Union Tank Car 10-Q 2006 Q2 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 June 30, 2006

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  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.

UNION TANK CAR COMPANY AND SUBSIDIARIES

FORM 10-Q

INDEX

			Page
Part I.  Financial Information
	Item 1.	Financial Statements
		Condensed consolidated statements of income - three and six month periods ended June 30, 2006 and 2005	3
		Condensed consolidated balance sheets - June 30, 2006 and December 31, 2005	4
		Condensed consolidated statements of cash flows - six months ended June 30, 2006 and 2005	5
		Notes to condensed consolidated financial statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	24
Part II.  Other Information
	Item 1.	Legal Proceedings	25
	Item 1A.	Risk Factors	25
	Item 2.	Unregistered Sales of Equity and Use of Proceeds	*
	Item 3.	Defaults Upon Senior Securities	*
	Item 4.	Submission of Matters to Vote of Security Holders	*
	Item 5.	Other Information	25
	Item 6.	Exhibits	25
Signatures			26

* The response to these items is “None” and the items are omitted from the report pursuant to the instructions to Item II to Form 10-Q.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNION TANK CAR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands)

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2006		2005			2006		2005
Revenues
Services (leasing and other)	$	205,664	$	189,826		$	404,712	$	374,941
Sales		302,017		226,638			560,670		442,230
		507,681		416,464			965,382		817,171
Costs and expenses
Cost of services		109,631		108,249			222,591		215,869
Cost of sales		255,753		190,461			474,931		370,085
General and administrative		32,836		35,303			68,787		74,793
Interest expense		22,299		20,283			42,272		39,902
		420,519		354,296			808,581		700,649
Interest income		4,759		3,503			8,244		6,875
Other income, net		2,601		2,925			2,579		4,137
Income before income taxes and minority interest		94,522		68,596			167,624		127,534
Provision for income taxes		32,551		27,243			60,153		48,771
		61,971		41,353			107,471		78,763
Minority interest		2,037		1,681			3,737		3,240
Net income		59,934		39,672			103,734		75,523
Other comprehensive income (losses)
Unrealized gains (losses) on securities, net of tax		363		294			600		(528	)
Minimum pension liability, net of tax		—		(814	)		—		(814	)
Comprehensive income	$	60,297	$	39,152		$	104,334	$	74,181

See notes to condensed consolidated financial statements.

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UNION TANK CAR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

	June 30, 2006			December 31, 2005
	(Unaudited)
Assets
Cash and cash equivalents	$	279,584		$	150,628
Short-term investments		—			82,003
Available-for-sale securities		143,262			224,000
Accounts receivable, net of allowances of $8,116 ($8,117 at December 31, 2005)		198,422			182,205
Accounts and notes receivable, affiliate		43,952			43,853
Inventories, net of LIFO reserves of $90,780 ($84,184 at December 31, 2005)		179,294			154,395
Prepaid expenses and deferred charges		14,427			27,054
Railcar lease fleet, net		2,401,781			2,155,425
Intermodal tank container lease fleet, net		341,263			335,510
Other fixed assets, net		272,211			243,833
Other assets		43,712			39,780
Total assets	$	3,917,908		$	3,638,686
Liabilities and Stockholder’s Equity
Accounts payable	$	110,414		$	103,133
Accrued liabilities		264,556			261,223
Advances from parent and affiliates		271,729			10,577
Debt, including $202,497 due within one year ($85,143 at December 31, 2005)		1,389,134			1,438,790
Deferred income taxes and investment tax credits		604,893			585,698
Total liabilities		2,640,726			2,399,421
Minority interest		96,418			92,681
Stockholder’s equity
Common stock		106,689			106,689
Additional capital		169,455			167,608
Retained earnings		905,122			873,389
Accumulated other comprehensive losses		(502	)		(1,102	)
Total stockholder’s equity		1,180,764			1,146,584
Total liabilities and stockholder’s equity	$	3,917,908		$	3,638,686

See notes to condensed consolidated financial statements.

