UNION TANK CAR CO - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2001

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 W. Washington Street, Chicago, Illinois 60606
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (312) 372-9500

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- -------------------------
None -

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class
-------------------
None

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 [ ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ].

There is no voting stock held by non-affiliates of the registrant. This Annual
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.

UNION TANK CAR COMPANY

FORM 10-K

Year Ended December 31, 2001

CONTENTS

Section Page
- ------- ----

Part I.
Item 1 Business...................................................................................... 2

Item 2 Properties.................................................................................... 9

Item 3 Legal Proceedings............................................................................. 10

Item 4 Submission of Matters to a Vote of Security Holders........................................... 10

Part II.
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters............................................................. 11

Item 6 Selected Financial Data....................................................................... 11

Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... 11

Item 7A Disclosures about Market Risk................................................................. 16

Item 8 Financial Statements and Supplementary Data................................................... 17

Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................................... 44

Part III.
Item 10 Directors and Executive Officers of the Registrant............................................ 44

Item 11 Executive Compensation........................................................................ 46

Item 12 Security Ownership of Certain Beneficial Owners and Management................................ 47

Item 13 Certain Relationships and Related Transactions................................................ 47

Part IV.
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K............................... 48

Signatures .............................................................................................. 49

-1-

PART I

ITEM 1. BUSINESS

General

UNION TANK CAR COMPANY (with its wholly-owned and majority-owned subsidiaries
herein collectively referred to, unless the context otherwise requires, as the
"Company") was organized under the laws of Delaware on September 23, 1980 and is
the successor to a business which was originally incorporated in New Jersey in
1891. The Company is a wholly-owned subsidiary of Marmon Industrial LLC, a
wholly-owned subsidiary of Marmon Holdings, Inc. ("Holdings"). Substantially all
of the stock of Holdings 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.

Railcar Leasing, Services and Sales

The principal activity of the Company is leasing of railway tank cars and other
railcars to North American manufacturers and other shippers of chemical
products, including liquid fertilizers, liquefied petroleum gas and other
petroleum products, food products and bulk plastics. The Company owns and
operates one of the largest fleets of privately-owned railway tank cars in the
world.

As of December 31, 2001, the Company's railcar fleet comprised 64,539 tank cars
and 16,491 railway cars of other types. A total of 29,833 railcars were added to
the lease fleet during the ten years ended December 31, 2001. These railcars
accounted for approximately 40% of total railcar lease revenues during 2001.
Most of the Company's railcars were built by the Company or to its
specifications and the rest were purchased from other sources.

Management estimates that railway tank cars carrying chemicals and acids account
for the greatest portion of total leasing revenues, followed in order by
compressed gases (particularly liquefied petroleum gas and anhydrous ammonia),
refined petroleum products (such as gasoline, fuel oils and asphalt), food
products and liquid fertilizers.

A significant portion of revenues from the Company's non-tank railcar fleet
derives from hopper cars for carrying bulk plastics. Remaining non-tank railcar
revenues are attributable to railcars serving the lumber, dry bulk chemical and
coal industries.

The Company builds railway tank cars primarily for its leasing business, but
also builds railway tank cars for sale to others. Generally, manufacturing
follows receipt of a firm order for lease or sale of a railway tank car.

-2-

Substantially all of the Company's railcars are leased directly to several
hundred manufacturers and other shippers under leases covering from one to
several thousand railcars and ranging from one to twenty years. The average term
of leases entered into during 2001 for newly-manufactured railcars was
approximately eight years. The average term of leases entered into during 2001
for used railway tank cars and other railcars was approximately three years.
Under the terms of most leases, the Company agrees to provide a full range of
services, including railcar repair and maintenance. The Company supplies
relatively few railcars directly to railroads. The Company markets its railcars
through regional sales offices located throughout the United States and Canada
and through a sales agent in Mexico. To ensure optimum use of the railcar lease
fleet, the Company maintains data processing systems that contain information
about each railcar, including mechanical specifications, maintenance and repair
data, and lease terms.

The Company employs a variety of methods to meet its financing needs. During
2001, the Company issued $110.0 million of senior secured notes. The Company
expects that future financing needs will be met primarily with a combination of
secured and unsecured borrowings and sale-leaseback transactions.

Approximately 24% of Company-owned railcars are pledged to secure equipment
obligations and secured notes. The remaining railcars are free of liens.

The Company maintains repair facilities at strategic points throughout the
United States and Canada. In addition to work performed by the Company, certain
maintenance and repair work is performed for the Company's account by railroads
when railroad inspection determines the need for such work under the interchange
rules of the Association of American Railroads ("AAR").

The Company is not subject to regulation or supervision as a common carrier. The
Company's railcars are subject to construction, safety and maintenance
regulations of the Department of Transportation, various other government
agencies and the AAR. These regulations have required and may in the future
require the Company to make significant modifications to certain of its railcars
from time to time.

The Company's facilities for manufacturing and assembling railway tank cars are
located in East Chicago, Indiana; Sheldon, Texas; and Oakville, Ontario, Canada.
The Company also operates North America's largest network of shops for repairing
and servicing railcars, as well as a fleet of specially equipped trucks to
perform repairs at customer plant sites. Principal shops are located in
Valdosta, Georgia; Muscatine, Iowa; El Dorado, Kansas; Ville Platte, Louisiana;
Marion, Ohio; Altoona, Pennsylvania; Cleveland, Longview and Sheldon, Texas;
Evanston, Wyoming; Edmonton, Alberta; Sarnia and Oakville, Ontario; Montreal,
Quebec; and Regina, Saskatchewan.

-3-

Other Activities

The Company is engaged in several other activities, as described below.

Metals Distribution

Subsidiaries of the Company are leading distributors of carbon steel, stainless
steel and aluminum tubular products; chrome and stainless bar; other carbon
steel products, including beams and channels; and aircraft grade tubing, rolled
form shapes and other raw materials.

These subsidiaries serve the agriculture, capital goods, machine tool,
construction, transportation, refining, petrochemical, and fluid power
industries, as well as aerospace companies, construction trades, steel
fabricators, and OEMs.

Intermodal Tank Container Leasing

Subsidiaries of the Company buy, manage, lease and maintain intermodal tank
containers. The container fleet consists of a wide range of equipment for the
global transportation, distribution and storage of bulk liquids, chemicals and
gases, which allows the Company to service the full range of customer
requirements. These customers include the international chemical industry and
logistics operators specializing in bulk liquid transportation. Unlike railway
tank cars or over-the-road tank semi-trailers, intermodal tank containers are
capable of transporting cargo by way of multiple modes of transportation
including road, rail or ship.

Sulphur Processing

Subsidiaries of the Company provide sulphur producers in Canada with various
services, including processing of liquefied sulphur into crystalline slates and
granules, and storage and shipping of the product. A subsidiary also designs,
manufactures and sells sulphur processing plants worldwide. Other subsidiaries
are engaged in manufacturing and distribution of sulphur bentonite products and
micronutrients to the agricultural industry.

Fasteners

The Company's fastener business, conducted through several wholly-owned
subsidiaries, consists of manufacturing and distributing a wide range of
fasteners worldwide to the construction industry and manufacturers of furniture,
household appliances, industrial and agricultural equipment.

Other Railway Equipment and Services

A subsidiary of the Company manufactures mobile railcar moving vehicles for
in-plant and yard switching. Other subsidiaries provide contract switching
services to companies with on-site rail yards.

Containment Vessel Head Manufacturing

A subsidiary of the Company manufactures and distributes metal containment
vessel heads, primarily made of steel, to the metal containment vessel
construction industry.

-4-

Segment Information

The principal activity of the Company's primary industry segment is railcar
leasing, services and sales. In addition, the Company has two secondary industry
segments as shown in the table below. All other activities of the Company, as
described previously, plus corporate headquarters items, are shown as All Other
in the table:

Intermodal
Tank
Metals Container Consolidated
Railcar Distribution Leasing All Other Totals
-------- ------------ ---------- --------- ------------
(Dollars in Millions)

2001
- ----
Revenues from external customers $ 619.5 $426.3 $ 74.7 $213.4 $1,333.9
Interest income 0.1 -- -- 20.0 20.1
Interest expense 71.4 0.2 13.9 0.1 85.6
Depreciation and amortization 122.2 13.8 21.5 12.4 169.9
Income before income taxes 135.7 10.5 8.4 19.2 173.8
Segment assets 1,897.6 185.6 319.8 594.1 2,997.1
Expenditures for long-lived assets 178.9 4.4 26.9 6.9 217.1

2000
- ----
Revenues from external customers $ 698.0 $492.8 $ 29.7 $226.4 $1,446.9
Interest income 0.2 -- -- 22.8 23.0
Interest expense 70.5 0.2 5.3 0.6 76.6
Depreciation and amortization 122.6 15.4 7.4 14.2 159.6
Income before income taxes 168.7 20.1 1.7 28.8 219.3
Segment assets 1,876.8 224.6 312.3 502.5 2,916.2
Expenditures for long-lived assets 178.7 5.1 23.8 5.7 213.3

1999
- ----
Revenues from external customers $ 761.5 $457.5 $ 6.2 $196.4 $1,421.6
Interest income 0.9 -- -- 12.8 13.7
Interest expense 72.4 0.2 -- 0.7 73.3
Depreciation and amortization 117.7 17.4 0.6 12.3 148.0
Income before income taxes 162.5 28.6 0.5 19.2 210.8
Segment assets 1,995.8 204.9 16.0 409.4 2,626.1
Expenditures for long-lived assets 202.5 6.2 2.5 8.2 219.4

-5-

Geographic Information

The following table presents geographic information for the Company. Revenues
are attributed to countries based on location of customers.

Long-lived
Revenues Assets
-------- ----------
(Dollars in Millions)
2001
- ----
United States $1,064.2 $1,679.6
Canada 161.9 184.3
Other countries 107.8 321.3
-------- --------
Consolidated total $1,333.9 $2,185.2
======== ========

2000
- ----
United States $1,184.9 $1,620.6
Canada 179.4 231.4
Other countries 82.6 316.5
-------- --------
Consolidated total $1,446.9 $2,168.5
======== ========

1999
- ----
United States $1,216.4 $1,696.0
Canada 157.6 260.2
Other countries 47.6 35.6
-------- --------
Consolidated total $1,421.6 $1,991.8
======== ========

Major Customers

Revenues from any one customer did not exceed 10% of consolidated or industry
segment revenues.

