Union Tank Car 10-Q 2008 Q1 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 March 31, 2008

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)
181 W. Madison Street, 26th Floor, Chicago, Illinois	60602-4510
(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  ¨    No  x*

* NOTE: 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.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  x (Do not check if a smaller reporting company)	Smaller reporting company  ¨

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.

UNION TANK CAR COMPANY AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2008

INDEX

		Page
Part I. Financial Information
Item 1.	Financial Statements	3
	Condensed consolidated statements of income - three months ended March 31, 2008 and 2007	3
	Condensed consolidated balance sheets - March 31, 2008 and December 31, 2007	4
	Condensed consolidated statements of cash flows - three months ended March 31, 2008 and 2007	5
	Notes to condensed consolidated financial statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
Part II. Other Information
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Submission of Matters to a Vote of Security Holders	*
Item 5.	Other Information	*
Item 6.	Exhibits	22
Signatures		23

* 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 March 31,
	2008		2007
Revenues
Services (leasing and other)	$	241,202	$	213,264
Sales		287,018		308,795
		528,220		522,059
Costs and expenses
Cost of services		128,481		117,618
Cost of sales		233,110		242,317
Closure costs - railcar manufacturing facility		24,798		—
General and administrative		42,664		37,074
Interest expense		26,936		27,265
		455,989		424,274
Operating income		72,231		97,785
Interest income		3,117		3,327
Other income, net		1,697		992
Income before income taxes and minority interest		77,045		102,104
Provision for income taxes		30,793		43,195
Income before minority interest		46,252		58,909
Minority interest		2,329		2,394
Net income		43,923		56,515
Other comprehensive income
Unrealized gains on securities, net of tax		66		21
Comprehensive income	$	43,989	$	56,536

See notes to condensed consolidated financial statements.

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UNION TANK CAR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

	March 31, 2008			December 31, 2007
	(Unaudited)
Assets
Cash and cash equivalents	$	168,267		$	122,114
Short-term investments		—			172,335
Accounts receivable, net of allowances of $5,031 ($6,079 at December 31, 2007)		234,881			209,034
Accounts and notes receivable, affiliate		43,923			43,990
Inventories, net of LIFO reserves of $120,002 ($116,365 at December 31, 2007)		205,258			203,180
Prepaid expenses and deferred charges		12,147			12,442
Railcar lease fleet, net		3,255,395			3,156,456
Intermodal tank container lease fleet, net		382,362			374,828
Other fixed assets, net		280,417			290,995
Other assets		57,536			53,170
Total assets	$	4,640,186		$	4,638,544
Liabilities and Stockholder’s Equity
Accounts payable	$	132,761		$	119,677
Accrued liabilities		241,318			205,475
Advances from parent and affiliates		1,047,773			1,055,651
Debt, including $42,499 due within one year ($107,488 at December 31, 2007)		1,065,896			1,137,589
Deferred income taxes and investment tax credits		761,869			745,901
Total liabilities		3,249,617			3,264,293
Minority interest		113,077			110,748
Stockholder’s equity
Common stock		106,689			106,689
Additional capital		169,455			169,455
Retained earnings		1,001,387			987,464
Accumulated other comprehensive losses		(39	)		(105	)
Total stockholder’s equity		1,277,492			1,263,503
Total liabilities and stockholder’s equity	$	4,640,186		$	4,638,544

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)