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UNION TANK CAR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

	Six Months Ended June 30,
	2006			2005
Cash flows from operating activities:
Net income	$	103,734		$	75,523
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		92,656			80,399
Deferred taxes		17,720			10,602
Gain on disposition of lease fleet and other fixed assets		(14,214	)		(5,135	)
Other non-cash income and expenses		7,679			8,008
Changes in assets and liabilities:
Accounts receivable		(16,113	)		(5,360	)
Inventories		(25,592	)		1,474
Prepaid expenses and deferred charges		12,889			(7,202	)
Accounts payable and accrued expenses		9,497			(3,692	)
Net cash provided by operating activities		188,256			154,617
Cash flows from investing activities:
Construction and purchase of lease fleet		(334,409	)		(260,143	)
Purchases of other fixed assets		(37,015	)		(32,489	)
Purchases of available-for-sale securities		—			(39,586	)
Proceeds from sales of available-for-sale securities		79,716			23,574
Purchases of short-term investments		—			(7,083	)
Proceeds from sales of short-term investments		81,736			45,297
Increase (decrease) in advances from parent and affiliates		254,315			(85,740	)
Increase in other assets		(7,561	)		(609	)
Proceeds from disposals of lease fleet and other fixed assets		22,954			11,303
Proceeds from disposition of business		—			5,059
Net cash provided by (used in) investing activities		59,736			(340,417	)
Cash flows from financing activities:
Proceeds from issuance of debt		—			311,000
Principal payments of debt		(49,655	)		(19,137	)
Cash dividends		(72,000	)		(52,000	)
Net cash (used in) provided by financing activities		(121,655	)		239,863
Effect of exchange rates on cash and cash equivalents		2,619			(732	)
Increase in cash and cash equivalents		128,956			53,331
Cash and cash equivalents at beginning of year		150,628			98,336
Cash and cash equivalents at end of period	$	279,584		$	151,667
Cash paid during the period for:
Interest	$	45,199		$	38,830
Income taxes		37,680			27,746

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 reflect all adjustments of a normal recurring nature necessary for a fair presentation of the results for the interim periods. 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 2005 Annual Report on Form 10-K.

Certain prior year amounts have been reclassified to conform to the current year presentation. These changes have no impact on previous reported net income and are deemed to be immaterial.

The 2006 interim results presented herein are not necessarily indicative of the results of operations for the full year 2006.

3. Significant Accounting Policies

Available-for-Sale Securities

Available-for-sale securities consist of investment-grade corporate debt securities and U.S. government obligations. Management determines the appropriate classification of investments at the time of acquisition and reevaluates such determination at each balance sheet date. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses, net of tax, reported as a separate component of stockholders’ equity.

Inventories

Inventories are valued 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 58%, 15%, and 27% of net inventories at June 30, 2006 and 55%, 14%, and 31% of net inventories at December 31, 2005, respectively. The Company uses the LIFO costing method for approximately 71% and 68% of its total gross inventories at June 30, 2006 and December 31, 2005, respectively.

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3. Significant Accounting Policies (Continued)

Property and Equipment

Property and equipment are depreciated or amortized over their useful lives on the straight-line method 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 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.

Lease Fleet and Other Fixed Assets

	June 30, 2006			December 31, 2005
Railcar lease fleet
Gross cost	$	4,137,528		$	3,852,919
Less accumulated depreciation		(1,735,747	)		(1,697,494	)
	$	2,401,781		$	2,155,425
Intermodal tank container lease fleet
Gross cost	$	470,107		$	455,202
Less accumulated depreciation		(128,844	)		(119,692	)
	$	341,263		$	335,510
Other fixed assets
Gross cost	$	670,692		$	630,663
Less accumulated depreciation		(398,481	)		(386,830	)
	$	272,211		$	243,833

Foreign Currency Translation

Foreign currency translation adjustments and transaction gains and losses are borne by Holdings. For the six months ended June 30, 2006 and 2005, Holdings absorbed losses of $549 and gains of $462, respectively.

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3. Significant Accounting Policies (Continued)

Lessor Accounting

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 as collectibility is reasonably assured. Expenses, including depreciation and maintenance, are charged as incurred.

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. Such revenue is based upon determinable sales prices and is recognized only upon collectibility being reasonably assured. Certain long-term contracts are accounted for under the completed contract method when the Company is unable to reasonably forecast costs and the time required to complete those contracts.

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.

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 its best estimate of such claims, 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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4. Available-for-Sale Securities

At June 30, 2006 and December 31, 2005, the Company had the following investments in marketable securities which have been classified as “available-for-sale”:

June 30, 2006	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate debt securities	$	133,966	$	—	$	(644	)	$	133,322
U.S. government obligations		10,016		—		(76	)		9,940
	$	143,982	$	—	$	(720	)	$	143,262
December 31, 2005	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate debt securities	$	202,863	$	—	$	(1,509	)	$	201,354
U.S. government obligations		22,812		—		(166	)		22,646
	$	225,675	$	—	$	(1,675	)	$	224,000

The gross unrealized holding losses, less related taxes ($252 and $586 at June 30, 2006 and December 31, 2005, respectively) have been reported as a separate component of stockholders’ equity in the accompanying Condensed Consolidated Balance Sheet.

