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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 September 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 22 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 nine month periods ended September 30, 2002
and 2001 (Restated) 3
Condensed consolidated balance sheet - September 30,
2002 and December 31, 2001 (Restated) 4
Condensed consolidated statement of cash flows -
nine months ended September 30, 2002 and 2001
(Restated) 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
Item 4. Controls and Procedures 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 Nine Months Ended
September 30, September 30,
------------------------ --------------------------
2002 2001 2002 2001
-------- -------- -------- ----------
(Restated) (Restated)
Revenues
Services (leasing and other) $172,231 $176,037 $517,499 $ 530,775
Net sales 144,570 137,712 437,571 477,406
-------- -------- -------- ----------
316,801 313,749 955,070 1,008,181
Other income 5,195 8,150 15,360 27,522
-------- -------- -------- ----------
321,996 321,899 970,430 1,035,703
Costs and expenses
Cost of services 109,630 107,096 326,249 318,926
Cost of sales 120,171 111,739 358,176 397,884
General and administrative 32,352 36,139 103,734 108,968
Interest 19,439 21,865 59,681 63,273
-------- -------- -------- ----------
/1/ 281,592 276,839 847,840 889,051
-------- -------- -------- ----------
Income before income taxes 40,404 45,060 122,590 146,652
Provision for income taxes
Current 493 9,810 8,838 30,171
Deferred 14,831 (68) 36,907 19,813
-------- -------- -------- ----------
15,324 9,742 45,745 49,984
-------- -------- -------- ----------
Net income $ 25,080 $ 35,318 $ 76,845 $ 96,668
======== ======== ======== ==========
See notes to condensed consolidated financial statements.
- 3 -
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
2002 2001
------------- ------------
(Restated)
Assets
- ------
Cash and cash equivalents $ 17,262 $ 11,131
Short-term investments 74,814 110,107
Accounts receivable, primarily due within one year 130,695 134,611
Accounts and notes receivable, affiliates 44,543 57,294
Inventories, net of LIFO reserves of $32,569
($31,712 at December 31, 2001) 120,921 134,775
Prepaid expenses and deferred charges 14,977 14,354
Advances to parent company, principally at LIBOR plus 1% 387,865 383,312
Railcar lease fleet, net 1,583,815 1,606,364
Intermodal tank container fleet, net 293,892 296,739
Fixed assets, net 197,459 200,154
Investment in aircraft direct financing lease 24,827 26,611
Other assets 58,663 56,055
---------- ----------
Total assets $2,949,733 $3,031,507
========== ==========
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable $ 48,337 $ 62,457
Accrued liabilities 236,976 281,672
Borrowed debt, including $57,811 due within one year
($99,235 at December 31, 2001) 1,058,006 1,145,063
---------- ----------
1,343,319 1,489,192
Deferred income taxes and investment tax credits 514,826 477,681
Minority interest liability 85,492 82,383
Stockholder's equity
Common stock and additional capital 265,061 265,061
Retained earnings 741,035 717,190
---------- ----------
Total stockholder's equity 1,006,096 982,251
---------- ----------
Total liabilities and stockholder's equity $2,949,733 $3,031,507
========== ==========
See notes to condensed consolidated financial statements.
- 4 -
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
--------------------------
2002 2001
--------- ---------
(Restated)
Cash flows from operating activities:
Net income $ 76,845 $ 96,668
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 113,196 125,830
Deferred taxes 36,907 19,813
Gain on disposition of railcars and other fixed assets (2,311) (6,437)
Other non-cash income and expenses 6,326 8,073
Changes in assets and liabilities:
Accounts receivable 20,844 (1,703)
Inventories 17,229 24,585
Prepaid expenses and deferred charges 196 (2,431)
Accounts payable and accrued expenses (63,686) (24,657)
--------- ---------
Net cash provided by operating activities 205,546 239,741
Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets (87,081) (161,315)
Decrease (increase) in short-term investments 33,758 (54,014)
Increase in advance to parent (6,361) (32,480)
Increase in other assets (700) (776)
Proceeds from disposals of railcars and other fixed assets 10,216 12,375
Purchases of businesses, net of cash acquired (9,074) --
--------- ---------
Net cash used in investing activities (59,242) (236,210)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt 1,642 113,380
Principal payments of borrowed debt (88,845) (73,630)
Cash dividends (53,000) (65,000)
--------- ---------
Net cash used in financing activities (140,203) (25,250)
Effect of exchange rates on cash and cash equivalents 30 (1,234)
--------- ---------
Net increase (decrease) in cash and cash equivalents 6,131 (22,953)
Cash and cash equivalents at beginning of year 11,131 33,665
--------- ---------
Cash and cash equivalents at end of period $ 17,262 $ 10,712
========= =========
Cash paid during the period for:
Interest (net of amount capitalized) $ 60,373 $ 62,466
Income taxes 10,269 33,615
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 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.