	Three Months Ended March 31,
	2008			2007
Cash flows from operating activities:
Net income	$	43,923		$	56,515
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		57,651			51,676
Deferred income taxes		16,642			16,471
Gains on disposition of lease fleet and other fixed assets		(4,388	)		(5,238	)
Write-off of building and equipment		10,905			—
Other non-cash income and expenses		3,891			2,763
Changes in assets and liabilities
Accounts receivable		(26,971	)		(7,789	)
Inventories		(2,119	)		768
Prepaid expenses and deferred charges		(222	)		(260	)
Accounts payable and accrued expenses		48,220			(565	)
Net cash provided by operating activities		147,532			114,341
Cash flows from investing activities:
Construction and purchase of lease fleet		(159,898	)		(173,031	)
Construction and purchase of other fixed assets		(9,592	)		(8,013	)
Proceeds from sales of available-for-sale securities		—			24,462
Purchases of short-term investments		—			(30,617	)
Proceeds from sales of short-term investments		171,683			101,744
Increase in other assets		(4,568	)		(873	)
Proceeds from disposals of lease fleet and other fixed assets		8,278			9,223
Purchases of businesses, net of cash acquired		—			(35,523	)
Net cash provided by (used in) investing activities		5,903			(112,628	)
Cash flows from financing activities:
(Decrease) increase in advances from parent and affiliates		(3,519	)		235,657
Principal payments of debt		(71,693	)		(156,689	)
Cash dividends		(30,000	)		(39,000	)
Net cash (used in) provided by financing activities		(105,212	)		39,968
Effect of exchange rates on cash and cash equivalents		(2,070	)		1,467
Net increase in cash and cash equivalents		46,153			43,148
Cash and cash equivalents at beginning of year		122,114			165,588
Cash and cash equivalents at end of period	$	168,267		$	208,736
Cash paid (received) during the period for:
Interest	$	2,555		$	9,666
Income taxes		(7,186	)		14,098
Non-cash item:
Cumulative effect of adopting FIN 48	$	—		$	17,073

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”). Prior to the transaction discussed below, substantially all of the stock of Holdings was 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.

On March 18, 2008, Berkshire Hathaway Inc. (“Berkshire”) purchased 60% of Holdings for $4,500,000. On April 30, 2008, Berkshire purchased an additional 4.4% of Holdings for $329,000. The remaining shares of Holdings will be acquired by Berkshire through staged acquisitions over a five to six year period for consideration based on future earnings of Holdings.

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 Annual Report on Form 10-K for the year ended December 31, 2007.

The 2008 interim results presented herein are not necessarily indicative of the results of operations for the full year 2008.

3. Significant Accounting Policies

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.

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3. Significant Accounting Policies (Continued)

Lessor Accounting

Most of the Company’s railcar and intermodal tank container leases with its customers 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.

The Company periodically reviews and evaluates the ultimate realization of the receivables and properties under lease contracts. Allowances for losses are maintained at amounts necessary to cover anticipated losses based on management’s assessment of various factors, including loss experience and review of specific accounts.

Foreign Currency Translation

The Company’s foreign operations use the local currency as their functional currency. Accordingly, assets and liabilities are translated at exchange rates in effect at the balance sheet date. Average exchange rates are used for revenues, costs and expenses.

Foreign currency translation adjustments and transaction gains and losses are borne by Holdings. For the three months ended March 31, 2008 and 2007, Holdings absorbed a loss of $5,338 and a gain of $832, respectively.

Income Taxes

Federal, state, local and foreign income taxes, in general, are reflected on the basis of individual company liabilities, except as follows: the Company and its more than 80% owned U.S. subsidiaries are included in the consolidated U.S. federal income tax return and certain combined state income tax filings of Holdings; and 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 Holdings tax return, allocation of the related benefits between the Company and others will be at the sole discretion of Holdings.

The Company includes interest expense and penalties accrued on unrecognized tax benefits as a component of the provision for income taxes. Interest income attributable to overpayments of income taxes is included in interest income.

The Company’s federal and significant foreign subsidiaries income tax returns have been audited through 2002. Numerous state jurisdictional audits are ongoing.

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3. Significant Accounting Policies (Continued)

Accounts Receivable and Allowance for Doubtful Accounts

The Company carries its accounts receivable at their face amounts less an allowance for doubtful accounts. On a regular basis, the Company evaluates its accounts receivable as well as establishes the allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions and based on a history of write-offs and collections. A receivable is considered past due if payments have not been received within agreed upon invoice terms. Uncollectible receivables are charged against the allowance for doubtful accounts when approved by management after all collection efforts have been exhausted.

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.

