Union Tank Car 10-Q 2003 Q3 Quarterly report

Form 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

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 incorporation or organization)	(I.R.S. Employer Identification Number)

225 West Washington Street, Chicago, Illinois 60606

(Address of principal executive offices)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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 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.

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UNION TANK CAR COMPANY AND SUBSIDIARIES

FORM 10-Q

INDEX

			Page
Part I.	Financial Information
	Item 1.	Financial Statements
		Condensed consolidated statement of income—three and nine month periods ended September 30, 2003 and 2002	3
		Condensed consolidated balance sheet—September 30, 2003 and December 31, 2002	4
		Condensed consolidated statement of cash flows—nine months ended September 30, 2003 and 2002	5
		Notes to condensed consolidated financial statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
	Item 4.	Controls and Procedures	18
Part II.	Other Information
	Item 1.	Legal Proceedings	19
	Item 6.	Exhibits and Reports on Form 8-K	19
Signatures			20

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNION TANK CAR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Dollars in Thousands)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Revenues
Services (leasing and other)	$	180,439	$	172,231	$	532,282	$	517,499
Net sales		141,533		144,570		412,842		437,571
		321,972		316,801		945,124		955,070
Other income, net		3,902		5,195		6,905		15,360
		325,874		321,996		952,029		970,430
Costs and expenses
Cost of services		113,276		109,630		340,615		326,249
Cost of sales		118,306		120,171		343,856		358,176
Write-down of investment in aircraft direct financing lease		—		—		24,506		—
General and administrative		34,800		32,352		103,299		103,734
Interest		19,091		19,439		54,924		59,681
		285,473		281,592		867,200		847,840
Income before income taxes		40,401		40,404		84,829		122,590
Provision for income taxes		13,308		15,324		31,852		45,745
Net income	$	27,093	$	25,080	$	52,977	$	76,845

See notes to condensed consolidated financial statements.

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UNION TANK CAR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(Dollars in Thousands)

	September 30, 2003		December 31, 2002
	(Unaudited)
Assets
Cash and cash equivalents	$	53,430	$	40,222
Short-term investments		61,950		75,187
Accounts receivable, primarily due within one year		131,604		122,674
Accounts and notes receivable, affiliates		43,547		44,921
Inventories, net of LIFO reserves of $33,976 ($32,683 at December 31, 2002)		109,650		132,479
Prepaid expenses and deferred charges		12,149		13,715
Advances to parent company, principally at LIBOR plus 1%		322,445		354,339
Railcar lease fleet, net		1,649,113		1,579,029
Intermodal tank container fleet, net		296,539		294,939
Fixed assets, net		190,180		198,114
Investment in aircraft direct financing lease		2,001		24,434
Other assets		55,672		56,530
Total assets	$	2,928,280	$	2,936,583
Liabilities and Stockholder’s Equity
Accounts payable	$	50,554	$	53,596
Accrued liabilities		251,556		255,653
Borrowed debt, including $47,438 due within one year ($46,333 at December 31, 2002)		961,712		1,007,532
		1,263,822		1,316,781
Deferred income taxes and investment tax credits		546,336		521,162
Minority interest liability		90,145		86,640
Stockholder’s equity
Common stock and additional capital		265,061		265,061
Retained earnings		762,916		746,939
Total stockholder’s equity		1,027,977		1,012,000
Total liabilities and stockholder’s equity	$	2,928,280	$	2,936,583

See notes to condensed consolidated financial statements.

