SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2000
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
225 W. Washington Street, Chicago, Illinois 60606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 372-9500
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
None -
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ________.
---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [_].
There is no voting stock held by non-affiliates of the registrant. This Annual
Report is being filed by the registrant as a result of undertakings made
pursuant to Section 15(d) of the Securities Exchange Act of 1934.
UNION TANK CAR COMPANY
FORM 10-K
Year Ended December 31, 2000
CONTENTS
Section Page
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Part I.
Item 1 Business.................................................................. 2
Item 2 Properties................................................................ 9
Item 3 Legal Proceedings......................................................... 10
Item 4 Submission of Matters to a Vote of Security Holders....................... 10
Part II.
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters........................................... 11
Item 6 Selected Financial Data................................................... 11
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 11
Item 7A Disclosures about Market Risk............................................. 15
Item 8 Financial Statements and Supplementary Data............................... 15
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................. 43
Part III.
Item 10 Directors and Executive Officers of the Registrant........................ 43
Item 11 Executive Compensation.................................................... 45
Item 12 Security Ownership of Certain Beneficial Owners and Management............ 46
Item 13 Certain Relationships and Related Transactions............................ 46
Part IV.
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 47
Signatures .......................................................................... 48
- 1 -
PART I
ITEM 1. BUSINESS
General
UNION TANK CAR COMPANY (with its wholly-owned and majority-owned subsidiaries
herein collectively referred to, unless the context otherwise requires, as the
"Company") was organized under the laws of Delaware on September 23, 1980 and is
the successor to a business which was originally incorporated in New Jersey in
1891. The Company is a wholly-owned subsidiary of Marmon Industrial LLC, a
wholly-owned subsidiary of Marmon Holdings, Inc. ("Holdings"). Substantially all
of the stock of Holdings is owned, directly or indirectly, by trusts for the
benefit of certain members of the Pritzker family. As used herein, "Pritzker
family" refers to the lineal descendants of Nicholas J. Pritzker, deceased.
Recent Developments
In September 2000, the Company acquired a company engaged in the metals
distribution business and its wholly-owned subsidiaries through a capital
contribution from Holdings. See Note 2 to Consolidated Financial Statements.
Also in September 2000, an indirect, majority-owned subsidiary of the Company
purchased the intermodal tank container leasing business of Transamerica
Leasing, Inc. for approximately $264 million. In addition to the purchase price
paid for the assets acquired, the purchaser assumed the seller's operating
leases with its customers, agreements under which the seller managed equipment
for or leased equipment from third parties, and certain of the seller's
operating liabilities.
Railcar Leasing, Services and Sales
The principal activity of the Company is leasing of railway tank cars and other
railcars to North American manufacturers and other shippers of chemical
products, including liquid fertilizers, liquefied petroleum gas and other
petroleum products, food products and bulk plastics. The Company owns and
operates one of the largest fleets of privately-owned railway tank cars in the
world.
As of December 31, 2000, the Company's fleet comprised 63,325 tank cars and
16,493 railway cars of other types. A total of 29,561 cars were added to the
lease fleet during the ten years ended December 31, 2000. These cars accounted
for approximately 42% of total railcar lease revenues during 2000. Most of the
Company's cars were built by the Company or to its specifications and the rest
were purchased from other sources.
Management estimates that tank cars carrying chemicals and acids account for the
greatest portion of total leasing revenues, followed in order by compressed
gases (particularly liquefied petroleum gas and anhydrous ammonia), refined
petroleum products (such as gasoline, fuel oils and asphalt), food products and
liquid fertilizers.
A significant portion of revenues from the Company's non-tank car fleet derives
from hopper cars for carrying bulk plastics. Remaining non-tank car revenues are
attributable to cars serving the lumber, dry bulk chemical and coal industries.
The Company builds tank cars primarily for its leasing business, but also builds
cars for sale to others. Generally, manufacturing follows receipt of a firm
order for lease or sale of a car.