Raw Materials

The Company purchases raw materials from a variety of suppliers, with no one
supplier being significant. In management's opinion, the Company will have
adequate availability of raw materials in the future.

-6-

Foreign Operations

The Company does not believe that there are other than normal business risks
attendant to its foreign operations.

Competition

All activities of the Company compete with similar activities by other
companies.

Several competitors are in the business of leasing railcars in the United States
and Canada. Principal competitors are GATX Corporation, General Electric Railcar
Services Corporation, and ACF Industries, Incorporated. Principal competitive
factors are price, service and product design. International cooperation within
the Company's engineering, manufacturing, repair and leasing activities has
enhanced its ability to provide competitive products and services to its
customers throughout North America.

In the metals distribution business, the Company has numerous competitors, both
large and small. The Company is one of the largest competitors in the
distribution of its class of products. Principal competitive factors include
price, availability of product and service.

The Company, the largest lessor of intermodal tank containers in the world,
competes with numerous competitors in this industry. Competition is based on a
number of factors, including technical expertise, availability of equipment,
price, service and reputation.

Supply and Demand

Demand for railway tank cars and bulk plastic hopper cars is generally met with
a combination of the industry's existing fleet and new railcar additions. The
industry's generally high overall utilization of the railway tank car and bulk
plastic covered hopper car fleets evidences an appropriate level and mix of
equipment to meet existing railcar demands. New railcars are needed to satisfy
growth, for specialized requirements, or the desire of certain customers for
newer equipment. Since railcars are typically built to customer order, the
supply of new railcars generally stays in reasonable balance with demand.

Major underlying factors affecting demand for new railcars are: (a) the rate of
growth of the overall economy, (b) growth of certain industry segments,
manufacturers, or shippers, particularly involving significant new or expanded
production operations, and (c) replacement of aged, obsolete, or worn out
railcars.

Demand for intermodal tank containers is dependent on growth of the global
economy and demand for chemicals and other liquid products. Global economic
factors impacting demand include overall demand for chemicals, location of
production of the products carried and stored in relation to location of demand
for these products, import/export tariffs and other trade restrictions.

-7-

Manufacturing Backlog

The Company builds railway tank cars primarily for use in its leasing business
and the number of railcars added in any one year is a small percentage of the
Company's lease fleet. Additionally, for railway tank cars built for sale to
customers, the Company delivers against orders within a relatively brief period.
Therefore, backlog is not material to the Company's business.

Employees

As of December 31, 2001, the Company had approximately 5,560 employees.

Environmental Matters

The Company believes that all of its facilities are in substantial compliance
with applicable laws and regulations relating to environmental protection. Over
the past several years, the Company has attempted to identify and remediate
potential problem areas. In 2001, the Company spent approximately $5.3 million
on remediation and related matters, compared with $8.2 million and $6.6 million
in 2000 and 1999, respectively. The Company expects to spend approximately $2.8
million in 2002 on similar activities.

The Company has been designated as a Potentially Responsible Party ("PRP") by
the EPA at one site: Auto Ion Chemical Company, Kalamazoo, Michigan. Costs
incurred to date have not been material. Because of the nature of the Company's
involvement at this site, management believes that future costs related to this
site will not be material. The Company has not entered into any cost sharing
arrangements with other PRP's that make it reasonably possible the Company will
incur material costs beyond its pro rata share. Further, management does not
believe that any problems or uncertainties as to the financial liabilities of
other PRP's make it reasonably possible the Company will incur material costs
beyond its pro rata share at this site. The Company's accruals for the site are
based on the amount it reasonably expects to pay with respect to the site.

Management believes that amounts accrued for remedial activities and
environmental liabilities (which in the aggregate are not material) are
adequate.

-8-

ITEM 2. PROPERTIES

In management's opinion, the Company's properties are in good condition,
substantially utilized and adequate to meet the Company's current and reasonably
anticipated future needs.

The Company estimates that its plant facilities were utilized during the year at
an average of approximately 45% of productive capacity for railcar
manufacturing, 75% for railcar servicing and repair, 75% for sulphur processing,
70% for fastener production, 75% for railcar moving vehicles manufacturing, and
75% for containment vessel head manufacturing.

Railcars

The Company owns approximately 84% of its total lease fleet of 81,030 railcars,
of which 64,539 are tank cars and 16,491 are other railway freight cars. Of the
approximately 68,180 owned railcars, 51,660 are free of liens. Railcars which
are not owned are leased from others under long-term net leases.

Railcar Manufacturing and Assembling Facilities

Facilities for the manufacturing and assembling of railcars are located at East
Chicago, Indiana; Sheldon, Texas; and Oakville, Ontario, Canada, together
occupying about 170 acres.

Railcar Servicing and Repair Shops

The Company operates a network of shops for repairing and servicing railcars.
Principal shops owned by the Company are located at Valdosta, Georgia;
Muscatine, Iowa; El Dorado, Kansas; Ville Platte, Louisiana; Marion, Ohio;
Altoona, Pennsylvania; Cleveland, Longview and Sheldon, Texas; Evanston,
Wyoming; Edmonton, Alberta; Sarnia and Oakville, Ontario; Montreal, Quebec; and
Regina, Saskatchewan. Several other repair shops and small repair points are
strategically located throughout the United States and Canada.

Metals Distribution

Subsidiaries of the Company maintain numerous distribution warehouses and
business offices, which are located throughout North America and Europe. There
are more than 25 warehouse and distribution centers from which products are
distributed to customers.

Intermodal Tank Container Leasing

Subsidiaries of the Company maintain a fleet of approximately 27,000
leased/managed intermodal tank containers which consists of a wide range of
equipment types, specifications and capacities from 7,500 to 35,000 liters.
These subsidiaries also own a fleet of 1,300 drop frame tank chassis. Customer
service is provided through offices, agents and depots located throughout the
world. The Company owns approximately 69% of its intermodal tank container and
drop frame tank chassis fleet, of which approximately 23% are free of liens.

Sulphur Processing

A subsidiary of the Company owns facilities in Canada which process liquefied
sulphur into crystalline slates and granules and handle the formed product. The
Company also owns facilities in North America for the manufacture and
distribution of sulphur bentonite products and micronutrients.

-9-

Fasteners

The Company owns fastener manufacturing facilities in Ashland, Ohio; Montreal,
Quebec; Gaffney, South Carolina; and Shenzhen, China. In addition, the Company
leases several small plants in the United States, Canada, Sweden, China and
Poland.

Other Railway Equipment Facilities

A subsidiary of the Company owns a mobile railcar moving vehicle manufacturing
facility in LaGrange, Georgia.

Containment Vessel Head Manufacturing Facilities

A subsidiary of the Company owns a metal containment vessel head manufacturing
facility in Sheldon, Texas.

Other Properties

The Company and its subsidiaries maintain numerous sales and business offices
and warehouses, most of which are leased, throughout North America and Europe.

ITEM 3. LEGAL PROCEEDINGS

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 to resolve such claims, including legal fees, and, in
the opinion of management, the ultimate resolution of these matters will not
have a material effect on the Company's consolidated financial position, results
of operations or liquidity. See "Business - Environmental Matters".

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

-10-

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

Not applicable.

ITEM 6. SELECTED FINANCIAL DATA

For the year ended December 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)

Revenues
Services $ 707,404 $ 673,202 $ 631,606 $ 585,128 $ 563,950
Net sales 626,486 773,662 789,992 706,245 670,209
Net income 110,878 141,314 132,568 142,307 120,337
Ratio of earnings to
fixed charges 2.56x 3.19x 3.24x 3.51x 3.10x
At year end:
Total assets $2,997,070 $2,916,195 $2,626,076 $2,427,430 $2,439,015
Long-term obligations 1,045,828 1,035,408 941,964 822,028 859,363

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Forward-Looking Statements
- --------------------------

This annual report on Form 10-K for the year ended December 31, 2001 contains
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. This information may involve
risks and uncertainties that could cause actual results to differ materially
from those set forth herein. These risks and uncertainties include, but are not
limited to, unanticipated changes in the markets served by the Company such as
the railcar leasing, service and sales, intermodal tank container leasing and
metal products distribution industries.

2001 versus 2000

Results of Operations
- ---------------------

Performance of the railcar and tank container leasing businesses was adversely
affected in all major markets by the general economic slowdown. Demand for
existing equipment decreased resulting in downward pressure on both lease rental
rates and fleet utilization. While service revenues increased $34.2 million,
this was primarily due to the inclusion of the incremental revenues associated
with the intermodal tank container operations ($45.0 million increase) acquired
in September 2000. Railcar service revenues decreased $4.7 million. Gross margin
on service revenues increased $8.0 million. This

-11-

was also primarily due to the inclusion of the intermodal tank container
operations ($21.6 million increase) acquired in September 2000, which was offset
by weaker railcar service results ($13.2 million decrease).

Although the Company's railcar lease fleet utilization decreased during 2001,
utilization has remained in a range of 95% to 98% during the last five years.
Utilization rates of the Company's existing railcars are driven by long-term
requirements of manufacturers and shippers of chemical products, petroleum
products, food products, and bulk plastics, and suitability of the Company's
fleet to meet such demand. The potential impact of short-term fluctuations in
demand is tempered by the longer-term nature of the leases, which have averaged
four years over the last five years for existing equipment and longer for new
equipment.

Demand for new railcars declined, resulting in lower production and lower
capacity utilization. Demand for the products of the metals distribution
business was adversely impacted by the general economic slowdown in the U.S. As
a result, overall sales revenues decreased $147.2 million primarily due to
reduced sales of railcars ($73.3 million decrease) and metal products ($66.6
million decrease). Gross margin on sales revenues decreasd $33.3 million
primarily due to the same factors which impacted sales revenues. A reserve of
$4.7 million was established in 2001 to cover anticipated costs associated with
the suspension of new railway tank car manufacturing at the Oakville, Ontario,
Canada facility in the second quarter of 2002.

General and administrative expenses increased $7.2 million primarily due to the
incremental expenses associated with the intermodal tank container operations
($5.7 million increase) acquired in September 2000.