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UNION TANK CAR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Nine Months Ended September 30,
	2003			2002
Cash flows from operating activities:
Net income	$	52,977		$	76,845
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		118,562			113,196
Deferred taxes		17,617			36,907
Write-down of investment in aircraft direct financing lease		24,506			—
Gain on disposition of railcars and other fixed assets		(4,115	)		(2,311	)
Loss on disposition of business		1,494			—
Other non-cash income and expenses		8,231			6,326
Changes in assets and liabilities:
Accounts receivable		(13,933	)		20,844
Inventories		19,873			17,229
Prepaid expenses and deferred charges		2,170			196
Accounts payable and accrued expenses		(1,529	)		(63,686	)
Net cash provided by operating activities		225,853			205,546
Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets		(178,483	)		(87,081	)
Decrease in short-term investments		13,018			33,758
Decrease (increase) in advance to parent		5,139			(6,361	)
Increase in other assets		(1,525	)		(700	)
Proceeds from disposals of railcars and other fixed assets		25,715			10,216
Proceeds from disposition of business		625			—
Purchases of businesses, net of cash acquired		—			(9,074	)
Net cash used in investing activities		(135,511	)		(59,242	)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt		145			1,642
Principal payments of borrowed debt		(46,449	)		(88,845	)
Cash dividends		(37,000	)		(53,000	)
Net cash used in financing activities		(83,304	)		(140,203	)
Effect of exchange rates on cash and cash equivalents		6,170			30
Net increase in cash and cash equivalents		13,208			6,131
Cash and cash equivalents at beginning of year		40,222			11,131
Cash and cash equivalents at end of period	$	53,430		$	17,262
Cash paid during the period for:
Interest (net of amount capitalized)	$	52,406		$	60,373
Income taxes		1,414			10,269

See notes to condensed consolidated financial statements.

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UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands)

(Unaudited)

1. UNION TANK CAR COMPANY (the “Company”) is a wholly-owned subsidiary of Marmon Holdings, Inc. (“Holdings”), substantially all of the stock of which is owned, directly or indirectly, by trusts for the benefit of certain members of the Pritzker family. As used herein, “Pritzker family” refers to the lineal descendants of Nicholas J. Pritzker, deceased.

2. The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals and the write-down of investment in aircraft direct financing lease, which the Company considers necessary for a fair presentation. These interim financial statements do not include all disclosures normally provided in annual financial statements. Accordingly, they should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s 2002 Annual Report on Form 10-K.

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 and 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.

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

The 2003 interim results presented herein are not necessarily indicative of the results of operations for the full year 2003.

3. As more fully described in the Company’s 2002 Annual Report on Form 10-K, under an arrangement with Holdings, the Company is included in the consolidated federal income tax return 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 group.

4. The Company and its subsidiaries have been named as defendants in a number of lawsuits, and certain claims are pending. The Company has accrued what it reasonably expects to pay in resolution of these matters and, in the opinion of management, their ultimate resolution will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

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5. Foreign currency translation adjustments and transaction gains and losses are borne by the Company’s parent. For the nine months ended September 30, 2003 and 2002, the Company’s parent absorbed a loss of $6,982 and a gain of $774, respectively.

6. The Company’s short-term investments consist of commercial paper with original maturities between four and six months.

7. The Company’s foreign subsidiaries periodically enter into foreign currency forward contracts to hedge against U.S. dollar exposures. There were no foreign currency forward contracts outstanding at September 30, 2003 and December 31, 2002.

8. Segment Information

	Railcar		Metals Distribution		Intermodal Tank Container Leasing		All Other			Consolidated Totals
	(Dollars in Millions)
Three months ended September 30, 2003
Revenues from external customers	$	150.6	$	97.0	$	21.8	$	52.6		$	322.0
Income before income taxes		28.2		3.2		2.5		6.5			40.4
Three months ended September 30, 2002
Revenues from external customers	$	142.6	$	99.8	$	19.8	$	54.6		$	316.8
Income before income taxes		29.4		3.1		1.3		6.6			40.4
Nine months ended September 30, 2003
Revenues from external customers	$	434.5	$	292.4	$	64.5	$	153.7		$	945.1
Income before income taxes		79.9		5.1		7.1		(7.3	)		84.8
Nine months ended September 30, 2002
Revenues from external customers	$	437.9	$	306.7	$	58.9	$	151.6		$	955.1
Income before income taxes		87.4		9.7		4.1		21.4			122.6

9. Consolidating Financial Information

The following condensed consolidating statements are provided because Procor Limited, a wholly-owned subsidiary of the Company, has issued three separate series of equipment trust certificates, guaranteed by the Company, as part of certain public debt offerings of the 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.