	March 31, 2008			December 31, 2007
Raw materials	$	37,945		$	37,564
Work-in-process		35,889			39,341
Finished goods		256,610			247,972
Obsolescence and other reserves		(5,184	)		(5,332	)
		325,260			319,545
LIFO reserve		(120,002	)		(116,365	)
Net	$	205,258		$	203,180

Property and Equipment

Property and equipment are depreciated or amortized over their useful lives primarily 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. Gains and losses on disposals are included in cost of services or cost of sales.

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.

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3. Significant Accounting Policies (Continued)

Lease Fleet and Other Fixed Assets

	March 31, 2008			December 31, 2007
Railcar lease fleet
Gross cost	$	5,177,125		$	5,056,138
Less accumulated depreciation		(1,921,730	)		(1,899,682	)
	$	3,255,395		$	3,156,456
Intermodal tank container lease fleet
Gross cost	$	561,902		$	546,897
Less accumulated depreciation		(179,540	)		(172,069	)
	$	382,362		$	374,828
Other fixed assets
Gross cost	$	706,750		$	711,627
Less accumulated depreciation		(426,333	)		(420,632	)
	$	280,417		$	290,995

Legal Matters

The Company and its subsidiaries are involved in a number of lawsuits and are subject to various claims. The Company has accrued its best estimate of such probable 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.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

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4. Closure Costs – Railcar Manufacturing Facility

As a result of a declining market for tank car sales and leases and long-term demand estimates, the Company announced on March 28, 2008 the closure of its railcar manufacturing facility in East Chicago, Indiana effective at the end of May 2008. The one-time charge related to the announced closure is detailed as follows:

Write-off of building and equipment	$	10,905
Severance and fringe benefits		11,141
Environmental related costs		3,758
Reduction in post-retirement liabilities		(1,806	)
Other		800
Total	$	24,798

The Company estimates an additional $5,000 of period costs will be incurred over the remainder of 2008 for this closure.

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 March 31, 2008
Services revenue	$	183.1	$	2.4	$	32.7	$	23.0	$	241.2
Sales revenue		0.3		240.9		—		45.8		287.0
Income before income taxes and minority interest		35.4		24.0		12.5		5.1		77.0
Three months ended March 31, 2007
Services revenue	$	163.5	$	1.9	$	29.5	$	18.4	$	213.3
Sales revenue		10.2		219.9		—		78.7		308.8
Income before income taxes and minority interest		45.8		23.4		9.6		23.3		102.1

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6. Completed Contracts

Certain projects are accounted for using the completed contract method because of the inherent difficulty and uncertainty in estimating the total cost of completion and the extent of progress toward completion. Net billing in excess of cost included in accrued liabilities in the condensed consolidated balance sheets is as follows:

	March 31, 2008			December 31, 2007
Cost incurred	$	8,766		$	4,166
Deferred revenue		(18,173	)		(5,975	)
Net billing in excess of cost	$	(9,407	)	$	(1,809	)

7. Commitments and Contingencies

The Company’s Canadian subsidiaries have a demand credit facility of approximately $34,400 available on a no-fee basis at March 31, 2008. Holdings is a guarantor of this demand credit facility. At March 31, 2008, $8,548 of letters of credit were outstanding; no amounts were outstanding for overdrafts or borrowings.

As part of its risk management plan, the Company self-insures certain levels of its property damage, general liability, products liability, health and workers’ compensation liabilities. The Company maintains no property damage insurance on its railcars or intermodal tank containers. The Company has accrued for the estimated costs of reported claims, as well as incurred but not reported health and workers’ compensation claims.

The Company has no environmental matters currently pending which are significant to the Company’s results of operations or financial condition, either individually or in the aggregate. Based on information provided by environmental engineers, management believes that amounts accrued for remedial activities and environmental liabilities (which in the aggregate are not material) are adequate.

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:

	Three Months Ended March 31,
	2008			2007
Balance at beginning of year	$	1,715		$	769
Warranties issued		262			1,060
Settlements/reversals		(248	)		(249	)
Balance at end of period	$	1,729		$	1,580

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, issued a 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. These equipment trust certificates were fully paid off on April 15, 2008.

