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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, 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 W. Washington Street, Chicago, Illinois 60606
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(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. [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X].
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, 2002
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 ........................................... 17
Item 8 Financial Statements and Supplementary Data ............................. 18
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .............................................. 47
Part III.
Item 10 Directors and Executive Officers of the Registrant ...................... 47
Item 11 Executive Compensation .................................................. 49
Item 12 Security Ownership of Certain Beneficial Owners and Management .......... 50
Item 13 Certain Relationships and Related Transactions .......................... 50
Item 14 Controls and Procedures ................................................. 50
Part IV.
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K ......... 51
Signatures ................................................................................. 52
-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 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, 2002, the Company's railcar fleet comprised 64,464 tank cars
and 16,236 railway cars of other types. A total of 29,416 railcars were added to
the lease fleet during the ten years ended December 31, 2002. These railcars
accounted for approximately 40% of total railcar lease revenues during 2002.
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.
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 2002 for newly-manufactured railcars was
approximately six years. The average term of leases entered into during 2002 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
-2-
information about each railcar, including mechanical specifications, maintenance
and repair data, and lease terms.
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 and Sheldon, Texas. 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 and Sheldon, Texas; Evanston, Wyoming; Edmonton, Alberta; Sarnia and
Oakville, Ontario; Montreal, Quebec; and Regina, Saskatchewan.
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 own, 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.
-3-
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
Subsidiaries of the Company manufacture and distribute a wide range of fasteners
worldwide to 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. Another subsidiary of the Company manufactures
wheels, axles and gear sets for light rail transit. 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.
Gear Drive Manufacturing
Subsidiaries of the Company manufacture right-angle gear drives for industrial
applications and wind machines used to protect fruits and vegetables from frost.
Recent Developments
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 (MIC), MIC distributed the stock of the Company to
Holdings and 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) 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 as a change in
reporting entity on an "as if pooled" basis and, accordingly, all financial and
other information has been restated to reflect these transactions for
comparative purpose for all periods presented. The impact of this realignment is
not material.
-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)
2002
- ----
Revenues from external customers $ 572.3 $ 405.0 $ 80.2 $ 200.9 $ 1,258.4
Interest income - - - 13.9 13.9
Interest expense 65.0 0.1 13.1 0.1 78.3
Depreciation and amortization 119.0 4.4 22.1 7.6 153.1
Income before income taxes 111.7 11.1 6.4 23.9 153.1
Segment assets 1,853.4 181.8 318.9 582.5 2,936.6
Expenditures for long-lived assets 86.0 6.3 24.8 5.6 122.7
2001 (Restated)
- ----
Revenues from external customers $ 619.5 $ 427.4 $ 74.7 $ 208.2 $ 1,329.8
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 10.2 167.7
Income before income taxes 135.7 10.5 8.4 28.8 183.4
Segment assets 1,897.6 185.6 319.8 628.5 3,031.5
Expenditures for long-lived assets 178.9 4.4 26.9 5.1 215.3
2000 (Restated)
- ----
Revenues from external customers $ 698.0 $ 494.1 $ 29.7 $ 217.2 $ 1,439.0
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 13.6 159.0
Income before income taxes 168.7 20.1 1.7 36.0 226.5
Segment assets 1,876.8 224.6 312.3 530.1 2,943.8
Expenditures for long-lived assets 178.7 5.1 23.8 5.6 213.2
-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)
2002
----
United States $ 1,015.5 $ 1,772.6
Canada 146.8 171.0
Other countries 96.1 209.4
---------------- ----------------
Consolidated total $ 1,258.4 $ 2,153.0
================ ================
2001 (Restated)
----
United States $ 1,056.2 $ 1,767.9
Canada 162.9 184.4
Other countries 110.7 233.6
---------------- ----------------
Consolidated total $ 1,329.8 $ 2,185.9
================ ================
2000 (Restated)
----
United States $ 1,171.7 $ 1,703.7
Canada 180.8 231.4
Other countries 86.5 233.1
---------------- ----------------
Consolidated total $ 1,439.0 $ 2,168.2
================ ================
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.
Foreign Operations
The Company does not believe that there are other than normal business risks
attendant to its foreign operations.
-6-
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 participants 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.
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.
-7-
Employees
As of December 31, 2002, the Company had approximately 5,330 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 2002, the Company spent approximately $2.5 million
on remediation and related matters, compared with $5.3 million and $8.2 million
in 2001 and 2000, respectively. The Company expects to spend approximately $4.7
million in 2003 on similar activities.
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 30% of productive capacity for railcar
manufacturing, 75% for railcar servicing and repair, 70% for sulphur processing,
60% for fastener production, 75% for railcar moving vehicles manufacturing, 50%
for light rail transit product manufacturing, 70% for containment vessel head
manufacturing, and 65% for gear drive manufacturing.
Railcars
The Company owns approximately 84% of its total lease fleet of 80,700 railcars,
of which 64,464 are tank cars and 16,236 are other railway freight cars. Of the
approximately 67,842 owned railcars, 57,000 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 and Sheldon, Texas, together occupying about 165 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 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 26,300
owned/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 1,500 drop frame tank chassis. Customer
service is provided through offices, agents and depots located throughout the
world. The Company owns approximately 71% of its intermodal tank container and
drop frame tank chassis fleet, of which approximately 24% 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 Montreal, Quebec and
Jiashan, China. In addition, the Company leases several warehouses in Canada and
China.
Other Railway Equipment Facilities
A subsidiary of the Company owns a mobile railcar moving vehicle manufacturing
facility in LaGrange, Georgia. Another subsidiary of the Company owns a wheels
and axles manufacturing facility in Johnstown, Pennsylvania.
Containment Vessel Head Manufacturing Facilities
A subsidiary of the Company owns a metal containment vessel head manufacturing
facility in Sheldon, Texas.
Gear Drive Manufacturing Facilities
Subsidiaries of the Company own a gear drive manufacturing facility in Amarillo,
Texas and a wind machine manufacturing facility in Exeter, California.