-2-
Substantially all of the Company's cars are leased directly to several hundred
manufacturers and other shippers under leases covering from one to several
thousand cars and ranging from one to twenty years. The average term of leases
entered into during 2000 for newly-manufactured railcars was approximately eight
years. The average term of leases entered into during 2000 for used tank cars
and other railcars was approximately four years. Under the terms of most
leases, the Company agrees to provide a full range of services, including car
repair and maintenance. The Company supplies relatively few cars directly to
railroads. The Company markets its cars through regional sales offices located
throughout the United States and Canada and through a sales agent in Mexico. To
ensure optimum use of the lease fleet, the Company maintains data processing
systems that contain information about each car, including mechanical
specifications, maintenance and repair data and lease terms.
The Company employs a variety of methods to meet its financing needs. During
2000, the Company entered into a sale-leaseback transaction for $150.0 million,
and issued $180.0 million of senior secured notes. The Company expects that
future financing needs will be met primarily with a combination of secured and
unsecured borrowings and sale-leaseback transactions.
Approximately 22% of Company-owned railcars are pledged to secure equipment
obligations and secured notes. The remaining cars are free of liens.
The Company maintains repair facilities at strategic points throughout the
United States and Canada. In addition to work performed by the Company, certain
maintenance and repair work is performed for the Company's account by railroads
when railroad inspection determines the need for such work under the interchange
rules of the Association of American Railroads ("AAR").
The Company is not a common carrier and is not subject to regulation or
supervision as such. The Company's railcars are subject to construction, safety
and maintenance regulations of the Department of Transportation, various other
government agencies and the AAR. These regulations have required and may in the
future require the Company to make significant modifications to certain of its
cars from time to time.
The Company's facilities for manufacturing and assembling tank cars are located
in East Chicago, Indiana; Oakville, Ontario, Canada; and Sheldon, Texas. The
Company also operates North America's largest network of shops for repairing and
servicing railcars, as well as a fleet of specially equipped trucks to perform
repairs at customer plant sites. Principal shops are located in Valdosta,
Georgia; Muscatine, Iowa; El Dorado, Kansas; Ville Platte, Louisiana; Marion,
Ohio; Altoona, Pennsylvania; Cleveland, Longview and Sheldon, Texas; Evanston,
Wyoming; Edmonton, Alberta; Sarnia and Oakville, Ontario; Montreal, Quebec; and
Regina, Saskatchewan.
Other Activities
The Company is engaged in several other activities, as described below.
Metals Distribution
Subsidiaries of the Company are leading distributors of carbon steel, stainless
steel and aluminum tubular products; chrome and stainless bar; other carbon
steel products, including beams and channels; and aircraft grade tubing, rolled
form shapes and other raw materials.
-3-
These subsidiaries serve the agriculture, capital goods, machine tool,
construction, transportation, refining, petrochemical, and fluid power
industries, as well as aerospace companies, construction trades, steel
fabricators, and OEMs.
Intermodal Tank Container Leasing
Subsidiaries of the Company buy, manage, lease, and maintain intermodal tank
containers. The container fleet consists of a wide range of equipment for the
global transportation, distribution and storage of bulk liquids, chemicals and
gases, which allows the Company to service the full range of customer
requirements. These customers include the international chemical industry and
logistics operators specializing in bulk liquid transportation. Unlike railway
tank cars or over-the-road tank semi-trailers, intermodal tank containers are
capable of transporting cargo by way of multiple modes of transportation
including road, rail or ship.
Sulphur Processing
Subsidiaries of the Company provide sulphur producers in Canada with various
services, including processing of liquefied sulphur into crystalline slates and
granules and storage and shipping of the product. A subsidiary also designs,
manufactures and sells sulphur processing plants worldwide. Other subsidiaries
are engaged in manufacturing and distribution of sulphur bentonite products and
micronutrients to the agricultural industry.
Fasteners
The Company's fastener business, conducted through several wholly-owned
subsidiaries, consists of manufacturing and distributing a wide range of
fasteners worldwide to the construction industry and manufacturers of furniture,
household appliances, industrial and agricultural equipment.
