Union Tank Car 10-Q 2008 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 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 SEPTEMBER 30, 2008

INDEX

			Page
Part I. Financial Information
	Item 1.	Financial Statements	3
		Condensed consolidated statements of income - three and nine month periods ended September 30, 2008 and 2007	3
		Condensed consolidated balance sheets - September 30, 2008 and December 31, 2007	4
		Condensed consolidated statements of cash flows - nine months ended September 30, 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	12
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
	Item 4.	Controls and Procedures	20
Part II. Other Information
	Item 1.	Legal Proceedings	21
	Item 1A.	Risk Factors	21
	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	21
Signatures			22

* 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 September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
Revenues
Services (leasing and other)	$	250,834		$	230,852	$	738,964		$	661,978
Sales		338,795			277,295		966,102			873,973
		589,629			508,147		1,705,066			1,535,951
Costs and expenses
Cost of services		132,816			117,633		391,351			356,684
Cost of sales		286,081			229,266		798,431			705,530
Closure costs - railcar manufacturing facility		564			—		26,876			—
General and administrative		42,214			38,075		126,974			110,353
Interest expense		26,990			31,437		79,155			88,397
		488,665			416,411		1,422,787			1,260,964
Operating income		100,964			91,736		282,279			274,987
Interest income		1,454			3,616		6,276			10,304
Other income, net		1,863			1,273		5,855			3,729
Income before income taxes and minority interest		104,281			96,625		294,410			289,020
Provision for income taxes		47,811			40,916		125,816			119,645
Income before minority interest		56,470			55,709		168,594			169,375
Minority interest		2,475			2,568		7,579			7,145
Net income		53,995			53,141		161,015			162,230
Other comprehensive (losses) income
Unrealized (losses) gains on securities, net of tax		(15	)		30		(44	)		41
Comprehensive income	$	53,980		$	53,171	$	160,971		$	162,271

See notes to condensed consolidated financial statements.

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UNION TANK CAR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

	September 30, 2008			December 31, 2007
	(Unaudited)
Assets
Cash and cash equivalents	$	138,296		$	122,114
Short-term investments		—			172,335
Accounts receivable, net of allowances of $5,336 ($6,079 at December 31, 2007)		263,396			209,034
Accounts and notes receivable, affiliate		43,695			43,990
Inventories, net of LIFO reserves of $161,401 ($116,365 at December 31, 2007)		232,298			203,180
Prepaid expenses and deferred charges		15,252			12,442
Railcar lease fleet, net		3,393,713			3,156,456
Intermodal tank container lease fleet, net		418,983			374,828
Other fixed assets, net		276,417			290,995
Other assets		59,885			53,170
Total assets	$	4,841,935		$	4,638,544
Liabilities and Stockholder’s Equity
Accounts payable	$	160,352		$	119,677
Accrued liabilities		215,307			205,475
Advances from parent and affiliates		1,139,738			1,055,651
Debt, including $205,103 due within one year ($107,488 at December 31, 2007)		1,045,129			1,137,589
Deferred income taxes and investment tax credits		850,608			745,901
Total liabilities		3,411,134			3,264,293
Minority interest		118,327			110,748
Stockholder’s equity
Common stock		106,689			106,689
Additional capital		169,455			169,455
Retained earnings		1,036,479			987,464
Accumulated other comprehensive losses		(149	)		(105	)
Total stockholder’s equity		1,312,474			1,263,503
Total liabilities and stockholder’s equity	$	4,841,935		$	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)