Other Properties
The Company and its subsidiaries maintain numerous other manufacturing
facilities, 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,
-------------------------------------------------------------------------------------------
2002 2001* 2000* 1999* 1998*
---------------- -------------- --------------- --------------- ---------------
(Dollars in Thousands)
Revenues
Services $ 691,707 $ 708,006 $ 673,818 $ 632,219 $ 585,648
Net sales 566,703 621,786 765,183 785,161 702,118
Net income 96,749 116,651 145,967 131,307 141,509
Ratio of earnings to
fixed charges 2.48 x 2.65 x 3.26 x 3.22 x 3.50 x
At year end:
Total assets $ 2,936,583 $ 3,031,507 $ 2,943,775 $ 2,646,397 $ 2,449,444
Long-term obligations 961,199 1,045,828 1,035,408 941,890 821,319
* Restated to reflect the June 30, 2002 realignment of the Company and certain
subsidiaries. See "Recent Developments" caption of Item 1 for further
discussion.
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, 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.
2002 versus 2001
Results of Operations
Performance of the railcar 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 $16.3
-11-
million primarily due to decreased railcar leasing and service revenues ($19.4
million), offset by increased intermodal tank containers leasing business ($5.5
million). Gross margin on service revenues decreased $27.4 million primarily due
to lower fleet utilization and higher maintenance costs.
The Company's railcar lease fleet utilization decreased during 2002, however,
utilization has remained in a range of 93% 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. Over the past five
years, the average term of leases entered into for newly-manufactured railcars
was approximately seven years, and the average term of leases entered into for
used railcars was approximately four years. The average term of leases entered
into during 2002 for newly-manufactured railcars was approximately six years,
and the average term of leases entered into for used railcars was approximately
three years.
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
$55.1 million primarily due to reduced sales of railcars ($27.7 million) and
metal products ($22.7 million). Cost of sales in 2001 included $11.1 million of
goodwill amortization.
Other income decreased $11.4 million due to, among other things, an
environmental provision ($2.4 million). Additionally, other income for 2001
included a gain from disposals of liquefied petroleum gas storage caverns in
Canada ($3.9 million).
Financial Condition and Liquidity
Operating activities provided $282.7 million of cash in 2002. These funds, along
with the proceeds from the redemption of short-term investments, were used to
service borrowed debt obligations, finance railcar additions, 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 2002, the Company spent $122.7 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 80% have been for railcars. 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.
In 2002, the Company used $141.3 million for principal repayments on borrowed
debt and $67.0 million for cash dividends. Net cash used in financing activities
was $204.9 million.
-12-
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.
Approximately 16% of Company-owned railcars are pledged to secure equipment
obligations and secured notes. The remaining railcars are free of liens.
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, 2002:
2003 2004 2005 2006 2007
----------- ---------- ---------- ----------- ----------
(Dollars in Millions)
Railcar Leasing Cash Inflows
- ----------------------------
Minimum future lease rentals $ 391.6 $ 306.0 $ 235.1 $ 162.7 $ 106.9
Railcar Leasing Cash Outflows
- -----------------------------
Minimum future lease payments 70.0 73.1 96.3 93.5 78.0
Principal and interest amount of obligations 87.7 120.9 72.7 125.4 240.2
---------- ---------- ---------- ----------- ----------
Excess (Deficit) of inflows over outflows $ 233.9 $ 112.0 $ 66.1 $ (56.2) $ (211.3)
========== ========== ========== =========== ==========
The minimum future lease rentals above relate to railcar leases in effect at
December 31, 2002. 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: $23,365 in 2003, $23,520 in 2004, $22,598 in 2005, $23,677 in 2006 and
$22,602 in 2007.
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 at December 31, 2001. There were no
foreign currency forward contracts outstanding at December 31, 2002.
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 United States. The preparation of these financial statements requires the
Company to make estimates and judgements that affect the reported amounts of
assets, 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.
-13-
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 in 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 January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities". This
Interpretion requires that an enterprise's consolidated financial statements
include subsidiaries in which the enterprise has a controlling financial
interest. At December 31, 2002, the Company did not have any unconsolidated
variable interest entities.
In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This Interpretation does not prescribe a specific
approach for subsequently measuring the guarantor's recognized liability over
the term of the related guarantee. This Interpretation also incorporates,
without change, the guidance in FIN No. 34, "Disclosure of Indirect Guarantees
of Indebtedness of Others", which is being superseded. The initial recognition
and initial measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002. The adoption of FIN No. 45 is not expected to
have a material impact on the Company's consolidated financial statements or
financial position.
-14-
The Company has one residual value guarantee totalling $2.1 million until March
2006 and several performance guarantees totalling $2.9 million until August
2006. Additionally, the Company provides warranties on certain products for
varying lengths of time. Changes to the Company's product warranty accrual
during the year are as follows:
2002 2001
----------------- -----------------
(Dollars in Thousands)
Balance, beginning of year $ 877 $ 975
Warranties issued 293 899
Settlements (446) (997)
----------------- -----------------
Balance, end of year $ 724 $ 877
================= =================
The Company maintains appropriate allowances for warranties and periodically
reviews the amount of allowances based on management's assessment of various
factors, including claims experience.
In August 2001, the FASB issued Statements of Financial Accounting Standards
(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.
-15-
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) acquired in
September 2000. Railcar leasing and service revenues decreased $4.7 million.
Gross margin on service revenues increased $7.9 million. This was also primarily
due to the inclusion of the intermodal tank container operations ($21.6 million)
acquired in September 2000, which was offset by weaker railcar leasing and
service results ($13.1 million).
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. Over the past five
years, the average term of leases entered into for newly-manufactured railcars
was approximately seven years, and the average term of leases entered into for
used railcars was approximately four years. The average term of leases entered
into during 2001 for newly-manufactured railcars was approximately eight years,
and the average term of leases entered into for used railcars was approximately
three years.
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 $143.4 million primarily due to
reduced sales of railcars ($73.3 million) and metal products ($66.8 million).
Gross margin on sales revenues decreased $30.2 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 $6.0 million primarily due to the
incremental expenses associated with the intermodal tank container operations
($5.7 million) 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 $13.7 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).
-16-
Financial Condition and Liquidity
Operating activities provided $353.7 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, pay dividends and advance funds 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 $215.3 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 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.
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
with fair value 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
2003 2004 2005 2006 2007 Thereafter Total 12-31-2002
------ ------ ------ ------ ------ ---------- ---------- -----------
(Dollars in Millions)
Fixed rate debt $ 44.0 $ 81.0 $ 41.4 $ 91.5 $ 216.0 $ 530.6 $ 1,004.5 $ 1,159.1
Average interest rate 7.38% 7.05% 8.30% 7.09% 7.04% 7.09% 7.14%
-17-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
----
Report of Independent Auditors ......................................................... 19
Financial Statements
Consolidated statement of income for each of the three years in ......................
the period ended December 31, 2002 20
Consolidated balance sheet - December 31, 2002 and 2001 .............................. 21
Consolidated statement of stockholder's equity for each of the three
years in the period ended December 31, 2002 ........................................ 22
Consolidated statement of cash flows for each of the three ...........................
years in the period ended December 31, 2002 23
Notes to consolidated financial statements ........................................... 24
-18-
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, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
In 2002, as discussed in Note 19, the Company changed its method of accounting
for goodwill to conform with Financial Accounting Standards Board Statement No.