Other Railway Equipment and Services
A subsidiary of the Company manufactures mobile railcar moving vehicles for in-
plant and yard switching. Other subsidiaries provide contract switching services
to companies with on-site rail yards.
Containment Vessel Head Manufacturing
A subsidiary of the Company manufactures and distributes metal containment
vessel heads, primarily made of steel, to the metal containment vessel
construction industry.
Liquefied Petroleum Gas Storage
A subsidiary of the Company operates several underground liquefied petroleum gas
storage caverns in Canada as a service to producers and sellers of liquefied
petroleum gas.
-4-
Segment Information
The principal activity of the Company's primary industry segment is railcar
leasing, services and sales. In addition, the Company has two secondary industry
segments as shown in the table below. All other activities of the Company, as
described previously, plus corporate headquarters items, are shown as All Other
in the table:
Intermodal
Tank
Metals Container Consolidated
Railcar Distribution Leasing All Other Totals
----------- -------------- ------------ ---------- --------------
(Dollars in Millions)
2000
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Revenues from external customers $ 698.0 $492.8 $ 29.7 $226.4 $1,446.9
Interest income 0.2 - - 22.8 23.0
Interest expense 70.5 0.2 5.3 0.6 76.6
Depreciation and amortization 122.6 15.4 7.4 14.2 159.6
Income before income taxes 168.7 20.1 1.7 28.8 219.3
Segment assets 1,876.8 224.6 312.3 502.5 2,916.2
Expenditures for long-lived assets 178.7 5.1 23.8 5.7 213.3
1999 (Restated)
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Revenues from external customers $ 761.5 $457.5 $ 6.2 $196.4 $1,421.6
Interest income 0.9 - - 12.8 13.7
Interest expense 72.4 0.2 - 0.7 73.3
Depreciation and amortization 117.7 17.4 0.6 12.3 148.0
Income before income taxes 162.5 28.6 0.5 19.2 210.8
Segment assets 1,995.8 204.9 16.0 409.4 2,626.1
Expenditures for long-lived assets 202.5 6.2 2.5 8.2 219.4
1998 (Restated)
- ---------------
Revenues from external customers $ 715.3 $414.7 $ - $161.4 $1,291.4
Interest income 0.1 - - 13.2 13.3
Interest expense 70.5 0.3 - 0.7 71.5
Depreciation and amortization 113.2 11.7 - 9.2 134.1
Income before income taxes 175.3 28.7 - 25.7 229.7
Segment assets 1,936.7 223.4 - 267.3 2,427.4
Expenditures for long-lived assets 254.3 9.8 - 4.7 268.8
-5-
Geographic Information
The following table presents geographic information for the Company. Revenues
are attributed to countries based on location of customers.
Long-lived
Revenues Assets
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(Dollars in Millions)
2000
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United States $1,184.9 $1,620.6
Canada 179.4 231.4
Other countries 82.6 316.5
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Consolidated total $1,446.9 $2,168.5
============= ============
1999 (Restated)
---------------
United States $1,216.4 $1,696.0
Canada 157.6 260.2
Other countries 47.6 35.6
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Consolidated total $1,421.6 $1,991.8
============= ============
1998 (Restated)
---------------
United States $1,056.9 $1,624.6
Canada 172.7 264.3
Other countries 61.8 28.1
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Consolidated total $1,291.4 $1,917.0
============= ============
Major Customers
Revenues from any one customer did not exceed 10% of consolidated or industry
segment revenues.
Raw Materials
The Company purchases raw materials from a variety of suppliers, with no one
supplier being significant. In management's opinion, the Company will have
adequate availability of raw materials in the future.
-6-
Foreign Operations
The Company does not believe that there are other than normal business risks
attendant to its foreign operations.
Competition
All activities of the Company compete with similar activities by other
companies.
