Union Tank Car 10-Q 2005 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

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

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 Exchange Act).    Yes  ¨    No  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

There is no voting stock held by non-affiliates of the registrant. The registrant is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. The registrant is a voluntary filer.

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

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, 2005 and 2004	3
		Condensed consolidated balance sheet - September 30, 2005 and December 31, 2004	4
		Condensed consolidated statement of cash flows - nine months ended September 30, 2005 and 2004	5
		Notes to condensed consolidated financial statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 4.	Controls and Procedures	22
Part II. Other Information
	Item 1.	Legal Proceedings	23
	Item 5.	Other Information	23
	Item 6.	Exhibits	23
Signatures			24

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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,
	2005			2004		2005			2004
Revenues
Services (leasing and other)	$	193,708		$	188,418	$	568,649		$	554,700
Net sales		223,468			205,886		665,698			562,306
		417,176			394,304		1,234,347			1,117,006
Costs and expenses
Cost of services		118,651			115,913		334,520			347,103
Cost of sales		177,465			168,756		547,550			454,587
General and administrative		34,346			35,201		109,139			105,284
Interest		22,629			20,564		62,531			54,880
		353,091			340,434		1,053,740			961,854
Other income, net		10,503			10,594		21,515			18,356
Income before income taxes		74,588			64,464		202,122			173,508
Provision for income taxes		28,016			25,176		76,787			68,075
		46,572			39,288		125,335			105,433
Minority interest		1,105			1,343		4,345			4,050
Net income		45,467			37,945		120,990			101,383
Other comprehensive income (losses)
Unrealized (losses) gains on securities, net of tax		(272	)		316		(800	)		328
Minimum pension liability, net of tax		(39	)		—		(853	)		—
Comprehensive income	$	45,156		$	38,261	$	119,337		$	101,711

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, 2005			December 31, 2004
	(Unaudited)
Assets
Cash and cash equivalents	$	43,252		$	98,336
Short-term investments		82,003			45,429
Available-for-sale securities		300,166			244,896
Accounts receivable, net of allowances of $9,543 ($10,938 at December 31, 2004)		181,756			172,689
Accounts and notes receivable, affiliates		45,146			43,626
Inventories, net of LIFO reserves of $79,794 ($74,379 at December 31, 2004)		150,161			146,944
Prepaid expenses and deferred charges		22,110			13,292
Advances to parent company, principally at LIBOR plus 1%		132,378			150,246
Railcar lease fleet, net		2,065,911			1,804,350
Intermodal tank container lease fleet, net		338,816			323,601
Other fixed assets, net		233,590			198,986
Other assets		30,768			35,422
Total assets	$	3,626,057		$	3,277,817
Liabilities and Stockholder’s Equity
Accounts payable	$	94,017		$	74,606
Accrued liabilities		244,469			265,480
Borrowed debt, including $83,066 due within one year ($34,147 at December 31, 2004)		1,449,672			1,167,251
		1,788,158			1,507,337
Deferred income taxes and investment tax credits		623,863			596,126
		2,412,021			2,103,463
Minority interest		101,700			97,355
Stockholder’s equity
Common stock		106,689			106,689
Additional capital		158,372			158,372
Retained earnings		849,329			812,339
Unrealized losses on available-for-sale securities, net		(1,201	)		(401	)
Minimum pension liability, net		(853	)		—
Total stockholder’s equity		1,112,336			1,076,999
Total liabilities and stockholder’s equity	$	3,626,057		$	3,277,817

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,
	2005			2004
Cash flows from operating activities:
Net income	$	120,990		$	101,383
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		123,573			120,615
Deferred taxes		26,898			19,969
Gain on disposition of lease fleet and other fixed assets		(5,193	)		(9,351	)
Other non-cash income and expenses		6,307			6,271
Changes in assets and liabilities:
Accounts receivable		(18,608	)		(44,036	)
Inventories		2,654			(22,503	)
Prepaid expenses and deferred charges		(11,008	)		(7,890	)
Accounts payable and accrued expenses		(9,511	)		12,124
Net cash provided by operating activities		236,102			176,582
Cash flows from investing activities:
Construction and purchase of lease fleet and other fixed assets		(442,200	)		(234,585	)
(Increase) decrease in short-term investments		(36,574	)		17,159
Increase in available-for-sale securities		(56,493	)		(285,528	)
Decrease in advance to parent		21,438			94,964
Increase in other assets		(1,527	)		(2,480	)
Proceeds from disposals of lease fleet and other fixed assets		17,471			24,405
Proceeds from disposition of business		7,274			—
Net cash used in investing activities		(490,611	)		(386,065	)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt		311,000			300,000
Principal payments of borrowed debt		(28,579	)		(36,410	)
Cash dividends		(84,000	)		(71,000	)
Net cash provided by financing activities		198,421			192,590
Effect of exchange rates on cash and cash equivalents		1,004			1,383
Decrease in cash and cash equivalents		(55,084	)		(15,510	)
Cash and cash equivalents at beginning of year		98,336			56,197
Cash and cash equivalents at end of period	$	43,252		$	40,687
Cash paid during the period for:
Interest	$	51,220		$	46,698
Income taxes		44,917			52,708