5. Segment Information

The Company operates its largest businesses in three segments: Railcar, Metals Distribution and Intermodal Tank Container Leasing. Segmentation of the Company’s businesses is based upon markets served and organizational structure. The remaining businesses of the Company plus corporate headquarters items and eliminations, 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 June 30, 2006
Services revenue	$	157.6	$	2.0	$	28.2	$	17.9	$	205.7
Sales revenue		33.1		201.5		—		67.4		302.0
Income before income taxes and minority interest		45.7		24.7		8.6		15.5		94.5
Three months ended June 30, 2005
Services revenue	$	146.4	$	2.2	$	25.6	$	15.6	$	189.8
Sales revenue		16.1		175.1		—		35.4		226.6
Income before income taxes and minority interest		29.0		18.9		5.8		14.9		68.6
Six months ended June 30, 2006
Services revenue	$	311.0	$	4.0	$	54.8	$	34.9	$	404.7
Sales revenue		66.7		394.1		—		99.9		560.7
Income before income taxes and minority interest		79.3		46.5		15.0		26.8		167.6
Six months ended June 30, 2005
Services revenue	$	288.4	$	4.3	$	50.8	$	31.4	$	374.9
Sales revenue		31.0		343.3		—		67.9		442.2
Income before income taxes and minority interest		59.4		31.7		10.9		25.5		127.5

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6. Commitments and Contingencies

The Company’s Canadian subsidiaries have approximately $31,360 of demand credit facility available on a no-fee basis. Holdings is a guarantor of this demand credit facility. At June 30, 2006, $10,595 of letters of credit were outstanding. No amounts were outstanding for overdrafts or borrowings as of June 30, 2006.

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:

	Six Months Ended June 30,
	2006			2005
Balance, beginning of year	$	833		$	1,687
Net warranties issued		555			(30	)
Settlements		(229	)		(419	)
Balance, end of period	$	1,159		$	1,238

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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7. Consolidating Financial Information

The following condensed consolidating statements are provided because Procor Limited, a wholly owned subsidiary of the Company, has issued two 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.

Condensed consolidating statements of income for the three months ended June 30, 2006 and 2005 are as follows:

	Three Months Ended June 30, 2006
	Union Tank Car Company		Procor Limited			Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	136,717	$	7,453		$	83,037	$	(21,543	)	$	205,664
Sales		—		—			389,945		(87,928	)		302,017
		136,717		7,453			472,982		(109,471	)		507,681
Costs and expenses
Cost of services		85,126		4,374			41,674		(21,543	)		109,631
Cost of sales		—		—			343,671		(87,918	)		255,753
General and administrative		7,213		718			24,905		—			32,836
Interest expense		19,567		375			2,357		—			22,299
		111,906		5,467			412,607		(109,461	)		420,519
Other income, net		3,075		1,711			2,574		—			7,360
Income before income taxes and minority interest		27,886		3,697			62,949		(10	)		94,522
Provision for income taxes		13,202		(728	)		20,077		—			32,551
		14,684		4,425			42,872		(10	)		61,971
Equity in income of subsidiaries		45,250		—			—		(45,250	)		—
Minority interest		—		—			2,037		—			2,037
Net income	$	59,934	$	4,425		$	40,835	$	(45,260	)	$	59,934

	Three Months Ended June 30, 2005
	Union Tank Car Company			Procor Limited		Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	128,725		$	5,295	$	73,484	$	(17,678	)	$	189,826
Sales		—			—		311,501		(84,863	)		226,638
		128,725			5,295		384,985		(102,541	)		416,464
Costs and expenses
Cost of services		80,044			2,204		43,679		(17,678	)		108,249
Cost of sales		(778	)		—		271,640		(80,401	)		190,461
General and administrative		9,999			613		26,060		(1,369	)		35,303
Interest expense		15,942			554		3,787		—			20,283
		105,207			3,371		345,166		(99,448	)		354,296
Other (expense) income, net		(818	)		1,520		828		4,898			6,428
Income before income taxes and minority interest		22,700			3,444		40,647		1,805			68,596
Provision for income taxes		10,585			1,232		14,868		558			27,243
		12,115			2,212		25,779		1,247			41,353
Equity in income of subsidiaries		27,557			—		—		(27,557	)		—
Minority interest		—			—		1,681		—			1,681
Net income	$	39,672		$	2,212	$	24,098	$	(26,310	)	$	39,672

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7. Consolidating Financial Information (Continued)

Condensed consolidating statements of income for the six months ended June 30, 2006 and 2005 are as follows:

	Six Months Ended June 30, 2006
	Union Tank Car Company		Procor Limited			Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	270,689	$	13,239		$	162,698	$	(41,914	)	$	404,712
Sales		—		—			734,631		(173,961	)		560,670
		270,689		13,239			897,329		(215,875	)		965,382
Costs and expenses
Cost of services		166,813		9,001			88,691		(41,914	)		222,591
Cost of sales		—		—			648,725		(173,794	)		474,931
General and administrative		16,357		1,680			50,750		—			68,787
Interest expense		37,254		759			4,259		—			42,272
		220,424		11,440			792,425		(215,708	)		808,581
Other income, net		5,979		2,218			2,626		—			10,823
Income before income taxes and minority interest		56,244		4,017			107,530		(167	)		167,624
Provision for income taxes		23,055		(632	)		37,730		—			60,153
		33,189		4,649			69,800		(167	)		107,471
Equity in income of subsidiaries		70,545		—			—		(70,545	)		—
Minority interest		—		—			3,737		—			3,737
Net income	$	103,734	$	4,649		$	66,063	$	(70,712	)	$	103,734

	Six Months Ended June 30, 2005
	Union Tank Car Company			Procor Limited		Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	254,689		$	10,075	$	148,734	$	(38,557	)	$	374,941
Sales		—			—		597,327		(155,097	)		442,230
		254,689			10,075		746,061		(193,654	)		817,171
Costs and expenses
Cost of services		159,546			7,847		87,033		(38,557	)		215,869
Cost of sales		(786	)		—		516,729		(145,858	)		370,085
General and administrative		22,270			1,150		53,318		(1,945	)		74,793
Interest expense		31,283			1,120		7,499		—			39,902
		212,313			10,117		664,579		(186,360	)		700,649
Other income, net		1,330			2,177		2,607		4,898			11,012
Income before income taxes and minority interest		43,706			2,135		84,089		(2,396	)		127,534
Provision for income taxes		18,412			851		30,350		(842	)		48,771
		25,294			1,284		53,739		(1,554	)		78,763
Equity in income of subsidiaries		50,229			—		—		(50,229	)		—
Minority interest		—			—		3,240		—			3,240
Net income	$	75,523		$	1,284	$	50,499	$	(51,783	)	$	75,523

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7. Consolidating Financial Information (Continued)

Condensed consolidating balance sheets as of June 30, 2006 and December 31, 2005 are as follows:

	June 30, 2006
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	67,415		$	206,479		$	5,690		$	—		$	279,584
Available-for-sale securities		143,262			—			—			—			143,262
Accounts receivable, net		37,713			2,600			236,903			(78,794	)		198,422
Accounts and notes receivable, affiliate		—			—			43,952			—			43,952
Inventories, net		8,343			1,621			169,330			—			179,294
Prepaid expenses and deferred charges		3,101			2,196			9,130			—			14,427
Advances to parent and affiliates		—			—			408,963			(408,963	)		—
Railcar lease fleet, net		2,168,559			32,109			201,668			(555	)		2,401,781
Intermodal tank container lease fleet, net		—			—			341,263			—			341,263
Other fixed assets, net		41,336			15,364			215,511			—			272,211
Investment in subsidiaries		1,050,153			75,453			87,438			(1,213,044	)		—
Other assets		5,987			444			37,281			—			43,712
Total assets	$	3,525,869		$	336,266		$	1,757,129		$	(1,701,356	)	$	3,917,908
Liabilities and Stockholder’s Equity
Accounts payable	$	68,701		$	17,196		$	103,293		$	(78,776	)	$	110,414
Accrued liabilities		153,558			1,152			109,458			388			264,556
Advances from parent and affiliates		471,119			209,771			—			(409,161	)		271,729
Debt		1,259,823			2,119			127,192			—			1,389,134
Deferred income taxes and investment tax credits		441,761			22,256			140,876			—			604,893
Total liabilities		2,394,962			252,494			480,819			(487,549	)		2,640,726
Minority interest		—			—			96,418			—			96,418
Stockholder’s equity
Common stock and additional capital		369,558			13,345			370,791			(477,550	)		276,144
Retained earnings		782,480			70,869			788,030			(736,257	)		905,122
Accumulated other comprehensive losses		(495	)		—			(7	)		—			(502	)
Equity adjustment from foreign currency translation		(20,636	)		(442	)		21,078			—			—
Total stockholder’s equity		1,130,907			83,772			1,179,892			(1,213,807	)		1,180,764
Total liabilities and stockholder’s equity	$	3,525,869		$	336,266		$	1,757,129		$	(1,701,356	)	$	3,917,908

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7. Consolidating Financial Information (Continued)