Several competitors are in the business of leasing tank cars in the United
States and Canada. Principal competitors are General American Transportation
Corporation (including its Canadian affiliate, Canadian General Transit Company,
Limited), General Electric Railcar Services Corporation, and ACF Industries,
Incorporated. Principal competitive factors are price, service and product
design. International cooperation within the Company's engineering,
manufacturing, repair and leasing activities has enhanced its ability to provide
competitive products and services to its customers throughout North America.
In the metals distribution business, the Company has numerous competitors, both
large and small. The Company is one of the largest competitors in the
distribution of its class of products. Principal competitive factors include
price, availability of product and service.
The Company, the largest lessor of intermodal tank containers in the world,
competes with numerous competitors in this industry. Competition is based on a
number of factors, including technical expertise, availability of equipment,
price, service and reputation.
Supply and Demand
Demand for tank cars and bulk plastic hopper cars is generally met with a
combination of the industry's existing fleet and new car additions. The
industry's generally high overall utilization of the tank car and bulk plastic
covered hopper car fleets is evidence of an appropriate level and mix of
equipment to meet existing car demands. New railcars are needed to satisfy
growth, specialized requirements, or the desire of certain customers for newer
equipment. Since railcars are typically built to customer order, the supply of
new railcars generally stays in reasonable balance with demand.
Major underlying factors affecting demand for new railcars are: (a) the rate of
growth of the overall economy, (b) growth of certain industry segments,
manufacturers, or shippers, particularly involving significant new or expanded
production operations, and (c) replacement of aged, obsolete, or worn out
railcars.
Demand for intermodal tank containers is dependent on growth of the global
economy and demand for chemicals and other liquid products. Global economic
factors impacting demand include overall demand for chemicals, location of
production of the products carried and stored in relation to location of demand
for these products, import/export tariffs and other trade restrictions.
-7-
Manufacturing Backlog
The Company builds tank cars primarily for use in its leasing business and the
number of cars added in any one year is a small percentage of the Company's
lease fleet. Additionally, for tank cars built for sale to customers, the
Company delivers against orders within a relatively brief period. Therefore,
backlog is not material to the Company's business.
Employees
As of December 31, 2000, the Company had approximately 5,980 employees.
Environmental Matters
The Company believes that all of its facilities are in substantial compliance
with applicable laws and regulations relating to environmental protection. Over
the past several years, the Company has attempted to identify and remediate
potential problem areas. In 2000, the Company spent approximately $8.2 million
on remediation and related matters, compared with $6.6 million and $5.7 million
in 1999 and 1998, respectively. The Company expects to spend approximately $3.8
million in 2001 on similar activities.
The Company has been designated as a Potentially Responsible Party ("PRP") by
the EPA at two sites: Auto Ion Chemical Company, Kalamazoo, Michigan and
Whitehouse Waste Oil Pits Site, Jacksonville, Florida. Costs incurred to date
have not been material, either individually or in the aggregate. Because of the
level of the Company's involvement at these sites, management believes that
future costs related to these sites will not be material, either individually or
in the aggregate. The Company has not entered into any cost sharing arrangements
with other PRP's that make it reasonably possible the Company will incur
material costs beyond its pro rata share. Further, management does not believe
that any problems or uncertainties as to the financial liabilities of other
PRP's make it reasonably possible the Company will incur material costs beyond
its pro rata share at these sites. The Company's accruals for these sites are
based on the amount it reasonably expects to pay with respect to the sites.
Management believes that amounts accrued for remedial activities and
environmental liabilities (which in the aggregate are not material) are
adequate.
-8-
ITEM 2. PROPERTIES
In management's opinion, the Company's properties are in good condition,
substantially utilized and adequate to meet the Company's current and reasonably
anticipated future needs.
The Company estimates that its plant facilities were utilized during the year at
an average of approximately 60% of productive capacity for railcar
manufacturing, 75% for railcar servicing and repair, 75% for sulphur processing,
75% for fastener production, 75% for railcar moving vehicles manufacturing, 70%
for containment vessel head manufacturing, and 80% for liquefied petroleum gas
storage.