	Nine Months Ended September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	161,015		$	162,230
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		178,911			159,594
Deferred income taxes		106,497			55,438
Gains on disposition of lease fleet and other fixed assets		(19,927	)		(21,074	)
Write-off of building and equipment		10,905			—
Other non-cash income and expenses		12,233			8,494
Changes in assets and liabilities
Accounts receivable		(60,242	)		(25,914	)
Inventories		(28,743	)		24,029
Prepaid expenses and deferred charges		(3,170	)		(2,341	)
Accounts payable and accrued liabilities		51,533			(37	)
Net cash provided by operating activities		409,012			360,419
Cash flows from investing activities:
Construction and purchase of lease fleet		(449,034	)		(513,570	)
Construction and purchase of other fixed assets		(24,271	)		(28,279	)
Proceeds from sales of available-for-sale securities		—			24,462
Purchases of short-term investments		—			(235,275	)
Proceeds from sales of short-term investments		171,683			151,040
Increase in other assets		(7,216	)		(2,163	)
Proceeds from disposals of lease fleet and other fixed assets		33,493			36,813
Purchases of businesses, net of cash acquired		—			(35,523	)
Net cash used in investing activities		(275,345	)		(602,495	)
Cash flows from financing activities:
Increase in advances from parent and affiliates		92,022			455,016
Principal payments of debt		(92,460	)		(182,035	)
Cash dividends		(112,000	)		(113,000	)
Net cash (used in) provided by financing activities		(112,438	)		159,981
Effect of exchange rates on cash and cash equivalents		(5,047	)		24,656
Net increase (decrease) in cash and cash equivalents		16,182			(57,439	)
Cash and cash equivalents at beginning of year		122,114			165,588
Cash and cash equivalents at end of period	$	138,296		$	108,149
Cash paid during the period for:
Interest	$	34,752		$	46,301
Income taxes		14,693			58,630
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”). 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. After adjustments for other common share changes, Berkshire owns 63.6% of Holdings’ common stock as of September 30, 2008. 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.

Prior to the transactions discussed above, 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.

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 nine months ended September 30, 2008 and 2007, Holdings absorbed a loss of $5,586 and a gain of $12,481, 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.

	September 30, 2008			December 31, 2007
Raw materials	$	46,910		$	37,564
Work-in-process		38,367			39,341
Finished goods		312,648			247,972
Obsolescence and other reserves		(4,226	)		(5,332	)
		393,699			319,545
LIFO reserve		(161,401	)		(116,365	)
Net	$	232,298		$	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

	September 30, 2008			December 31, 2007
Railcar lease fleet
Gross cost	$	5,343,073		$	5,056,138
Less accumulated depreciation		(1,949,360	)		(1,899,682	)
	$	3,393,713		$	3,156,456
Intermodal tank container lease fleet
Gross cost	$	613,847		$	546,897
Less accumulated depreciation		(194,864	)		(172,069	)
	$	418,983		$	374,828
Other fixed assets
Gross cost	$	725,538		$	711,627
Less accumulated depreciation		(449,121	)		(420,632	)
	$	276,417		$	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 charges related to the closure are detailed as follows:

	Three Months Ended September 30, 2008			Nine Months Ended September 30, 2008
Write-off of building and equipment	$	—		$	10,905
Severance and fringe benefits		83			11,224
Environmental related costs		(368	)		3,390
Reduction in post-retirement liabilities		—			(1,806	)
Relocation costs for equipment, etc.		829			1,955
Other		20			1,208
Total	$	564		$	26,876

The Company estimates an additional $1,600 of period expense 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 September 30, 2008
Services revenue	$	190.4	$	2.9	$	34.3	$	23.2	$	250.8
Sales revenue		9.5		273.5		—		55.8		338.8
Income before income taxes and minority interest		69.4		19.7		11.8		3.4		104.3
Three months ended September 30, 2007
Services revenue	$	176.6	$	2.6	$	31.2	$	20.5	$	230.9
Sales revenue		13.2		224.6		—		39.5		277.3
Income before income taxes and minority interest		62.7		22.2		11.4		0.3		96.6
Nine months ended September 30, 2008
Services revenue	$	559.3	$	8.0	$	100.9	$	70.8	$	739.0
Sales revenue		14.4		790.1		—		161.6		966.1
Income before income taxes and minority interest		168.5		69.8		37.1		19.0		294.4
Nine months ended September 30, 2007
Services revenue	$	505.6	$	7.2	$	91.0	$	58.2	$	662.0
Sales revenue		29.4		686.8		—		157.8		874.0
Income before income taxes and minority interest		162.0		70.7		30.8		25.5		289.0

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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 billings in excess of costs included in accrued liabilities in the condensed consolidated balance sheets are as follows:

	September 30, 2008			December 31, 2007
Costs incurred	$	8,148		$	4,166
Deferred revenue		(12,913	)		(5,975	)
Net billings in excess of costs	$	(4,765	)	$	(1,809	)

7. Commitments and Contingencies

The Company’s Canadian subsidiaries have a demand credit facility of approximately $33,800 available on a no-fee basis at September 30, 2008. Holdings is a guarantor of this demand credit facility. At September 30, 2008, $6,682 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:

	Nine Months Ended September 30,
	2008			2007
Balance at beginning of year	$	1,715		$	769
Warranties issued		983			1,932
Settlements/reversals		(674	)		(969	)
Balance at end of period	$	2,024		$	1,732

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7. Commitments and Contingencies (Continued)

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.