	December 31, 2005
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	70,943		$	75,151		$	4,534		$	—		$	150,628
Short-term investments		—			82,003			—			—			82,003
Available-for-sale securities		224,000			—			—			—			224,000
Accounts receivable, net		40,682			1,445			203,808			(63,730	)		182,205
Accounts and notes receivable, affiliate		—			—			43,853			—			43,853
Inventories, net		9,464			1,652			143,348			(69	)		154,395
Prepaid expenses and deferred charges		3,296			2,479			21,279			—			27,054
Advances to parent and affiliates		—			—			386,205			(386,205	)		—
Railcar lease fleet, net		1,911,056			31,398			213,290			(319	)		2,155,425
Intermodal tank container lease fleet, net		—			—			335,510			—			335,510
Other fixed assets, net		41,261			15,196			187,376			—			243,833
Investment in subsidiaries		978,377			75,455			83,416			(1,137,248	)		—
Other assets		5,820			791			33,169			—			39,780
Total assets	$	3,284,899		$	285,570		$	1,655,788		$	(1,587,571	)	$	3,638,686
Liabilities and Stockholder’s Equity
Accounts payable	$	54,864		$	16,492		$	95,506		$	(63,729	)	$	103,133
Accrued liabilities		158,123			3,687			99,038			375			261,223
Advances from parent and affiliates		250,875			146,074			—			(386,372	)		10,577
Debt		1,294,134			17,419			127,237			—			1,438,790
Deferred income taxes and investment tax credits		420,937			23,308			141,453			—			585,698
Total liabilities		2,178,933			206,980			463,234			(449,726	)		2,399,421
Minority interest		—			—			92,681			—			92,681
Stockholder’s equity
Common stock and additional capital		367,711			13,345			368,339			(475,098	)		274,297
Retained earnings		751,967			65,843			718,326			(662,747	)		873,389
Accumulated other comprehensive losses		(1,098	)		—			(4	)		—			(1,102	)
Equity adjustment from foreign currency translation		(12,614	)		(598	)		13,212			—			—
Total stockholder’s equity		1,105,966			78,590			1,099,873			(1,137,845	)		1,146,584
Total liabilities and stockholder’s equity	$	3,284,899		$	285,570		$	1,655,788		$	(1,587,571	)	$	3,638,686

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7. Consolidating Financial Information (Continued)

Condensed consolidating statements of cash flows for the six months ended June 30, 2006 and 2005 are as follows:

	Six Months Ended June 30, 2006
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities:	$	116,233		$	(563	)	$	68,963		$	3,623		$	188,256
Cash flows from investing activities:
Construction and purchase of lease fleet		(315,289	)		(60	)		(19,303	)		243			(334,409	)
Purchases of other fixed assets		(2,908	)		(1,005	)		(29,267	)		(3,835	)		(37,015	)
Proceeds from sales of available-for-sale securities		79,716			—			—			—			79,716
Proceeds from sales of short-term investments		—			81,736			—			—			81,736
Increase (decrease) in advances from parent and affiliates		213,971			63,697			(22,942	)		(411	)		254,315
(Increase) decrease in other assets		(3	)		188			(7,746	)		—			(7,561	)
Proceeds from disposals of lease fleet and other fixed assets		11,063			15			11,876			—			22,954
Net cash (used in) provided by investing activities		(13,450	)		144,571			(67,382	)		(4,003	)		59,736
Cash flows from financing activities:
Principal payments of debt		(34,311	)		(15,299	)		(45	)		—			(49,655	)
Cash dividends		(72,000	)		—			(380	)		380			(72,000	)
Net cash (used in) provided by financing activities		(106,311	)		(15,299	)		(425	)		380			(121,655	)
Effect of exchange rates on cash and cash equivalents		—			2,619			—			—			2,619
Net (decrease) increase in cash and cash equivalents		(3,528	)		131,328			1,156			—			128,956
Cash and cash equivalents at beginning of year		70,943			75,151			4,534			—			150,628
Cash and cash equivalents at end of period	$	67,415		$	206,479		$	5,690		$	—		$	279,584

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7. Consolidating Financial Information (Continued)