142.
ERNST & YOUNG LLP
Chicago, Illinois
March 11, 2003
-19-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands)
For the Year Ended December 31,
----------------------------------------------------------------
2002 2001 2000
------------------ ------------------ ------------------
(Restated) (Restated)
Revenues
Services (leasing and other) $ 691,707 $ 708,006 $ 673,818
Net sales 566,703 621,786 765,183
------------------ ------------------ ------------------
1,258,410 1,329,792 1,439,001
Interest income 13,858 20,097 23,037
Other income 2,094 13,538 16,269
------------------ ------------------ ------------------
1,274,362 1,363,427 1,478,307
Costs and expenses
Cost of services 437,689 426,594 400,324
Cost of sales 465,945 523,806 636,966
General and administrative 139,386 143,966 137,928
Interest expense 78,289 85,626 76,613
------------------ ------------------ ------------------
1,121,309 1,179,992 1,251,831
------------------ ------------------ ------------------
Income before income taxes 153,053 183,435 226,476
Provision for income taxes 56,304 66,784 80,509
------------------ ------------------ ------------------
Net income $ 96,749 $ 116,651 $ 145,967
================== ================== ==================
Ratio of earnings to fixed charges 2.48 x 2.65 x 3.26 x
================== ================== ==================
See Notes to Consolidated Financial Statements.
-20-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
December 31,
---------------------------------------
2002 2001
------------------ -----------------
(Restated)
Assets
- ------
Cash and cash equivalents $ 40,222 $ 11,131
Short-term investments 75,187 110,107
Accounts receivable, primarily due within one year, less allowance
for doubtful accounts of $11,151 in 2002 and $9,613 in 2001 122,674 134,611
Accounts and notes receivable, affiliates 44,921 57,294
Inventories, net of LIFO reserves of $32,683 in 2002
and $31,712 in 2001 132,479 134,775
Prepaid expenses and deferred charges 13,715 14,354
Advances to parent company, principally at LIBOR plus 1% 354,339 383,312
Railcar lease fleet, net 1,579,029 1,606,364
Intermodal tank container lease fleet, net 294,939 296,739
Fixed assets, net 198,114 200,154
Investment in direct financing lease 24,434 26,611
Other assets 56,530 56,055
----------------- -----------------
Total assets $ 2,936,583 $ 3,031,507
================= =================
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable $ 53,596 $ 62,457
Accrued rent 93,033 91,473
Accrued liabilities 162,620 190,199
Borrowed debt 1,007,532 1,145,063
----------------- -----------------
1,316,781 1,489,192
Deferred income taxes and investment tax credits 521,162 477,681
Minority interest 86,640 82,383
Stockholder's equity
Common stock, no par value; 1,000 shares authorized and issued 106,689 106,689
Additional capital 158,372 158,372
Retained earnings 746,939 717,190
----------------- -----------------
Total stockholder's equity 1,012,000 982,251
----------------- -----------------
Total liabilities and stockholder's equity $ 2,936,583 $ 3,031,507
================= =================
See Notes to Consolidated Financial Statements.
-21-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Years Ended December 31, 2002, 2001 and 2000
(Dollars in Thousands)
Common Additional Retained
Stock Capital Earnings Total
-------------- -------------- --------------- ----------------
Balance at December 31, 1999 as previously
reported $ 106,689 $ 96,865 $ 635,575 $ 839,129
Adjustment to reflect change in reporting entity - 24,913 (6,003) 18,910
-------------- -------------- --------------- ----------------
Balance at December 31, 1999 as adjusted 106,689 121,778 629,572 858,039
Capital contribution - 36,594 - 36,594
Net income - - 145,967 145,967
Cash dividends - - (98,000) (98,000)
-------------- -------------- --------------- ----------------
Balance at December 31, 2000 106,689 158,372 677,539 942,600
Net income - - 116,651 116,651
Cash dividends - - (77,000) (77,000)
-------------- -------------- --------------- ----------------
Balance at December 31, 2001 106,689 158,372 717,190 982,251
Net income - - 96,749 96,749
Cash dividends - - (67,000) (67,000)
-------------- -------------- --------------- ----------------
Balance at December 31, 2002 $ 106,689 $ 158,372 $ 746,939 $ 1,012,000
============== ============== =============== ================
See Notes to Consolidated Financial Statements.
-22-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
For the Year Ended December 31,
---------------------------------------------------
2002 2001 2000
------------- ------------- --------------
(Restated) (Restated)
Cash flows from operating activities:
Net income $ 96,749 $ 116,651 $ 145,967
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 153,102 167,692 159,003
Deferred taxes 42,448 14,523 13,176
Gain on disposition of railcars and other fixed assets (1,288) (6,302) (3,798)
Other non-cash income and expenses 7,232 13,580 5,701
Changes in operating assets and liabilities (15,519) 47,581 (25,722)
------------- ------------- --------------
Net cash provided by operating activities 282,724 353,725 294,327
Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets (122,726) (215,344) (213,195)
(Increase) decrease in short-term investments 33,758 (54,014) (23,947)
(Increase) decrease in advance to parent 36,278 (73,134) 39,857
(Increase) decrease in other assets and investments (1,014) (897) (677)
Proceeds from disposals of railcars and other fixed assets 13,925 22,855 15,241
Purchases of businesses, net of cash acquired (9,074) - (284,445)
------------- ------------- --------------
Net cash used in investing activities (48,853) (320,534) (467,166)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt 3,412 114,247 184,157
Proceeds from sale-leaseback transactions - - 150,026
Principal payments of borrowed debt (141,313) (91,556) (44,774)
Cash dividends (67,000) (77,000) (98,000)
------------- ------------- --------------
Net cash (used in) provided by financing activities (204,901) (54,309) 191,409
Effect of exchange rates on cash and cash equivalents 121 (1,416) (495)
------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents 29,091 (22,534) 18,075
Cash and cash equivalents at beginning of year 11,131 33,665 15,590
------------- ------------- --------------
Cash and cash equivalents at end of year $ 40,222 $ 11,131 $ 33,665
============= ============= ==============
See Notes to Consolidated Financial Statements.
