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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
[ X ] OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
[ ] OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 1-5666
-----------------------------
UNION TANK CAR COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-3104688
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
225 West Washington Street, Chicago, Illinois 60606
---------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (312) 372-9500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
There is no voting stock held by non-affiliates of the registrant. This report
is being filed by the registrant as a result of undertakings made pursuant to
Section 15(d) of the Securities Exchange Act of 1934.
Included in this filing are 20 pages, sequentially numbered in the bottom center
of each page.
-1-
UNION TANK CAR COMPANY AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Condensed consolidated statement of income -
three and six month periods ended
June 30, 2002 and 2001 3
Condensed consolidated balance sheet -
June 30, 2002 and December 31, 2001 4
Condensed consolidated statement of cash flows -
six months ended June 30, 2002 and 2001 5
Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- --------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -------------
Revenues
Services (leasing and other) $ 172,906 $ 178,861 $ 344,961 $ 354,421
Net sales 155,068 173,748 295,439 340,345
-------------- -------------- -------------- -------------
327,974 352,609 640,400 694,766
Other income 5,593 9,984 10,129 18,772
-------------- -------------- -------------- -------------
333,567 362,593 650,529 713,538
Costs and expenses
Cost of services 111,112 106,183 216,402 211,609
Cost of sales 128,107 149,172 241,320 288,747
General and administrative 36,886 37,901 73,399 74,585
Interest 19,781 20,666 40,243 41,412
-------------- -------------- -------------- -------------
295,886 313,922 571,364 616,353
-------------- -------------- -------------- -------------
Income before income taxes 37,681 48,671 79,165 97,185
Provision for income taxes
Current (1,403) 8,300 6,872 18,584
Deferred 13,731 9,842 22,076 19,881
-------------- -------------- -------------- -------------
12,328 18,142 28,948 38,465
-------------- -------------- -------------- -------------
Net income $ 25,353 $ 30,529 $ 50,217 $ 58,720
============== ============== ============== =============
See notes to condensed consolidated financial statements.
-3-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
June 30, December 31,
2002 2001
----------------- ------------------
(Unaudited)
Assets
- ------
Cash and cash equivalents $ 77,905 $ 12,047
Short-term investments - 110,107
Accounts receivable, primarily due within one year 134,339 135,145
Accounts and notes receivable, affiliates 44,293 57,065
Inventories, net of LIFO reserves of $29,543
($28,868 at December 31, 2001) 136,335 142,812
Prepaid expenses and deferred charges 19,568 14,284
Advances to parent company, principally at LIBOR plus 1% 341,783 340,365
Railcar lease fleet, net 1,592,121 1,606,364
Intermodal tank container fleet, net 294,179 296,739
Fixed assets, net 196,943 198,742
Investment in aircraft direct financing lease 26,621 26,611
Other assets 55,946 56,789
----------------- ------------------
Total assets $ 2,920,033 $ 2,997,070
================= ==================
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable $ 48,021 $ 62,705
Accrued liabilities 250,874 277,253
Borrowed debt, including $47,390 due within one year
($99,235 at December 31, 2001) 1,067,442 1,145,063
----------------- ------------------
1,366,337 1,485,021
Deferred income taxes and investment tax credits 501,117 476,751
Minority interest liability 84,447 82,383
Stockholder's equity
Common stock and additional capital 240,148 240,148
Retained earnings 727,984 712,767
----------------- ------------------
Total stockholder's equity 968,132 952,915
----------------- ------------------
Total liabilities and stockholder's equity $ 2,920,033 $ 2,997,070
================= ==================
See notes to condensed consolidated financial statements.