Interest expense increased $9.0 million mainly due to the full year impact of
the $180 million senior secured notes issued to acquire the intermodal tank
container leasing business in September 2000.

Provision for income taxes decreased $15.1 million primarily due to lower income
before taxes and the benefit of enacted tax rate reduction on deferred taxes for
the Company's Canadian subsidiaries ($9.2 million).

Financial Condition and Liquidity
- ---------------------------------

Operating activities provided $347.6 million of cash in 2001. These funds, along
with proceeds from issuance of debt, were used to provide for railcar additions,
service borrowed debt obligations, advance funds to parent, and pay dividends to
the Company's stockholder. It is the Company's policy to pay to its stockholder
a quarterly dividend equal to 70% of net income. To the extent that the Company
generates cash in excess of its operating needs, such funds, in excess of the
amounts paid as dividends, are advanced to its parent and bear interest at
commercial rates. Conversely, when the Company requires additional funds to
support its operations, prior advances are repaid by its parent. No restrictions
exist regarding the amount of dividends which may be paid or advances which may
be made by the Company to its parent.

In 2001, the Company spent $217.1 million for construction and purchase of
railcars and other fixed assets. Of the capital expenditures for construction
and purchase of railcars and other fixed assets over the past five years,
approximately 83% have been for railcars. Since capital expenditures for
railcars are generally incurred subsequent to receipt of firm customer lease
orders, such expenditures are

-12-

discretionary to the Company based on its desire to enter into those lease
orders. Capital expenditures for intermodal tank containers are likewise
discretionary in the intermodal tank container business.

In 2001, the Company issued $110.0 million in senior secured notes. Other
financing activities of the Company included $91.6 million for principal
repayments on borrowed debt and $77.0 million for cash dividends. Net cash used
in financing activities was $54.3 million.

Management expects that the future cash to be provided by operating activities,
long-term financings, and repayment 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.

The following table presents the scheduled cash inflows and outflows for the
railcar leasing business over the next five years based on leases and
railcar-related indebtedness outstanding as of December 31, 2001:

2002 2003 2004 2005 2006
------ ------ ------ ------ -------
(Dollars in Millions)

Railcar Leasing Cash Inflows
- ----------------------------
Minimum future lease rentals $419.4 $329.3 $252.9 $188.3 $ 122.4

Railcar Leasing Cash Outflows
- -----------------------------
Minimum future lease payments 68.2 70.0 73.1 96.3 93.5
Principal and interest amount of obligations 153.5 107.0 139.5 87.6 132.1
------ ------ ------ ------ -------
Excess (Deficit) of inflows over outflows $197.7 $152.3 $ 40.3 $ 4.4 $(103.2)
====== ====== ====== ====== =======

The minimum future lease rentals above relate to railcar leases in effect at
December 31, 2001. Based upon its historical experience, the Company expects
that the railcars (other than those which are retired in the ordinary course of
business) will be re-leased at the expiration of such leases. The rentals under
such future leases cannot be ascertained and are not reflected above.

In addition, maturities of debt obligations and interest payments for the
intermodal tank container leasing business over the next five years are as
follows: $10,013 in 2002, $11,012 in 2003, $12,012 in 2004, $12,011 in 2005 and
$14,010 in 2006.

The Company has not experienced any significant impact of inflation and changing
prices on its financial position or results of operations over the last several
years.

The Company's foreign subsidiaries periodically enter into foreign currency
forward contracts to hedge against U. S. dollar exposures. The notional amounts
of the foreign currency forward contracts, all with initial maturities of less
than one year, amounted to $22.0 million and $12.0 million at December 31, 2001
and 2000, respectively.

Critical Accounting Policies
- ----------------------------

Management's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the U.S. The preparation of these financial statements requires the Company
to make estimates and judgements that affect the reported amounts of assets,

-13-

liabilities, revenues and expenses and related disclosures. On an ongoing basis,
the Company evaluates its estimates and judgements based on historical
experience and various other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under
different assumptions or conditions.

The Company annually reviews its financial reporting and disclosure practices
and accounting policies to ensure that its financial reporting and disclosures
provide accurate and transparent information relative to the current economic
and business environment. The Company believes that, of its significant
accounting policies (see "Summary of Accounting Principles and Practices" more
fully described on note 2 in Item 8), the following policies involve a higher
degree of judgement and/or complexity.

Property and Equipment

Property and equipment are depreciated or amortized over their useful lives
based on management's estimates of the period over which the assets will
generate revenue. The Company periodically reviews these lives relative to
physical factors, economic factors and industry trends.

Asset Impairment

In assessing the recoverability of the Company's long-lived assets, the Company
considers changes in economic conditions and makes assumptions regarding
estimated future cash flows and other factors. If these estimates or their
related assumptions change in the future, the Company may be required to record
impairment charges.

Income Taxes

The Company operates within multiple taxing jurisdictions and is subject to
audit in these jurisdictions. The Company records accruals for the estimated
outcomes of these audits, and the accruals may change in the future due to new
developments in each matter.

New Accounting Pronouncements
- -----------------------------

In June 2001, the Financial Accounting Standards Board (FASB) issued Statements
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and
No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill (and intangible
assets deemed to have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their estimated useful
lives.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which provides additional guidance on the
financial accounting and reporting for the impairment or disposal of long-lived
assets.

The Company adopted each of the new rules as of January 1, 2002. The adoption of
the new rules is not anticipated to have a material adverse effect on the
Company's results of operations or financial position.

-14-

2000 versus 1999

Results of Operations
- ---------------------

Service revenues increased $41.6 million primarily due to the inclusion of the
incremental revenues associated with the intermodal tank container operations
($22.3 million increase) acquired in September 2000 and the effects of railcars
added to the lease fleet ($7.7 million increase). Gross margin on service
revenues increased $12.3 million primarily due to the inclusion of the
intermodal tank container operations acquired in September 2000, and the effects
of railcars added to the lease fleet.

Although the Company's railcar lease fleet utilization decreased during 2000,
utilization has remained in a range of 96% to 98% during the last five years.
Utilization rates of the Company's existing railcars are driven by long-term
requirements of manufacturers and shippers of chemical products, petroleum
products, food products, and bulk plastics, and suitability of the Company's
fleet to meet such demand. The potential impact of short-term fluctuations in
demand is tempered by the longer-term nature of the leases, which average four
years for existing equipment and longer for new equipment.

Demand for new railcars declined, resulting in lower production and lower
capacity utilization. As a result, overall sales revenues decreased $16.3
million primarily due to reduced sales of railcars ($71.7 million decrease),
which were offset by increased sulphur service processing plant sales ($16.0
million increase) and increased sales of metal products ($34.0 million
increase). Gross margin on sales revenues remained flat.

General and administrative expenses increased $10.7 million primarily due to the
incremental expenses associated with the intermodal tank container operations
acquired in September 2000.

Interest income increased $9.4 million due to both higher average advances to
parent and higher average interest rates.

Financial Condition and Liquidity
- ---------------------------------

Operating activities provided $287.2 million of cash in 2000. These funds, along
with proceeds from issuance of debt and a sale-leaseback transaction discussed
below, were used to fund acquisition of businesses, provide for railcar
additions, pay dividends to the Company's stockholder, and service borrowed debt
obligations. It is the Company's policy to pay to its stockholder a quarterly
dividend equal to 70% of net income. To the extent that the Company generates
cash in excess of its operating needs, such funds, in excess of the amounts paid
as dividends, are advanced to its parent and bear interest at commercial rates.
Conversely, when the Company requires additional funds to support its
operations, prior advances are repaid by its parent. No restrictions exist
regarding the amount of dividends which may be paid or advances which may be
made by the Company to its parent.

In 2000, the Company spent $213.3 million for construction and purchase of
railcars and other fixed assets and $285.0 million for acquisition of an
intermodal tank container leasing business and other assets.

Of the capital expenditures for construction and purchase of railcars and other
fixed assets over the past five years, approximately 86% have been for railcars.
Since capital expenditures for railcars are generally incurred subsequent to
receipt of firm customer lease orders, such expenditures are

-15-

discretionary to the Company based on its desire to enter into those lease
orders. Capital expenditures for intermodal tank containers are likewise
discretionary in the intermodal tank container business.

In 2000, the Company entered into a railcar sale-leaseback transaction for
$150.0 million. In addition, a subsidiary of the Company issued $180.0 million
in senior secured notes to finance the acquisition of an intermodal tank
container leasing business. Other financing activities of the Company included
$44.8 million for principal repayments on borrowed debt and $98.0 million for
cash dividends. Net cash provided by financing activities was $191.4 million.

ITEM 7A. DISCLOSURES ABOUT MARKET RISK

The market risk inherent in the Company's financial instruments is the potential
loss in fair value arising from adverse changes in interest rates. Under its
current policies, the Company does not use interest rate derivative instruments
to manage exposure to interest rate changes.

The following table provides information about the Company's debt obligations
that are sensitive to changes in interest rates. The table presents principal
cash flows and related weighted-average interest rates by expected maturity
dates and estimated fair value of the Company's debt obligations.

Fair Value
2002 2003 2004 2005 2006 Thereafter Total 12-31-2001
----- ----- ----- ----- ----- ---------- -------- ----------
(Dollars in Millions)

Fixed rate debt $98.1 $57.3 $94.3 $48.0 $98.2 $746.6 $1,142.5 $1,202.2
Average interest rate 6.74% 7.86% 7.09% 8.51% 7.29% 7.08% 7.17%

-16-

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page
----

Report of Independent Auditors.............................................................................. 18

Financial Statements

Consolidated statement of income for each of the three years in
the period ended December 31, 2001...................................................................... 19

Consolidated balance sheet - December 31, 2001 and 2000................................................... 20

Consolidated statement of stockholder's equity for each of the three
years in the period ended December 31, 2001............................................................. 21

Consolidated statement of cash flows for each of the three
years in the period ended December 31, 2001............................................................. 22

Notes to consolidated financial statements................................................................ 23

-17-

REPORT OF INDEPENDENT AUDITORS

TO UNION TANK CAR COMPANY

We have audited the accompanying consolidated balance sheet of Union Tank Car
Company and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of income, stockholder's equity and cash flows for each
of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Union
Tank Car Company and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.