-23-
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 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.
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 (MIC), MIC distributed the stock of the Company to
Holdings and 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) 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 as a change in
reporting entity on an "as if pooled" basis and, accordingly, all financial and
other information has been restated to reflect these transactions for
comparative purpose for all periods presented. The impact of this realignment is
not material.
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.
-24-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Receivables and Allowance for Doubtful Accounts
The Company carries its accounts receivable at their face amounts less an
allowance for doubtful accounts. On a regular basis, the Company evaluates its
accounts receivable as well as establishes the allowance for doubtful accounts
based on a combination of specific customer circumstances and credit conditions
and based on a history of write-offs and collections. A receivable is considered
past due if payments have not been received within agreed upon invoice terms.
Uncollectiable receivables are charged against the allowance for doubtful
accounts when approved by management after all collection efforts have been
exhausted.
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.
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, 20-30 years; intermodal tank containers, 20
years; buildings and improvements, 10-30 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 and intermodal tank containers disposals which are included
in cost of services.
-25-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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, 2002, 2001 and 2000, the
Company's parents absorbed a gain of $1,344, a gain of $954, and a loss of $938,
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 75% of net inventories at December 31, 2002.
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 accounting principles
generally accepted in the United States 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.
-26-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 2002 for
newly-manufactured railcars was approximately six years. The average term of
leases entered into during 2002 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, 2002:
Operating
Leases
-----------
2003 $ 391,567
2004 306,041
2005 235,086
2006 162,684
2007 106,854
2008 and thereafter 211,411
-----------
Totals $ 1,413,643
===========
-27-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Lease Fleet and Fixed Assets
December 31,
-------------------------------------
2002 2001
---------------- ---------------
Railcar lease fleet
Gross cost $ 3,025,939 $ 2,987,559
Less accumulated depreciation (1,446,910) (1,381,195)
---------------- ---------------
$ 1,579,029 $ 1,606,364
================ ===============
Intermodal tank container lease fleet
Gross cost $ 345,370 $ 325,903
Less accumulated depreciation (50,431) (29,164)
---------------- ---------------
$ 294,939 $ 296,739
================ ===============
Fixed assets, at cost
Land $ 18,061 $ 15,791
Buildings and improvements 186,557 181,066
Machinery and equipment 326,844 320,767
---------------- ---------------
531,462 517,624
Less accumulated depreciation (333,348) (317,470)
---------------- ---------------
$ 198,114 $ 200,154
================ ===============
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, 2002:
2003 $ 5,332
2004 5,332
2005 5,332
------------
Total $ 15,996
============
-28-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The investment is recoverable from future lease payments and estimated residual
value, as follows:
December 31,
-------------------------------------
2002 2001
--------------- ---------------
Minimum future lease rentals $ 15,996 $ 21,060
Estimated residual value 15,105 14,916
--------------- ---------------
Gross investment 31,101 35,976
Less unearned income (6,667) (9,365)
--------------- ---------------
Net investment $ 24,434 $ 26,611
=============== ===============
6. Lease Commitments
The Company, as lessee, has entered into long-term leases for certain railcars
and various manufacturing, office and warehouse facilities.
At December 31, 2002, future minimum rental commitments for all noncancelable
leases are as follows:
Operating Leases
--------------------------------------------------
Sale-
Leaseback Others Total
------------- ------------- --------------
2003 $ 68,427 $ 6,069 $ 74,496
2004 71,465 5,239 76,704
2005 94,663 4,066 98,729
2006 91,824 3,272 95,096
2007 76,267 2,917 79,184
2008 and thereafter 429,435 19,996 449,431
------------- ------------- --------------
$ 832,081 $ 41,559 $ 873,640
============= ============= ==============
-29-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Minimum future sublease revenue to be received under existing railcar
sale-leaseback leases as of December 31, 2002 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
----------------
2003 $ 75,606
2004 64,174
2005 49,338
2006 34,293
2007 22,591
2008 and thereafter 45,827
----------------
$ 291,829
================
Sublease rentals recorded as revenue for the years ended December 31, 2002, 2001
and 2000 were approximately $87,000, $94,000 and $93,000, respectively.
Rentals charged to costs and expenses were $77,726, $79,065 and $72,914 in 2002,
2001 and 2000, respectively.
-30-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Borrowed Debt
December 31,
--------------------------------------
2002 2001
---------------- --------------
Unsecured notes, due from 2003 - 2009 at 6.11% -7.45% (average rate of 7.01%
as of December 31, 2002 and 6.92% as of December 31, 2001) $ 475,000 $ 515,000
Senior secured notes, due from 2010 - 2016 at 6.79% - 7.68% (average rate of
7.19% as of December 31, 2002 and 7.20% as of December 31, 2001) 367,357 381,000
Equipment obligations, payable periodically through 2009 at 6.50% - 9.34%
(average rate of 7.10% as of December 31, 2002 and 8.16% as of December
31, 2001) 144,567 226,808
Other long-term borrowings, payable periodically through 2014 (average rate
of 9.52% as of December 31, 2002 and 10.10% as of December 31, 2001) 20,608 22,255
---------------- ----------------
$ 1,007,532 $ 1,145,063
================ ================
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 an original
cost of approximately $123,000 and 1,100 intermodal tank containers and wheeled
chassis with an original cost of approximately $23,800.
Senior secured notes of $100,000 are secured by railcars with an original cost
of $132,638 and $132,582 at December 31, 2002 and 2001, respectively. Senior
secured notes of $161,000 are secured by intermodal tank containers assets with
an original cost of approximately $240,000 and the future stream of leasing
income on such intermodal tank containers.
Equipment obligations are secured by railcars with an original cost of $403,522
and $735,056 at December 31, 2002 and 2001, respectively.
The Company's Canadian subsidiaries have approximately $8,590 of credit lines
available on a no-fee basis. No amounts were outstanding as of December 31, 2002
and 2001.
Maturities of debt obligations for the years 2003 - 2007 are as follows: $46,333
in 2003, $81,655 in 2004, $41,415 in 2005, $91,487 in 2006 and $215,963 in 2007.