-4-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
---------------------------------------
2002 2001
----------------- -----------------
Cash flows from operating activities:
Net income $ 50,217 $ 58,720
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 75,553 81,723
Deferred taxes 22,076 19,881
Gain on disposition of railcars and other fixed assets (1,840) (5,133)
Other non-cash income and expenses 3,884 6,180
Changes in assets and liabilities:
Accounts receivable 10,863 1,121
Inventories 4,990 24,037
Prepaid expenses and deferred charges (5,846) (1,617)
Accounts payable and accrued expenses (38,855) (25,510)
----------------- -----------------
Net cash provided by operating activities 121,042 159,402
Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets (51,880) (97,892)
Decrease in short-term investments 110,107 34,743
Increase in advance to parent (11,909) (100,506)
Increase in other assets (827) (1,083)
Proceeds from disposals of railcars and other fixed assets 6,854 9,492
----------------- -----------------
Net cash provided by (used in) investing activities 52,345 (155,246)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt 716 113,244
Principal payments of borrowed debt (79,147) (27,638)
Cash dividends (35,000) (41,000)
----------------- -----------------
Net cash (used in) provided by financing activities (113,431) 44,606
Effect of exchange rates on cash and cash equivalents 5,902 (876)
----------------- -----------------
Net increase in cash and cash equivalents 65,858 47,886
Cash and cash equivalents at beginning of year 12,047 34,567
----------------- -----------------
Cash and cash equivalents at end of period $ 77,905 $ 82,453
================= =================
Cash paid during the period for:
Interest (net of amount capitalized) $ 44,069 $ 42,400
Income taxes 6,773 22,136
See notes to condensed consolidated financial statements.
-5-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
1. UNION TANK CAR COMPANY (the "Company") is a wholly-owned subsidiary of
Marmon Industrial LLC ("Marmon Industrial"). Marmon Industrial is a
wholly-owned subsidiary of Marmon Holdings, Inc. ("Marmon Holdings"),
substantially all of the stock of which is owned, directly or
indirectly, by trusts for the benefit of certain members of the Pritzker
family. As used herein, "Pritzker family" refers to the lineal
descendants of Nicholas J. Pritzker, deceased.
2. The accompanying unaudited condensed consolidated financial statements
include all adjustments, consisting of normal recurring accruals, which
the Company considers necessary for a fair presentation. These interim
financial statements do not include all disclosures normally provided in
annual financial statements. Accordingly, they should be read in
conjunction with the consolidated financial statements and notes thereto
in the Company's 2001 Annual Report on Form 10-K.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
The 2002 interim results presented herein are not necessarily indicative
of the results of operations for the full year 2002.
3. As more fully described in the Company's 2001 Annual Report on Form
10-K, under an arrangement with Marmon Industrial, the Company is
included in the consolidated federal income tax return of Marmon
Holdings. As a member of a consolidated federal income tax group, the
Company is contingently liable for the federal income taxes of the other
members of the group.
4. The Company and its subsidiaries have been named as defendants in a
number of lawsuits, and certain claims are pending. The Company has
accrued what it reasonably expects to pay in resolution of these matters
and, in the opinion of management, their ultimate resolution will not
have a material adverse effect on the Company's consolidated financial
position or results of operations.
5. Foreign currency translation adjustments and transaction gains and
losses are borne by the Company's parent. For the six months ended June
30, 2002 and 2001, Marmon Industrial absorbed a loss of $583 and a gain
of $306, respectively.
6. The Company's short-term investments consist of commercial paper with
original maturities between four and six months. No such investments
were held at June 30, 2002.
7. 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 $21,980 at
December 31, 2001. There were no foreign currency forward contracts
outstanding at June 30, 2002.
-6-
8. Consolidating Financial Information
Condensed consolidating statements of income for the three months ended June 30,
2002 and 2001 are as follows:
Three Months Ended June 30, 2002
--------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
----------------- ------------- -------------- -------------- ---------------
Revenues
Services $ 113,406 $ 16,513 $ 54,123 $ (11,136) $ 172,906
Net sales 16,972 2,005 138,761 (2,670) 155,068