In connection with realignment 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 LLC, Marmon Industrial LLC 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 realignment, (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 transactions have been accounted for on an "as if
pooled" basis and, accordingly, the financial statements have been restated
to reflect these transactions for comparative purpose for all periods
presented.
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 Holdings, 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.
- 6 -
5. Foreign currency translation adjustments and transaction gains and losses
are borne by the Company's parent. For the nine months ended September 30,
2002 and 2001, the Company's parent absorbed gains of $774 and $1,269,
respectively.
6. The Company's short-term investments consist of commercial paper with
original maturities between four and six months.
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
September 30, 2002.
8. 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 as of January 1, 2002 and the results indicated no
reporting entities with impairment. The $15.7 million carrying amount of
goodwill 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 Nine Months Ended
September 30, September 30,
----------------------- ---------------------
2002 2001 2002 2001
--------- --------- -------- ---------
(Restated) (Restated)
Reported net income $ 25,080 $ 35,318 $ 76,845 $ 96,668
Goodwill amortization - 2,002 - 6,847
--------- --------- -------- ---------
Adjusted net income $ 25,080 $ 37,320 $ 76,845 $103,515
========= ========= ======== =========
- 7 -
9. Consolidating Financial Information
Condensed consolidating statements of income for the three months ended
September 30, 2002 and 2001 are as follows:
Three Months Ended September 30, 2002
-------------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
------------- --------- ------------ ------------ ------------
Revenues
Services $ 112,618 $ 15,911 $ 54,857 $ (11,155) $ 172,231
Net sales 7,184 992 138,070 (1,676) 144,570
--------- --------- --------- --------- ---------
119,802 16,903 192,927 (12,831) 316,801
Other income (1,357) 2,468 1,764 2,320 5,195
--------- --------- --------- --------- ---------
118,445 19,371 194,691 (10,511) 321,996
Costs and expenses
Cost of services 73,588 10,087 37,110 (11,155) 109,630
Cost of sales 7,355 1,012 113,480 (1,676) 120,171
General and administrative 9,900 1,102 21,350 - 32,352
Interest 12,713 743 3,663 2,320 19,439
--------- --------- --------- --------- ---------
103,556 12,944 175,603 (10,511) 281,592
--------- --------- --------- --------- ---------
Income before income taxes 14,889 6,427 19,088 - 40,404
Provision for income taxes 6,468 2,018 6,838 - 15,324
--------- --------- --------- --------- ---------
Net income $ 8,421 $ 4,409 $ 12,250 $ - $ 25,080
========= ========= ========= ========= =========
Three Months Ended September 30, 2001 (Restated)
-------------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
------------- --------- ------------ ------------ ------------
Revenues
Services $ 113,505 $ 16,333 $ 52,526 $ (6,327) $ 176,037
Net sales 8,049 6,031 130,725 (7,093) 137,712
--------- --------- --------- --------- ---------
121,554 22,364 183,251 (13,420) 313,749
Other income (973) 3,512 2,418 3,193 8,150
--------- --------- --------- --------- ---------
120,581 25,876 185,669 (10,227) 321,899
Costs and expenses
Cost of services 67,862 10,990 34,571 (6,327) 107,096
Cost of sales 7,764 5,903 105,165 (7,093) 111,739
General and administrative 10,570 963 24,606 - 36,139
Interest 13,668 1,214 3,790 3,193 21,865
--------- --------- --------- --------- ---------
99,864 19,070 168,132 (10,227) 276,839
--------- --------- --------- --------- ---------
Income before income taxes 20,717 6,806 17,537 - 45,060
Provision for income taxes 8,125 (5,019) 6,636 - 9,742
--------- --------- --------- --------- ---------