ERNST & YOUNG LLP

Chicago, Illinois
March 13, 2002

-18-

UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME

(Dollars in Thousands)

For the Year Ended December 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
Revenues
Services (leasing and other) $ 707,404 $ 673,202 $ 631,606
Net sales 626,486 773,662 789,992
---------- ---------- ----------
1,333,890 1,446,864 1,421,598

Interest income 20,097 23,037 13,669
Other income 12,685 13,756 13,750
---------- ---------- ----------
1,366,672 1,483,657 1,449,017

Costs and expenses
Cost of services 426,164 399,954 370,681
Cost of sales 532,893 646,803 663,946
General and administrative 148,166 140,923 130,257
Interest expense 85,633 76,641 73,298
---------- ---------- ----------
1,192,856 1,264,321 1,238,182
---------- ---------- ----------

Income before income taxes 173,816 219,336 210,835

Provision for income taxes 62,938 78,022 78,267
---------- ---------- ----------
Net income $ 110,878 $ 141,314 $ 132,568
========== ========== ==========

Ratio of earnings to fixed charges 2.56 x 3.19 x 3.24 x
========== ========== ==========

See Notes to Consolidated Financial Statements.

-19-

UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

(Dollars in Thousands)

December 31,
-----------------------
2001 2000
---------- ----------

Assets
- ------
Cash and cash equivalents $ 12,047 $ 34,567
Short-term investments 110,107 59,233
Accounts receivable, primarily due within one year, less allowance
for doubtful accounts of $9,532 in 2001 and $9,176 in 2000 135,145 150,271
Accounts and notes receivable, affiliates 57,065 57,294
Inventories, net of LIFO reserves of $28,868 in 2001
and $33,673 in 2000 142,812 174,071
Prepaid expenses and deferred charges 14,284 11,772
Advances to parent company, principally at LIBOR plus 1% 340,365 260,517
Railcar lease fleet, net 1,606,364 1,561,644
Intermodal tank container lease fleet, net 296,739 292,375
Fixed assets, net 198,742 211,084
Investment in direct financing lease 26,611 30,641
Other assets 56,789 72,726
---------- ----------
Total assets $2,997,070 $2,916,195
========== ==========

Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable $ 62,705 $ 71,429
Accrued rent 91,473 83,394
Accrued liabilities 185,780 173,365
Borrowed debt 1,145,063 1,124,191
---------- ----------
1,485,021 1,452,379

Deferred income taxes and investment tax credits 476,751 466,712
Minority interest 82,383 78,067

Stockholder's equity
Common stock, no par value; 1,000 shares authorized and issued 106,689 106,689
Additional capital 133,459 133,459
Retained earnings 712,767 678,889
---------- ----------
Total stockholder's equity 952,915 919,037
---------- ----------
Total liabilities and stockholder's equity $2,997,070 $2,916,195
========== ==========

See Notes to Consolidated Financial Statements.

-20-

UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Years Ended December 31, 2001, 2000 and 1999

(Dollars in Thousands)

Common Additional Retained
Stock Capital Earnings Total
--------- ---------- --------- ---------
Balance at December 31, 1998 $ 106,689 $ 96,865 $ 585,057 $ 788,661

Net income -- -- 132,568 132,568
Cash dividends -- -- (82,000) (82,000)
Non-cash dividends -- -- (50) (50)
--------- --------- --------- ---------

Balance at December 31, 1999 106,689 96,865 635,575 839,129

Capital contribution -- 36,594 -- 36,594
Net income -- -- 141,314 141,314
Cash dividends -- -- (98,000) (98,000)
--------- --------- --------- ---------

Balance at December 31, 2000 106,689 133,459 678,889 919,037

Net income -- -- 110,878 110,878
Cash dividends -- -- (77,000) (77,000)
--------- --------- --------- ---------

Balance at December 31, 2001 $ 106,689 $ 133,459 $ 712,767 $ 952,915
========= ========= ========= =========

See Notes to Consolidated Financial Statements.

-21-

UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in Thousands)

For the Year Ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- ---------

Cash flows from operating activities:
Net income $ 110,878 $ 141,314 $ 132,568
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 169,865 159,586 148,028
Deferred taxes 13,783 11,591 22,937
Gain on disposition of railcars and other fixed assets (6,319) (4,178) (4,357)
Other non-cash income and expenses 9,687 4,575 2,163
Changes in operating assets and liabilities 49,725 (25,711) 19,845
--------- --------- ---------
Net cash provided by operating activities 347,619 287,177 321,184

Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets (217,082) (213,261) (219,391)
(Increase) decrease in short-term investments (54,014) (23,947) 5,951
(Increase) decrease in advance to parent (65,739) 51,514 (159,828)
(Increase) decrease in other assets and investments (870) (896) 521
Proceeds from disposals of railcars and other fixed assets 23,293 12,107 12,493
Purchases of businesses, net of cash acquired -- (284,985) (11,764)
--------- --------- ---------
Net cash used in investing activities (314,412) (459,468) (372,018)

Cash flows from financing activities:
Proceeds from issuance of borrowed debt 114,247 184,157 176,900
Proceeds from sale-leaseback transactions -- 150,026 13,200
Principal payments of borrowed debt (91,558) (44,779) (62,948)
Cash dividends (77,000) (98,000) (82,000)
--------- --------- ---------
Net cash (used in) provided by financing activities (54,311) 191,404 45,152

Effect of exchange rates on cash and cash equivalents (1,416) (493) 830
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (22,520) 18,620 (4,852)

Cash and cash equivalents at beginning of year 34,567 15,947 20,799
--------- --------- ---------

Cash and cash equivalents at end of year $ 12,047 $ 34,567 $ 15,947
========= ========= =========

See Notes to Consolidated Financial Statements

-22-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands)

1. Ownership

UNION TANK CAR COMPANY (with its wholly-owned and majority-owned subsidiaries
herein collectively referred to, unless the context otherwise requires, as the
"Company") is a wholly-owned subsidiary of Marmon Industrial LLC ("MIC") which
is a subsidiary of Marmon Holdings, Inc. ("Holdings"). Substantially all of the
stock of Holdings 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. Summary of Accounting Principles and Practices

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

On September 1, 2000, the Company acquired a company engaged in the metals
distribution business and its wholly-owned subsidiaries, through a capital
contribution from Holdings. The acquisition has been accounted for on an "as if
pooled" basis and, accordingly, the accompanying financial statements include
the financial positions, results of operations, and cash flows of the combined
companies for all periods presented.

Cash and Cash Equivalents

Cash and cash equivalents includes all highly liquid debt instruments purchased
with an original maturity of three months or less.

Short-Term Investments

Short-term investments consist of commercial paper with original maturities
between four and six months.

Lessor Accounting

Operating Leases - Most of the Company's railcar and intermodal tank container
leases are classified as operating leases. Aggregate rentals from operating
leases are reported as revenue ratably over the life of the lease. Expenses,
including depreciation and maintenance, are charged as incurred.

Direct Financing Leases - Some of the Company's railcar and other rental
equipment leases are classified as direct financing leases. Gross investment in
leases (minimum lease payments plus estimated residual values) less the cost of
the equipment is designated as unearned income. This unearned income is
recognized over the life of the lease based upon the "constant yield method" or
similar methods which generally result in an approximate level rate of return on
the investment.

-23-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenue Recognition

Revenue from sales of products is generally recognized upon shipment to
customers which is when title and the risks and rewards of ownership are passed
on to the customers.

Shipping and Handling Costs

All freight costs incurred by the Company to ship its products to its customers
are included in cost of sales.

Depreciation and Fixed Assets Accounting

Railcars, intermodal tank containers and fixed assets are recorded at cost less
accumulated depreciation. These assets are depreciated to salvage value over
their estimated useful lives on the straight-line method. The estimated useful
lives are principally: railcars, 25-30 years; intermodal tank containers, 15-20
years; buildings and improvements, 20-30 years; and machinery and equipment,
3-20 years.

The cost of major conversions and betterments are capitalized and depreciated
over their estimated useful lives or, if shorter, the remaining useful lives of
the related assets. Maintenance and repairs are charged to expense when
incurred.

Gains or losses on disposals are included in other income, except for those
related to railcar disposals which are included in cost of services.

Impairment of Long-lived and Identifiable Intangible Assets

Carrying values of long-lived assets and identifiable intangible assets are
reviewed if facts and circumstances suggest that they may be impaired. If this
review indicates that the carrying value of an asset will not be recoverable, as
determined based on the undiscounted net cash flows of the asset acquired over
the remaining depreciation or amortization period, the carrying value of the
asset is reduced to its estimated fair value (based on an estimate of discounted
net future cash flows).

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.

-24-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Foreign Currency Translation

The Company's foreign operations use the local currency as their functional
currency. Accordingly, assets and liabilities are translated at exchange rates
in effect at the date of translation. Average exchange rates are used for
revenues, costs and expenses, and income taxes.

Translation adjustments and transaction gains and losses are borne by the
Company's parent. For the years ended December 31, 2001, 2000 and 1999, MIC
absorbed a gain of $954, a gain of $938, and a loss of $585, respectively.

Inventories

Inventories are stated at the lower of cost or market, using the first-in,
first-out (FIFO) or last-in, first-out (LIFO) methods. Finished goods
represented approximately 80% of net inventories at December 31, 2001.

Fair Value of Financial Instruments

All book value amounts for financial instruments approximate the instruments'
fair value except for borrowed debt discussed in Note 7.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Acquisitions

In September 2000, the Company acquired the intermodal tank container leasing
business of Transamerica Leasing, Inc. for $264 million. In addition, the
Company acquired other entities for a total of $21 million in 2000. These
acquisitions were accounted for using the purchase method. Accordingly, results
of operations of the acquired businesses were included in the Company's
consolidated financial statements from the date of purchase.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation.

-25-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Railcar Lease Data

Railcars are leased directly to several hundred shippers, located throughout
North America. The Company leases to a wide variety of customers, and no
customer accounted for more than 10% of consolidated lease revenues. Each lease
involves one to several thousand railcars, normally for periods ranging from one
to twenty years. The average term of leases entered into during 2001 for
newly-manufactured railcars was approximately eight years. The average term of
leases entered into during 2001 for used railway tank cars and other railcars
was approximately three years. Under the terms of most of the leases, the
Company agrees to provide a full range of services including railcar repair and
maintenance.