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9. Consolidating Financial Information (Continued)

Condensed consolidating statements of income for the three months ended September 30, 2003 and 2002 are as follows:

Three Months Ended September 30, 2003
	Union Tank Car Company			Procor Limited			Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	111,543		$	6,016		$	75,883	$	(13,003	)	$	180,439
Net sales		13,825			437			129,745		(2,474	)		141,533
		125,368			6,453			205,628		(15,477	)		321,972
Other income, net		(779	)		861			1,970		1,850			3,902
		124,589			7,314			207,598		(13,627	)		325,874
Costs and expenses
Cost of services		72,581			7,045			46,653		(13,003	)		113,276
Cost of sales		14,265			420			106,095		(2,474	)		118,306
General and administrative		9,797			425			24,578		—			34,800
Interest		11,753			2,144			3,344		1,850			19,091
		108,396			10,034			180,670		(13,627	)		285,473
Income before income taxes		16,193			(2,720	)		26,928		—			40,401
Provision for income taxes		5,050			(835	)		9,093		—			13,308
Net income	$	11,143		$	(1,885	)	$	17,835	$	—		$	27,093
Three Months Ended September 30, 2002
	Union Tank Car Company			Procor Limited			Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	112,618		$	5,197		$	65,571	$	(11,155	)	$	172,231
Net sales		7,184			992			138,070		(1,676	)		144,570
		119,802			6,189			203,641		(12,831	)		316,801
Other income, net		(1,357	)		2,577			1,655		2,320			5,195
		118,445			8,766			205,296		(10,511	)		321,996
Costs and expenses
Cost of services		73,588			5,593			41,604		(11,155	)		109,630
Cost of sales		7,355			1,012			113,480		(1,676	)		120,171
General and administrative		9,900			318			22,134		—			32,352
Interest		12,713			743			3,663		2,320			19,439
		103,556			7,666			180,881		(10,511	)		281,592
Income before income taxes		14,889			1,100			24,415		—			40,404
Provision for income taxes		6,468			51			8,805		—			15,324
Net income	$	8,421		$	1,049		$	15,610	$	—		$	25,080

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9. Consolidating Financial Information (Continued)

Condensed consolidating statements of income for the nine months ended September 30, 2003 and 2002 are as follows:

Nine Months Ended September 30, 2003
	Union Tank Car Company		Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Revenues
Services	$	330,381	$	18,487		$	217,186		$	(33,772	)	$	532,282
Net sales		29,818		794			388,386			(6,156	)		412,842
		360,199		19,281			605,572			(39,928	)		945,124
Other income, net		7,454		(5,443	)		(11	)		4,905			6,905
		367,653		13,838			605,561			(35,023	)		952,029
Costs and expenses
Cost of services		216,649		20,102			137,636			(33,772	)		340,615
Cost of sales		31,674		765			317,573			(6,156	)		343,856
Write-down of investment in aircraft direct financing lease		—		24,506			—			—			24,506
General and administrative		28,978		719			73,602			—			103,299
Interest		35,316		3,554			11,149			4,905			54,924
		312,617		49,646			539,960			(35,023	)		867,200
Income before income taxes		55,036		(35,808	)		65,601			—			84,829
Provision for income taxes		20,708		(11,823	)		22,967			—			31,852
Net income	$	34,328	$	(23,985	)	$	42,634		$	—		$	52,977

Nine Months Ended September 30, 2002
	Union Tank Car Company			Procor Limited		Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	339,929		$	19,630	$	191,237	$	(33,297	)	$	517,499
Net sales		30,891			4,896		408,836		(7,052	)		437,571
		370,820			24,526		600,073		(40,349	)		955,070
Other income, net		(700	)		4,679		4,832		6,549			15,360
		370,120			29,205		604,905		(33,800	)		970,430
Costs and expenses
Cost of services		220,858			17,343		121,345		(33,297	)		326,249
Cost of sales		31,489			4,891		328,848		(7,052	)		358,176
General and administrative		29,870			476		73,388		—			103,734
Interest		39,827			2,308		10,997		6,549			59,681
		322,044			25,018		534,578		(33,800	)		847,840
Income before income taxes		48,076			4,187		70,327		—			122,590
Provision for income taxes		19,191			1,278		25,276		—			45,745
Net income	$	28,885		$	2,909	$	45,051	$	—		$	76,845

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9. Consolidating Financial Information (Continued)

Condensed consolidating balance sheets as of September 30, 2003 and December 31, 2002 are as follows:

	September 30, 2003
	Union Tank Car Company		Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	74	$	49,296		$	4,060		$	—		$	53,430
Short-term investments		—		61,950			—			—			61,950
Accounts receivable		41,662		2,678			145,687			(58,423	)		131,604
Accounts and notes receivable, affiliates		—		1			43,546			—			43,547
Inventories, net		28,418		4,202			77,030			—			109,650
Prepaid expenses and deferred charges		5,376		1,100			5,673			—			12,149
Advances to parent company		114,684		(43,234	)		250,594			401			322,445
Railcar lease fleet, net		1,381,893		29,261			237,959			—			1,649,113
Intermodal tank container lease fleet, net		—		—			296,539			—			296,539
Fixed assets, net		82,089		15,948			92,143			—			190,180
Investment in aircraft direct financing lease		—		2,001			—			—			2,001
Investment in subsidiaries		768,828		75,844			177,469			(1,022,141	)		—
Other assets		313		476			55,379			(496	)		55,672
Total assets	$	2,423,337	$	199,523		$	1,386,079		$	(1,080,659	)	$	2,928,280
Liabilities and Stockholder’s Equity
Accounts payable	$	54,333	$	16,265		$	38,089		$	(58,133	)	$	50,554
Accrued liabilities		170,919		4,187			73,906			2,544			251,556
Borrowed debt		780,854		19,539			161,319			—			961,712
		1,006,106		39,991			273,314			(55,589	)		1,263,822
Deferred income taxes and investment tax credits		421,250		18,114			106,972			—			546,336
Minority interest liability		—		—			90,636			(491	)		90,145
Stockholder’s equity
Common stock and additional capital		358,475		13,345			359,606			(466,365	)		265,061
Retained earnings		622,845		129,598			568,687			(558,214	)		762,916
Equity adjustment from foreign currency translation		14,661		(1,525	)		(13,136	)		—			—
Total stockholder’s equity		995,981		141,418			915,157			(1,024,579	)		1,027,977
Total liabilities and stockholder’s equity	$	2,423,337	$	199,523		$	1,386,079		$	(1,080,659	)	$	2,928,280

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9. Consolidating Financial Information (Continued)

	December 31, 2002
	Union Tank Car Company		Procor Limited			Other 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 company		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 aircraft 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 liability		—		—			87,438			(798	)		86,640
Stockholder’s equity
Common stock and additional capital		358,475		13,012			359,479			(465,905	)		265,061
Retained earnings		563,855		152,298			555,102			(524,316	)		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

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9. Consolidating Financial Information (Continued)

Condensed consolidating statements of cash flows for the nine months ended September 30, 2003 and 2002 are as follows:

Nine Months Ended September 30, 2003
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities:	$	100,866		$	11,199		$	113,788		$	—		$	225,853
Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets		(143,590	)		(991	)		(33,902	)		—			(178,483	)
Decrease in short-term investments		—			13,018			—			—			13,018
Decrease (increase) in advance to parent		90,929			(1,443	)		(50,722	)		(33,625	)		5,139
Increase in other assets		—			—			(1,525	)		—			(1,525	)
Proceeds from disposals of railcars and other fixed assets		18,182			369			7,164			—			25,715
Proceeds from disposals of business		—			—			625			—			625
Net cash (used in) provided by investing activities		(34,479	)		10,953			(78,360	)		(33,625	)		(135,511	)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt		—			—			145			—			145
Principal payments of borrowed debt		(29,472	)		(15,524	)		(1,453	)		—			(46,449	)
Cash dividends		(37,000	)		—			(33,625	)		33,625			(37,000	)
Net cash (used in) provided by financing activities		(66,472	)		(15,524	)		(34,933	)		33,625			(83,304	)
Effect of exchange rates on cash and cash equivalents		—			6,046			124			—			6,170
Net (decrease) increase in cash and cash equivalents		(85	)		12,674			619			—			13,208
Cash and cash equivalents at beginning of year		159			36,622			3,441			—			40,222
Cash and cash equivalents at end of period	$	74		$	49,296		$	4,060		$	—		$	53,430

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9. Consolidating Financial Information (Continued)