The Company has early buyout options for railcars under certain sale-leaseback financing arrangements. The exercise price for these buyout options are $137,694, $29,351 and $92,055 in 2009, 2010 and 2012, respectively. The 2009 buyout options have been exercised and will be consummated in the first quarter of 2009.

8. Consolidating Financial Information

In April 2008, the Company paid off the remaining equipment trust certificates that required disclosure of condensed consolidating financial statements. Accordingly, this disclosure is no longer included.

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 (“SEC”) on March 20, 2008 and our quarterly reports for the periods ended March 31, 2008 and June 30, 2008 filed with the SEC on May 12, 2008 and August 11, 2008, respectively.

Forward-Looking Statements

Certain statements contained in this quarterly report on Form 10-Q for the quarter ended September 30, 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.

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Results of Operations

3^rd Quarter 2008 versus 3^rd 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.

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

	2008			2007			Increase
	(Dollars in Thousands)
Services revenue	$	250,834		$	230,852		$	19,982
Cost of services		132,816			117,633			15,183
Gross profit from services	$	118,018		$	113,219		$	4,799
Gross profit %		47	%		49	%

Services revenue in the third quarter of 2008 increased $20.0 million from the third quarter of 2007 due to $13.8 million higher railcar leasing and service revenues (higher lease rates and equipment additions), $3.0 million higher intermodal tank container leasing revenues (equipment additions, favorable foreign currency rates and higher lease rates), $1.7 million higher revenue in the contract rail switching business (higher volume) and $1.2 million higher revenue in the sulphur processing business (higher rates).

Gross profit on services revenue in the third quarter of 2008 increased $4.8 million from the third quarter of 2007 primarily due to a $2.8 million increase for railcar leasing (higher lease rates and equipment additions more than offsetting lower disposal gains), a $1.2 million increase for the intermodal tank container leasing business (equipment additions, higher lease rates and favorable foreign currency rates) and a $0.8 million increase for the contract rail switching business (higher volume).

Gains on disposals of lease fleet and other fixed assets, primarily on railcars and tank containers, totaled $6.7 million in the third quarter of 2008 compared to $11.9 million in the third quarter of 2007. Gains on disposals are treated as a reduction to the cost of services.

The gross profit margin on services revenue of 47% in the third quarter of 2008 decreased from 49% in the third quarter of 2007 primarily due to lower gains on disposals of lease fleet assets.

Average fleet utilization of the Company’s railcar fleet was 98% for the third quarter of 2008 compared with 99% for the third 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.

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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 $0.6 million closure costs of the East Chicago, Indiana railcar manufacturing facility incurred in the third quarter of 2008.

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

	2008			2007			Increase
	(Dollars in Thousands)
Sales revenue	$	338,795		$	277,295		$	61,500
Cost of sales		286,081			229,266			56,815
Gross profit from sales	$	52,714		$	48,029		$	4,685
Gross profit %		16	%		17	%

Sales revenue for the third quarter of 2008 increased $61.5 million from the third quarter of 2007 due to $49.7 million higher sales of metals distribution products (higher prices more than offsetting lower volume), $4.8 million higher sales of sulphur processing equipment (completion of a project in the third quarter of 2008), $3.2 million higher sales of containment vessel heads (higher volume), $2.7 million higher sales of gear drives (higher volume), $2.4 million higher sales of light rail transit products (higher volume) and $2.4 million higher sales of mobile railcar moving equipment (higher volume). These increases were partially offset by a $3.7 million decrease in sales of manufactured railcars (lower sales volume).

Gross profit on sales revenue in the third quarter of 2008 increased $4.7 million from the third quarter of 2007 primarily due to a $1.9 million increase for manufactured railcars (higher prices offsetting lower sales volume and higher costs), a $1.9 million increase for containment vessel heads (higher volume), a $1.1 million increase for light rail transit products (higher volume) and a $0.7 million increase for mobile railcar moving equipment (higher volume). These increases were partially offset by a $1.0 million decrease for metals distribution products (lower volume and higher costs more than offsetting higher prices).