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. Ownership

UNION TANK CAR COMPANY (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. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation. These interim financial statements do not include all disclosures normally provided in annual financial statements. Accordingly, they should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s 2004 Annual Report on Form 10-K.

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

The 2005 interim results presented herein are not necessarily indicative of the results of operations for the full year 2005.

3. Significant Accounting Policies

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.

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, work-in-process, and raw materials represented approximately 57%, 9%, and 33% of net inventories at September 30, 2005 and 62%, 8%, and 29% of net inventories at December 31, 2004, respectively. The Company uses the LIFO costing method for approximately 67% and 70% of its total gross inventories at September 30, 2005 and December 31, 2004, respectively.

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3. Significant Accounting Policies (Continued)

Foreign Currency Translation

Foreign currency translation adjustments and transaction gains and losses are borne by the Company’s parent. For the nine months ended September 30, 2005 and 2004, the Company’s parent absorbed losses of $640 and $552, respectively.

Lease Fleet and Other Fixed Assets

	September 30, 2005			December 31, 2004
Railcar lease fleet
Gross cost	$	3,745,185		$	3,413,293
Less accumulated depreciation		(1,679,274	)		(1,608,943	)
	$	2,065,911		$	1,804,350
Intermodal tank container lease fleet
Gross cost	$	452,278		$	419,304
Less accumulated depreciation		(113,462	)		(95,703	)
	$	338,816		$	323,601
Other fixed assets
Gross cost	$	615,985		$	571,346
Less accumulated depreciation		(382,395	)		(372,360	)
	$	233,590		$	198,986

Derivative Financial Instruments

The Company’s foreign subsidiaries periodically enter into foreign currency forward contracts to hedge against currency exchange rate exposures. There were no foreign currency forward contracts outstanding at September 30, 2005 and December 31, 2004.

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.

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3. Significant Accounting Policies (Continued)

Legal Matters

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.

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 plus corporate headquarters items, are shown as All Other in the table:

	Railcar		Metals Distribution		Intermodal Tank Container Leasing		All Other		Consolidated Totals
	(Dollars in Millions)
Three months ended September 30, 2005
Services revenue	$	150.1	$	2.3	$	26.3	$	15.0	$	193.7
Net sales revenue		14.6		175.6		—		33.3		223.5
Income before income taxes		29.5		25.4		5.3		14.4		74.6
Three months ended September 30, 2004
Services revenue	$	138.6	$	2.2	$	24.3	$	23.3	$	188.4
Net sales revenue		12.6		156.3		—		37.0		205.9
Income before income taxes		34.6		15.1		3.5		11.3		64.5
Nine months ended September 30, 2005
Services revenue	$	438.5	$	6.6	$	77.1	$	46.4	$	568.6
Net sales revenue		45.6		518.9		—		101.2		665.7
Income before income taxes		88.9		57.2		16.2		39.8		202.1
Nine months ended September 30, 2004
Services revenue	$	410.1	$	6.4	$	71.4	$	66.8	$	554.7
Net sales revenue		28.2		428.1		—		106.0		562.3
Income before income taxes		96.0		38.4		10.5		28.6		173.5

5. Disposition of Business

On April 29, 2005, the Company sold its sulfur-based fertilizer business, which operated in the United States and Canada, for a sale price of approximately $8.4 million, which amount is subject to certain post-closing adjustments. As of September 30, 2005, $7.3 million has been received.

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6. Available-for-Sale Securities

At September 30, 2005 and December 31, 2004, the Company had the following investments in marketable securities which have been classified as “available-for-sale”:

September 30, 2005	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Corporate Securities	$	302,004	$	—	$	(1,838	)	$	300,166
December 31, 2004	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Corporate Securities	$	245,510	$	—	$	(614	)	$	244,896

The gross unrealized holding losses, less related taxes ($637 and $213 at September 30, 2005 and December 31, 2004, respectively) have been reported as a separate component of stockholders’ equity in the accompanying condensed consolidated balance sheet.