----------------- ------------- -------------- -------------- ---------------
130,378 18,518 192,884 (13,806) 327,974
Other income 1,326 186 2,001 2,080 5,593
----------------- ------------- -------------- -------------- ---------------
131,704 18,704 194,885 (11,726) 333,567
Costs and expenses
Cost of services 75,173 10,829 36,246 (11,136) 111,112
Cost of sales 17,528 1,443 111,806 (2,670) 128,107
General and administrative 9,868 956 26,062 - 36,886
Interest 13,283 774 3,644 2,080 19,781
----------------- ------------- -------------- -------------- ---------------
115,852 14,002 177,758 (11,726) 295,886
----------------- ------------- -------------- -------------- ---------------
Income before income taxes 15,852 4,702 17,127 - 37,681
Provision for income taxes 4,797 1,666 5,865 - 12,328
----------------- ------------- -------------- -------------- ---------------
Net income $ 11,055 $ 3,036 $ 11,262 $ - $ 25,353
================= ============= ============== ============== ===============
Three Months Ended June 30, 2001
--------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
----------------- ------------- -------------- -------------- ---------------
Revenues
Services $ 119,915 $ 18,011 $ 54,530 $ (13,595) $ 178,861
Net sales 8,749 6,216 163,118 (4,335) 173,748
----------------- ------------- -------------- -------------- ---------------
128,664 24,227 217,648 (17,930) 352,609
Other income 1,135 1,106 5,210 2,533 9,984
----------------- ------------- -------------- -------------- ---------------
129,799 25,333 222,858 (15,397) 362,593
Costs and expenses
Cost of services 74,094 10,177 35,507 (13,595) 106,183
Cost of sales 8,607 5,699 139,201 (4,335) 149,172
General and administrative 9,581 1,101 27,219 - 37,901
Interest 13,586 1,008 3,539 2,533 20,666
----------------- ------------- -------------- -------------- ---------------
105,868 17,985 205,466 (15,397) 313,922
----------------- ------------- -------------- -------------- ---------------
Income before income taxes 23,931 7,348 17,392 - 48,671
Provision for income taxes 9,250 2,343 6,549 - 18,142
----------------- ------------- -------------- -------------- ---------------
Net income $ 14,681 $ 5,005 $ 10,843 $ - $ 30,529
================= ============= ============== ============== ===============
-7-
8. Consolidating Financial Information (Continued)
Condensed consolidating statements of income for the six months ended June 30,
2002 and 2001 are as follows:
Six Months Ended June 30, 2002
------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
----------------- ------------- -------------- -------------- ---------------
Revenues
Services $ 227,311 $ 32,120 $ 107,672 $ (22,142) $ 344,961
Net sales 23,707 3,904 273,204 (5,376) 295,439
----------------- ------------- -------------- -------------- ---------------
251,018 36,024 380,876 (27,518) 640,400
Other income 657 1,928 3,315 4,229 10,129
----------------- ------------- -------------- -------------- ---------------
251,675 37,952 384,191 (23,289) 650,529
Costs and expenses
Cost of services 147,270 19,374 71,900 (22,142) 216,402
Cost of sales 24,134 3,879 218,683 (5,376) 241,320
General and administrative 19,970 1,580 51,849 - 73,399
Interest 27,114 1,565 7,335 4,229 40,243
----------------- ------------- -------------- -------------- ---------------
218,488 26,398 349,767 (23,289) 571,364
----------------- ------------- -------------- -------------- ---------------
Income before income taxes 33,187 11,554 34,424 - 79,165
Provision for income taxes 12,723 3,967 12,258 - 28,948
----------------- ------------- -------------- -------------- ---------------
Net income $ 20,464 $ 7,587 $ 22,166 $ - $ 50,217
================= ============= ============== ============== ===============
Six Months Ended June 30, 2001
------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
----------------- ------------- -------------- -------------- ---------------
Revenues
Services $ 237,432 $ 35,496 $ 108,551 $ (27,058) $ 354,421
Net sales 17,300 12,943 317,463 (7,361) 340,345
----------------- ------------- -------------- -------------- ---------------
254,732 48,439 426,014 (34,419) 694,766
Other income (267) 4,516 8,687 5,836 18,772
----------------- ------------- -------------- -------------- ---------------
254,465 52,955 434,701 (28,583) 713,538
Costs and expenses
Cost of services 148,341 19,730 70,596 (27,058) 211,609
Cost of sales 16,621 11,601 267,886 (7,361) 288,747
General and administrative 19,388 1,938 53,259 - 74,585
Interest 26,377 2,205 6,994 5,836 41,412
----------------- ------------- -------------- -------------- ---------------
210,727 35,474 398,735 (28,583) 616,353
----------------- ------------- -------------- -------------- ---------------
Income before income taxes 43,738 17,481 35,966 - 97,185
Provision for income taxes 17,638 7,064 13,763 - 38,465