Minimum future lease rentals to be received on the railcar lease fleet
(including railcars leased from others) were as follows as of December 31, 2001:

Operating
Leases
----------
2002 $ 419,350
2003 329,348
2004 252,915
2005 188,292
2006 122,413
2007 and thereafter 252,404
----------
Totals $1,564,722
==========

4. Lease Fleet and Fixed Assets

December 31,
-------------------------
2001 2000
----------- -----------
Railcar lease fleet
Gross cost $ 2,987,559 $ 2,906,251
Less accumulated depreciation (1,381,195) (1,344,607)
----------- -----------
$ 1,606,364 $ 1,561,644
=========== ===========

Intermodal tank container lease fleet
Gross cost $ 325,903 $ 300,330
Less accumulated depreciation (29,164) (7,955)
----------- -----------
$ 296,739 $ 292,375
=========== ===========

Fixed assets, at cost
Land $ 15,979 $ 16,025
Buildings and improvements 177,157 171,570
Machinery and equipment 311,553 325,950
----------- -----------
504,689 513,545
Less accumulated depreciation (305,947) (302,461)
----------- -----------
$ 198,742 $ 211,084
=========== ===========

-26-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Investment in Direct Financing Lease

In 1987, one of the Company's Canadian subsidiaries entered into a Canadian
dollar denominated lease of a passenger airplane to a scheduled commercial air
carrier for an 18-year period.

Minimum future rentals to be received on the lease are as follows at December
31, 2001:

2002 $ 5,265
2003 5,265
2004 5,265
2005 5,265
-------
Total $21,060
=======

The investment is recoverable from future lease payments and estimated residual
value, as follows:

December 31,
-------------------
2001 2000
-------- -------
Minimum future lease rentals $ 21,060 $ 27,960
Estimated residual value 14,916 15,842
-------- --------
Gross investment 35,976 43,802
Less unearned income (9,365) (13,161)
-------- --------
Net investment $ 26,611 $ 30,641
======== ========

6. Lease Commitments

The Company, as lessee, has entered into long-term leases for certain railcars
and various manufacturing, office and warehouse facilities.

In 2000, the Company entered into a sale-leaseback transaction with a financial
institution pursuant to which it sold and leased back an aggregate of $150,026
in railcars. The Company has an option to purchase all of the railcars at a
fixed purchase price on July 15, 2012. The exercise price of the fixed price
purchase option is equal to the projected future fair market value of the
subject railcars, as determined by an independent appraiser.

-27-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At December 31, 2001, future minimum rental commitments for all noncancelable
leases are as follows:

Operating Leases
------------------------------
Sale-
Leaseback Others Total
--------- ------- --------

2002 $ 66,647 $ 6,746 $ 73,393
2003 68,427 5,593 74,020
2004 71,465 4,849 76,314
2005 94,663 3,892 98,555
2006 91,824 2,774 94,598
2007 and thereafter 505,702 21,383 527,085
-------- ------- --------
$898,728 $45,237 $943,965
======== ======= ========

Minimum future sublease revenue to be received under existing railcar
sale-leaseback leases as of December 31, 2001 is presented below. Future
sublease revenue under other existing operating leases is not material and is
primarily included in other income. The Company expects that the subleased
railcars will be re-leased at the expiration of such leases. The rentals under
such future subleases cannot be ascertained and therefore are not reflected in
this table.

Sale-
Leaseback
Leases
---------

2002 $ 80,018
2003 67,697
2004 56,366
2005 41,484
2006 27,674
2007 and thereafter 62,233
--------
$335,472
========

Sublease rentals recorded as revenue for the years ended December 31, 2001, 2000
and 1999 were approximately $94,000, $93,000 and $80,000, respectively.

Rentals charged to costs and expenses were $79,392, $73,350 and $65,053 in 2001,
2000 and 1999, respectively.

-28-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Borrowed Debt

December 31,
-----------------------
2001 2000
---------- ----------

Unsecured notes, due from 2002 - 2009 at 5.91% -7.45% (average rate 6.92% as
of December 31, 2001 and 6.86% as of December 31, 2000) $ 515,000 $ 550,000

Senior secured notes, due from 2010 - 2016 at 6.79% - 7.68% (average rate
7.20% as of December 31, 2001 and 7.36% as of December 31, 2000) 381,000 280,000

Equipment obligations, payable periodically through 2009 at 6.50% - 11.60%
(average rate 8.16% as of December 31, 2001 and 7.98% as of December 31,
2000) 226,808 267,310

Other long-term borrowings, payable periodically through 2014 (average rate
of 10.10% as of December 31, 2001 and 9.97% as of December 31, 2000) 22,255 26,881
---------- ----------
$1,145,063 $1,124,191
========== ==========

In June 2001, the Company issued $110,000 principal amount of Senior Secured
Notes. Interest on the notes is payable semiannually on June 1 and December 1,
commencing December 1, 2001 at the rate of 6.82% per annum. Principal is payable
annually commencing on June 1, 2002 and continuing until maturity on June 1,
2016. The notes are secured by approximately 1,900 railcars with a cost of
approximately $123,000 and 1,100 intermodal tank containers and wheeled chassis
with a cost of approximately $23,800.

In September 2000, EXSIF Worldwide, Inc., an indirect majority-owned subsidiary
of the Company, issued $180,000 principal amount of senior secured notes.
Interest on the notes is payable semiannually on April 1 and October 1,
commencing April 1, 2001 at the rate of 7.68% per annum. Principal is payable
annually commencing on October 1, 2001 and continuing until maturity on October
1, 2015. The notes are secured by intermodal tank container assets with a total
purchase price of approximately $240,000 and the future stream of leasing income
on such intermodal tank containers. Payment of the notes has been guaranteed by
the Company.

Other senior secured notes of $100,000 are secured by railcars with an original
cost of $132,582 and $132,754 at December 31, 2001 and 2000, respectively.

Equipment obligations are secured by railcars with an original cost of $735,056
and $735,735 at December 31, 2001 and 2000, respectively.

-29-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company's Canadian subsidiaries have approximately $8,480 of credit lines
available on a no-fee basis. No amounts were outstanding as of December 31, 2001
and 2000.

Maturities of debt obligations for the years 2002 - 2006 are as follows: $99,235
in 2002, $57,989 in 2003, $94,709 in 2004, $48,352 in 2005 and $98,178 in 2006.

The estimated fair value of borrowed debt is as follows:

December 31,
-----------------------
2001 2000
---------- ----------

Unsecured notes $ 539,403 $ 559,711
Senior secured notes 397,127 291,328
Equipment obligations 242,359 279,230
Other long-term borrowings 25,937 29,593
---------- ----------
$1,204,826 $1,159,862
========== ==========

The current fair value of the Company's borrowed debt is estimated by
discounting the future interest and principal cash flows at the Company's
estimated incremental borrowing rate at the respective year-end for debt with
similar maturities.

8. Income Taxes

The Company and its more than 80% owned U.S. subsidiaries are included in the
consolidated U.S. federal income tax return of Holdings. Under an arrangement
with MIC, federal income taxes, before consideration of investment tax credits,
are computed as if the Company files a separate consolidated return. For this
computation, the Company generally uses tax accounting methods which minimize
the current tax liability (these methods may differ from those used in the
consolidated tax return). Tax liabilities are remitted to, and refunds are
obtained from, MIC on this basis. If deductions and credits available to
Holdings' entire consolidated group exceed those which can be used on its tax
return, allocation of the related benefits between the Company and others will
be at the sole discretion of 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 consolidated group.

Undistributed earnings of the Company's non-U.S. subsidiaries reflect full
provision for non-U.S. income taxes. However, since the earnings are
indefinitely reinvested in non-U.S. operations, no provision has been made for
taxes that might be payable upon remittance of such earnings nor is it
practicable to determine the amount of any such liability.

-30-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following summarizes the provision for income taxes:

2001 2000 1999
-------- -------- --------
State
Current $ 2,970 $ 4,049 $ 4,015
Deferred 1,778 (221) 910
Federal
Current 17,937 37,596 33,658
Deferred and investment tax credit 32,557 17,042 26,320
Foreign
Current 28,248 24,786 17,657
Deferred and investment tax credit (20,552) (5,230) (4,293)
-------- -------- --------
Total $ 62,938 $ 78,022 $ 78,267
======== ======== ========

In 2001, 2000, and 1999, the Company paid foreign withholding taxes of $2,557,
$1,210 and $2,112, respectively.

Income tax expense is based upon domestic and foreign income before taxes as
follows:

2001 2000 1999
-------- -------- --------

Domestic $139,253 $173,337 $181,370
Foreign 34,563 45,999 29,465
-------- -------- --------
Total $173,816 $219,336 $210,835
======== ======== ========

Income tax effects of significant items which resulted in effective tax rates of
36.2% in 2001, 35.6% in 2000, and 37.1% in 1999 follow:

2001 2000 1999
-------- -------- --------

Federal income taxes at 35% statutory rate $ 60,836 $ 76,768 $ 73,792
Increase (decrease) resulting from:
Amortization of investment tax credits (1,989) (1,876) (2,013)
State income taxes, net of federal income tax
benefit 3,709 2,411 3,520
Excess tax provided on foreign income 6,133 1,198 2,388
Amortization of goodwill 2,146 2,133 2,133
Effect of Canadian tax rate decrease on foreign
deferred taxes (9,207) -- --
Other, net 1,310 (2,612) (1,553)
-------- -------- --------
Total income taxes $ 62,938 $ 78,022 $ 78,267
======== ======== ========

The excess tax on foreign income represents differences due to higher foreign
tax rates and foreign tax credits not benefited.

-31-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of net
deferred tax balances are as follows:

2001 2000
--------- ---------

Excess of tax over book depreciation $(490,679) $(479,544)
Other (31,551) (31,096)
--------- ---------
Gross liabilities (522,230) (510,640)

Expenses per books not yet deductible for tax 33,664 34,555
Other 21,200 20,935
--------- ---------
Gross assets 54,864 55,490

Deferred investment tax credits (9,385) (11,562)
--------- ---------
Net deferred income tax liability $(476,751) $(466,712)
========= =========

The above assets exclude certain state deferred income tax assets related to
loss carryforwards (which expire over the next seven years) in the gross amount
of $2,200 at December 31, 2001 and $2,600 at December 31, 2000.