7. Commitments and Contingencies

The Company has one residual value guarantee totaling $2.1 million until March 2006, several performance guarantees totaling $1.9 million until August 2008, and several standby letters of credit totaling $19.7 million.

The Company’s Canadian subsidiaries have approximately $11.6 million of credit lines available on a no-fee basis. No amounts were outstanding as of September 30, 2005.

Additionally, the Company provides warranties on certain products for varying lengths of time. The Company estimates the costs that may be incurred and records a liability in the amount of such costs at the time product revenue is recognized. Changes to the Company’s product warranty accrual during the periods are as follows:

	Nine Months Ended September 30,
	2005			2004
Balance, beginning of year	$	1,687		$	602
Net warranties issued		71			809
Settlements		(537	)		(170	)
Balance, end of period	$	1,221		$	1,241

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.

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8. 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 Union Tank Car Company, as part of certain public debt offerings issued by Union Tank Car Company in the United States.

Effective January 1, 2005, the Company’s tank car manufacturing business was transferred from Union Tank Car Company to UTLX Manufacturing, Inc., a new wholly owned subsidiary of the Company, and is now included in Other Subsidiaries.

Condensed consolidating statements of income for the three months ended September 30, 2005 and 2004 are as follows:

	Three Months Ended September 30, 2005
	Union Tank Car Company		Procor Limited		Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	131,590	$	5,477	$	73,223	$	(16,582	)	$	193,708
Net sales		—		—		304,679		(81,211	)		223,468
		131,590		5,477		377,902		(97,793	)		417,176
Costs and expenses
Cost of services		86,913		1,906		46,414		(16,582	)		118,651
Cost of sales		11		—		249,427		(71,973	)		177,465
General and administrative		9,577		610		25,555		(1,396	)		34,346
Interest		17,806		536		4,287		—			22,629
		114,307		3,052		325,683		(89,951	)		353,091
Other income, net		39,240		289		3,042		(32,068	)		10,503
Income before income taxes		56,523		2,714		55,261		(39,910	)		74,588
Provision for income taxes		11,056		1,077		20,384		(4,501	)		28,016
		45,467		1,637		34,877		(35,409	)		46,572
Minority interest		—		—		1,105		—			1,105
Net income	$	45,467	$	1,637	$	33,772	$	(35,409	)	$	45,467
	Three Months Ended September 30, 2004
	Union Tank Car Company		Procor Limited		Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	121,594	$	5,409	$	80,058	$	(18,643	)	$	188,418
Net sales		12,624		20		195,364		(2,122	)		205,886
		134,218		5,429		275,422		(20,765	)		394,304
Costs and expenses
Cost of services		80,032		2,700		51,824		(18,643	)		115,913
Cost of sales		12,056		13		158,809		(2,122	)		168,756
General and administrative		9,406		829		24,966		—			35,201
Interest		15,988		584		3,992		—			20,564
		117,482		4,126		239,591		(20,765	)		340,434
Other income, net		32,580		3,011		3,535		(28,532	)		10,594
Income before income taxes		49,316		4,314		39,366		(28,532	)		64,464
Provision for income taxes		11,371		954		12,851		—			25,176
		37,945		3,360		26,515		(28,532	)		39,288
Minority interest		—		—		1,343		—			1,343
Net income	$	37,945	$	3,360	$	25,172	$	(28,532	)	$	37,945

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8. Consolidating Financial Information (Continued)

Condensed consolidating statements of income for the nine months ended September 30, 2005 and 2004 are as follows:

	Nine Months Ended September 30, 2005
	Union Tank Car Company			Procor Limited			Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	386,279		$	15,552		$	221,957	$	(55,139	)	$	568,649
Net sales		—			—			902,006		(236,308	)		665,698
		386,279			15,552			1,123,963		(291,447	)		1,234,347
Costs and expenses
Cost of services		246,459			9,753			133,447		(55,139	)		334,520
Cost of sales		(775	)		—			766,156		(217,831	)		547,550
General and administrative		31,847			1,760			78,873		(3,341	)		109,139
Interest		49,089			1,656			11,786		—			62,531
		326,620			13,169			990,262		(276,311	)		1,053,740
Other income, net		90,799			2,466			5,649		(77,399	)		21,515
Income before income taxes		150,458			4,849			139,350		(92,535	)		202,122
Provision for income taxes		29,468			1,928			50,734		(5,343	)		76,787
		120,990			2,921			88,616		(87,192	)		125,335
Minority interest		—			—			4,345		—			4,345
Net income	$	120,990		$	2,921		$	84,271	$	(87,192	)	$	120,990
	Nine Months Ended September 30, 2004
	Union Tank Car Company			Procor Limited			Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	357,776		$	16,302		$	235,531	$	(54,909	)	$	554,700
Net sales		28,241			464			542,041		(8,440	)		562,306
		386,017			16,766			777,572		(63,349	)		1,117,006
Costs and expenses
Cost of services		235,594			14,699			151,719		(54,909	)		347,103
Cost of sales		26,645			344			436,038		(8,440	)		454,587
General and administrative		27,986			2,624			74,674		—			105,284
Interest		42,105			1,765			11,010		—			54,880
		332,330			19,432			673,441		(63,349	)		961,854
Other income, net		77,680			3,900			7,269		(70,493	)		18,356
Income before income taxes		131,367			1,234			111,400		(70,493	)		173,508
Provision for income taxes		29,984			(860	)		38,951		—			68,075
		101,383			2,094			72,449		(70,493	)		105,433
Minority interest		—			—			4,050		—			4,050
Net income	$	101,383		$	2,094		$	68,399	$	(70,493	)	$	101,383