The gross profit margin on sales revenue of 16% in the third quarter of 2008 decreased from 17% in the third quarter of 2007 primarily due to lower margins in the metals distribution business.

General and administrative expense, interest expense and income taxes:

General and administrative expenses in the third quarter of 2008 were $4.1 million higher than in the third quarter of 2007 primarily due to higher expenses for the metals distribution business.

Interest expense in the third quarter of 2008 was $4.4 million lower than in the third quarter of 2007 due to $2.3 million lower interest expense on third-party debt as a result of principal repayments and $2.1 million lower interest expense on advances from parent and affiliates as a result of lower interest rates more than offsetting higher balances.

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The provision for income taxes of $47.8 million in the third quarter of 2008, with an effective tax rate of 45.9%, compared with $40.9 million in the comparable 2007 quarter, with an effective tax rate of 42.3%. The increase in the effective tax rate was primarily the result of higher state income tax accruals.

Nine Months 2008 versus Nine Months 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 nine months revenues and gross profit from services were as follows:

	2008			2007			Increase
	(Dollars in Thousands)
Services revenue	$	738,964		$	661,978		$	76,986
Cost of services		391,351			356,684			34,667
Gross profit from services	$	347,613		$	305,294		$	42,319
Gross profit %		47	%		46	%

Services revenue in the first nine months of 2008 increased $77.0 million from the first nine months of 2007 due to $53.7 million higher railcar leasing and service revenues (higher lease rates and equipment additions), $9.9 million higher intermodal tank container leasing revenues (equipment additions, favorable foreign currency rates and higher lease rates), $7.4 million higher revenue in the sulphur processing business (higher rates and higher volume) and $5.2 million higher revenue in the contract rail switching business (higher volume).

Gross profit on services revenue in the first nine months of 2008 increased $42.3 million from the first nine months of 2007 primarily due to a $31.7 million increase for railcar leasing (higher lease rates and equipment additions more than offsetting higher maintenance expense), a $6.3 million increase for the intermodal tank container leasing business (equipment additions, favorable foreign currency rates and higher lease rates), a $2.3 million increase for the sulphur processing business (higher rates and higher volume) and a $1.4 million increase for the contract rail switching business (higher volume).

Gains on disposals of lease fleet and other fixed assets, primarily on railcars and tank containers, totaled $19.9 million in the first nine months of 2008 compared to $21.1 million in the first nine months of 2007. Gains on disposals are treated as a reduction to the cost of services.

The gross profit margin on services revenue of 47% in the first nine months of 2008 increased from 46% in the first nine months 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).

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Average fleet utilization of the Company’s railcar fleet was 98% for the first nine months of 2008 compared with 99% for the first nine months 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, although profit margins have weakened. Demand for new railcars declined.

See Note 4 of the Notes to the Condensed Consolidated Financial Statements with respect to the $26.9 million closure costs of the East Chicago, Indiana railcar manufacturing facility incurred in the first nine months of 2008.

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

	2008			2007			Increase (Decrease)
	(Dollars in Thousands)
Sales revenue	$	966,102		$	873,973		$	92,129
Cost of sales		798,431			705,530			92,901
Gross profit from sales	$	167,671		$	168,443		$	(772	)
Gross profit %		17	%		19	%

Sales revenue for the first nine months of 2008 increased $92.1 million from the first nine months of 2007 due to $104.5 million higher sales of metals distribution products (higher prices and higher volume including the volume impact of 2007 acquisitions), $8.6 million higher sales of containment vessel heads (higher volume), $6.8 million higher sales of gear drives (higher volume), $5.1 million higher sales of light rail transit products (higher volume) and $4.9 million higher sales of mobile railcar moving equipment (higher volume). These increases were partially offset by $22.9 million lower sales of sulphur processing equipment (completion of a large project in the first quarter of 2007) and a $15.0 million decrease in sales of manufactured railcars (lower sales volume).