----------------- ------------- -------------- -------------- ---------------
Net income $ 26,100 $ 10,417 $ 22,203 $ - $ 58,720
================= ============= ============== ============== ===============
-8-
8. Consolidating Financial Information (Continued)
Condensed consolidating balance sheets as of June 30, 2002 and December 31, 2001
are as follows:
June 30, 2002
-------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
-------------- ---------- ------------ ------------ ------------
Assets
- ------
Cash and cash equivalents $ 849 $ 75,576 1,480 $ - $ 77,905
Short-term investments - - - - -
Accounts receivable 24,447 9,994 100,516 (618) 134,339
Accounts and notes receivable, affiliates - 26 44,267 - 44,293
Inventories, net 24,728 4,181 107,426 - 136,335
Prepaid expenses and deferred charges 5,300 1,530 11,938 800 19,568
Advances to parent company 90,271 (3,016) 256,893 (2,365) 341,783
Railcar lease fleet, net 1,307,946 124,059 160,116 - 1,592,121
Intermodal tank container lease fleet, net - - 294,179 - 294,179
Fixed assets, net 93,777 15,415 87,751 - 196,943
Investment in direct financing lease - 26,621 - - 26,621
Investment in subsidiaries 889,347 - 174,693 (1,064,040) -
Other assets 451 716 55,495 (716) 55,946
-------------- ---------- ------------ ------------ ------------
Total assets $ 2,437,116 $ 255,102 $ 1,294,754 $ (1,066,939) $ 2,920,033
============== ========== ============ ============ ============
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable $ 26,966 $ 1,036 $ 20,385 $ (366) $ 48,021
Accrued liabilities 184,757 9,252 53,988 2,877 250,874
Borrowed debt 859,292 34,604 173,546 - 1,067,442
-------------- ---------- ------------ ------------ ------------
1,071,015 44,892 247,919 2,511 1,366,337
Deferred income taxes and investment tax
credits 373,312 48,884 78,921 - 501,117
Minority interest liability - - 2,781 81,666 84,447
Stockholder's equity
Common stock and additional capital 331,752 13,012 481,662 (586,278) 240,148
Retained earnings 621,388 155,289 516,083 (564,776) 727,984
Equity adjustment from foreign currency
translation 39,649 (6,975) (32,612) (62) -
-------------- ---------- ------------ ------------ ------------
Total stockholder's equity 992,789 161,326 965,133 (1,151,116) 968,132
-------------- ---------- ------------ ------------ ------------
Total liabilities and stockholder's
equity $ 2,437,116 $ 255,102 $ 1,294,754 $ (1,066,939) $ 2,920,033
============== ========== ============ ============ ============
-9-
8. Consolidating Financial Information (Continued)
December 31, 2001
-----------------
Union Tank Car Procor Other
Company Holdings 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 company 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 liability - - 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
============== =========== ============= ============= ============
-10-
8. Consolidating Financial Information (Continued)
Condensed consolidating statements of cash flows for the six months ended June
30, 2002 and 2001 are as follows:
Six Months Ended June 30, 2002
------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
--------------- ---------- ------------ ------------ ------------
Net cash provided by operating activities: $ 56,057 $ 11,691 $ 53,294 $ - $ 121,042
Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (36,181) (584) (15,115) - (51,880)
Decrease in short-term investments - 110,107 - - 110,107
Decrease (increase) in advance to parent 75,998 (47,458) (14,021) (26,428) (11,909)
Increase in other assets - - (827) - (827)
Proceeds from disposals of railcars and other
fixed assets 3,156 1,048 2,650 - 6,854
--------------- ---------- ------------ ------------ ------------
Net cash provided by (used in) investing
activities 42,973 63,113 (27,313) (26,428) 52,345
Cash flows from financing activities:
Proceeds from issuance of borrowed debt - - 716 - 716
Principal payments of borrowed debt (63,241) (13,677) (2,229) - (79,147)
Cash dividends (35,000) - (26,428) 26,428 (35,000)
--------------- ---------- ------------ ------------ ------------
Net cash (used in) provided by financing
activities (98,241) (13,677) (27,941) 26,428 (113,431)
Effect of exchange rates on cash and cash
equivalents - 5,859 43 - 5,902
--------------- ---------- ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 789 66,986 (1,917) - 65,858
Cash and cash equivalents at beginning of year 60 8,590 3,397 - 12,047
--------------- ---------- ------------ ------------ ------------
Cash and cash equivalents at end of period $ 849 $ 75,576 $ 1,480 $ - $ 77,905
=============== ========== ============ ============ ============
-11-
8. Consolidating Financial Information (Continued)
Six Months Ended June 30, 2001
------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
--------------- ----------- ------------ ------------ ------------