-31-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The estimated fair value of borrowed debt is as follows:
December 31,
-------------------------------------
2002 2001
--------------- ---------------
Unsecured notes $ 544,916 $ 539,403
Senior secured notes 431,204 397,127
Equipment obligations 162,297 242,359
Other long-term borrowings 23,623 25,937
--------------- ---------------
$ 1,162,040 $ 1,204,826
=============== ===============
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 Holdings, federal income taxes, before consideration of 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, Holdings 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 approximately $260 million of
such earnings nor is it practicable to determine the amount of any such
liability.
-32-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following summarizes the provision for income taxes:
2002 2001 2000
---------------- ---------------- ----------------
State
Current $ 2,026 $ 3,113 $ 3,807
Deferred (769) 1,827 (56)
Federal
Current 5,751 20,934 38,844
Deferred and investment tax credit 37,173 33,207 18,438
Foreign
Current 6,079 28,214 24,682
Deferred and investment tax credit 6,044 (20,511) (5,206)
---------------- ---------------- ----------------
Total $ 56,304 $ 66,784 $ 80,509
================ ================ ================
In 2002, 2001, and 2000, the Company paid foreign withholding taxes of $2,821,
$2,557 and $1,210, respectively.
Income tax expense is based upon domestic and foreign income before taxes as
follows:
2002 2001 2000
---------------- ---------------- ----------------
Domestic $ 128,691 $ 151,216 $ 180,614
Foreign 24,362 32,219 45,862
---------------- ---------------- ----------------
Total $ 153,053 $ 183,435 $ 226,476
================ ================ ================
Income tax effects of significant items which resulted in effective tax rates of
36.8% in 2002, 36.4% in 2001, and 35.5% in 2000 follow:
2002 2001 2000
--------------- -------------- ---------------
Income taxes at 35% federal statutory rate $ 53,569 $ 64,202 $ 79,267
Increase (decrease) resulting from:
Amortization of investment tax credits (1,399) (1,989) (1,876)
State income taxes, net of federal income tax benefit 548 3,850 2,419
Excess tax provided on foreign income 3,578 6,960 1,166
Amortization of goodwill - 1,576 2,133
Effect of Canadian tax rate decrease on foreign
deferred taxes - (9,207) -
Other, net 8 1,392 (2,600)
--------------- -------------- ---------------
Total income taxes $ 56,304 $ 66,784 $ 80,509
=============== ============== ===============
The excess tax on foreign income represents differences due to higher foreign
tax rates and foreign tax credits not benefited.
-33-
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:
2002 2001
--------------- -------------
Excess of tax over book depreciation $ (530,422) $ (491,662)
Other (29,995) (31,551)
--------------- -------------
Gross liabilities (560,417) (523,213)
Expenses per books not yet deductible for tax 29,338 33,575
Other 17,932 21,342
-------------- -------------
Gross assets 47,270 54,917
Deferred investment tax credits (8,015) (9,385)
-------------- -------------
Net deferred income tax liability $ (521,162) $ (477,681)
============== =============
The above assets exclude certain state deferred income tax assets related to
loss carryforwards (which expire over the next six years) in the gross amount of
$1,800 at December 31, 2002 and $2,200 at December 31, 2001.
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 no environmental matters currently pending 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, 2002.
-34-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 2002, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others". This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. This Interpretation does not
prescribe a specific approach for subsequently measuring the guarantor's
recognized liability over the term of the related guarantee. This Interpretation
also incorporates, without change, the guidance in FIN No. 34, "Disclosure of
Indirect Guarantees of Indebtedness of Others", which is being superseded. The
initial recognition and initial measurement provisions are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The adoption of FIN No. 45 is not
expected to have a material impact on the Company's consolidated financial
statements or financial position.
The Company has one residual value guarantee totalling $2.1 million until March
2006 and several performance guarantees totalling $2.9 million until August
2006. Additionally, the Company provides warranties on certain products for
varying lengths of time. Changes to the Company's product warranty accrual
during the year are as follows:
2002 2001
---------------- ----------------
(Dollars in Thousands)
Balance, beginning of year $ 877 $ 975
Warranties issued 293 899
Settlements (446) (997)
---------------- ----------------
Balance, end of year $ 724 $ 877
================ ================
The Company maintains appropriate allowances for warranties and periodically
reviews the amount of allowances based on management's assessment of various
factors, including claims experience.
-35-
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 2002, 2001 and 2000 was $12,525, $12,395 and $11,406,
respectively.
As of December 31, 2002, 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 $140, $335 and $590
for 2002, 2001 and 2000, respectively. Accrued pension costs recognized in the
consolidated balance sheet were $3,717 at December 31, 2002 and 2001.
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, 2002 and
2001, the liability for postretirement health care and life insurance benefits
was $4,735 and $4,420 respectively, and was included in accrued liabilities in
the consolidated balance sheet.
Expense related to these benefits was $724, $696 and $686 in 2002, 2001 and
2000, 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.
-36-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information
The following condensed consolidating statements for the years ended December
31, 2002, 2001 and 2000 are provided because Procor Limited, a wholly-owned
subsidiary of the Company, has issued three separate series of equipment trust
certificates, guaranteed by Union Tank Car Company, as part of certain public
debt offerings issued by Union Tank Car Company in the United States.
In 2002, Procor Limited restructured a part of its railcar leasing business.
Procor Limited transferred a number of the railcars it owned to Procor Leasing
Inc. ("PLI") in exchange for the Class A Preferred Shares of PLI. PLI then
transferred these same cars to a new limited partnership, Procor LP, in exchange
for a 98% limited partnership interest in Procor LP. Procor Limited owns a 2%
general partnership interest in Procor LP. Therefore, the Procor Limited
financial information for 2002 is not comparable to the 2001 and 2000
information.