	Six Months Ended June 30, 2005
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities:	$	88,166		$	3,409		$	62,964		$	78		$	154,617
Cash flows from investing activities:
Construction and purchase of lease fleet		(228,612	)		(82	)		(31,371	)		(78	)		(260,143	)
Purchases of other fixed assets		(1,941	)		(436	)		(30,112	)		—			(32,489	)
Purchases of available-for-sale securities		(39,586	)		—			—			—			(39,586	)
Proceeds from sales of available-for-sale securities		23,574			—			—			—			23,574
Purchases of short-term investments		—			(7,083	)		—			—			(7,083	)
Proceeds from sales of short-term investments		—			45,297			—			—			45,297
(Increase) decrease in advances to parent and affiliates		(97,509	)		23,317			(11,548	)		—			(85,740	)
Decrease (increase) in other assets		—			736			(1,345	)		—			(609	)
Proceeds from disposals of lease fleet and other fixed assets		5,319			(3	)		5,987			—			11,303
Proceeds from disposition of business		—			—			5,059			—			5,059
Net cash (used in) provided by investing activities		(338,755	)		61,746			(63,330	)		(78	)		(340,417	)
Cash flows from financing activities:
Proceeds from issuance of debt		311,000			—			—			—			311,000
Principal payments of debt		(18,052	)		(1,060	)		(25	)		—			(19,137	)
Cash dividends		(52,000	)		—			—			—			(52,000	)
Net cash provided by (used in) financing activities		240,948			(1,060	)		(25	)		—			239,863
Effect of exchange rates on cash and cash equivalents		—			(732	)		—			—			(732	)
Net (decrease) increase in cash and cash equivalents		(9,641	)		63,363			(391	)		—			53,331
Cash and cash equivalents at beginning of year		61,663			33,123			3,550			—			98,336
Cash and cash equivalents at end of period	$	52,022		$	96,486		$	3,159		$	—		$	151,667

8. Subsequent Event

On March 30, 2006, the Company exercised options to purchase 2,155 railcars that the Company has leased since 1996 as part of certain sale-leaseback transactions. The aggregate purchase price paid by the Company for these railcars was $115,445, of which $75,728 was paid on July 3, 2006. The remaining $39,717 will be paid in two installments ending in December 2006. The Company’s purchase of these railcars was consummated on July 3, 2006, at which time the purchased railcars ceased to be subject to the operating leases.

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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 2005 Annual Report on Form 10-K for the year ended December 31, 2005 filed with the SEC on March 31, 2006 and our quarterly report for the period ended March 31, 2006 filed with the SEC on May 15, 2006.

Forward-Looking Statements

Certain statements contained in this quarterly report on Form 10-Q for the quarter ended June 30, 2006 may include certain forward-looking 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”, “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. In addition, certain factors, including risk factors identified in “Part I - Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, may affect the Company’s businesses. As a result, past financial results may not be a reliable indicator of future performance.

Results of Operations

2nd Quarter 2006 versus 2nd Quarter 2005

Performance of the equipment leasing businesses improved in all major markets. Demand for leased railcar equipment and leased intermodal tank containers remained strong, resulting in fleet growth, higher fleet utilization and improved lease rental rates.

Second quarter revenues and gross profit from services were as follows:

	2006			2005			Increase (Decrease)
	(Dollars in Thousands)
Services revenue	$	205,664		$	189,826		$	15,838
Cost of services		109,631			108,249			1,382
Gross profit from services	$	96,033		$	81,577		$	14,456
Gross profit %		47	%		43	%

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Services revenue in the second quarter of 2006 increased from the second quarter of 2005 primarily due to an $11.1 million increase in railcar leasing and service revenues (equipment additions, higher lease rates and improved utilization rate), a $2.5 million increase in intermodal tank container leasing revenues (equipment additions, improved utilization rate and higher lease rates), and a $1.9 million increase in revenues in the contract rail switching business (volume).

Gross profit on services revenue in the second quarter of 2006 increased from the second quarter of 2005 primarily due to an $11.9 million increase for railcar leasing (gains on disposals, equipment additions, higher lease rates and improved utilization rate more than offsetting higher maintenance expense), and a $2.3 million increase for the intermodal tank container leasing business (equipment additions, improved utilization rate and higher lease rates).

Average fleet utilization of the Company’s railcar fleet was 99% for the second quarter of 2006, compared with 98% for the second quarter of 2005. 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 demand for products of the metals distribution business, completion of a major sulphur processing equipment contract and increased demand for railcars.

Second quarter revenues and gross profit from sales were as follows:

	2006			2005			Increase (Decrease)
	(Dollars in Thousands)
Sales revenue	$	302,017		$	226,638		$	75,379
Cost of sales		255,753			190,461			65,292
Gross profit from sales	$	46,264		$	36,177		$	10,087
Gross profit %		15	%		16	%

Sales revenue for the second quarter of 2006 increased from the second quarter of 2005 primarily due to a $35.1 million increase in sulphur processing equipment (completion of a major project), $26.5 million higher sales of metals distribution products (higher volume and prices), and $17.0 million increased sales of manufactured railcars (higher volume and prices). These increases were partly offset by a $1.8 million decrease in sales of containment vessel heads (lower volume), $1.7 million lower sales of sulphur-based fertilizer (business sold in April 2005), and $1.1 million lower sales of mobile railcar moving equipment (lower volume).

