Dollars in Millions)
<S> <C> <C> <C>
Three months ended June 30, 1999
--------------------------------
Revenues from external customers $ 205.7 $ 51.6 $ 257.3
Income before income taxes 46.8 (0.7) 46.1
Three months ended June 30, 1998
--------------------------------
Revenues from external customers $ 178.1 $ 36.9 $ 215.0
Income before income taxes 47.5 (1.9) 45.6
Six months ended June 30, 1999
------------------------------
Revenues from external customers $ 383.4 $ 100.4 $ 483.8
Income before income taxes 95.1 (2.0) 93.1
Six months ended June 30, 1998
------------------------------
Revenues from external customers $ 340.9 $ 69.7 $ 410.6
Income before income taxes 92.8 2.5 95.3
</TABLE>
8. 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,
1999 1998
------------ ---------------
<S> <C> <C>
Balance Sheet:
Railcar lease fleet, net $ 164,696 $ 165,270
All other assets 173,674 170,214
Borrowed debt 91,610 94,409
All other liabilities 102,837 109,431
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Statement of Income:
Services and net sales $ 29,542 $ 27,902 $ 59,455 $ 54,556
Gross profit 8,867 8,265 17,267 17,466
Net income 3,824 5,037 7,127 8,591
</TABLE>
9. In May 1999, the Company issued $ 100,000 principal amount of Senior
Secured Notes. The notes bear interest at 6.79% per annum and mature on
May 1, 2010. Interest on the notes is payable semiannually on May 1 and
November 1, commencing November 1, 1999.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
2nd Quarter 1999 versus 1998
- ----------------------------
Service revenues increased $12.9 million primarily due to the effects of
railcars added to the lease fleet and the acquisition in the fourth quarter of
1998 of a company which provides contract switching services.
Sales revenues increased $29.4 million primarily due to increased sales of
railcars and sales of mobile railcar moving vehicles by a company which was
acquired in the fourth quarter of 1998.
General and administrative expenses increased primarily due to acquisition of
businesses in 1998.
Six Months 1999 versus 1998
- ---------------------------
Service revenues increased $24.0 million primarily due to the effects of
railcars added to the lease fleet and the acquisition in the fourth quarter of
1998 of a company which provides contract switching services.
Sales revenues increased $49.2 million primarily due to increased sales of
railcars and sales of mobile railcar moving vehicles by a company which was
acquired in the fourth quarter of 1998.
Other income decreased $4.5 million primarily due to the 1998 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.
General and administrative expenses increased primarily due to acquisition of
businesses in 1998.
Financial Condition
- -------------------
1999 versus 1998
- ----------------
Operating activities provided $103.5 million of cash. These funds, along with
the proceeds from the issuance of debt and sale-leaseback transactions were used
to provide 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 financings and collection of funds previously advanced to parent will be
adequate to provide for continued expansion of the Company's business and enable
it to meet its debt service obligations.
Year 2000
- ---------
Because of the potential importance to the Company of Year 2000 questions, the
Company has established a Year 2000 program to determine the Company's state of
readiness and the costs it anticipates it will have to incur in light of any
possible problems and to remediate any problems discovered. The Company's Year
2000 assessment indicated that the Company's accounting, invoicing, general
business and fleet management systems would be affected by Year 2000 problems.
As of June 30, 1999, the Company has completed the necessary corrective work on
its coding, invoicing, general business and fleet management systems that would
be affected by Year 2000 problems. The Company's timetable calls for testing of
the systems to be done by September 1, 1999.
-8-
<PAGE>
The Company does not believe its main products (i.e., tank cars and other rail
cars) have any material Year 2000 exposures. Similarly, no material problems
have been identified in connection with the Company's production machinery and
equipment.
The Company is using both in-house resources and outside consultants to
implement the necessary changes required by its Year 2000 program. The total
cost of the program is estimated to be $5.4 million, which will be funded from
operating cash flow. Through June 30, 1999, the Company has spent approximately
$4.1 million related to its Year 2000 program, of which $3.8 million has been
expensed and $0.3 million has been capitalized. Of the remaining amount,
approximately $0.5 million is expected to be capitalized with the balance being
expensed.
For further discussion of the Company's Year 2000 program and risks related
thereto, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 1999, there has been no significant change to the Company's exposure
to market risk since December 31, 1998.
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,
1998 for a description of certain environmental matters.
Item 6. Exhibits and Reports on Form 8-K
b. Report on Form 8-K
On May 5, 1999, the Company filed a Current Report on Form 8-K
disclosing that on April 28, 1999, the Company entered into a Selling
Agency Agreement with Salomon Smith Barney Inc. relating to the
issuance and sale of $25,000,000 principal amount of Medium-Term
Notes, Series D.
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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 4, 1999 /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, 1999 condensed consolidated balance sheet, condensed consolidated
statement of income for the six months ended June 30, 1999, 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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 71,489
<SECURITIES> 0
<RECEIVABLES> 112,177
<ALLOWANCES> 4,370
<INVENTORY> 85,337
<CURRENT-ASSETS> 0<F1>
<PP&E> 3,279,850
<DEPRECIATION> 1,467,958
<TOTAL-ASSETS> 2,380,767
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1,012,038
0
0
<COMMON> 106,689
<OTHER-SE> 543,723
<TOTAL-LIABILITY-AND-EQUITY> 2,380,767
<SALES> 173,818
<TOTAL-REVENUES> 494,290<F2>
<CGS> 148,354
<TOTAL-COSTS> 328,663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,373
<INCOME-PRETAX> 93,140
<INCOME-TAX> 35,810
<INCOME-CONTINUING> 57,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,330
<EPS-BASIC> 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>