Condensed consolidating statements of income for the three months ended March 31, 2008 and 2007 are as follows:

	Three Months Ended March 31, 2008
	Union Tank Car Company			Procor Limited			Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	162,421		$	18,939		$	83,792	$	(23,950	)	$	241,202
Sales		—			165			443,120		(156,267	)		287,018
		162,421			19,104			526,912		(180,217	)		528,220
Costs and expenses
Cost of services		89,792			10,803			51,836		(23,950	)		128,481
Cost of sales		—			42			389,314		(156,246	)		233,110
Closure costs - railcar manufacturing facility		—			—			24,798		—			24,798
General and administrative		10,758			2,516			29,390		—			42,664
Interest expense		22,898			622			3,408		8			26,936
		123,448			13,983			498,746		(180,188	)		455,989
Operating income		38,973			5,121			28,166		(29	)		72,231
Other (expense) income, net		(533	)		2,895			2,444		8			4,814
Income before income taxes and minority interest		38,440			8,016			30,610		(21	)		77,045
Provision for income taxes		15,178			2,481			13,134		—			30,793
		23,262			5,535			17,476		(21	)		46,252
Equity in income of subsidiaries		20,661			—			—		(20,661	)		—
Minority interest		—			—			2,329		—			2,329
Net income	$	43,923		$	5,535		$	15,147	$	(20,682	)	$	43,923
	Three Months Ended March 31, 2007
	Union Tank Car Company			Procor Limited			Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	144,886		$	6,307		$	84,018	$	(21,947	)	$	213,264
Sales		—			—			479,395		(170,600	)		308,795
		144,886			6,307			563,413		(192,547	)		522,059
Costs and expenses
Cost of services		88,293			5,268			46,004		(21,947	)		117,618
Cost of sales		—			—			412,827		(170,510	)		242,317
General and administrative		9,683			939			26,452		—			37,074
Interest expense		21,923			980			4,362		—			27,265
		119,899			7,187			489,645		(192,457	)		424,274
Operating income (loss)		24,987			(880	)		73,768		(90	)		97,785
Other income, net		41			2,219			2,059		—			4,319
Income before income taxes and minority interest		25,028			1,339			75,827		(90	)		102,104
Provision for income taxes		13,377			621			29,197		—			43,195
		11,651			718			46,630		(90	)		58,909
Equity in income of subsidiaries		44,864			—			—		(44,864	)		—
Minority interest		—			—			2,394		—			2,394
Net income	$	56,515		$	718		$	44,236	$	(44,954	)	$	56,515

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8. Consolidating Financial Information (Continued)

Condensed consolidating balance sheets as of March 31, 2008 and December 31, 2007 are as follows:

	March 31, 2008
	Union Tank Car Company			Procor Limited		Other Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	3,140		$	160,926	$	4,201		$	—		$	168,267
Accounts receivable, net		25,787			4,523		239,307			(34,736	)		234,881
Accounts and notes receivable, affiliate		—			—		43,923			—			43,923
Inventories, net		4,744			1,471		199,043			—			205,258
Prepaid expenses and deferred charges		3,641			2,529		5,977			—			12,147
Advances to parent and affiliates		—			—		318,051			(318,051	)		—
Railcar lease fleet, net		3,043,930			104,565		108,032			(1,132	)		3,255,395
Intermodal tank container lease fleet, net		—			—		382,362			—			382,362
Other fixed assets, net		38,950			14,645		226,822			—			280,417
Investment in subsidiaries		1,043,489			—		46,098			(1,089,587	)		—
Other assets		7,081			—		50,455			—			57,536
Total assets	$	4,170,762		$	288,659	$	1,624,271		$	(1,443,506	)	$	4,640,186
Liabilities and Stockholder’s Equity
Accounts payable	$	35,459		$	4,459	$	127,579		$	(34,736	)	$	132,761
Accrued liabilities		112,661			15,668		112,609			380			241,318
Advances from parent and affiliates		1,242,640			124,696		—			(319,563	)		1,047,773
Debt		965,814			1,060		99,022			—			1,065,896
Deferred income taxes and investment tax credits		617,312			36,527		108,030			—			761,869
Total liabilities		2,973,886			182,410		447,240			(353,919	)		3,249,617
Minority interest		—			—		113,077			—			113,077
Stockholder’s equity
Common stock and additional capital		369,558			13,345		294,670			(401,429	)		276,144
Retained earnings		870,335			36,956		782,254			(688,158	)		1,001,387
Accumulated other comprehensive (losses) income		(84	)		—		45			—			(39	)
Equity adjustment from foreign currency translation		(42,933	)		55,948		(13,015	)		—			—
Total stockholder’s equity		1,196,876			106,249		1,063,954			(1,089,587	)		1,277,492
Total liabilities and stockholder’s equity	$	4,170,762		$	288,659	$	1,624,271		$	(1,443,506	)	$	4,640,186