Gross profit on sales revenue in the first nine months of 2008 decreased $0.8 million from the first nine months of 2007 primarily due to a $16.1 million decrease for sulphur processing equipment (completion of a large project in the first quarter of 2007). This decrease was partially offset by a $4.0 million increase for metals distribution products (higher prices and higher volume including the volume impact of 2007 acquisitions, partly offset by higher costs), a $3.1 million increase for containment vessel heads (higher volume), a $2.6 million increase for mobile railcar moving equipment (higher volume), a $2.2 million increase for gear drives (higher volume), a $2.2 million increase for light rail transit products (higher volume) and a $1.9 million increase for manufactured railcars (higher prices offsetting lower sales volume and higher costs).

The gross profit margin on sales revenue of 17% in the first nine months of 2008 decreased from 19% in the first nine months of 2007 primarily due to the completion of the large sulphur processing equipment project in the first quarter of 2007, but was also impacted by lower margins for metals distribution products.

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General and administrative expense, interest expense and income taxes:

General and administrative expenses in the first nine months of 2008 were $16.6 million higher than in the first nine months of 2007 primarily due to higher expenses for the railcar leasing and metals distribution businesses, including the impact of March 2007 acquisitions.

Interest expense in the first nine months of 2008 was $9.2 million lower than in the first nine months of 2007 due to $7.3 million lower interest expense on third-party debt as a result of principal repayments and $1.9 million lower interest expense on advances from parent and affiliates as a result of lower interest rates more than offsetting higher balances.

The provision for income taxes of $125.8 million for the first nine months of 2008, with an effective tax rate of 42.7%, compared with $119.6 million in the comparable 2007 period, with an effective tax rate of 41.4%. The increase in the effective tax rate was the result of a reduction in the credit for foreign taxes paid.

Financial Condition and Liquidity

Nine Months 2008 versus Nine Months 2007

Net cash provided by operating activities, funds from the liquidation of short-term investments and advances from Holdings and affiliates were used to finance additions to the lease fleet 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.

Cash flows from operating activities:

Operating activities provided $409.0 million of net cash in the first nine months of 2008, compared with $360.4 million provided in the first nine months of 2007. The net cash provided by operating activities was higher in 2008 primarily due to higher deferred income taxes and higher depreciation, more than offsetting net changes in operating assets and liabilities.

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Cash flows from investing activities:

Net cash used in investing activities was $275.3 million in the first nine months of 2008 compared with $602.5 million net cash used in the first nine months of 2007. The change in net cash related to investing activities was primarily due to higher net sales of short-term investments in 2008 compared to 2007, lower capital expenditures for the lease fleet in 2008 compared with 2007 and purchases of businesses in 2007.

During the first nine months of 2008, the Company invested $449.0 million in the construction and purchase of lease fleet assets, compared with $513.6 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 nine months of 2008, the Company invested $24.3 million in the construction and purchase of other fixed assets, compared with $28.3 million in the first nine months of 2007.

During the first nine months of 2008, the Company decreased its short-term investments by $171.7 million, compared to a net increase in short-term investments of $84.2 million in the first nine months of 2007. As of the end of September 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 $33.5 million in the first nine months of 2008 compared with $36.8 million in the first nine months of 2007.

Cash flows from financing activities:

Net cash used in financing activities was $112.4 million in the first nine months of 2008 compared with net cash provided by financing activities of $160.0 million in the first nine months of 2007 primarily due to a $92.0 million increase in advances from parent and affiliates in the first nine months of 2008 compared with a $455.0 million increase in the comparable period in 2007. Partially offsetting the change in advances from parent and affiliates were lower principal payments of debt. Principal payments of debt totaled $92.5 million in the first nine months of 2008 compared with $182.0 million in the first nine months of 2007. Cash dividends to Holdings were $112.0 million in the first nine months of 2008 compared with $113.0 million in the first nine months 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 May 2008, the Financial Accounting Standards Board (“FASB”) issued two new statements, SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” and SFAS No. 163, “Accounting for Financial Guarantee Contracts - An Interpretation of FASB Statement No. 60.” Neither of these statements is expected to have a material effect on the Company’s consolidated financial statements.

In March 2008, the 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. Any changes in ownership interests of a noncontrolling interest where the parent retains a controlling interest in the subsidiary are reported as equity transactions. 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. 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. 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.

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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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes during the first nine months 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 September 30, 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: November 10, 2008	By:	/s/ Mark J. Garrette
		Mark J. Garrette
		Vice President
		(Principal Financial Officer and Principal Accounting Officer)

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