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8. Consolidating Financial Information (Continued)

Condensed consolidating balance sheets as of September 30, 2005 and December 31, 2004 are as follows:

	September 30, 2005
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	3,210		$	36,396		$	3,646		$	—		$	43,252
Short-term investments		—			82,003			—			—			82,003
Available-for-sale securities		299,115			—			1,051			—			300,166
Accounts receivable		45,415			1,856			205,677			(71,192	)		181,756
Accounts and notes receivable, affiliates		—			1,353			43,793			—			45,146
Inventories, net		9,955			1,815			138,463			(72	)		150,161
Prepaid expenses and deferred charges		6,240			961			14,909			—			22,110
Advances (from) to parent		(127,800	)		(107,303	)		382,349			(14,868	)		132,378
Railcar lease fleet, net		1,815,334			31,845			220,064			(1,332	)		2,065,911
Intermodal tank container lease fleet, net		—			—			338,816			—			338,816
Other fixed assets, net		41,812			15,285			176,493			—			233,590
Investment in subsidiaries		941,642			75,455			86,084			(1,103,181	)		—
Other assets		—			1,173			29,595			—			30,768
Total assets	$	3,034,923		$	140,839		$	1,640,940		$	(1,190,645	)	$	3,626,057
Liabilities and Stockholder’s Equity
Accounts payable	$	56,669		$	16,315		$	92,218		$	(71,185	)	$	94,017
Accrued liabilities		151,619			3,867			89,855			(872	)		244,469
Borrowed debt		1,294,134			17,419			138,119			—			1,449,672
		1,502,422			37,601			320,192			(72,057	)		1,788,158
Deferred income taxes and investment tax credits		459,942			25,369			138,552			—			623,863
		1,962,364			62,970			458,744			(72,057	)		2,412,021
Minority interest		—			—			101,700			—			101,700
Stockholder’s equity
Common stock		106,689			6,331			79,044			(85,375	)		106,689
Additional capital		251,786			7,014			279,818			(380,246	)		158,372
Retained earnings		727,907			65,119			709,270			(652,967	)		849,329
Unrealized losses on available-for-sale securities, net		(1,195	)		—			(6	)		—			(1,201	)
Minimum pension liability, net		—			—			(853	)		—			(853	)
Equity adjustment from foreign currency translation		(12,628	)		(595	)		13,223			—			—
Total stockholder’s equity		1,072,559			77,869			1,080,496			(1,118,588	)		1,112,336
Total liabilities and stockholder’s equity	$	3,034,923		$	140,839		$	1,640,940		$	(1,190,645	)	$	3,626,057

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8. Consolidating Financial Information (Continued)