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8. Consolidating Financial Information (Continued)

	December 31, 2007
	Union Tank Car Company			Procor Limited			Other Subsidiaries		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	30		$	119,687		$	2,397	$	—		$	122,114
Short-term investments		—			172,335			—		—			172,335
Accounts receivable, net		102,721			1,790			220,938		(116,415	)		209,034
Accounts and notes receivable, affiliate		—			—			43,990		—			43,990
Inventories, net		4,582			1,124			197,474		—			203,180
Prepaid expenses and deferred charges		3,548			4,146			4,748		—			12,442
Advances to parent and affiliates		—			—			482,611		(482,611	)		—
Railcar lease fleet, net		2,936,837			33,831			186,897		(1,109	)		3,156,456
Intermodal tank container lease fleet, net		—			—			374,828		—			374,828
Other fixed assets, net		39,833			15,287			235,875		—			290,995
Investment in subsidiaries		1,078,789			75,409			42,683		(1,196,881	)		—
Other assets		7,041			18			46,111		—			53,170
Total assets	$	4,173,381		$	423,627		$	1,838,552	$	(1,797,016	)	$	4,638,544
Liabilities and Stockholder’s Equity
Accounts payable	$	37,945		$	19,950		$	178,197	$	(116,415	)	$	119,677
Accrued liabilities		115,760			5,174			84,144		397			205,475
Advances from parent and affiliates		1,212,983			326,785			—		(484,117	)		1,055,651
Debt		1,037,480			1,060			99,049		—			1,137,589
Deferred income taxes and investment tax credits		587,507			18,387			140,007		—			745,901
Total liabilities		2,991,675			371,356			501,397		(600,135	)		3,264,293
Minority interest		—			—			110,748		—			110,748
Stockholder’s equity
Common stock and additional capital		369,558			13,345			370,156		(476,915	)		276,144
Retained earnings		856,643			44,128			806,659		(719,966	)		987,464
Accumulated other comprehensive (losses) income		(128	)		—			23		—			(105	)
Equity adjustment from foreign currency translation		(44,367	)		(5,202	)		49,569		—			—
Total stockholder’s equity		1,181,706			52,271			1,226,407		(1,196,881	)		1,263,503
Total liabilities and stockholder’s equity	$	4,173,381		$	423,627		$	1,838,552	$	(1,797,016	)	$	4,638,544

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8. Consolidating Financial Information (Continued)

Condensed consolidating statements of cash flows for the three months ended March 31, 2008 and 2007 are as follows:

	Three Months Ended March 31, 2008
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities:	$	92,769		$	5,605		$	49,184		$	(26	)	$	147,532
Cash flows from investing activities:
Construction and purchase of lease fleet		(144,832	)		(58	)		(15,040	)		32			(159,898	)
Construction and purchase of other fixed assets		(836	)		(69	)		(8,687	)		—			(9,592	)
Proceeds from sales of short-term investments		—			171,683			—			—			171,683
Decrease (increase) in other assets		—			18			(4,586	)		—			(4,568	)
Proceeds from disposals of lease fleet and other fixed assets		5,682			1,053			1,543			—			8,278
Net cash (used in) provided by investing activities		(139,986	)		172,627			(26,770	)		32			5,903
Cash flows from financing activities:
Increase (decrease) in advances from parent and affiliates		151,993			(78,692	)		35,826			(112,646	)		(3,519	)
Principal payments of debt		(71,666	)		—			(27	)		—			(71,693	)
Cash dividends		(30,000	)		(56,320	)		(56,320	)		112,640			(30,000	)
Net cash provided by (used in) financing activities		50,327			(135,012	)		(20,521	)		(6	)		(105,212	)
Effect of exchange rates on cash and cash equivalents		—			(1,981	)		(89	)		—			(2,070	)
Net increase in cash and cash equivalents		3,110			41,239			1,804			—			46,153
Cash and cash equivalents at beginning of year		30			119,687			2,397			—			122,114
Cash and cash equivalents at end of period	$	3,140		$	160,926		$	4,201		$	—		$	168,267