Nine Months Ended September 30, 2002
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities:	$	87,000		$	6,877		$	111,669		$	—		$	205,546
Cash flows from investing activities:
Construction and purchase of railcars and other fixed assets		(59,333	)		(715	)		(27,033	)		—			(87,081	)
Decrease in short-term investments		—			33,758			—			—			33,758
Decrease (increase) in advance to parent		92,597			(20,987	)		(51,543	)		(26,428	)		(6,361	)
Increase in other assets		—			—			(700	)		—			(700	)
Proceeds from disposals of railcars and other fixed assets		4,994			843			4,379			—			10,216
Purchases of businesses, net of cash acquired		—			—			(9,074	)		—			(9,074	)
Net cash provided by (used in) investing activities		38,258			12,899			(83,971	)		(26,428	)		(59,242	)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt		—			—			1,642			—			1,642
Principal payments of borrowed debt		(72,191	)		(13,678	)		(2,976	)		—			(88,845	)
Cash dividends		(53,000	)		—			(26,428	)		26,428			(53,000	)
Net cash (used in) provided by financing activities		(125,191	)		(13,678	)		(27,762	)		26,428			(140,203	)
Effect of exchange rates on cash and cash equivalents		—			27			3			—			30
Net increase (decrease) in cash and cash equivalents		67			6,125			(61	)		—			6,131
Cash and cash equivalents at beginning of year		60			8,590			2,481			—			11,131
Cash and cash equivalents at end of period	$	127		$	14,715		$	2,420		$	—		$	17,262

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10. The Company is obligated under one residual value guarantee totaling $2.1 million until March 2006 and several performance guarantees totaling $3.5 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 periods are as follows:

	Nine Months Ended September 30,
	2003			2002
	(Dollars in Thousands)
Balance, beginning of year	$	724		$	877
Warranties issued		142			268
Settlements		(326	)		(359	)
Balance, end of period	$	540		$	786

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.

11. On February 8, 1988, Procor Limited (“Procor”) entered into an Operating Lease Agreement (“Lease”) with Air Canada for one Boeing 767-233 aircraft, the Company’s only aircraft. On the same day and as part of the same transaction, Procor entered into a Trust Indenture (“Indenture”) under which it borrowed Cdn$45.0 million and granted a security interest in the aircraft to the trustee. On April 1, 2003, Air Canada filed for an interim court order for protection from its creditors under the Canadian Companies Creditors Arrangement Act. On May 9, 2003, Air Canada notified Procor that it was electing to terminate the Lease effective as of May 30, 2003. This filing and the termination of the Lease constituted defaults under the Lease. The defaults under the Lease constituted defaults under the Indenture and allowed the trustee, among other things, to declare the remaining principal and interest immediately due. The trustee did not do so. On July 29, 2003, Procor prepaid the remaining debt of Cdn$17.7 million and paid a make-whole premium of Cdn$2.8 million.

The net book value of the aircraft was Cdn$37.3 million as of March 31, 2003. Because of the depressed market for Boeing 767-233 aircraft and a required regulatory maintenance check, there is no reasonable expectation of leasing the aircraft in the near future on acceptable terms. Procor has been advised that the current value of the aircraft, in whole or for parts, in an “as-is” condition, may be as low as Cdn$2.7 million. Therefore, during the second quarter, the value of the aircraft was written down to Cdn$2.7 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

3rd Quarter 2003 versus 2002

Performance of the railcar leasing business continues to be adversely affected by the low level of activity in most major markets. Demand for existing railcars has improved, increasing railcar fleet utilization. However, average railcar lease rates have declined. Demand for intermodal equipment has improved, resulting in higher intermodal fleet utilization, although lease rates for intermodal equipment are lower. Service revenues increased $8.2 million primarily due to a $3.3 million increase in sulphur processing revenues, a $1.9 million increase in intermodal tank container leasing revenues, and a $1.9 million increase in railcar leasing and service revenues.

Demand for new railcars has improved, resulting in increased production and capacity utilization. Increased demand for railcars produced for lease has more than offset decreased demand for railcars produced for sale. Demand for the products of the metals distribution business was impacted by the continuing general economic slowdown in the U.S. Overall sales revenues decreased $3.0 million primarily due to a $5.6 million decrease in sulphur processing equipment sales and a $2.7 million decrease in metal products, offset by a $6.2 million increase in sale of railcars.

Other income decreased $1.3 million primarily due to the termination of the lease disclosed in Note 11 to the financial statements.

The provision for income taxes as a percentage of income before taxes decreased due to an increase in anticipated utilization of foreign tax credits.