	December 31, 2004
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	61,663		$	33,123		$	3,550		$	—		$	98,336
Short-term investments		—			45,429			—			—			45,429
Available-for-sale securities		243,986			—			910			—			244,896
Accounts receivable		39,971			2,668			193,962			(63,912	)		172,689
Accounts and notes receivable, affiliates		—			—			43,626			—			43,626
Inventories, net		44,780			1,924			100,240			—			146,944
Prepaid expenses and deferred charges		4,592			2,840			5,860			—			13,292
Advances (from) to parent		(122,196	)		(73,143	)		345,133			452			150,246
Railcar lease fleet, net		1,557,425			31,661			215,995			(731	)		1,804,350
Intermodal tank container lease fleet, net		—			—			323,601			—			323,601
Other fixed assets, net		90,524			15,303			93,159			—			198,986
Investment in subsidiaries		813,631			75,455			77,512			(966,598	)		—
Other assets		13			3,792			31,617			—			35,422
Total assets	$	2,734,389		$	139,052		$	1,435,165		$	(1,030,789	)	$	3,277,817
Liabilities and Stockholder’s Equity
Accounts payable	$	55,474		$	17,132		$	65,589		$	(63,589	)	$	74,606
Accrued liabilities		185,005			5,505			72,403			2,567			265,480
Borrowed debt		1,010,625			18,479			138,147			—			1,167,251
		1,251,104			41,116			276,139			(61,022	)		1,507,337
Deferred income taxes and investment tax credits		442,416			23,453			130,257			—			596,126
		1,693,520			64,569			406,396			(61,022	)		2,103,463
Minority interest		—			—			97,355			—			97,355
Stockholder’s equity
Common stock		106,689			6,331			78,981			(85,312	)		106,689
Additional capital		251,786			7,014			279,818			(380,246	)		158,372
Retained earnings		691,547			61,830			563,267			(504,305	)		812,339
Unrealized losses on available-for-sale securities, net		(399	)		—			(2	)		—			(401	)
Equity adjustment from foreign currency translation		(8,754	)		(692	)		9,350			96			—
Total stockholder’s equity		1,040,869			74,483			931,414			(969,767	)		1,076,999
Total liabilities and stockholder’s equity	$	2,734,389		$	139,052		$	1,435,165		$	(1,030,789	)	$	3,277,817

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8. Consolidating Financial Information (Continued)

Condensed consolidating statements of cash flows for the nine months ended September 30, 2005 and 2004 are as follows:

	Nine Months Ended September 30, 2005
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities:	$	114,038		$	4,150		$	118,537		$	(623	)	$	236,102
Cash flows from investing activities:
Construction and purchase of lease fleet and other fixed assets		(332,703	)		(985	)		(109,135	)		623			(442,200	)
Increase in short-term investments		—			(36,574	)		—			—			(36,574	)
Increase in available-for-sale securities		(56,349	)		—			(144	)		—			(56,493	)
Decrease (increase) in advance to parent		9,541			34,160			(21,896	)		(367	)		21,438
Decrease (increase) in other assets		—			2,578			(4,105	)		—			(1,527	)
Proceeds from disposals of lease fleet and other fixed assets		7,510			—			9,961			—			17,471
Proceeds from disposition of business		—			—			7,274			—			7,274
Net cash (used in) provided by investing activities		(372,001	)		(821	)		(118,045	)		256			(490,611	)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt		311,000			—			—			—			311,000
Principal payments of borrowed debt		(27,490	)		(1,060	)		(29	)		—			(28,579	)
Cash dividends		(84,000	)		—			(367	)		367			(84,000	)
Net cash provided by (used in) financing activities		199,510			(1,060	)		(396	)		367			198,421
Effect of exchange rates on cash and cash equivalents		—			1,004			—			—			1,004
Net (decrease) increase in cash and cash equivalents		(58,453	)		3,273			96			—			(55,084	)
Cash and cash equivalents at beginning of year		61,663			33,123			3,550			—			98,336
Cash and cash equivalents at end of period	$	3,210		$	36,396		$	3,646		$	—		$	43,252

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8. Consolidating Financial Information (Continued)

	Nine Months Ended September 30, 2004
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities:	$	72,987		$	(2,181	)	$	105,776		$	—		$	176,582
Cash flows from investing activities:
Construction and purchase of lease fleet and other fixed assets		(177,065	)		(978	)		(56,542	)		—			(234,585	)
Decrease in short-term investments		—			17,159			—			—			17,159
Increase in available-for-sale securities		(284,612	)		—			(916	)		—			(285,528	)
Decrease (increase) in advance to parent		203,887			(22,832	)		(5,801	)		(80,290	)		94,964
Increase in other assets		—			(1,747	)		(733	)		—			(2,480	)
Proceeds from disposals of lease fleet and other fixed assets		10,571			4,002			9,832			—			24,405
Net cash used in investing activities		(247,219	)		(4,396	)		(54,160	)		(80,290	)		(386,065	)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt		300,000			—			—			—			300,000
Principal payments of borrowed debt		(35,229	)		(1,060	)		(121	)		—			(36,410	)
Cash dividends		(71,000	)		(25,115	)		(55,175	)		80,290			(71,000	)
Net cash provided by (used in) financing activities		193,771			(26,175	)		(55,296	)		80,290			192,590
Effect of exchange rates on cash and cash equivalents		—			1,391			(8	)		—			1,383
Net increase (decrease) in cash and cash equivalents		19,539			(31,361	)		(3,688	)		—			(15,510	)
Cash and cash equivalents at beginning of year		82			48,759			7,356			—			56,197
Cash and cash equivalents at end of period	$	19,621		$	17,398		$	3,668		$	—		$	40,687

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

The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this document as well as our 2004 Annual Report on Form 10-K filed with the SEC in March 2005.

