<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 September 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 SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated statement of income -
three and nine month periods ended
September 30, 1999 and 1998 3
Condensed consolidated balance sheet -
September 30, 1999 and December 31, 1998 4
Condensed consolidated statement of cash flows -
nine months ended September 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
</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 Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Services (leasing and other) $ 156,289 $ 144,496 $ 466,305 $ 430,367
Net sales 83,682 75,114 257,500 199,702
----------------- ----------------- ----------------- -----------------
239,971 219,610 723,805 630,069
Other income 7,346 5,398 19,498 21,354
----------------- ----------------- ----------------- -----------------
247,317 225,008 743,303 651,423
Costs and expenses
Cost of services 91,440 80,132 271,749 239,271
Cost of sales 74,453 64,157 224,867 169,589
General and administrative 19,041 15,965 55,791 46,111
Interest 19,060 18,068 54,433 54,431
----------------- ----------------- ----------------- -----------------
203,994 178,322 606,840 509,402
----------------- ----------------- ----------------- -----------------
Income before income taxes 43,323 46,686 136,463 142,021
Provision for income taxes
Current 8,997 15,215 35,540 44,620
Deferred 6,756 4,544 16,023 12,575
----------------- ----------------- ----------------- -----------------
15,753 19,759 51,563 57,195
----------------- ----------------- ----------------- -----------------
Net income $ 27,570 $ 26,927 $ 84,900 $ 84,826
================= ================= ================= =================
</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>
September 30, December 31,
1999 1998
------------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 70,698 $ 58,423
Accounts receivable, primarily due within one year 99,388 82,729
Inventories 87,148 90,123
Prepaid expenses and deferred charges 11,028 11,411
Advances to parent company,
principally at LIBOR plus 1% 203,959 130,940
Railcar lease fleet, net 1,627,158 1,575,014
Fixed assets, net 189,518 177,055
Investment in aircraft direct financing lease 33,598 32,629
Other assets 50,487 53,851
------------------- -----------------
Total assets $ 2,372,982 $ 2,212,175
=================== =================
Liabilities, Deferred Items and Stockholder's Equity
- ----------------------------------------------------
Accounts payable $ 20,953 $ 20,082
Accrued liabilities 234,272 252,897
Borrowed debt, including $44,808 due within
one year ($46,951 at December 31, 1998) 1,002,015 868,421
------------------- -----------------
1,257,240 1,141,400
Deferred income taxes and investment tax credits 456,760 437,693
Stockholder's equity
Common stock and additional capital 113,035 113,035
Retained earnings 545,947 520,047
------------------- -----------------
Total stockholder's equity 658,982 633,082
------------------- -----------------
Total liabilities, deferred items and $ 2,372,982 $ 2,212,175
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>
Nine Months Ended
September 30,
---------------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 84,900 $ 84,826
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 97,684 90,780
Deferred taxes 16,023 12,575
Gain on disposition of railcars and other fixed assets (4,777) (1,752)
Other non-cash income and expenses 1,463 1,308
Changes in assets and liabilities:
Accounts receivable (13,704) (18,558)
Inventories 4,321 (15,835)
Prepaid expenses and deferred charges 573 695
Accounts payable and accrued expenses (22,029) (9,365)
------------------ ------------------
Net cash provided by operating activities 164,454 144,674
Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets (155,145) (189,115)
(Increase) decrease in advance to parent (81,059) 20,082
(Increase) in other assets (357) -
Purchases of businesses, net of cash acquired (11,764) (21,989)
Proceeds from disposals of railcars and other fixed assets 9,413 14,430
------------------ ------------------
Net cash used in investing activities (238,912) (176,592)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt 175,000 80,550
Proceeds from sale-leaseback transactions 13,200 130,018
Principal payments of borrowed debt (44,773) (155,970)
Cash dividends (59,000) (59,000)
------------------ ------------------
Net cash provided (used in) by financing activities 84,427 (4,402)
Effect of exchange rates on cash and cash equivalents 2,306 (6,506)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 12,275 (42,826)
Cash and cash equivalents at beginning of year 58,423 99,709
------------------ ------------------
Cash and cash equivalents at end of period $ 70,698 $ 56,883
================== ==================
Cash paid during the period for:
Interest (net of amount capitalized) $ 56,984 $ 56,131
Income taxes 42,125 42,823
</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.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
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 nine months ended September 30,
1999 and 1998, Marmon Industrial absorbed a loss of $470 and a gain of
$3,508, 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 $8,450 at September 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 September 30, 1999
- -------------------------------------
Revenues from external customers $ 191.2 $ 48.8 $ 240.0
Income (loss) before income taxes 46.4 (3.1) 43.3
Three months ended September 30, 1998
- -------------------------------------
Revenues from external customers $ 182.6 $ 37.0 $ 219.6
Income (loss) before income taxes 54.2 (7.5) 46.7
Nine months ended September 30, 1999
- ------------------------------------
Revenues from external customers $ 574.6 $ 149.2 $ 723.8
Income (loss) before income taxes 141.5 (5.0) 136.5
Nine months ended September 30, 1998
- ------------------------------------
Revenues from external customers $ 523.4 $ 106.7 $ 630.1
Income (loss) before income taxes 147.0 (5.0) 142.0
</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>
September 30, December 31,
1999 1998
--------------------- -------------------
<S> <C> <C>
Balance Sheet:
Railcar lease fleet, net $161,784 $165,270
All other assets 181,395 170,214
Borrowed debt 89,813 94,409
All other liabilities 105,207 109,431
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ -------------------------------------
1999 1998 1999 1998
-------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Statement of Income:
Services and net sales $ 27,828 $ 29,111 $ 87,283 $ 83,667
Gross profit 8,661 10,255 25,928 27,721
Net income 3,754 6,648 10,881 15,239
</TABLE>
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
3rd Quarter 1999 versus 1998
- ----------------------------
Service revenues increased $11.8 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 $8.6 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 $3.1 million primarily due to the
acquisition of businesses in 1998.
Nine Months 1999 versus 1998
- ----------------------------
Service revenues increased $35.9 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 $57.8 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 $9.7 million primarily due to the
acquisition of businesses in 1998.
Financial Condition
- -------------------
1999 versus 1998
- ----------------
Operating activities provided $164.5 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, advance funds to parent, pay dividends to the
Company's stockholder, service borrowed debt obligations, and fund the
acquisition of businesses.
Management expects future cash to be provided from operating activities, long-
term financings and repayment 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 September 30, 1999, the Company has completed the necessary corrective
work on its accounting, invoicing, general business and fleet management systems
that would be affected by Year 2000 problems. The Company's testing of the
systems was successfully completed on October 1, 1999.
-8-
<PAGE>
The Company does not believe its main products (i.e., tank cars and other
railcars) have any material Year 2000 exposures. Similarly, no significant
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 $5.5 million, which has been and will
continue to be funded from operating cash flow. Through September 30, 1999, the
Company had spent approximately $5.2 million related to its Year 2000 program,
of which $4.8 million has been expensed and $0.4 million has been capitalized.
The remaining cost, estimated to be $0.3 million, is expected to be 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 September 30, 1999, there has been no significant change to the Company's
exposure to and management of 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. No Report on Form 8-K was filed during the quarter ended September 30,
1999.
-10-
<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: November 3, 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
SEPTEMBER 30, 1999 CONDENSED CONSOLIDATED BALANCE SHEET, CONDENSED CONSOLIDATED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 70,698
<SECURITIES> 0
<RECEIVABLES> 103,611
<ALLOWANCES> 4,223
<INVENTORY> 87,148
<CURRENT-ASSETS> 0<F1>
<PP&E> 3,307,884
<DEPRECIATION> 1,491,208
<TOTAL-ASSETS> 2,372,982
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 1,002,015
0
0
<COMMON> 106,689
<OTHER-SE> 552,293
<TOTAL-LIABILITY-AND-EQUITY> 2,372,982
<SALES> 257,500
<TOTAL-REVENUES> 743,303<F2>
<CGS> 224,867
<TOTAL-COSTS> 496,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,433
<INCOME-PRETAX> 136,463
<INCOME-TAX> 51,563
<INCOME-CONTINUING> 84,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,900
<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>