	Three Months Ended March 31, 2007
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) operating activities:	$	64,621		$	(456	)	$	50,280		$	(104	)	$	114,341
Cash flows from investing activities:
Construction and purchase of lease fleet		(161,727	)		(21	)		(11,378	)		95			(173,031	)
Construction and purchase of other fixed assets		(1,259	)		(333	)		(6,421	)		—			(8,013	)
Proceeds from sales of available-for-sale securities		24,462			—			—			—			24,462
Purchases of short-term investments		—			(30,617	)		—			—			(30,617	)
Proceeds from sales of short-term investments		—			101,744			—			—			101,744
(Increase) decrease in other assets		(31	)		43			(885	)		—			(873	)
Proceeds from disposals of lease fleet and other fixed assets		4,683			—			4,540			—			9,223
Purchases of businesses, net of cash acquired		—			—			(35,523	)		—			(35,523	)
Net cash (used in) provided by investing activities		(133,872	)		70,816			(49,667	)		95			(112,628	)
Cash flows from financing activities:
Increase in advances from parent and affiliates		216,009			17,608			2,031			9			235,657
Principal payments of debt		(156,666	)		—			(23	)		—			(156,689	)
Cash dividends		(39,000	)		—			—			—			(39,000	)
Net cash provided by financing activities		20,343			17,608			2,008			9			39,968
Effect of exchange rates on cash and cash equivalents		—			1,077			390			—			1,467
Net (decrease) increase in cash and cash equivalents		(48,908	)		89,045			3,011			—			43,148
Cash and cash equivalents at beginning of year		48,935			115,723			930			—			165,588
Cash and cash equivalents at end of period	$	27		$	204,768		$	3,941		$	—		$	208,736

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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 Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission on March 20, 2008.

Forward-Looking Statements

Certain statements contained in this quarterly report on Form 10-Q for the quarter ended March 31, 2008 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 “Item 1A—Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, may affect the Company’s businesses. As a result, past financial results may not be a reliable indicator of future performance.

Results of Operations

1^st Quarter 2008 versus 1^st Quarter 2007

Services revenue and gross profit:

The equipment leasing businesses continued to perform well in all major markets. Demand for leased railcars and intermodal tank containers remained strong, resulting in fleet growth, improved lease rental rates and continued high fleet utilization.

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

	2008			2007			Increase
	(Dollars in Thousands)
Services revenue	$	241,202		$	213,264		$	27,938
Cost of services		128,481			117,618			10,863
Gross profit from services	$	112,721		$	95,646		$	17,075
Gross profit %		47	%		45	%

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Services revenue in the first quarter of 2008 increased $27.9 million from the first quarter of 2007 due to $19.6 million higher railcar leasing and service revenues (higher lease rates and equipment additions), $3.3 million higher intermodal tank container leasing revenues (equipment additions, favorable foreign currency rates and higher lease rates), $3.3 million higher revenue in the sulphur processing business (higher volume) and $1.3 million higher revenue in the contract rail switching business (higher volume).

Gross profit on services revenue in the first quarter of 2008 increased $17.1 million from the first quarter of 2007 primarily due to a $13.7 million increase for railcar leasing (higher lease rates and equipment additions more than offsetting higher maintenance expense), a $2.3 million increase for the intermodal tank container leasing business (equipment additions, favorable foreign currency rates and higher lease rates) and a $1.3 million increase for the sulphur processing business (higher volume).