Condensed consolidating statements of income for the years ended December 31,
2002, 2001 and 2000 are as follows:
Year Ended December 31, 2002
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
------------------ ------------- -------------- -------------- --------------
Revenues
Services $ 446,457 $ 26,548 $ 259,251 $ (40,549) $ 691,707
Net sales 30,957 6,002 539,059 (9,315) 566,703
------------------ ------------- -------------- -------------- ---------------
477,414 32,550 798,310 (49,864) 1,258,410
Other income 700 5,986 439 8,827 15,952
------------------ ------------- -------------- -------------- ---------------
478,114 38,536 798,749 (41,037) 1,274,362
Costs and expenses
Cost of services 292,148 22,887 163,203 (40,549) 437,689
Cost of sales 33,252 5,728 436,280 (9,315) 465,945
General and administrative 39,666 1,118 98,602 - 139,386
Interest 51,946 3,091 14,425 8,827 78,289
------------------ ------------- -------------- -------------- ---------------
417,012 32,824 712,510 (41,037) 1,121,309
------------------ ------------- -------------- -------------- ---------------
Income before income taxes 61,102 5,712 86,239 - 153,053
Provision for income taxes 26,015 1,116 29,173 - 56,304
------------------ ------------- -------------- -------------- ---------------
Net income $ 35,087 $ 4,596 $ 57,066 $ - $ 96,749
================== ============= ============== ============== ===============
-37-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
Year Ended December 31, 2001
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
------------------ ------------- -------------- -------------- ---------------
Revenues
Services $ 469,121 $ 69,123 $ 214,319 $ (44,557) $ 708,006
Net sales 39,442 23,472 578,612 (19,740) 621,786
------------------ ------------- -------------- -------------- ---------------
508,563 92,595 792,931 (64,297) 1,329,792
Other income (715) 10,457 12,883 11,010 33,635
------------------ ------------- -------------- -------------- ---------------
507,848 103,052 805,814 (53,287) 1,363,427
Costs and expenses
Cost of services 290,324 40,442 140,385 (44,557) 426,594
Cost of sales 38,766 26,962 477,818 (19,740) 523,806
General and administrative 40,085 3,927 99,954 - 143,966
Interest 54,247 5,888 14,481 11,010 85,626
------------------ ------------- -------------- -------------- ---------------
423,422 77,219 732,638 (53,287) 1,179,992
------------------ ------------- -------------- -------------- ---------------
Income before income taxes 84,426 25,833 73,176 - 183,435
Provision for income taxes 37,684 748 28,352 - 66,784
------------------ ------------- -------------- -------------- ---------------
Net income $ 46,742 $ 25,085 $ 44,824 $ - $ 116,651
================== ============= ============== ============== ===============
Year Ended December 31, 2000
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
------------------ ------------- -------------- -------------- ---------------
Revenues
Services $ 469,117 $ 76,329 $ 149,396 $ (21,024) $ 673,818
Net sales 121,832 27,830 640,648 (25,127) 765,183
------------------ ------------- -------------- -------------- ---------------
590,949 104,159 790,044 (46,151) 1,439,001
Other income (776) 9,484 15,022 15,576 39,306
------------------ ------------- -------------- -------------- ---------------
590,173 113,643 805,066 (30,575) 1,478,307
Costs and expenses
Cost of services 267,083 41,053 113,212 (21,024) 400,324
Cost of sales 112,416 27,284 522,393 (25,127) 636,966
General and administrative 34,378 3,983 99,567 - 137,928
Interest 50,237 5,403 5,397 15,576 76,613
------------------ ------------- -------------- -------------- ---------------
464,114 77,723 740,569 (30,575) 1,251,831
------------------ ------------- -------------- -------------- ---------------
Income before income taxes 126,059 35,920 64,497 - 226,476
Provision for income taxes 38,826 13,759 27,924 - 80,509
------------------ ------------- -------------- -------------- ---------------
Net income $ 87,233 $ 22,161 $ 36,573 $ - $ 145,967
================== ============= ============== ============== ===============
-38-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
Condensed consolidating balance sheets as of December 31, 2002 and 2001 are as
follows:
December 31, 2002
-----------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
------------------ ------------- -------------- -------------- ---------------
Assets
- ------
Cash and cash equivalents $ 159 $ 36,622 $ 3,441 $ - $ 40,222
Short-term investments - 75,187 - - 75,187
Accounts receivable 21,654 2,429 99,000 (409) 122,674
Accounts and notes receivable, affiliates - - 44,921 - 44,921
Inventories, net 25,330 4,261 102,888 - 132,479
Prepaid expenses and deferred charges 6,244 2,409 5,647 (585) 13,715
Advances to parent 198,751 (44,677) 199,283 982 354,339
Railcar lease fleet, net 1,311,642 25,674 241,713 - 1,579,029
Intermodal tank container lease fleet, net - - 294,939 - 294,939
Fixed assets, net 89,925 14,319 93,870 - 198,114
Investment in direct financing lease - 24,434 - - 24,434
Investment in subsidiaries 740,678 75,844 171,254 (987,776) -
Other assets 396 798 56,134 (798) 56,530
------------------ ------------- -------------- -------------- ---------------
Total assets $ 2,394,779 $ 217,300 $ 1,313,090 $ (988,586) $ 2,936,583
================== ============= ============== ============== ===============
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable $ 28,570 $ 1,550 $ 23,491 $ (15) $ 53,596
Accrued liabilities 188,795 5,294 59,254 2,310 255,653
Borrowed debt 810,326 33,014 164,192 - 1,007,532
------------------ ------------- -------------- -------------- ---------------
1,027,691 39,858 246,937 2,295 1,316,781
Deferred income taxes and investment tax
credits 396,459 25,492 99,211 - 521,162
Minority interest - - 87,438 (798) 86,640
Stockholder's equity
Common stock and additional capital 358,475 13,012 284,115 (390,541) 265,061
Retained earnings 563,855 152,298 630,466 (599,680) 746,939
Equity adjustment from foreign currency
translation 48,299 (13,360) (35,077) 138 -
------------------ ------------- -------------- -------------- ---------------
Total stockholder's equity 970,629 151,950 879,504 (990,083) 1,012,000
------------------ ------------- -------------- -------------- ---------------
Total liabilities and stockholder's
equity $ 2,394,779 $ 217,300 $ 1,313,090 $ (988,586) $ 2,936,583
================== ============= ============== ============== ===============
-39-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
December 31, 2001
-----------------
Union Tank Car Procor Other
Company Limited 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 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 - - 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
============ ========== ============ =========== ============
-40-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
Condensed consolidating statements of cash flows for the years ended December
31, 2002, 2001 and 2000 are as follows:
Year Ended December 31, 2002
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- ----------- ------------ ------------ ------------
Net cash provided by operating activities: $ 119,677 $ 16,053 $ 146,994 $ - $ 282,724
Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (83,842) (1,093) (37,791) - (122,726)
Decrease in short-term investments - 33,758 - - 33,758
Decrease (increase) in advance to parent 135,636 (5,797) (67,133) (26,428) 36,278
Increase in other assets - - (1,014) - (1,014)
Proceeds from disposals of railcars and other