Gross profit on sales revenue in the second quarter of 2006 increased from the second quarter of 2005 primarily due to a $5.6 million increase for metals distribution products (higher volume and higher prices), a $4.2 million increase in sulphur processing equipment (completion of a major project), a $3.7 million increase for manufactured railcars (higher volume and higher prices offsetting higher material costs), partially offset by a $2.0 million decrease for containment vessel heads (lower volume and higher costs).

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General and administrative expenses in the second quarter of 2006 were $2.5 million lower than in the second quarter of 2005 due to higher expenses in the railcar leasing business in the second quarter of 2005.

Interest expense in the second quarter of 2006 was $2.0 million higher than in the second quarter of 2005 due to the interest expense related to new financing in 2005 more than offsetting lower interest expense from principal repayments of debt.

Provision for income taxes was $32.6 million in the second quarter of 2006 with an effective tax rate of 34.4%, compared with $27.2 million in the second quarter of 2005 with an effective tax rate of 39.7%. The decrease in the effective tax rate was primarily due to the newly-enacted reduction of Canadian income tax rates in the second quarter of 2006.

Six Months 2006 versus Six Months 2005

Performance of the equipment leasing businesses improved in all major markets. Demand for railcar equipment and leased intermodal tank containers remained strong, resulting in fleet growth, higher fleet utilization and improved lease rental rates.

First six months revenues and gross profit from services were as follows:

	2006			2005			Increase (Decrease)
	(Dollars in Thousands)
Services revenue	$	404,712		$	374,941		$	29,771
Cost of services		222,591			215,869			6,722
Gross profit from services	$	182,121		$	159,072		$	23,049
Gross profit %		45	%		42	%

Services revenue for the first six months of 2006 increased over the first six months of 2005 primarily due to a $22.6 million increase in railcar leasing and service revenues (equipment additions, higher lease rates and improved utilization rate), a $4.0 million increase in intermodal tank container leasing revenues (equipment additions, improved utilization rate and higher lease rates), and $3.6 million higher revenue in the contract rail switching business (volume).

Gross profit on services revenue in the first six months of 2006 increased from the first six months of 2005 primarily due to a $19.3 million increase for railcar leasing (gains on disposals, equipment additions, higher lease rates and improved utilization rate more than offsetting higher maintenance), and a $3.4 million increase for the intermodal tank container leasing business (equipment additions, higher utilization rate and higher lease rates).

- 19 -

Sales revenue increased primarily due to increased demand for products of the metals distribution business and for railcars and completion of a major sulphur processing equipment contract.

First six months revenues and gross profit from sales were as follows:

	2006			2005			Increase (Decrease)
	(Dollars in Thousands)
Sales revenue	$	560,670		$	442,230		$	118,440
Cost of sales		474,931			370,085			104,846
Gross profit from sales	$	85,739		$	72,145		$	13,594
Gross profit %		15	%		16	%

Sales revenue for the first six months of 2006 increased from the first six months of 2005 primarily due to $50.8 million higher sales of metals distribution products (higher volume and prices), $35.7 million increased sales of manufactured railcars (higher volume and prices), a $35.1 million increase in sulphur processing equipment (completion of a large project), and $2.1 million higher sales of gear drives. These increases were partly offset by a $4.7 million lower sales of sulphur-based fertilizer (business sold in April 2005).

Gross profit on sales revenue in the first six months of 2006 increased from the first six months of 2005 primarily due to a $13.7 million increase for metals distribution products (higher volume and prices), a $4.2 million increase in sulphur processing equipment (completion of a large project), partially offset by a $2.0 million decrease for containment vessel heads (lower volume and higher costs) and a $1.0 million decrease for manufactured railcars (higher material costs offsetting higher volume and higher prices).

General and administrative expenses in the first six months of 2006 were $6.0 million lower than in the first six months of 2005 due to higher expenses in the railcar leasing business in the first six months of 2005.

Interest expense in the first six months of 2006 was $2.4 million higher than in the first six months of 2005 due to the interest expense related to new financing in 2005 more than offsetting lower interest expense from principal repayments of debt.

Provision for income taxes was $60.2 million in the first six months of 2006 with an effective tax rate of 35.9%, compared with $48.8 million in the first six months of 2005 with an effective tax rate of 38.2%. The decrease in the effective tax rate was primarily due to the newly-enacted reduction of Canadian income tax rates in the second quarter of 2006.

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Financial Condition and Liquidity

Six Months 2006 versus Six Months 2005

The net cash provided by operating activities, funds advanced from parent and affiliates, and funds from the liquidation of short-term investments and available-for-sale securities were used to finance additions to the lease fleet and other fixed assets, pay dividends to the Company’s stockholder, and service debt obligations.