9. Contingencies

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 to resolve such claims, 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.

As part of its risk management plan, the Company self-insures certain levels of
its property damage, general liability and products liability exposures, as well
as certain workers' compensation liabilities in states where it is authorized to
do so. The Company maintains no property damage insurance on its railcars or
intermodal tank containers. The Company has accrued for the estimated costs of
reported, as well as incurred but not reported, self-insured claims. The Company
reserves the full estimated value of claims. It does not discount its claims
liability.

The Company has certain environmental matters currently pending, none of which
are significant to the Company's results of operations or financial condition,
either individually or in the aggregate. See further discussion of such matters
under the "Environmental Matters" caption of Item 1 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.

-32-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Pension Benefits

Substantially all of the Company's employees are covered by discretionary
contribution or defined benefit retirement plans.

Costs of the discretionary contribution pension plans are accrued in amounts
determined on the basis of percentages, generally established annually by the
Company, of employee compensation of the various units covered by such plans.
The contributions are funded as accrued. Discretionary and defined contribution
plan expense for 2001, 2000 and 1999 was $12,000, $11,046 and $12,142,
respectively.

As of December 31, 2001, the Company's defined benefit plans either had their
benefits frozen or were terminated. The benefits are based on payment of a
specific amount, which varies by plan, for each year of service. The Company's
funding policy is to contribute the minimum amount required either by law or
union agreement. Contributions are intended to provide not only for benefits
attributed to service through the plans' termination dates, but also for those
expected to be earned in the future. Benefits are based on both years of service
and compensation. Defined benefit pension plan income was $335, $590 and $441
for 2001, 2000 and 1999, respectively. Prepaid pension costs recognized in the
consolidated balance sheet were $28 at December 31, 2001. Accrued defined
benefit pension liability recognized in the consolidated balance sheet was $307
at December 31, 2000.

11. Retirement Health Care and Life Insurance Benefits

The Company provides limited health care and life insurance benefits for certain
retired employees. These benefits are subject to deductible and copayment
provisions, Medicare supplements and other limitations. At December 31, 2001 and
2000, the liability for postretirement health care and life insurance benefits
was $4,444 for both years, and was included in accrued liabilities in the
consolidated balance sheet.

Expense related to these benefits was $688, $685 and $511 in 2001, 2000 and
1999, respectively.

12. Ratio of Earnings to Fixed Charges

The ratio of earnings to fixed charges represents the number of times that
interest expense, amortization of debt discount, and the interest component of
rent expense were covered by income before income taxes and such interest,
amortization, and the interest component of rentals.

-33-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Consolidating Financial Information

Condensed consolidated statements of income for the years ended December 31,
2001, 2000 and 1999 are as follows:

Year Ended December 31, 2001
----------------------------

Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------

Revenues
Services (leasing and other) $469,121 $ 69,123 $213,717 $(44,557) $ 707,404
Net sales 39,442 23,472 583,312 (19,740) 626,486
-------- -------- -------- -------- ----------
508,563 92,595 797,029 (64,297) 1,333,890
Other income (715) 10,457 12,030 11,010 32,782
-------- -------- -------- -------- ----------
507,848 103,052 809,059 (53,287) 1,366,672
Costs and expenses
Cost of services 290,324 40,442 139,955 (44,557) 426,164
Cost of sales 38,766 26,962 486,905 (19,740) 532,893
General and administrative 40,085 3,927 104,154 -- 148,166
Interest 54,247 5,888 14,488 11,010 85,633
-------- -------- -------- -------- ----------
423,422 77,219 745,502 (53,287) 1,192,856
-------- -------- -------- -------- ----------
Income before income taxes 84,426 25,833 63,557 -- 173,816
Provision for income taxes 37,684 748 24,506 -- 62,938
-------- -------- -------- -------- ----------
Net income $ 46,742 $ 25,085 $ 39,051 $ -- $ 110,878
======== ======== ======== ======== ==========

-34-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Consolidating Financial Information (Continued)

Year Ended December 31, 2000
----------------------------

Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------ ------------

Revenues
Services (leasing and other) $ 469,117 $ 76,329 $148,780 $(21,024) $ 673,202
Net sales 121,832 27,830 649,127 (25,127) 773,662
--------- -------- -------- -------- ----------
590,949 104,159 797,907 (46,151) 1,446,864
Other income (776) 9,484 12,509 15,576 36,793
--------- -------- -------- -------- ----------
590,173 113,643 810,416 (30,575) 1,483,657
Costs and expenses
Cost of services 267,083 41,053 112,842 (21,024) 399,954
Cost of sales 112,416 27,284 532,230 (25,127) 646,803
General and administrative 34,378 3,983 102,562 -- 140,923
Interest 50,237 5,403 5,425 15,576 76,641
--------- -------- -------- -------- ----------
464,144 77,723 753,059 (30,575) 1,264,321
--------- -------- -------- -------- ----------
Income before income taxes 126,059 35,920 57,357 -- 219,336
Provision for income taxes 38,826 13,759 25,437 -- 78,022
--------- -------- -------- -------- ----------
Net income $ 87,233 $ 22,161 $ 31,920 $ -- $ 141,314
========= ======== ======== ======== ==========

Year Ended December 31, 1999
----------------------------

Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------ ------------

Revenues
Services (leasing and other) $464,144 $ 75,396 $ 97,883 $ (5,817) $ 631,606
Net sales 199,483 37,495 591,491 (38,477) 789,992
-------- -------- -------- -------- ----------
663,627 112,891 689,374 (44,294) 1,421,598
Other income 1,601 7,749 10,617 7,452 27,419
-------- -------- -------- -------- ----------
665,228 120,640 699,991 (36,842) 1,449,017
Costs and expenses
Cost of services 253,594 43,399 79,505 (5,817) 370,681
Cost of sales 187,975 34,672 479,776 (38,477) 663,946
General and administrative 35,621 3,742 90,894 -- 130,257
Interest 55,949 9,642 255 7,452 73,298
-------- -------- -------- -------- ----------
533,139 91,455 650,430 (36,842) 1,238,182
-------- -------- -------- -------- ----------
Income before income taxes 132,089 29,185 49,561 -- 210,835
Provision for income taxes 48,902 10,815 18,550 -- 78,267
-------- -------- -------- -------- ----------
Net income $ 83,187 $ 18,370 $ 31,011 $ -- $ 132,568
======== ======== ======== ======== ==========

-35-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Consolidating Financial Information (Continued)

Condensed consolidated balance sheets as of December 31, 2001 and 2000 are as
follows:

December 31, 2001
-----------------

Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------ ------------

Assets
- ------

Cash and cash equivalents $ 60 $ 8,590 $ 3,397 $ -- $ 12,047
Short-term investments -- 110,107 -- -- 110,107
Accounts receivable 26,721 15,805 93,174 (555) 135,145
Accounts and notes receivable, affiliates -- 1 57,064 -- 57,065
Inventories, net 21,993 4,914 115,905 -- 142,812
Prepaid expenses and deferred charges 5,563 881 6,880 960 14,284
Advances to parent 150,331 (50,474) 243,087 (2,579) 340,365
Railcar lease fleet, net 1,315,178 123,159 168,027 -- 1,606,364
Intermodal tank container lease fleet, net -- -- 296,739 -- 296,739
Fixed assets, net 96,345 14,600 87,797 -- 198,742
Investment in direct financing lease -- 26,611 -- -- 26,611
Investment in subsidiaries 853,848 -- 148,389 (1,002,237) --
Other assets 507 640 56,282 (640) 56,789
---------- -------- ---------- ----------- ----------
Total assets $2,470,546 $254,834 $1,276,741 $(1,005,051) $2,997,070
========== ======== ========== =========== ==========

Liabilities and Stockholder's Equity
- ------------------------------------

Accounts payable $ 27,168 $ 2,413 $ 33,353 $ (229) $ 62,705
Accrued liabilities 206,231 12,173 55,985 2,864 277,253
Borrowed debt 922,533 48,646 173,884 -- 1,145,063
---------- -------- ---------- ----------- ----------
1,155,932 63,232 263,222 2,635 1,485,021

Deferred income taxes and investment tax
credits 358,142 45,381 73,228 -- 476,751
Minority interest -- -- 4,956 77,427 82,383

Stockholder's equity
Common stock and additional capital 331,752 13,012 481,641 (586,257) 240,148
Retained earnings 573,998 147,702 489,952 (498,885) 712,767
Equity adjustment from foreign currency
translation 50,722 (14,493) (36,258) 29 --
---------- -------- ---------- ----------- ----------
Total stockholder's equity 956,472 146,221 935,335 (1,085,113) 952,915
---------- -------- ---------- ----------- ----------
Total liabilities and stockholder's
equity $2,470,546 $254,834 $1,276,741 $(1,005,051) $2,997,070
========== ======== ========== =========== ==========

-36-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Consolidating Financial Information (Continued)

December 31, 2000
-----------------

Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------ ------------

Assets
- ------

Cash and cash equivalents $ 4,494 $ 23,111 $ 6,962 $ -- $ 34,567
Short-term investments -- 59,233 -- -- 59,233
Accounts receivable 29,133 12,696 113,185 (4,743) 150,271
Accounts and notes receivable, affiliates -- 83 57,211 -- 57,294
Inventories, net 28,191 8,122 137,758 -- 174,071
Prepaid expenses and deferred charges 6,210 763 5,167 (368) 11,772
Advances to parent 142,673 (12,869) 132,042 (1,329) 260,517
Railcar lease fleet, net 1,220,966 156,513 184,165 -- 1,561,644
Intermodal tank container lease fleet, net -- -- 292,375 -- 292,375
Fixed assets, net 100,631 18,335 92,118 -- 211,084
Investment in direct financing lease -- 30,641 -- -- 30,641
Investment in subsidiaries 823,329 -- 147,171 (970,500) --
Other assets 596 503 72,130 (503) 72,726
---------- -------- ---------- ----------- ----------
Total assets $2,356,223 $297,131 $1,240,284 $ (977,443) $2,916,195
========== ======== ========== =========== ==========