Net income $ 12,592 $ 11,825 $ 10,901 $ - $ 35,318
========= ========= ========= ========= =========
- 8 -
9. Consolidating Financial Information (Continued)
Condensed consolidating statements of income for the nine months ended September
30, 2002 and 2001 are as follows:
Nine Months Ended September 30, 2002
------------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------ ------------
Revenues
Services $339,929 $48,031 $162,836 $(33,297) $517,499
Net sales 30,891 4,896 408,836 (7,052) 437,571
-------- ------- -------- -------- --------
370,820 52,927 571,672 (40,349) 955,070
Other income (700) 4,396 5,115 6,549 15,360
-------- ------- -------- -------- --------
370,120 57,323 576,787 (33,800) 970,430
Costs and expenses
Cost of services 220,858 29,461 109,227 (33,297) 326,249
Cost of sales 31,489 4,891 328,848 (7,052) 358,176
General and administrative 29,870 2,682 71,182 - 103,734
Interest 39,827 2,308 10,997 6,549 59,681
-------- ------- -------- -------- --------
322,044 39,342 520,254 (33,800) 847,840
-------- ------- -------- -------- --------
Income before income taxes 48,076 17,981 56,533 - 122,590
Provision for income taxes 19,191 5,985 20,569 - 45,745
-------- ------- -------- -------- --------
Net income $ 28,885 $11,996 $ 35,964 $ - $ 76,845
======== ======= ======== ======== ========
Nine Months Ended September 30, 2001 (Restated)
------------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
-------------- -------- ------------ ------------ ------------
Revenues
Services $350,937 $51,829 $161,394 $(33,385) $ 530,775
Net sales 25,349 18,974 447,537 (14,454) 477,406
-------- ------- -------- -------- ----------
376,286 70,803 608,931 (47,839) 1,008,181
Other income (1,240) 8,028 11,705 9,029 27,522
-------- ------- -------- -------- ----------
375,046 78,831 620,636 (38,810) 1,035,703
Costs and expenses
Cost of services 216,203 30,720 105,388 (33,385) 318,926
Cost of sales 24,385 17,504 370,449 (14,454) 397,884
General and administrative 29,958 2,901 76,109 - 108,968
Interest 40,045 3,419 10,780 9,029 63,273
-------- ------- -------- -------- ----------
310,591 54,544 562,726 (38,810) 889,051
-------- ------- -------- -------- ----------
Income before income taxes 64,455 24,287 57,910 - 146,652
Provision for income taxes 25,763 2,045 22,176 - 49,984
-------- ------- -------- -------- ----------
Net income $ 38,692 $22,242 $ 35,734 $ - $ 96,668
======== ======= ======== ======== ==========
- 9 -
9. Consolidating Financial Information (Continued)
Condensed consolidating balance sheets as of September 30, 2002 and December 31,
2001 are as follows:
September 30, 2002
------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
Assets
- ------
Cash and cash equivalents $ 127 $ 14,715 $ $ 2,420 $ - $ 17,262
Short-term investments - 74,814 - - 74,814
Accounts receivable 21,096 9,014 101,165 (580) 130,695
Accounts and notes receivable, affiliates - 486 44,057 - 44,543
Inventories, net 17,688 3,842 99,391 - 120,921
Prepaid expenses and deferred charges 4,688 3,390 6,080 819 14,977
Advances to parent company 273,183 (11,524) 126,551 (345) 387,865
Railcar lease fleet, net 1,311,339 116,307 156,169 - 1,583,815
Intermodal tank container lease fleet, net - - 293,892 - 293,892
Fixed assets, net 91,669 14,321 91,469 - 197,459
Investment in direct financing lease - 24,827 - - 24,827
Investment in subsidiaries 740,683 - 171,375 (912,058) -
Other assets 424 743 58,239 (743) 58,663
----------- --------- ----------- ---------- -----------
Total assets $ 2,460,897 $ 250,935 $ 1,150,808 $ (912,907) $ 2,949,733
=========== ========= =========== ========== ===========
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable $ 27,754 $ 792 $ 20,141 $ (350) $ 48,337
Accrued liabilities 166,310 6,821 61,288 2,557 236,976
Borrowed debt 850,342 33,986 173,678 - 1,058,006
----------- --------- ----------- ---------- -----------
1,044,406 41,599 255,107 2,207 1,343,319