fixed assets 7,835 853 5,237 - 13,925
Purchases of businesses, net of cash acquired - - (9,074) - (9,074)
-------------- ---------- ------------ ------------ ------------
Net cash provided by (used in) investing activities 59,629 27,721 (109,775) (26,428) (48,853)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt - - 3,412 - 3,412
Principal payments of borrowed debt (112,207) (15,851) (13,255) - (141,313)
Cash dividends (67,000) - (26,428) 26,428 (67,000)
-------------- ---------- ------------ ------------ ------------
Net cash (used in) provided by financing activities (179,207) (15,851) (36,271) 26,428 (204,901)
Effect of exchange rates on cash and cash equivalents - 109 12 - 121
-------------- ---------- ------------ ------------ ------------
Net increase in cash and cash equivalents 99 28,032 960 - 29,091
Cash and cash equivalents at beginning of year 60 8,590 2,481 - 11,131
-------------- ---------- ------------ ------------ ------------
Cash and cash equivalents at end of year $ 159 $ 36,622 $ 3,441 $ - $ 40,222
============== ========== ============ ============ ============
-41-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
Year Ended December 31, 2001
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- ----------- ------------ ------------ ------------
Net cash provided by operating activities: $ 168,755 $ 28,516 $ 156,454 $ - $ 353,725
Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (176,798) (2,079) (36,467) - (215,344)
Increase in short-term investments - (54,014) - - (54,014)
Decrease (increase) in advance to parent 28,329 37,605 (96,982) (42,086) (73,134)
Increase in other assets (20) - (877) - (897)
Proceeds from disposals of railcars and other
fixed assets 5,534 9,944 7,377 - 22,855
-------------- ----------- ------------ ------------ ------------
Net cash used in investing activities (142,955) (8,544) (126,949) (42,086) (320,534)
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) (14,915) - (91,556)
Cash dividends (77,000) (19,735) (22,351) 42,086 (77,000)
-------------- ----------- ------------ ------------ ------------
Net cash (used in) provided by financing activities (30,234) (33,142) (33,019) 42,086 (54,309)
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) (3,579) - (22,534)
Cash and cash equivalents at beginning of year 4,494 23,111 6,060 - 33,665
-------------- ----------- ------------ ------------ ------------
Cash and cash equivalents at end of year $ 60 $ 8,590 $ 2,481 $ - $ 11,131
============== =========== ============ ============ ============
-42-
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: $ 189,779 $ 43,112 $ 61,436 $ - $ 294,327
Cash flows from investing activities:
Construction and purchase of railcars and other
fixed assets (172,116) (6,661) (34,418) - (213,195)
Increase in short-term investments - (23,947) - - (23,947)
(Increase) decrease in advance to parent (37,992) 19,929 75,101 (17,181) 39,857
Increase in other assets (330) - (347) - (677)
Proceeds from disposals of railcars and other
fixed assets 7,618 2,604 5,019 - 15,241
Purchases of businesses, net of cash acquired - - (284,445) - (284,445)
-------------- --------- ------------ ------------ ------------
Net cash used in investing activities (202,820) (8,075) (239,090) (17,181) (467,166)
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) (2,702) - (44,774)
Cash dividends (98,000) (17,181) - 17,181 (98,000)
-------------- --------- ------------ ------------ ------------
Net cash provided by (used in) financing activities 17,485 (24,712) 181,455 17,181 191,409
Effect of exchange rates on cash and cash equivalents - (479) (16) - (495)
-------------- --------- ------------ ------------ ------------
Net increase in cash and cash equivalents 4,444 9,846 3,785 - 18,075
Cash and cash equivalents at beginning of year 50 13,265 2,275 - 15,590
-------------- --------- ------------ ------------ ------------
Cash and cash equivalents at end of year $ 4,494 $ 23,111 $ 6,060 $ - $ 33,665
============== ========= ============ ============ ============
-43-
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
-------- ---------- ---------
2002 $ 11,015 $ 4,314 $ 5,258
2001 13,265 3,352 3,586
2000 17,794 3,070 3,236
The Company from time to time advances funds in excess of its current cash
requirements for domestic operations to Holdings or its subsidiaries on an
unsecured demand basis. Such advances, which bear interest principally at LIBOR
plus 1%, amounted to $343,216 and $370,856 at December 31, 2002 and 2001,
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 Holdings resulted in
receivables of $11,123 and $12,456 at December 31, 2002 and 2001, 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, 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' subsidiaries and
affiliates. The Company obtains these services from Marmon because it is
considered more cost efficient to obtain such services in this manner.
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, 2002 and 2001 was
$86,640 and $82,383, respectively. The minority interest in income for the years
ended December 31, 2002, 2001 and 2000 was $4,257, $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 for the year ended December 31, 2000.
All minority interest in income was included as a charge against other income.
-44-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 at December 31, 2001. There were no
foreign currency forward contracts outstanding at December 31, 2002.
16. Quarterly Data (Unaudited)
Three Months Ended
----------------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
--------------- ---------------- ---------------- ---------------
2002 (March & June Restated)
- ----
Net sales and services revenues $ 310,123 $ 328,146 $ 316,801 $ 303,340
Cost of sales and services 216,237 238,387 229,801 219,209
--------------- ---------------- ---------------- ---------------
Gross profit 93,886 89,759 87,000 84,131
Net income $ 25,397 $ 26,368 $ 25,080 $ 19,904
=============== ================ ================ ===============
2001 (Restated)
- ----
Net sales and services revenues $ 342,798 $ 351,634 $ 313,749 $ 321,611
Cost of sales and services 244,656 253,319 218,835 233,590
--------------- ---------------- ---------------- ---------------
Gross profit 98,142 98,315 94,914 88,021
Net income $ 29,215 $ 32,135 $ 35,318 $ 19,983
=============== ================ ================ ===============
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, Canada plant in the second quarter in 2002, and a $2,400
reduction in carrying value of certain inventory in the other railway equipment
business.
-45-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Supplementary Disclosures of Cash Flow Information
For the Year Ended December 31,
----------------------------------------------------------
2002 2001 2000
-------------- ------------- -------------
(Restated) (Restated)
Changes in operating assets and liabilities:
Accounts receivable $ 13,568 $ 7,458 $ (6,699)
Inventories (190) 24,568 (5,947)
Prepaid expenses and deferred charges (1,087) (3,162) 229
Accounts payable, accrued rent and accrued liabilities (27,810) 18,717 (13,305)
-------------- ------------- -------------
$ (15,519) $ 47,581 $ (25,722)
============== ============= =============
Cash paid during the year for:
Interest (net of amount capitalized) $ 84,106 $ 87,340 $ 75,688
Income taxes 17,868 50,258 71,838
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, 2002. The aforementioned data are an integral part
of the Notes to Consolidated Financial Statements.