Railcars
The Company owns approximately 83% of its total lease fleet of 79,818 railcars,
of which 63,325 are tank cars and 16,493 are other railway freight cars. Of the
approximately 66,490 owned cars, 51,830 are free of liens. Cars which are not
owned are leased from others under long-term net leases.
Railcar Manufacturing and Assembling Facilities
Facilities for the manufacturing and assembling of railcars are located at East
Chicago, Indiana; Oakville, Ontario, Canada; and Sheldon, Texas, together
occupying about 170 acres.
Railcar Servicing and Repair Shops
The Company operates a network of shops for repairing and servicing railcars.
Principal shops owned by the Company are located at Valdosta, Georgia;
Muscatine, Iowa; El Dorado, Kansas; Ville Platte, Louisiana; Marion, Ohio;
Altoona, Pennsylvania; Cleveland, Longview, and Sheldon, Texas; Evanston,
Wyoming; Edmonton, Alberta; Sarnia and Oakville, Ontario; Montreal, Quebec; and
Regina, Saskatchewan. Several other repair shops and small repair points are
strategically located throughout the United States and Canada.
Metals Distribution
Subsidiaries of the Company maintain numerous distribution warehouses and
business offices, which are located throughout North America and Europe. There
are more than 25 warehouse and distribution centers from which products are
distributed to customers.
Intermodal Tank Container Leasing
Subsidiaries of the Company maintain a fleet of approximately 23,000
leased/managed intermodal tank containers which consists of a wide range of
equipment types, specifications and capacities from 7,500 to 35,000 liters.
These subsidiaries also own a fleet of 1,300 drop frame tank chassis. Customer
service is provided through offices, agents and depots located throughout the
world. The Company owns approximately 81% of its intermodal tank container and
drop frame tank chassis fleet, of which approximately 20% are free of liens.
Sulphur Processing
A subsidiary of the Company owns facilities in Canada which process liquefied
sulphur into crystalline slates and granules and handle the formed product. The
Company also owns facilities in North America for the manufacture and
distribution of sulphur bentonite products and micronutrients.
-9-
Fasteners
The Company owns fastener manufacturing facilities in Ashland, Ohio; Milton,
Ontario; Montreal, Quebec; and Gaffney, South Carolina. In addition, the Company
leases several small plants in the United States, Canada, Sweden, China, and
Poland.
Other Railway Equipment Facilities
A subsidiary of the Company owns a mobile railcar moving vehicle manufacturing
facility in LaGrange, Georgia.
Containment Vessel Head Manufacturing Facilities
A subsidiary of the Company owns a metal containment vessel head manufacturing
facility in Sheldon, Texas.
Liquefied Petroleum Gas Storage Facilities
A subsidiary of the Company owns several underground liquefied petroleum gas
storage caverns in Canada.
Other Properties
The Company and its subsidiaries maintain numerous sales and business offices
and warehouses, most of which are leased, throughout North America and Europe.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries have been named as defendants in a number of
lawsuits and certain claims are pending. The Company has accrued what it
reasonably expects to pay to resolve such claims, including legal fees, and, in
the opinion of management, the ultimate resolution of these matters will not
have a material effect on the Company's consolidated financial position, results
of operations or liquidity. See discussion of Environmental Matters in Item 1 of
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-10-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
For the year ended December 31,
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2000 1999* 1998* 1997* 1996*
--------- --------- --------- ---------- ----------
(Dollars in Thousands)
Services and net sales $1,446,864 $1,421,598 $1,291,373 $1,234,159 $1,031,019
Net income 141,314 132,568 142,307 120,337 119,069
Ratio of earnings to
fixed charges 3.19 x 3.24 x 3.51 x 3.10 x 3.13 x
At year end:
Total assets $2,916,195 $2,626,076 $2,427,430 $2,439,015 $2,174,042
Long-term obligations 1,035,408 941,964 822,028 859,363 529,173
* Restated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
- --------------------------
This annual report on Form 10-K for the year ended December 31, 2000 contains
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. This information may involve
risks and uncertainties that could cause actual results to differ materially
from those set forth herein. These risks and uncertainties include, but are not
limited to, unanticipated changes in the markets served by the Company such as
the railcar leasing, service and sales, intermodal tank container leasing and
metal products distribution industries.