Deferred income taxes and investment tax
credits 396,163 50,812 67,851 - 514,826
Minority interest liability - - 86,235 (743) 85,492
Stockholder's equity
Common stock and additional capital 388,022 13,012 426,896 (562,869) 265,061
Retained earnings 582,617 159,698 350,160 (351,440) 741,035
Equity adjustment from foreign currency
translation 49,689 (14,186) (35,441) (62) -
----------- --------- ----------- ---------- -----------
Total stockholder's equity 1,020,328 158,524 741,615 (914,371) 1,006,096
----------- --------- ----------- ---------- -----------
Total liabilities and stockholder's
equity $ 2,460,897 $ 250,935 $ 1,150,808 $ (912,907) $ 2,949,733
=========== ========= =========== ========== ===========
- 10 -
9. Consolidating Financial Information (Continued)
December 31, 2001 (Restated)
-----------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
-------------- ------------ ------------ ------------ ------------
Assets
- ------
Cash and cash equivalents $ 60 $ 8,590 $ 2,481 $ - $ 11,131
Short-term investments - 110,107 - - 110,107
Accounts receivable 26,721 15,805 92,640 (555) 134,611
Accounts and notes receivable, affiliates - 1 57,293 - 57,294
Inventories, net 21,993 4,914 107,868 - 134,775
Prepaid expenses and deferred charges 5,563 881 6,950 960 14,354
Advances to parent company 149,657 (50,474) 284,662 (533) 383,312
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 89,209 - 200,154
Investment in direct financing lease - 26,611 - - 26,611
Investment in subsidiaries 849,700 - 148,389 (998,089) -
Other assets 507 640 55,548 (640) 56,055
----------- --------- ----------- ---------- -----------
Total assets $ 2,465,724 $ 254,834 $ 1,309,806 $ (998,857) $ 3,031,507
=========== ========= =========== ========== ===========
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable $ 27,168 $ 2,413 $ 33,105 $ (229) $ 62,457
Accrued liabilities 206,231 12,173 60,611 2,657 281,672
Borrowed debt 922,533 48,646 173,884 - 1,145,063
----------- --------- ----------- ---------- -----------
1,155,932 63,232 267,600 2,428 1,489,192
Deferred income taxes and investment tax
credits 358,142 45,381 73,325 833 477,681
Minority interest liability - - 4,956 77,427 82,383
Stockholder's equity
Common stock and additional capital 354,980 13,012 493,621 (596,552) 265,061
Retained earnings 546,622 147,702 505,888 (483,022) 717,190
Equity adjustment from foreign currency
translation 50,048 (14,493) (35,584) 29 -
----------- --------- ----------- ---------- -----------
Total stockholder's equity 951,650 146,221 963,925 (1,079,545) 982,251
----------- --------- ----------- ---------- -----------
Total liabilities and stockholder's
equity $ 2,465,724 $ 254,834 $ 1,309,806 $ (998,857) $ 3,031,507
=========== ========= =========== ========== ===========
- 11 -
9. Consolidating Financial Information (Continued)
Condensed consolidating statements of cash flows for the nine months ended
September 30, 2002 and 2001 are as follows:
Nine Months Ended September 30, 2002
------------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Net cash provided by operating activities: $ 87,000 $ 24,493 $ 94,053 $ - $ 205,546
Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (59,333) (715) (27,033) - (87,081)
Decrease in short-term investments - 33,758 - - 33,758
Decrease (increase) in advance to parent 92,597 (38,950) (33,580) (26,428) (6,361)
Increase in other assets - - (700) - (700)
Proceeds from disposals of railcars and other
fixed assets 4,994 1,190 4,032 - 10,216
Purchases of businesses, net of cash acquired - - (9,074) - (9,074)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities 38,258 (4,717) (66,355) (26,428) (59,242)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt - - 1,642 - 1,642
Principal payments of borrowed debt (72,191) (13,678) (2,976) - (88,845)
Cash dividends (53,000) - (26,428) 26,428 (53,000)
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing
activities (125,191) (13,678) (27,762) 26,428 (140,203)
Effect of exchange rates on cash and cash
equivalents - 27 3 - 30
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 67 6,125 (61) - 6,131
Cash and cash equivalents at beginning of year 60 8,590 2,481 - 11,131
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 127 $ 14,715 $ 2,420 $ - $ 17,262
========= ========= ========= ========= =========
- 12 -
9. Consolidating Financial Information (Continued)
Nine Months Ended September 30, 2001 (Restated)
------------------------------------
Union Tank Car Procor Other
Company Holdings Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Net cash provided by operating activities: $ 92,685 $ 17,694 $ 129,362 $ - $ 239,741
Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (129,652) (1,550) (30,113) - (161,315)
Increase in short-term investments - (54,014) - - (54,014)
Decrease (increase) in advance to parent 49,239 28,348 (106,812) (3,255) (32,480)
Increase in other assets (20) - (756) - (776)
Proceeds from disposals of railcars and other
fixed assets 3,735 2,326 6,314 - 12,375
--------- --------- --------- ------- ---------
Net cash used in investing activities (76,698) (24,890) (131,367) (3,255) (236,210)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt 110,000 - 3,380 - 113,380
Principal payments of borrowed debt (63,234) (6,440) (3,956) - (73,630)
Cash dividends (65,000) (3,255) - 3,255 (65,000)
--------- --------- --------- ------- ---------
Net cash (used in) provided by financing
activities (18,234) (9,695) (576) 3,255 (25,250)
Effect of exchange rates on cash and cash
equivalents - (1,178) (56) - (1,234)
--------- --------- --------- ------- ---------
Net decrease in cash and cash equivalents (2,247) (18,069) (2,637) - (22,953)
Cash and cash equivalents at beginning of year 4,494 23,111 6,060 - 33,665
--------- --------- --------- ------- ---------
Cash and cash equivalents at end of period $ 2,247 $ 5,042 $ 3,423 $ - $ 10,712
========= ========= ========= ======= =========
- 13 -
10. Segment Information
Intermodal
Tank
Metals Container Consolidated
Railcar Distribution Leasing All Other Totals
--------- -------------- ------------ ----------- ----------------
(Dollars in Millions)
Three months ended September 30, 2002
- -------------------------------------
Revenues from external customers $ 142.6 $ 100.2 $ 19.8 $ 54.2 $ 316.8
Income before income taxes 29.4 3.1 1.3 6.6 40.4
Three months ended September 30, 2001*
- --------------------------------------
Revenues from external customers $ 143.1 $ 102.4 $ 18.4 $ 49.9 $ 313.8
Income before income taxes 34.2 2.6 1.8 6.5 45.1
Nine months ended September 30, 2002
- ------------------------------------
Revenues from external customers $ 437.9 $ 306.7 $ 58.9 $ 151.6 $ 955.1
Income before income taxes 87.4 9.7 4.1 21.4 122.6
Nine months ended September 30, 2001*
- -------------------------------------
Revenues from external customers $ 464.4 $ 332.3 $ 55.9 $ 155.6 $ 1,008.2
Income before income taxes 108.4 7.3 6.2 24.8 146.7
* Restated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
At the close of business on June 30, 2002, the Company became a direct
subsidiary of Marmon Holdings, Inc. Previously, the Company was an indirect
subsidiary of Marmon Holdings. In conjunction with a realignment of operations
of Marmon Holdings, the Company distributed the stock of three subsidiaries
which encompass a portion of its fasteners business.
The Company also received a contribution of the stock of three other companies:
(i) Amarillo Gear Company (primarily a manufacturer of right angle gear drives
for cooling tower and air-cooled heat exchanger applications), (ii) Penn Machine
Company (primarily supplies wheel, axle and gear sets for light rail transit),
and (iii) WCTU Railway Company (a short-line railroad operation). These three
operations are included in All Other in the Segment Information financial
statement footnote table.