Gains on disposals of lease fleet and other fixed assets, primarily on railcars and tank containers, totaled $4.4 million in the first quarter of 2008 compared to $5.2 million in the first quarter of 2007. Gains on disposals are treated as a reduction to the cost of services.

The gross margin on services revenue of 47% in the first quarter of 2008 increased from 45% in the first quarter of 2007 due to a higher margin in the railcar leasing business (higher lease rates and equipment additions more than offsetting higher maintenance expense) and a higher margin in the intermodal tank container leasing business (favorable foreign currency rates and higher lease rates).

Average fleet utilization of the Company’s railcar fleet was 98% for the first quarter of 2008 compared with 99% for the first quarter of 2007. Utilization rates of the Company’s existing railcars are driven by long-term requirements of manufacturers and shippers of chemical products, including liquid fertilizers, liquified petroleum gas and other petroleum and fuel 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 and gross profit:

Demand for products of the metals distribution business remained strong. Demand for new railcars declined.

See Note 4 of the Notes to the Condensed Consolidated Financial Statements with respect to the $24.8 million closure costs of the East Chicago, Indiana railcar manufacturing facility in the first quarter of 2008.

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

	2008			2007			Decrease
	(Dollars in Thousands)
Sales revenue	$	287,018		$	308,795		$	(21,777	)
Cost of sales		233,110			242,317			(9,207	)
Gross profit from sales	$	53,908		$	66,478		$	(12,570	)
Gross profit %		19	%		22	%

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Sales revenue for the first quarter of 2008 decreased $21.8 million from the first quarter of 2007 due to $39.0 million lower sales of sulphur processing equipment (completion of a large project in the first quarter of 2007) and a $9.9 million decrease in sales of manufactured railcars (lower sales volume). These decreases were partially offset by $21.0 million higher sales of metals distribution products (higher volume due to 2007 acquisitions and higher prices), $2.4 million higher sales of gear drives (higher volume) and $2.3 million higher sales of mobile railcar moving equipment (higher volume).

Gross profit on sales revenue in the first quarter of 2008 decreased $12.6 million from the first quarter of 2007 primarily due to a $19.0 million decrease for sulphur processing equipment (completion of a large project in the first quarter of 2007). This decrease was partially offset by a $2.7 million increase for metals distribution products (higher volume due to 2007 acquisitions and higher prices), a $1.3 million increase for mobile railcar moving equipment (higher volume) and a $1.2 million increase for gear drives (higher volume).

The gross margin on sales revenue of 19% in the first quarter of 2008 decreased from 22% in the first quarter of 2007 primarily due to the prior year completion of the large sulphur processing equipment project.

General and administrative expense, interest expense and income taxes:

General and administrative expenses in the first quarter of 2008 were $5.6 million higher than in the first quarter of 2007 primarily due to higher expenses for the metals distribution, railcar leasing and other businesses.

Interest expense in the first quarter of 2008 was $0.3 million lower than in the first quarter of 2007 primarily due to $2.8 million lower interest expense on third-party debt due to principal repayments, more than offsetting $2.5 million higher interest on advances from parent and affiliates.

The provision for income taxes was $30.8 million in the first quarter of 2008 with an effective tax rate of 40.0%, compared with $43.2 million in the first quarter of 2007 with an effective tax rate of 42.3%. The decrease in the effective tax rate was due to lower state income taxes, partially offset by a reduction in the credit for foreign taxes paid.

Financial Condition and Liquidity

1^st Quarter 2008 versus 1^st Quarter 2007

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

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 and capital expenditures, required amounts are provided by 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.

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Cash flows from operating activities:

Operating activities provided $147.5 million of net cash in the first quarter of 2008, compared with $114.3 million provided in the first quarter of 2007. The net cash provided by operating activities was higher in 2008 primarily due to changes in operating assets and liabilities and higher depreciation, more than offsetting lower net income.

Cash flows from investing activities:

Net cash provided by investing activities was $5.9 million in the first quarter of 2008 compared with $112.6 million net cash used in the first quarter of 2007. The change in net cash related to investing activities was primarily due to sales of short-term investments in 2008 compared to 2007, purchases of businesses in 2007 and lower capital expenditures for the lease fleet in 2008 compared with 2007.