2000 versus 1999
Results of Operations
- ---------------------
Service revenues increased $41.6 million primarily due to the effects of
railcars added to the lease fleet ($7.7 million) and the intermodal tank
container operations ($22.3 million) acquired in September 2000.
Sales revenues decreased $16.3 million primarily due to reduced sales of
railcars ($71.7 million) offset by increased sulphur service processing plant
sales ($16.0 million) and increased sales of metal products ($34.0 million).
-11-
Interest income increased $9.4 million due to both higher average advances to
parent and higher average interest rates.
Financial Condition
- -------------------
Operating activities provided $288.7 million of cash in 2000. These funds, along
with proceeds from issuance of debt and a sale-leaseback transaction discussed
below, were used to fund acquisition of businesses, provide for railcar
additions, pay dividends to the Company's stockholder, and service borrowed debt
obligations. It is the Company's policy to pay to its stockholder a quarterly
dividend equal to 70% of net income. To the extent that the Company generates
cash in excess of its operating needs, such funds are advanced to its parent and
bear interest at commercial rates. Conversely, when the Company requires
additional funds to support its operations, prior advances are repaid by its
parent. No restrictions exist regarding the amount of dividends which may be
paid or advances which may be made by the Company to its parent.
In 2000, the Company spent $213.3 million for construction and purchase of
railcars and other fixed assets and $285.0 million for acquisition of an
intermodal tank container leasing business, and other assets.
Of the capital expenditures for construction and purchase of railcars and other
fixed assets over the past five years, approximately 86% have been for railcars.
Since all material capital expenditures for railcars are incurred subsequent to
receipt of firm customer lease orders, such expenditures are discretionary to
the Company based on its desire to invest in those particular railcars. Capital
expenditures are likewise discretionary in the intermodal tank container
business.
In 2000, the Company entered into a railcar sale-leaseback transaction for
$150.0 million. In addition, a subsidiary of the Company issued $180.0 million
in senior secured notes to finance the acquisition of an intermodal tank
container leasing business. Other financing activities of the Company included
$44.8 million for principal repayments on borrowed debt and $98.0 million for
cash dividends. Net cash provided by financing activities was $191.4 million.
Management expects that the future cash to be provided by operating activities,
long-term financings, and repayment of funds previously advanced to parent will
be adequate to provide for the continued expansion of the Company's business and
enable it to meet its debt service obligations.
The following table presents the scheduled cash inflows and outflows for the
railcar leasing business over the next five years based on leases and railcar-
related indebtedness outstanding as of December 31, 2000:
2001 2002 2003 2004 2005
---------- --------- --------- --------- ---------
(Dollars in Millions)
Cash Inflows
- ------------
Minimum future lease rentals $428.6 $339.7 $263.6 $194.7 $137.5
Cash Outflows
- -------------
Minimum future lease payments 72.5 72.8 73.4 75.6 97.9
Principal amount of obligations 77.2 75.7 46.8 79.8 33.6
------- ------- ------- ------- -------
Excess (Deficit) of inflows over outflows $278.9 $191.2 $143.4 $ 39.3 $ 6.0
======= ======= ======= ======= =======
-12-
The minimum future lease rentals above relate to railcar leases in effect at
December 31, 2000. Based upon its historical experience, the Company expects
that the railcars (other than those which are retired in the ordinary course of
business) will be re-leased at the expiration of such leases. The rentals under
such future leases cannot be ascertained and are not reflected above.
The Company has consistently maintained high railcar fleet utilization. Although
the Company's railcar lease fleet utilization decreased during 2000, utilization
has averaged 97% during the last five years. Utilization rates of the Company's
existing railcars are driven by long-term requirements of manufacturers and
shippers of chemical products, petroleum products, food products, and bulk
plastics, and suitability of the Company's fleet to meet such demand. The
potential impact of short-term fluctuations in demand is tempered by the longer-
term nature of the leases, which average four years for existing equipment and
longer for new equipment.