Net cash provided by operating activities: $ 66,832 $ 12,389 $ 80,181 $ - $ 159,402
Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (77,986) (508) (19,398) - (97,892)
Decrease in short-term investments - 34,743 - - 34,743
(Increase) decrease in advance to parent (44,283) 14,560 (67,528) (3,255) (100,506)
Increase in other assets (20) - (1,063) - (1083)
Proceeds from disposals of railcars and other
fixed assets 2,831 596 6,065 - 9,492
--------------- ----------- ------------ ------------ ------------
Net cash (used in) provided by investing
activities (119,458) 49,391 (81,924) (3,255) (155,246)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt 110,000 - 3,244 - 113,244
Principal payments of borrowed debt (19,444) (4,704) (3,490) - (27,638)
Cash dividends (41,000) (3,255) - 3,255 (41,000)
--------------- ----------- ------------ ------------ ------------
Net cash provided by (used in) financing
activities 49,556 (7,959) ( 246) 3,255 44,606
Effect of exchange rates on cash and cash
equivalents - (864) (12) - (876)
--------------- ----------- ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents (3,070) 52,957 (2,001) - 47,886
Cash and cash equivalents at beginning of year 4,494 23,111 6,962 - 34,567
--------------- ----------- ------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,424 $ 76,068 $ 4,961 $ - $ 82,453
=============== =========== ============ ============ ============
-12-
9. Segment Information
Intermodal
Tank
Metals Container Consolidated
Railcar Distribution Leasing All Other Totals
------- ------------ ---------- --------- ------------
(Dollars in Millions)
Three months ended June 30, 2002
- --------------------------------
Revenues from external customers $ 153.3 $ 104.7 $ 19.6 $ 50.4 $ 328.0
Income before income taxes 26.0 3.4 1.9 6.4 37.7
Three months ended June 30, 2001
- --------------------------------
Revenues from external customers $ 169.8 $ 110.2 $ 19.0 $ 53.6 $ 352.6
Income before income taxes 35.7 1.8 2.2 9.0 48.7
Six months ended June 30, 2002
- ------------------------------
Revenues from external customers $ 295.3 $ 206.6 $ 39.1 $ 99.4 $ 640.4
Income before income taxes 58.0 6.6 2.8 11.8 79.2
Six months ended June 30, 2001
- ------------------------------
Revenues from external customers $ 321.3 $ 230.0 $ 37.5 $ 106.0 $ 694.8
Income before income taxes 74.2 4.7 4.4 13.9 97.2
10. Accounting for Goodwill and Intangible Assets
The Company adopted the non-amortization provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets", on
January 1, 2002. The Company performed the initial impairment tests and the
results indicated no reporting entities with impairment. There were no changes
in the $11.6 million carrying amount of goodwill during the six months ended
June 30, 2002, which is classified in Other Assets in the condensed consolidated
balance sheet.
The following table provides comparative earnings had the non-amortization
provisions of SFAS No. 142 been adopted for all periods presented:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- --------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -------------
Reported net income $ 25,353 $ 30,529 $ 50,217 $ 58,720
Goodwill amortization - 2,721 - 5,440
-------------- -------------- -------------- -------------
Adjusted net income $ 25,353 $ 33,250 $ 50,217 $ 64,160
============== ============== ============== =============
-13-
11. Corporate Realignment
In connection with a legal reorganization of the holdings of Marmon Holdings, at
the close of business on June 30, 2002, the Company distributed the stock of
Atlas Bolt & Screw Company, Atlas Bolt & Screw Sp.zo.o and Pan American Screw,
Inc. to Marmon Industrial, Marmon Industrial distributed the stock of the
Company to Marmon Holdings and Marmon Holdings contributed the stock of Amarillo
Gear Company, Penn Machine Company and WCTU Railway Company to the Company. As a
result of such reorganization, (i) Marmon Holdings owns all of the Company's
capital stock, (ii) the Company ceased to own any capital stock of Atlas Bolt &
Screw Company, Atlas Bolt & Screw Sp.zo.o or Pan American Screw, Inc. and (iii)
the Company owns all of the capital stock of Amarillo Gear Company, Penn Machine
Company and WCTU Railway Company. The impact of the realignment is not expected
to be material to the results of operations and financial condition of the
Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
2nd Quarter 2002 versus 2001
- ----------------------------
Performance of the railcar and tank container leasing businesses continue to be
adversely affected by the continuing general economic slowdown in all major
markets. Demand for existing equipment remained low causing downward pressure on
both lease rental rates and fleet utilization. Service revenues decreased $6.0
million primarily due to decreased railcar service revenues ($5.7 million).