Forward-Looking Statements

Certain statements contained in this quarterly report on Form 10-Q for the quarter ended September 30, 2005 may include certain forward-looking information statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including (without limitation) statements with respect to anticipated future operating and financial performance, growth and acquisition opportunities and other similar forecasts and statements of expectation. Words such as “expects”, “anticipates”, “intends”, “plans”, “will”, “believes”, “seeks”, “estimates”, and “should” and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, 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), acts of terrorism, interest rate trends, cost of capital requirements, competition from other companies, changes in operating expenses, changes in prices and availability of key raw materials, governmental and public policy changes, changes in applicable laws, rules and regulations (including changes in tax laws).

Results of Operations

3rd Quarter 2005 versus 3rd Quarter 2004

Performance of the equipment leasing businesses improved in all major markets. Demand for existing railcar equipment improved, resulting in fleet growth, higher fleet utilization and improved lease rental rates. Demand for leased intermodal tank containers improved, resulting in fleet growth and higher utilization. Third quarter revenues and gross profit from services were as follows:

	2005			2004			Increase (Decrease)
	(Dollars in Thousands)
Services revenue	$	193,708		$	188,418		$	5,290
Cost of services		118,651			115,913			2,738
Gross profit from services	$	75,057		$	72,505		$	2,552
Gross margin %		39	%		38	%

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Services revenue in the third quarter of 2005 increased over the third quarter of 2004 primarily due to an $11.4 million increase in railcar leasing and service revenues (improved utilization rates and equipment additions) and a $2.1 million increase in intermodal tank container leasing revenues (improved utilization rates and equipment additions), which more than offset a $8.4 million decrease in revenues primarily due to eliminating low-margin transportation and terminaling activity related to sulphur processing.

Gross profit on services revenue in the third quarter of 2005 increased from the third quarter of 2004 primarily due to a $2.6 million increase for the intermodal tank container leasing business (improved utilization rates and equipment additions) and a $0.7 million improvement for railcar leasing (improved utilization rates, lower external lease expense due to exercising purchase options on leveraged leases, and equipment additions). These increases were partially offset by decreases at various other businesses.

Average utilization of the Company’s railcar fleet was 99% for the third quarter of 2005, compared with 97% for the third quarter of 2004. 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.

Sales revenue increased primarily due to increased prices and volume for products of the metals distribution business. Third quarter revenues and gross profit from sales were as follows:

	2005			2004			Increase (Decrease)
	(Dollars in Thousands)
Net sales	$	223,468		$	205,886		$	17,582
Cost of sales		177,465			168,756			8,709
Gross profit from sales	$	46,003		$	37,130		$	8,873
Gross margin %		21	%		18	%

Sales revenue for the third quarter of 2005 increased from the third quarter of 2004 primarily due to $19.3 million higher sales of metals distribution products (higher prices and volume), $2.5 million higher sales of sulphur processing equipment (higher volume), $1.9 million higher sales of manufactured railcars (higher volume and prices), $1.1 million higher sales of mobile railcar moving vehicles (higher volume), $0.8 million higher sales of containment vessel heads (higher volume and prices), and $0.7 million higher sales of light rail transit components. These increases were partially offset by $4.6 million lower sales of fasteners (transferred to an affiliate of Holdings in December, 2004), and $2.8 million lower sales of sulphur-based fertilizer (business sold in April, 2005).

Gross profit on sales in the third quarter of 2005 increased from the third quarter of 2004 primarily due to an $11.2 million increase for metals distribution products (higher prices partially offset by higher costs), partially offset by a $1.2 million decrease for fasteners (transferred to an affiliate of Holdings in December, 2004).

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General and administrative expenses in the third quarter of 2005 were $0.9 million lower than the third quarter of 2004 primarily due to transfer of the fasterner business to an affiliate of Holdings in December, 2004.

Interest expense related to the railcar and intermodal tank container leasing businesses in the third quarter of 2005 was $2.1 million higher than in the third quarter of 2004 due to the interest expense related to new financing in 2004 and 2005 more than offsetting lower interest expense from principal repayments of debt.

Other income, net of expenses, of $10.5 million in the third quarter of 2005 decreased $0.1 million from the third quarter of 2004. An increase in interest income of $3.5 million was more than offset by a $3.0 million gain in 2004 on the sale of an unused parcel of land in the railcar business and decreases in other minor items.