The realignment did not have, and is not expected to have, a material impact on
the results of operations and financial condition of the Company. The Company's
distribution and receipt of contribution of subsidiary stock transactions have
been accounted for on an "as if pooled" basis and, accordingly, the financial
statements have been restated to reflect these transactions for all periods
presented.
- 14 -
Results of Operations
- ---------------------
3rd Quarter 2002 versus 2001
- ----------------------------
Performance of the railcar and tank container leasing businesses continues 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 $3.8
million primarily due to decreased railcar service revenues ($4.8 million),
partly offset by increased revenues from intermodal tank container operations
($1.5 million). Gross margin on service revenues decreased $6.3 million
primarily due to weaker railcar service operations ($5.5 million).
Sales revenues increased $6.9 million primarily due to increased sulphur
processing operations and plant sales ($6.9 million) and increased sales of
railcars ($4.1 million), partly offset by decreased sales of metal products
($2.8 million) and mobile railcar moving vehicles ($1.3 million). Gross margin
on sales revenues decreased $1.6 million primarily due to decreased margin on
metal products sales ($3.1 million). Cost of sales in the third quarter of 2001
included $2.5 million goodwill amortization.
Other income decreased $3.0 million mainly due to reduced interest income ($1.8
million) reflective of lower average interest rates.
Income taxes for the third quarter of 2001 reflected a decrease in deferred
taxes of $8.0 million due to an enacted Canadian tax rate reduction.
Nine Months 2002 versus 2001
- ----------------------------
Performance of the railcar and tank container leasing businesses continues 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 $13.3
million primarily due to decreased railcar service revenues ($13.2 million).
Gross margin on service revenues decreased $20.6 million primarily due to weaker
railcar service operations ($18.0 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
$39.8 million primarily due to reduced sales of railcars ($13.4 million) and
metal products ($26.5 million). Cost of sales in the first nine months of 2001
included $8.5 million goodwill amortization.
Other income decreased $12.2 million mainly due to reduced interest income ($5.8
million) reflective of lower average interest rates. Additionally, other income
for the nine months of 2001 included a gain from disposals of liquefied
petroleum gas storage caverns in Canada ($3.9 million).
Income taxes for the nine months of 2001 reflected a decrease in deferred taxes
of $8.0 million due to an enacted Canadian tax rate reduction.
Financial Condition and Liquidity
- ---------------------------------
Nine Months 2002 versus 2001
- ----------------------------
Operating activities provided $205.5 million of cash in the first nine months of
2002. These funds, along with redemption of short-term investments, were used to
service borrowed debt obligations, finance railcar additions, and pay dividends
and advance funds to the Company's stockholder.
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It is the Company's policy to pay 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
the Company's stockholder and bear interest at commercial rates. Conversely,
when the Company requires additional funds to support its operations, prior
advances are repaid to the Company. No restrictions exist regarding the amount
of dividends which may be paid or advances which may be made by the Company.
During the first nine months of 2002, the Company spent $87.1 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 nine months of 2002, the Company's financing activities
included $88.8 million for principal repayments on borrowed debt and $53.0
million for cash dividends. Net cash used in financing activities was $140.2
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.
New Accounting Pronouncements
- -----------------------------
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.
Forward-Looking Statements
- --------------------------
This quarterly report on Form 10-Q for the quarter ended September 30, 2002
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 2002, there had been no significant change to the Company's
exposure to market risk since December 31, 2001.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 day period prior to the filing of this report, the Company carried
out an evaluation, under the supervision of the Company's Principal Executive
Officer and Principal Financial Officer, of the effectiveness of the Company's
disclosure controls and procedures pursuant to Rule 13a-15 of the Securities
Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, the Company's
Principal Executive Officer and Principal Financial Officer have concluded that
the Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
Subsequent to the date of their evaluation, there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls.
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 September 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: November 13, 2002 /s/ Mark J. Garrette
---------------------------------
Mark J. Garrette
Vice President
(principal financial officer
and principal accounting officer)
CERTIFICATIONS
I, Kenneth P. Fischl, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Union Tank Car Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
- 18 -
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Kenneth P. Fischl
------------------
Kenneth P. Fischl
Principal Executive Officer
I, Mark J. Garrette, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Union Tank Car Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
- 19 -
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Mark J. Garrette
-------------------------
Mark J. Garrette
Principal Financial Officer
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