It is the Company’s policy to pay to Holdings 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 Holdings. Conversely, when the Company requires additional funds to support its operations, prior advances are repaid by or advanced from Holdings. Funds advanced to or from Holdings bear interest at commercial rates. No restrictions exist regarding the amount of dividends which may be paid or advances which may be made by the Company to Holdings.

Cash flows from operating activities:

Operating activities provided $188.3 million of net cash in the first six months of 2006, compared with $154.6 million provided in the first six months of 2005. The net cash provided by operating activities was higher in the first six months of 2006 primarily due to higher net income and depreciation.

Cash flows from investing activities:

Net cash provided by investing activities was $59.7 million in the first six months of 2006 compared with $340.4 million used in investing activities in the first six months of 2005. The change in net cash provided by investing activities was primarily due to the change in advances to/from parent and affiliates. In 2005, the Company advanced funds to the parent and affiliates, although the amount decreased $85.7 million in the first six months. In 2006, the parent and affiliates advanced funds to the Company, which increased $254.3 million during the first six months.

During the first six months of 2006, the Company invested $371.4 million in the construction and purchase of lease fleet and other fixed assets, compared with $292.6 million in the first six months of 2005. The 2006 capital expenditures included $113.9 million to exercise purchase options for railcars related to sale-leaseback transactions (compared with $76.0 million in the first six months of 2005) and investment in railcar manufacturing assets. Of the $113.9 million for the railcars related to the sale-leaseback transactions, $63.9 million was paid in January 2006 and $25.0 million was paid in the second quarter of 2006. The remaining $25.0 million is payable in two installments during the remainder of 2006 and is included in accrued expenses.

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.

Capital spending for the construction of a new tank car manufacturing plant in Alexandria, Louisiana from inception through June 30, 2006 totaled $93.0 million, of which $23.4 million has been reimbursed by state and local governments. The remaining capital spending on the Alexandria plant, which is substantially complete and in operation, is expected to be approximately $8.0 million over the remainder of 2006. Further reimbursement of capital spending by state and local governments is expected to total approximately $7.0 million.

- 21 -

During the first six months of 2006, the Company received $79.7 million from the sales of available-for-sale securities. The securities are investment-grade debt obligations with a combined weighted-average maturity under two years. The investments are available for the Company’s use to fund repayment of principal obligations, finance lease fleet additions (including the exercise of sale-leaseback purchase options), or fund other operating needs.

Proceeds from disposals of lease fleet and other fixed assets were $23.0 million in the first six months of 2006 compared with $11.3 million in the first six months of 2005.

Cash flows from financing activities:

Net cash used in financing activities was $121.7 million in the first six months of 2006 compared with $239.9 million provided by financing activities in the first six months of 2005. The change in net cash from financing activities was primarily due to the issuance of $311.0 million of debt in 2005.

During the first six months of 2006, the Company’s financing activities included principal repayments on debt totaled $49.7 million compared with $19.1 million in the first six months of 2005. Cash dividends were $72.0 million in the first six months of 2006 compared with $52.0 million in the first six months of 2005.

Management expects future cash provided from operating activities, long-term financings, available-for-sale securities, and advances from parent and affiliates will be adequate to provide for the continued investment in the Company’s business and enable it to meet its debt service obligations.

- 22 -

New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction.” FSP FAS 13-2 addresses how a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affects the accounting by a lessor for that lease. This FSP will be effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The adoption of FSP FAS 13-2 is not expected to have a material effect on the Company’s consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” This interpretation clarifies the accounting for uncertainty in income taxes including defining the criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in financial statements and provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently assessing the impact of this interpretation on its consolidated financial statements.

In March 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 156 “Accounting for Servicing of Financial Assets” - an amendment of FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” This statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset, recording at fair value and permits use of the amortization or fair value measurement methods. This statement is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS 156 is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” This statement is effective for all financial instruments acquired, issued or subject to remeasurement in the fiscal year that begins after September 15, 2006. The adoption of SFAS 155 is not expected to have a material effect on the Company’s consolidated financial statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes during the first six months of 2006 in the Company’s disclosure of the quantitative and qualitative market risk contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

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, 2005 for a description of certain environmental matters.

ITEM 1A. RISK FACTORS

There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. In addition to the other information set forth in this report, you should carefully consider the risk factors contained in such annual report, as such risks or other risks not currently known to the Company or that the Company does not currently deem material could materially affect the Company’s business, financial condition or future results.

ITEM 5. 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: August 11, 2006	/s/ Mark J. Garrette
	Mark J. Garrette
	Vice President
	(principal financial officer and principal accounting officer)

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