Provision for income taxes was $28.0 million in the third quarter of 2005 with an effective tax rate of 37.6%, compared with $25.2 million in the third quarter of 2004 with an effective tax rate of 39.1%. The decrease in the effective tax rate was primarily due to the consideration of the repatriation of undistributed earnings of foreign subsidiaries and the benefits of the newly enacted U.S. manufacturing deduction.

Nine Months 2005 versus Nine Months 2004

Performance of the equipment leasing businesses improved in all major markets. Demand for existing railcar equipment improved, resulting in fleet growth, higher fleet utilization and improved lease rental rates. Demand for leased intermodal tank containers improved, resulting in fleet growth and higher utilization. First nine months revenues and gross profit from services were as follows:

	2005			2004			Increase (Decrease)
	(Dollars in Thousands)
Services revenue	$	568,649		$	554,700		$	13,949
Cost of services		334,520			347,103			(12,583	)
Gross profit from services	$	234,129		$	207,597		$	26,532
Gross margin %		41	%		37	%

Services revenue in the first nine months of 2005 increased over the first nine months of 2004 primarily due to a $28.4 million increase in railcar leasing and service revenues (improved utilization rates and equipment additions), a $5.8 million increase in intermodal tank container leasing revenues (improved utilization rates and equipment additions), and $2.8 million higher revenue in the contract rail switching business, which more than offset a $22.0 million decrease in revenues from eliminating low-margin transportation and terminaling activity related to sulphur processing.

Gross profit on services revenue in the first nine months of 2005 increased from the first nine months of 2004 primarily due to a $16.8 million improvement for railcar leasing (improved utilization rates, lower external lease expense due to exercising purchase options on leveraged leases, and equipment additions), a $7.9 million increase for the intermodal tank container leasing business (improved utilization rates and equipment additions) and a $1.0 million increase for sulphur processing operations (higher processing rates and volumes).

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Sales revenue increased primarily due to increased prices and volume for products of the metals distribution business. First nine months revenues and gross profit from sales were as follows:

	2005			2004			Increase (Decrease)
	(Dollars in Thousands)
Net sales	$	665,698		$	562,306		$	103,392
Cost of sales		547,550			454,587			92,963
Gross profit from sales	$	118,148		$	107,719		$	10,429
Gross margin %		18	%		19	%

Sales revenue for the first nine months of 2005 increased from the first nine months of 2004 primarily due to $90.7 million higher sales of metals distribution products (higher prices and volume), $17.3 million increased sales of manufactured railcars (higher volume and prices), $7.1 million higher sales of containment vessel heads (higher volume and prices), $4.0 million higher sales of mobile railcar moving vehicles (higher volume), $3.4 million higher sales of sulphur processing equipment (higher volume), and $3.0 million higher sales of light rail transit components, more than offsetting $13.6 million lower sales of fasteners (transferred to an affiliate of Holdings in December, 2004), and $6.2 million lower sales of sulphur-based fertilizer (business sold in April, 2005).

Gross profit on sales in the first nine months of 2005 increased from the first nine months of 2004 primarily due to a $20.2 million increase for metals distribution products (higher prices partially offset by higher costs), a $2.1 million increase for containment vessel heads (higher volume and prices), a $1.4 million increase for mobile railcar moving vehicles, and a $1.3 million increase for light rail transit components. These increases were partially offset by a $9.0 million decrease for manufactured railcars (higher material prices), a $3.3 million decrease for fasteners (transferred to an affiliate of Holdings in December, 2004), and a $2.3 million decrease for sulphur-based fertilizer (business sold in April, 2005).

General and administrative expenses in the first nine months of 2005 were $3.9 million higher than the first nine months of 2004 due to higher costs in the railcar and intermodal tank container leasing businesses.

Interest expense related to the railcar and intermodal tank container leasing businesses in the first nine months of 2005 was $7.7 million higher than in the first nine months of 2004 due to the interest expense related to new financing in 2004 and 2005 more than offsetting lower interest expense from principal repayments of debt.

Other income, net of expenses, of $21.5 million in the first nine months of 2005 increased $3.2 million from the first nine months 2004. An increase in interest income of $5.7 million and increases in other minor items were partially offset by a $3.0 million gain in 2004 on the sale of an unused parcel of land in the railcar business.

Provision for income taxes was $76.8 million in the first nine months of 2005 with an effective tax rate of 38.0%, compared with $68.1 million in the first nine months of 2004 with an effective tax rate of 39.2%. The decrease in the effective tax rate was primarily due to the consideration of the repatriation of undistributed earnings of foreign subsidiaries and the benefits of the newly enacted U.S. manufacturing deduction.