Liabilities and Stockholder's Equity
- ------------------------------------

Accounts payable $ 27,412 $ 2,702 $ 45,639 $ (4,324) $ 71,429
Accrued liabilities 191,528 11,670 50,856 2,705 256,759
Borrowed debt 875,767 63,800 184,624 -- 1,124,191
---------- -------- ---------- ----------- ----------
1,094,707 78,172 281,119 (1,619) 1,452,379

Deferred income taxes and investment tax
credits 342,719 68,590 55,403 -- 466,712
Minority interest -- -- 2,050 76,017 78,067

Stockholder's equity
Common stock and additional capital 323,104 13,012 508,356 (604,324) 240,148
Retained earnings 560,034 142,352 424,041 (447,538) 678,889
Equity adjustment from foreign currency
translation 35,659 (4,995) (30,685) 21 --
---------- -------- ---------- ----------- ----------
Total stockholder's equity 918,797 150,369 901,712 (1,051,841) 919,037
---------- -------- ---------- ----------- ----------
Total liabilities and stockholder's
equity $2,356,223 $297,131 $1,240,284 $ (977,443) $2,916,195
========== ======== ========== =========== ==========

-37-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Consolidating Financial Information (Continued)

Condensed consolidated statements of cash flows for the years ended December 31,
2001, 2000 and 1999 are as follows:

Year Ended December 31, 2001
----------------------------

Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------ ------------

Net cash provided by operating activities: $ 168,282 $ 28,516 $ 150,821 $ -- $ 347,619

Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (176,798) (2,079) (38,205) -- (217,082)
Increase in short-term investments -- (54,014) -- -- (54,014)
Decrease (increase) in advance to parent 28,802 37,605 (90,060) (42,086) (65,739)
Increase in other assets (20) -- (850) -- (870)
Proceeds from disposals of railcars and other
fixed assets 5,534 9,944 7,815 -- 23,293
--------- -------- --------- -------- ---------
Net cash used in investing activities (142,482) (8,544) (121,300) (42,086) (314,412)

Cash flows from financing activities:
Proceeds from issuance of borrowed debt 110,000 -- 4,247 -- 114,247
Principal payments of borrowed debt (63,234) (13,407) (14,917) -- (91,558)
Cash dividends (77,000) (19,735) (22,351) 42,086 (77,000)
--------- -------- --------- -------- ---------
Net cash (used in) provided by financing
activities (30,234) (33,142) (33,021) 42,086 (54,311)
Effect of exchange rates on cash and cash
equivalents -- (1,351) (65) -- (1,416)
--------- -------- --------- -------- ---------
Net decrease in cash and cash equivalents (4,434) (14,521) (3,565) -- (22,520)
Cash and cash equivalents at beginning of year 4,494 23,111 6,962 -- 34,567
--------- -------- --------- -------- ---------
Cash and cash equivalents at end of year $ 60 $ 8,590 $ 3,397 $ -- $ 12,047
========= ======== ========= ======== =========

-38-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Consolidating Financial Information (Continued)

Year Ended December 31, 2000
----------------------------

Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------ ------------

Net cash provided by operating activities: $ 190,042 $ 43,112 $ 54,023 $ -- $ 287,177

Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (172,116) (6,661) (34,484) -- (213,261)
Increase in short-term investments -- (23,947) -- -- (23,947)
(Increase) decrease in advance to parent (38,255) 19,929 87,021 (17,181) 51,514
Increase in other assets (330) -- (566) -- (896)
Proceeds from disposals of railcars and other
fixed assets 7,618 2,604 1,885 -- 12,107
Purchases of businesses, net of cash acquired -- -- (284,985) -- (284,985)
--------- -------- --------- -------- ---------
Net cash used in investing activities (203,083) (8,075) (231,129) (17,181) (459,468)

Cash flows from financing activities:
Proceeds from issuance of borrowed debt -- -- 184,157 -- 184,157
Proceeds from sale-leaseback transactions 150,026 -- -- -- 150,026
Principal payments of borrowed debt (34,541) (7,531) (2,707) -- (44,779)
Cash dividends (98,000) (17,181) -- 17,181 (98,000)
--------- -------- --------- -------- ---------
Net cash provided by (used in) financing
activities 17,485 (24,712) 181,450 17,181 191,404
Effect of exchange rates on cash and cash
equivalents -- (479) (14) -- (493)
--------- -------- --------- -------- ---------
Net increase in cash and cash equivalents 4,444 9,846 4,330 -- 18,620
Cash and cash equivalents at beginning of year 50 13,265 2,632 -- 15,947
--------- -------- --------- -------- ---------
Cash and cash equivalents at end of year $ 4,494 $ 23,111 $ 6,962 $ -- $ 34,567
========= ======== ========= ======== =========

-39-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Consolidating Financial Information (Continued)

Year Ended December 31, 1999
----------------------------

Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------ ------------

Net cash provided by operating activities: $ 205,779 $ 35,548 $ 79,857 $ -- $ 321,184

Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (199,865) (2,273) (17,253) -- (219,391)
Decrease in short-term investments -- 5,951 -- -- 5,951
Increase in advance to parent (82,106) (20,227) (57,495) -- (159,828)
Decrease in other assets -- -- 521 -- 521
Proceeds from disposals of railcars and other
fixed assets 6,912 4,212 1,369 -- 12,493
Purchases of businesses, net of cash acquired -- -- (11,764) -- (11,764)
--------- -------- -------- -------- ---------
Net cash used in investing activities (275,059) (12,337) (84,622) -- (372,018)

Cash flows from financing activities:
Proceeds from issuance of borrowed debt 175,000 -- 1,900 -- 176,900
Proceeds from sale-leaseback transactions 13,200 -- -- -- 13,200
Principal payments of borrowed debt (38,107) (24,332) (509) -- (62,948)
Cash dividends (82,000) -- -- -- (82,000)
--------- -------- -------- -------- ---------
Net cash provided by (used in) financing
activities 68,093 (24,332) 1,391 -- 45,152
Effect of exchange rates on cash and cash
equivalents -- 790 40 -- 830
--------- -------- -------- -------- ---------
Net decrease in cash and cash equivalents (1,187) (331) (3,334) -- (4,852)
Cash and cash equivalents at beginning of year 1,237 13,596 5,966 -- 20,799
--------- -------- -------- -------- ---------
Cash and cash equivalents at end of year $ 50 $ 13,265 $ 2,632 $ -- $ 15,947
========= ======== ======== ======== =========

-40-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Related Party Transactions

The following table sets forth the major related party transaction amounts
included in the consolidated financial statements, other than those disclosed
elsewhere.

Interest Management Insurance
Income Expense Billed
-------- ---------- ---------

2001 $13,265 $3,361 $3,507
2000 17,794 3,107 3,088
1999 9,682 5,063 3,396

The Company from time to time advances funds in excess of its current cash
requirements for domestic operations to MIC or MIC's subsidiaries on an
unsecured demand basis. Such advances, which bear interest principally at LIBOR
plus 1%, amounted to $327,909 and $219,169 at December 31, 2001 and 2000,
respectively.

Certain of the Company's Canadian operations and its affiliates enter into
intercompany loans utilizing their respective excess cash balances. These
advances between the Company and subsidiaries of MIC resulted in receivables of
$12,456 and $41,348 at December 31, 2001 and 2000, respectively, that are
included in advances to parent company.

An administrative services fee is paid to The Marmon Group, Inc. ("Marmon"), a
subsidiary of Holdings and an affiliate of MIC, for certain services provided by
Marmon's officers and employees including services with respect to accounting,
tax, finance, legal and related matters which Marmon provides to certain of
Holdings' divisions, subsidiaries and affiliates. Marmon provides these services
to the Company because it is considered more cost efficient to provide such
services in this manner.

The administrative fee which Marmon charges to the Company and other entities to
which it provides services is calculated using activity-based management
concepts. The various Marmon departments allocate both time and expenses to the
entities for which it provided services for the previous year.

Marmon takes the amount derived from this exercise and applies discretion to
determine the final administrative services fee to be charged. The factors which
are considered include matters such as the following: any known operating
problems and risks that require or may require additional time to be devoted to
the Company by Marmon; significant expansion programs; significant contracts;
unusual tax or accounting matters; and the experience and length of service of
the Company's management.

-41-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In September 2000, Worldwide Containers, Inc. ("WCI"), a majority-owned
subsidiary of the Company, received a capital contribution from an affiliate
consisting of a $43,400 demand note of another affiliate of the Company and 20%
of the capital stock of Webb Wheel Products, Inc., another affiliate of the
Company, in exchange for approximately 15.1% of the capital stock of WCI. WCI
also received a capital contribution from another affiliate consisting of a 20%
limited partnership interest in Rail Car Associates Limited Partnership in
exchange for approximately 4.2% of the capital stock of WCI. These non-cash
transactions have been excluded from the consolidated statement of cash flows.

The interest of minority shareholders in WCI at December 31, 2001 and 2000 was
$82,383 and $78,067, respectively. The minority interest in income for the years
ended December 31, 2001 and 2000 was $4,316 and $1,539, respectively.

Prior to its acquisition of the 20% minority interest in September 2000, the
Company owned an 80% interest in Rail Car Associates Limited Partnership. The
minority interest in income was $582 and $894 for the years ended December 31,
2000 and 1999, respectively.

All minority interest in income was included as a charge against other income.

15. Derivative Financial Instruments

The Company's foreign subsidiaries periodically enter into foreign currency
forward contracts to hedge against U. S. dollar exposures. The notional amounts
of the foreign currency forward contracts, all with initial maturities of less
than one year, amounted to $22.0 million and $12.0 million at December 31, 2001
and 2000, respectively. The fair value of such contracts is not material.

The Company adopted the provision of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective January 1, 2001. The impact of
adoption was not significant.

16. Quarterly Data (Unaudited)

Three Months Ended
-----------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------

2001
- ----
Net sales and services revenues $342,157 $352,609 $315,152 $323,972
Cost of sales and services 245,001 255,355 220,784 237,917
-------- -------- -------- --------
Gross profit 97,156 97,254 94,368 86,055

Net income $ 28,191 $ 30,529 $ 34,201 $ 17,957
======== ======== ======== ========

2000
- ----
Net sales and services revenues $352,962 $371,511 $356,089 $366,302
Cost of sales and services 254,540 269,164 257,092 265,961
-------- -------- -------- --------
Gross profit 98,422 102,347 98,977 100,341

Net income $ 33,893 $ 36,959 $ 37,371 $ 33,091
======== ======== ======== ========

-42-

UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Costs and expenses in the fourth quarter of 2001 included a $4,700 provision for
costs associated with the suspension of new railway tank car manufacturing at
the Oakville, Ontario plant in the second quarter in 2002, a $2,400 reduction in
carrying value of certain inventory in the other railway equipment business, and
a $1,300 write-off of goodwill in certain fastener businesses.