During the first quarter of 2008, the Company invested $159.9 million in the construction and purchase of lease fleet assets, compared with $173.0 million in 2007. 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.

During the first quarter of 2008, the Company invested $9.6 million in the construction and purchase of other fixed assets, compared with $8.0 million in the first quarter of 2007.

During the first quarter of 2008, the Company decreased its short-term investments by $171.7 million, compared to a net decrease in short-term investments of $71.1 million in the first quarter of 2007. As of the end of March 2008, the Company had no short-term investments or available-for-sale securities.

A subsidiary of the Company sold its remaining investments in Canadian short-term, asset-backed commercial paper at carrying/maturity value of $61.3 million to an affiliated entity on February 29, 2008.

Proceeds from disposals of lease fleet and other fixed assets were $8.3 million in the first quarter of 2008 compared with $9.2 million in the first quarter of 2007.

Cash flows from financing activities:

Net cash used in financing activities was $105.2 million in the first quarter of 2008 compared with net cash provided by financing activities of $40.0 million in the first quarter of 2007 primarily due to a $3.5 million decrease in advances from parent and affiliates in the first quarter of 2008 compared with a $235.7 million increase in advances from parent and affiliates in the first quarter of 2007. Partially offsetting the change in advances from parent and affiliates were lower principal payments of debt and lower cash dividends. Cash dividends to Holdings were $30.0 million in the first quarter of 2008 compared with $39.0 million in the first quarter of 2007.

Management expects future cash provided from operating activities, advances from parent and affiliates, and long-term financings 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 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced disclosures about (a) how and why derivatives are used, (b) how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedge items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” This statement establishes accounting and reporting standards for noncontrolling interests (formerly known as minority interests) in consolidated financial statements. This statement is effective in 2009 for the Company (early adoption is prohibited). This statement will revise the treatment of noncontrolling interests in consolidated balance sheets and consolidated statements of income. Noncontrolling interests will become a part of stockholder’s equity in the consolidated balance sheets and consolidated income statements will report income attributable to the Company and to noncontrolling interests separately. When adopted, this statement is to be applied prospectively at the beginning of the year, except that the presentation and disclosure requirements are applied retrospectively for all periods presented. This statement will not affect reported net income.

In December 2007, the FASB issued SFAS Statement No. 141 Revised, “Business Combinations.” This statement modifies Statement No. 141 but retains the fundamental requirements of Statement No. 141. This statement is effective for acquisitions on or after January 1, 2009 (early adoption is prohibited). This statement retains the purchase method of accounting, with assets purchased and liabilities assumed in an acquisition valued at fair value, and broadens the scope of Statement No. 141. Certain costs, including acquisition costs and restructuring cost, are recognized separately from the accounting for the business acquired. Also, accounting for step acquisitions, contingencies and bargain purchases has been modified. The adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The statement was adopted in 2008 and did not have a material effect on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This statement requires the recognition of overfunded or underfunded status of defined benefit plans as an asset or liability and the recognition of changes in the funded status through comprehensive income, which was adopted by the Company at the end of 2007. The requirement to use the Company’s year-end as the measurement date is effective for fiscal years ending after December 15, 2008 which will be adopted by the Company in 2008, changing from the current measurement date of September 30. The effect of the change in measurement date is not expected to have a material impact on the Company’s consolidated financial statements.

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In September 2006, the FASB issued SFAS Statement No. 157, “Fair Value Measurements.” This statement clarifies the definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement was adopted in 2008 and did not have a material effect on the Company’s consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes during the first quarter of 2008 in the Company’s disclosure of the quantitative and qualitative market risk contained in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

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 Item 1 and Note 12 “Contingencies” of the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for a description of certain environmental matters and Note 7 “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for the quarter ended March 31, 2008.

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, 2007. 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 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: May 12, 2008	By:	/s/ Mark J. Garrette
		Mark J. Garrette
		Vice President
		(Principal Financial Officer and Principal Accounting Officer)

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