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Financial Condition and Liquidity

Nine Months 2005 versus Nine Months 2004

Operating activities provided $236.1 million of net cash in the first nine months of 2005, compared with $176.6 million in the first nine months of 2004. These funds, along with proceeds from the issuance of borrowed debt and collection of funds previously advanced to parent, were used to finance additions to the lease fleet and other fixed assets, pay dividends to the Company’s stockholder, invest in available-for-sale securities and short-term investments, and service borrowed debt obligations.

During the first nine months of 2005, the Company spent $442.2 million for construction and purchase of lease fleet and other fixed assets, compared with $234.6 million in the first nine months of 2004. The increase in capital expenditures was due to a $76.0 million expenditure to exercise purchase options for railcars related to sale-leaseback transactions, as well as increased demand from leasing customers for new railway tank cars and intermodal tank containers, and investment in railcar manufacturing capacity. 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 accept those lease orders. Capital expenditures for intermodal tank containers are likewise discretionary in the intermodal tank container business. Net cash used in investing activities was $490.6 million in the first nine months of 2005 compared with $386.1 million used in the first nine months of 2004.

During the first nine months of 2005, the Company’s financing activities included $311.0 million of proceeds from the issuance of borrowed debt compared with $300.0 million issued in the first nine months of 2004. Principal repayments on borrowed debt totaled $28.6 million compared with $36.4 million in the first nine months of 2004. Cash dividends were $84.0 million in the first nine months of 2005 compared with $71.0 million in the first nine months of 2004. Net cash provided in financing activities was $198.4 million in the first nine months of 2005 compared with $192.6 million in the first nine months of 2004.

It is the Company’s policy to pay to its stockholder a quarterly dividend of approximately 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.

Management expects future cash, provided from operating activities, long-term financings, available-for-sale securities, 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 March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 47, “Accounting for Conditional Asset Retirement Obligations - An Interpretation of FASB Statement 143”. FIN 47 clarifies the manner in which uncertainties concerning the timing and the method of settlement of an asset retirement obligation (ARO) should be accounted for. In addition, the Interpretation clarifies the circumstances under which the fair value of an ARO is considered subject to reasonable estimation. FIN 47 is effective for fiscal years ending no later than December 15, 2005. We are currently studying the effects it will have on our financial statements. We do not expect them to be material.

In May 2005, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 154, “Accounting Changes and Error Corrections - A Replacement of Accounting Principles Board (APB) Opinion No. 20 and FASB Statement No. 3”. SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for fiscal years beginning after December 15, 2005. The adoption of SFAS 154 is not expected to have a material effect on the Company’s consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, “Exchange of Non-Monetary Assets - An Amendment of APB Opinion No. 29”. SFAS 153 amends Opinion 29 to eliminate the exception for non-monetary exchange of similar productive assets and replaces it with a general exception for non-monetary assets that do not have commercial substance. Commercial substance is defined as if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 must be applied prospectively after June 15, 2005. The adoption of SFAS 153 is not expected to have a material effect on the Company’s consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs - An Amendment of Accounting Research Bulletin No. 43, Chapter 4”. SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be expensed as incurred and not included as overhead. SFAS 151 also requires that the allocation of fixed production overhead to conversion costs be based on normal capacity of the production facilities. SFAS 151 must be applied prospectively beginning January 1, 2006. The adoption of SFAS 151 is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2003, the FASB issued Interpretation No. 46, revised, “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. The Company does not have any unconsolidated variable interest entities.

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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, 2004 for a description of certain environmental matters.
	The Company has been designated as a Potentially Responsible Party (“PRP”) by the United States Environmental Protection Agency (“EPA”) at the Casmalia Disposal Site in Santa Barbara County, California. Because of the nature of the Company’s involvement at this site, management believes that future costs related to this site will not be material. The Company has not entered into any cost sharing arrangements with other PRP’s that make it reasonably possible the Company will incur material costs beyond its pro rata share. Further, management does not believe that any problems or uncertainties as to the financial liabilities of other PRP’s make it reasonably possible the Company will incur material costs beyond its pro rata share at this site. The Company’s accruals for the site are based on the amount it reasonably expects to pay with respect to the site.
ITEM5.	Other Information
	None.
ITEM 6.	Exhibits
	Exhibit 31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Exhibit 31.2	Certification of Principal Financial Officer 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
	Instruments defining the rights of holders of long-term debt are not being filed herewith pursuant to the provisions of paragraph 4(v) of Item 601(b) of Regulation S-K. The Company agrees to furnish a copy of any such instrument to the Commission upon request.

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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 14, 2005	/s/ Mark J. Garrette
	Mark J. Garrette
	Vice President
	(principal financial officer
	and principal accounting officer)

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