17. Supplementary Disclosures of Cash Flow Information

For the Year Ended December 31,
--------------------------------
2001 2000 1999
-------- -------- --------

Changes in operating assets and liabilities:
Accounts receivable $ 4,824 $ (7,792) $ 8,148
Inventories 22,744 (6,278) 14,686
Prepaid expenses and deferred charges (3,063) 15 2,476
Accounts payable, accrued rent and accrued liabilities 25,220 (11,656) (5,465)
-------- -------- --------
$ 49,725 $(25,711) $ 19,845
======== ======== ========

Cash paid during the year for:
Interest (net of amount capitalized) $ 87,350 $ 75,782 $ 73,739
Income taxes 47,392 70,715 66,450

Unrealized foreign currency translation gains and losses, which are non-cash
items, are excluded from the change in short-term investments and advances to
parent.

18. Industry Segment Information

The Company's industry and geographic data are found under the "Segment
Information" caption of Item 1 of the Company's Annual Report on Form 10-K for
the year ended December 31, 2001. The aforementioned data are an integral part
of the Notes to Consolidated Financial Statements.

-43-

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

First Elected
Name Age Current Positions or Offices to Position
- -------------------- --- ---------------------------------- -------------

Kenneth P. Fischl 52 Director 1994
President of the Company 2002

Mark J. Garrette 48 Vice President of the Company and 1994
Senior Vice President and
Controller - Tank Car Division

Robert C. Gluth 77 Director, Executive Vice President 1981
and served as Treasurer between
February, 1986 and January, 1987
and since October, 1989

Frank D. Lester 61 Vice President of the Company and 1999
President - Tank Car Division

John D. Nichols 71 Director 2002

Robert W. Webb 63 General Counsel and Secretary 1986
of the Company

-44-

Kenneth P. Fischl

Mr. Fischl was elected President of the Company in January 2002. He was elected
as a Director in March 1994, and served as President of the Tank Car Division
from February 1993 to August 1999. He was appointed Vice President of the
Company and Executive Vice President and General Manager of the Tank Car
Division in July 1992. He joined the Company in 1977 as a Market Analyst. Mr.
Fischl was promoted to Manager of Tank Car Marketing and Administration in 1979
and became Vice President of Fleet Management in 1981. Mr. Fischl was elected a
Vice President of The Marmon Group, Inc. ("Marmon") in May 1998.

Mark J. Garrette

Mr. Garrette was appointed Senior Vice President and Controller of the Tank Car
Division and elected Vice President of the Company in August 1994. He joined the
Tank Car Division as Vice President and Assistant Controller in May 1994.

Robert C. Gluth

Mr. Gluth is Executive Vice President and a Director of Marmon Industrial LLC
("MIC"), Vice President, Treasurer and a Director of Holdings, Executive Vice
President and Director of Marmon LLC ("TMC"), and Executive Vice President and a
Director of Marmon. Mr. Gluth is also Treasurer of each of TMC, MIC and Marmon.

Frank D. Lester

In August 1999, Mr. Lester was named President of the Tank Car Division and
elected a Vice President of the Company. Mr. Lester joined the Tank Car Division
in 1979 as a district sales manager. In 1981, he was promoted to Vice President
- - Sales, and in 1988, he was named Vice President - Quality. In 1994, Mr. Lester
was elected to President of Procor Limited.

John D. Nichols

Mr. Nichols was elected as a Director of the Company in January 2002. He is
President and Chief Executive Officer of each of MIC, Holdings, TMC and Marmon.
Prior to joining Marmon in January 2002, Mr. Nichols was Chief Executive Officer
and chairman of the board of Illinois Tool Works Inc. (ITW) before his
retirement in 1996. Mr. Nichols joined ITW in 1980 as executive vice president.

Robert W. Webb

Mr. Webb is a Senior Vice President, Secretary and General Counsel of each of
MIC, Holdings, TMC and Marmon.

There are no family relationships among the directors and executive officers of
the Company.

Directors and executive officers are elected for a term of one year, or until a
successor is appointed.

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Other Directorships

Mr. John D. Nichols is a Director of Household International, Inc., Philip
Morris Companies Inc. and Rockwell International Corporation. Otherwise, none of
the members of the Company's Board of Directors are members of the board of
directors of companies with a class of securities registered pursuant to Section
12 of the Securities Exchange Act of 1934 or subject to the requirements of
Section 15(d) of that Act or of a company registered as an investment company
under the Investment Company Act of 1940.

ITEM 11. EXECUTIVE COMPENSATION

Frank D. Lester, Vice President, and Mark J. Garrette, Vice President, were the
only executive officers of the Company who in the year ended December 31, 2001,
received salary and bonus in excess of $100,000 from the Company and its
subsidiaries for services in all capacities to the Company.

All other officers of the Company received their 2001 compensation from Marmon
and are primarily involved in the management of MIC, TMC and Marmon. The
Company, together with the other subsidiaries of MIC, has been required to pay
Marmon a portion of such compensation which is encompassed in the charge for
certain common services provided by Marmon to the Company and such other
subsidiaries. The amount of such charge has been determined pursuant to a
formula based upon the dollar value of revenues, earnings and assets. See Note
14 to the consolidated financial statements included in Item 8 of the Company's
Annual Report on Form 10-K for the year ended December 31, 2001. Directors of
the Company do not receive any compensation in such capacity.

Shown below is the aggregate of all forms of compensation paid by the Company to
Mr. Lester and Mr. Garrette:

Summary Compensation Table

Annual Compensation
------------------------- All Other
Name and Principal Position Year Salary Bonus Compensation *
- ---------------------------------- ---- -------- ------- --------------

Frank D. Lester,
Vice President of the Company 2001 $270,450 $80,000 $41,085
and President of the Tank Car 2000 263,200 50,000 29,800
Division 1999 220,200 33,600 15,000

Mark J. Garrette,
Vice President of the Company 2001 197,529 42,000 22,755
and Senior Vice President of the 2000 189,700 40,000 21,800
Tank Car Division 1999 180,300 38,000 21,000

* Primarily represents the aggregate amounts of Company contributions to
defined contribution plans on behalf of each of the named individuals.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

MIC, a Delaware single member limited liability company having its principal
executive offices at 225 West Washington Street, Chicago, Illinois, owns 1,000
shares, or 100% of the Company's issued and outstanding common stock. MIC is a
subsidiary of Holdings.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Note 14 to the consolidated financial statements included in Item 8 of the
Company's Annual Report on Form 10-K for the year ended December 31, 2001 which
contains a description of certain related party transactions is incorporated
herein by reference.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

Page
----

a) 1. Financial Statements -

Consolidated statement of income for each of the three years
in the period ended December 31, 2001................................................... 19
Consolidated balance sheet - December 31, 2001 and 2000................................. 20
Consolidated statement of stockholder's equity for each of
the three years in the period ended December 31, 2001................................... 21
Consolidated statement of cash flows for each of the three
years in the period ended December 31, 2001............................................. 22
Notes to consolidated financial statements................................................ 23

2. Schedules

Financial statement schedules are not submitted because they are not
applicable or because the required information is included in the
financial statements or notes thereto.

3. Index to Exhibits............................................................................ 50

b) Reports on Form 8-K

There were no reports on Form 8-K filed during the three months ended
December 31, 2001.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)

By: /s/ Robert C. Gluth
-------------------
Robert C. Gluth
Executive Vice President,
Director and Treasurer

Dated: March 13, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:

Signature Title Date
- ------------------------------ ------------------------------ --------------

/s/ Kenneth P. Fischl President and Director March 13, 2002
- ------------------------------ (principal executive officer)
Kenneth P. Fischl

/s/ Robert C. Gluth Executive Vice President, March 13, 2002
- ------------------------------ Director and Treasurer
Robert C. Gluth (principal financial officer
and principal accounting
officer)

/s/ John D. Nichols Director March 13, 2002
- ------------------------------
John D. Nichols

-49-

UNION TANK CAR COMPANY AND SUBSIDIARIES

INDEX TO EXHIBITS

2 (a) Asset Purchase Agreement between Transamerica Leasing Inc., Trans Ocean Tank
Services Corporation and EXSIF Worldwide, Inc. (as assignee of Worldwide
Containers, Inc.) dated as of July 11, 2000 (submitted with the electronic
filing to the Annual Report on Form 10-K for the fiscal year ended December 31,
2000, and is incorporated herein by reference)

3 (a) Restated Certificate of Incorporation of the Company, as filed with the
Secretary of State of Delaware on September 2, 1982 (which was filed as Exhibit
3(a) to the Annual Report on Form 10-K for the fiscal year ended December 31,
1982, and is incorporated herein by reference)

3 (b) By-Laws of the Company, as adopted November 25, 1987 (which was filed as Exhibit
3(b) to the Annual Report on Form 10-K for the fiscal year ended December 31,
1988, and is incorporated herein by reference)

4 (a) Trust Indenture and Security Agreement (UTC Trust No. 2000-A) (L-16) dated June
29, 2000 between Norwest Bank Minnesota, National Association, as Owner Trustee,
and LaSalle Bank National Association, as Indenture Trustee (submitted with the
electronic filing to the Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, and is incorporated herein by reference)

4 (b) Indenture and Security Agreement dated September 28, 2000 among Bank One, N.A.,
EXSIF Worldwide, Inc. and the Company (submitted with the electronic filing to
the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and
is incorporated herein by reference)

12 Statements re computation of ratios
The computation of the Ratio of Earnings to Fixed Charges
(summarized in Note 12 to the consolidated financial statements)

21 Subsidiaries of the registrant

23 Consent of Ernst & Young LLP, Independent Auditors

Instruments defining the rights of holders of long-term debt are not being filed
herewith pursuant to the provisions of paragraph 4(iii) of Item 601(b) of
Regulation S-K. The Company agrees to furnish a copy of any such instrument to
the Commission upon request.

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