Gross margin on service revenues decreased $10.9 million primarily due to weaker
railcar service operations ($9.9 million).
Demand for new railcars remained weak, resulting in continuing low levels of
production and capacity utilization. Demand for the products of the metals
distribution business was also adversely impacted by the continuing general
economic slowdown in the U.S. As a result, overall sales revenues decreased
$18.7 million primarily due to reduced sales of railcars ($10.9 million) and
metal products ($5.6 million). Gross margin on sales revenues increased $2.4
million partially due to adoption of the non-amortization provisions of
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets", on January 1, 2002. Cost of sales in the second quarter of
2001 included $3.3 million goodwill amortization.
Other income decreased $4.4 million mainly due to reduced interest income ($1.8
million) reflective of lower average interest rates.
Six Months 2002 versus 2001
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Performance of the railcar and tank container leasing businesses continue to be
adversely affected by the continuing general economic slowdown in all major
markets. Demand for existing equipment remained low causing downward pressure on
both lease rental rates and fleet utilization. Service revenues decreased $9.5
million primarily due to decreased railcar service revenues ($8.4 million).
Gross margin on service revenues decreased $14.3 million primarily due to weaker
railcar service operations ($12.2 million).
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Demand for new railcars remained weak, resulting in continuing low levels of
production and capacity utilization. Demand for the products of the metals
distribution business was also adversely impacted by the continuing general
economic slowdown in the U.S. As a result, overall sales revenues decreased
$44.9 million primarily due to reduced sales of railcars ($17.6 million) and
metal products ($23.7 million). Gross margin on sales revenues increased $2.6
million partially due to adoption of the non-amortization provisions of
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets", on January 1, 2002. Cost of sales in the first six months of
2001 included $6.6 million goodwill amortization.
Other income decreased $8.6 million mainly due to reduced interest income ($4.0
million) reflective of lower average interest rates.
Financial Condition and Liquidity
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Six Months 2002 versus 2001
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Operating activities provided $121.0 million of cash in the first six months of
2002. These funds, along with redemption of short-term investments, were used to
service borrowed debt obligations, finance railcar additions, pay dividends to
the Company's stockholder, and advance funds to parent.
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.
During the first six months of 2002, the Company spent $51.9 million for
construction and purchase of railcars and other fixed assets. Since capital
expenditures for railcars are generally incurred subsequent to receipt of firm
customer lease orders, such expenditures are 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.
During the first six months of 2002, the Company's financing activities included
$79.1 million for principal repayments on borrowed debt and $35.0 million for
cash dividends. Net cash used in financing activities was $113.4 million.
Management expects future cash to be provided from operating activities,
long-term financings and collection of funds previously advanced to parent will
be adequate to provide for the continued expansion of the Company's business and
enable it to meet its debt service obligations.
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New Accounting Pronouncements
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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 the new rule as of January 1, 2002. The adoption of
the new rule had no material effect on the Company's results of operations or
financial position.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which is effective for fiscal years beginning after June 15, 2002.
The Statement requires legal obligations associated with the retirement of
long-lived assets to be recognized at their fair value at the time that the
obligations are incurred. Upon initial recognition of a liability, that cost
should be capitalized as part of the related long-lived asset and allocated to
expense over the useful life of the asset. The Company will adopt the new rule
on asset retirement obligations on January 1, 2003. The effect of adoption of
SFAS No. 143 is not anticipated to have a material effect on the Company's
results of operations or financial position.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2002, there had been no significant change to the Company's exposure
to market risk since December 31, 2001.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to "Business - Environmental Matters" in the
Company's Annual Report on Form 10-K for the year ended December 31,
2001 for a description of certain environmental matters.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
b. Reports on Form 8-K during the quarter ended June 30, 2002
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION TANK CAR COMPANY
REGISTRANT
Dated: August 13, 2002 /s/ Mark J. Garrette
------------------------------------
Mark J. Garrette
Vice President
(principal financial officer
and principal accounting officer)
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