Nine Months 2003 versus 2002

Performance of the railcar leasing business continues to be adversely affected by the low level of activity in most major markets, decreasing demand for existing railcars and depressing railcar fleet utilization. Average railcar lease rates have declined. Demand for intermodal equipment has improved, resulting in higher intermodal fleet utilization, although lease rates for intermodal equipment are lower. Service revenues increased $14.8 million primarily due to a $7.7 million increase in sulphur processing revenues and a $5.6 million increase in intermodal tank container leasing revenues.

Demand for new railcars has improved, resulting in increased production and capacity utilization. Increased demand for railcars produced for lease has more than offset decreased demand for railcars produced for sale. Demand for the products of the metals distribution business was impacted by the continuing general economic slowdown in the U.S. Overall sales revenues decreased $24.7 million primarily due to a $14.1 million decrease in metal products, a $6.7 million decrease in sulphur processing equipment sales, and a $2.5 million decrease in sale of railcars. Gross margin on sales revenues decreased $10.4 million primarily due to a $5.0 million decrease in margin in the metals distribution business and a $2.0 million decrease in margin in the sulphur processing equipment sales.

Other income decreased $8.5 million, $5.5 million of which was due to the termination of the lease disclosed in Note 11 to the financial statements and $1.5 million of which was due to a loss on disposition of a foreign metals distribution subsidiary.

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Financial Condition and Liquidity

Nine Months 2003 versus 2002

Operating activities provided $225.9 million of cash in the first nine months of 2003. These funds, along with redemption of short-term investments, were used to finance lease fleet additions, service borrowed debt obligations, advance funds to parent, and pay dividends to the Company’s stockholder.

It is the Company’s policy to pay to its stockholder a quarterly dividend equal to 70% of net income. To the extent that the Company generates cash in excess of its operating needs, such funds, in excess of the amounts paid as dividends, are advanced to its parent and bear interest at commercial rates. Conversely, when the Company requires additional funds to support its operations, prior advances are repaid by its parent. No restrictions exist regarding the amount of dividends which may be paid or advances which may be made by the Company to its parent.

During the first nine months of 2003, the Company spent $178.5 million for construction and purchase of railcars and other fixed assets. Since capital expenditures for railcars are generally incurred subsequent to receipt of firm customer lease orders, such expenditures are discretionary to the Company based on its desire to enter into those lease orders. Capital expenditures for intermodal tank containers are likewise discretionary in the intermodal tank container business.

During the first nine months of 2003, the Company’s financing activities included the use of $46.4 million for principal repayments on borrowed debt and $37.0 million for cash dividends. Net cash used in financing activities was $83.3 million.

Management expects future cash to be provided from operating activities, long-term financings and collection of funds previously advanced to parent will be adequate to provide for the continued investment in the Company’s business and enable it to meet its debt service obligations.

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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 September 30, 2003, 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 did not have a material impact on the Company’s consolidated financial statements 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 adopted the new rule on asset retirement obligations on January 1, 2003. The effect of adoption of SFAS No. 143 did not have a material effect on the Company’s results of operations or financial position.

Forward-Looking Statements

This quarterly report on Form 10-Q for the quarter ended September 30, 2003 contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This information may involve risks and uncertainties that could cause actual results to differ materially from those set forth herein. These risks and uncertainties include, but are not limited to, unanticipated changes in the markets served by the Company such as the railcar leasing, service and sales, intermodal tank container leasing and metal products distribution industries.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At September 30, 2003, there had been no significant change to the Company’s exposure to market risk since December 31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

The Company’s management, including the Principal Executive Officer and Principal Financial Officer, does not expect that its disclosure controls and procedures or internal controls and procedures will prevent all error and all fraud. A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Reference is made to “Business—Environmental Matters” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and to “Item 1. Legal Proceedings” in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 for a description of certain environmental matters.

ITEM 6. Exhibits and Reports on Form 8-K

a. Exhibits

Exhibit 31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2	Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

b. Reports on Form 8-K during the quarter ended September 30, 2003

None.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNION TANK CAR COMPANY REGISTRANT
Dated: November 13, 2003	/S/    MARK J. GARRETTE
	Mark J. Garrette Vice President (principal financial officer and principal accounting officer)

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