19. Accounting for Goodwill
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". Under the new rules, goodwill is no longer amortized but
will be subject to annual impairment tests in accordance with SFAS No. 142. The
Company completed its transitional and annual impairment tests as of January 1,
2002 and October 1, 2002 as prescribed by SFAS No. 142, which indicated that no
impairment of goodwill existed. Net carrying amount of Goodwill was $16.0
million and $11.1 million, respectively, as of December 31, 2002 and 2001. The
accumulated amortization for Goodwill was $14.3 million as of December 31, 2002
and 2001.
The following table provides comparative earnings had the non-amortization
provisions of SFAS No. 142 been adopted for all periods presented:
2001 2000
------------- ------------
Reported net income $ 116,651 $ 145,967
Goodwill amortization, net of tax 9,348 12,057
------------- ------------
Net income, excluding goodwill amortization $ 125,999 $ 158,024
============= ============
-46-
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 53 President, Chief Executive Officer 2002
Director 1994
Mark J. Garrette 49 Vice President, Principal Financial Officer 2002
Vice President of the Company and 1994
Senior Vice President and
Controller - Tank Car Division
Robert C. Gluth 78 Director, Executive Vice President 1981
and Treasurer
Frank D. Lester 62 Vice President of the Company and 1999
President - Tank Car Division
Robert K. Lorch 56 Vice President 2002
John D. Nichols 72 Director 2002
Robert W. Webb 64 General Counsel and Secretary 1986
-47-
Kenneth P. Fischl
Mr. Fischl was elected President of the Company in January 2002 and was elected
President, Chief Executive Officer of the Company in August 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 elected Principal Financial Officer of the Company in August
2002. He 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. Mr.
Garrette joined Marmon in April 2002.
Robert C. Gluth
Mr. Gluth is Executive Vice President, Treasurer and Director of the Company.
Mr. Gluth is also Vice President and Treasurer of Holdings and Executive Vice
President and Treasurer of Marmon. Mr. Gluth has served in these capacities for
each of the Company, Holdings and Marmon in excess of five years.
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.
Robert K. Lorch
Mr. Lorch was elected Vice President of the Company in September 2002. He has
served as Vice President and Chief Financial Officer of Holdings and Senior Vice
President and Chief Financial Officer of Marmon since April 2002. Prior to
joining Marmon, Mr. Lorch was Vice President, Global Picture Tube Business, for
Thomson Multimedia. He was appointed to that position in 1998 after having
served Thomson Multimedia since 1988, first as General Manager, Sales, Marketing
and New Business Development, and then as Vice President, Americas Business.
John D. Nichols
Mr. Nichols was elected as a Director of the Company in January 2002. He is
President and Chief Executive Officer of Holdings 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.
-48-
Robert W. Webb
Mr. Webb is Vice President and Secretary of Holdings and Senior Vice President,
Secretary and General Counsel of Marmon. Mr. Webb has served in these or other
capacities for each of the Company, Holdings and Marmon in excess of five years.
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.
Other Directorships
Mr. John D. Nichols is a Director of Household International, Inc. 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, was the only executive officer of the Company
who in the year ended December 31, 2002, 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 2002 compensation from Marmon
and are primarily involved in the management of Marmon. The Company, together
with the other subsidiaries of Holdings, 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, 2002. 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:
Summary Compensation Table
Annual Compensation
-------------------------------------------- All Other
Name and Principal Position Year Salary Bonus Compensation*
- ------------------------------- ------ ---------- --------- ------------
Frank D. Lester,
Vice President of the Company 2002 $ 289,644 $ 80,000 $ 36,671
and President of the Tank Car 2001 270,450 80,000 41,085
Division 2000 263,200 50,000 29,800
* Primarily represents the aggregate amounts of Company contributions to
defined contribution plans on behalf of the named individual.
-49-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Holdings, a Delaware corporation 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.
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, 2002, which
contains a description of certain related party transactions, is incorporated
herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms, and that such information is accumulated and
communicated to our management including our President, Principal Executive
Officer, and our Vice President, Principal Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
Within 90 days prior to the filing date of this Report (the "Evaluation Date"),
we carried out an evaluation, under the supervision and with the participation
of the Company's management, including, Kenneth P. Fischl, our President and
Principal Executive Officer, and Mark J. Garrette, our Vice President and
Principal Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based upon that evaluation, the
President and the Vice President concluded that our disclosure controls and
procedures were effective as of the Evaluation Date.
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 internal controls.
-50-
PART IV
ITEM 15. 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, 2002 .................................................. 20
Consolidated balance sheet - December 31, 2002 and 2001 .................................. 21
Consolidated statement of stockholder's equity for each of
the three years in the period ended December 31, 2002 .................................. 22
Consolidated statement of cash flows for each of the three
years in the period ended December 31, 2002 ............................................ 23
Notes to consolidated financial statements ............................................... 24
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 55 ........................................................................... 55
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
December 31, 2002.
-51-
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/ Mark J. Garrette
------------------------
Mark J. Garrette
Vice President
Dated: March 25, 2003
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 25, 2003
-------------------------- (principal executive officer)
Kenneth P. Fischl
/s/ Robert C. Gluth Executive Vice President, March 25, 2003
-------------------------- Director and Treasurer
Robert C. Gluth
/s/ Mark J. Garrette Vice President March 25, 2003
-------------------------- (principal financial officer
Mark J. Garrette and principal accounting
officer)
/s/ John D. Nichols Director March 25, 2003
--------------------------
John D. Nichols
-52-
CERTIFICATIONS
I, Kenneth P. Fischl, certify that:
1. I have reviewed this annual report on Form 10-K of Union Tank Car
Company;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual report is being prepared;
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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: March 25, 2003
/s/ Kenneth P. Fischl
-------------------------------
Kenneth P. Fischl
Principal Executive Officer
-53-
I, Mark J. Garrette, certify that:
1. I have reviewed this annual report on Form 10-K of Union Tank Car
Company;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual report is being prepared;
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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
c) 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
annual 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: March 25, 2003
/s/ Mark J. Garrette
-------------------------------
Mark J. Garrette
Principal Financial Officer
-54-
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 recomputation 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
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
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.
-55-