The Company has not experienced any significant impact of inflation and changing
prices on its financial position or results of operations over the last several
years.
The Company's Canadian subsidiaries periodically enter into foreign currency
forward contracts to hedge against U. S. dollar exposures. Foreign currency
forward contracts, all with initial maturities of less than one year, amounted
to $8.7 million and $9.1 million at December 31, 2000 and 1999, respectively.
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which the Company is required to adopt effective
January 1, 2001. This Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. The adoption of this statement
will not have a material impact on the Company's financial statements.
1999 versus 1998
Results of Operations
- ---------------------
Service revenues increased $46.5 million primarily due to the effects of
railcars added to the lease fleet ($16.4 million) and the acquisition in the
fourth quarter of 1998 of a company which provides contract switching services
($25.7 million).
Sales revenues increased $83.8 million primarily due to increased sales of
railcars ($29.9 million), sales of mobile railcar moving vehicles ($27.1
million) by a company which was acquired in the fourth quarter of 1998, and
increased sales of metal products ($41.0 million). The increase of revenues was
partially offset by decreased sulphur service processing plant sales ($15.4
million).
General and administrative expenses increased $15.1 million primarily due to the
acquisition of businesses in the fourth quarter of 1998.
Gross margin percentages decreased from the comparable period in 1998 primarily
due to increased railcar maintenance expenses and weaker demand for sulphur
products.
-13-
Financial Condition
- -------------------
Operating activities provided $318.1 million of cash in 1999. These funds, along
with the proceeds from the issuance of debt and a sale-leaseback transaction,
were used to provide for railcar additions, advance funds to parent, pay
dividends to the Company's stockholder, service borrowed debt obligations, and
fund the acquisition of businesses. It is the Company's policy to pay to its
stockholder a quarterly dividend equal to 70% of net income. To the extent that
the Company generates cash in excess of its operating needs, such funds are
advanced to its parent and bear interest at commercial rates. Conversely, when
the Company requires additional funds to support its operations, prior advances
are repaid by its parent. No restrictions exist regarding the amount of
dividends which may be paid or advances which may be made by the Company to its
parent.
In 1999, the Company spent $219.4 million for the construction and purchase of
railcars and other fixed assets and $11.8 million for the purchase of an
intermodal tank container leasing business, and other assets.
Of the capital expenditures for construction and purchase of railcars and other
fixed assets over the past five years, approximately 88% have been for railcars.
Since all material capital expenditures for railcars are incurred subsequent to
receipt of firm customer orders, such expenditures are discretionary to the
Company based on its desire to invest in those particular railcars.
In 1999, the Company issued $70.0 million in unsecured medium term notes, $100.0
million in senior secured notes, and entered into a railcar sale-leaseback
transaction for $13.2 million. Other financing activities of the Company
included $62.9 million for principal repayments on borrowed debt and $82.0
million for cash dividends. Net cash provided by financing activities was $45.2
million.
-14-
ITEM 7A. DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments is the potential
loss in fair value arising from adverse changes in interest rates. Under its
current policies, the Company does not use interest rate derivative instruments
to manage exposure to interest rate changes.
The following table provides information about the Company's debt obligations
that are sensitive to changes in interest rates. The table presents principal
cash flows and related weighted-average interest rates by expected maturity
dates and estimated fair value of the Company's debt obligations.
Fair Value
2001 2002 2003 2004 2005 Thereafter Total 12-31-2000
------- ------- ------- ------- ------- ----------- ------- -------------
(Dollars in Millions)
Fixed rate debt $86.4 $85.8 $57.9 $91.8 $45.6 $752.5 $1,120.0 $ 1,155.7
Average interest rate 7.71% 7.32% 8.16% 7.13% 8.74% 7.14% 7.31%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
----
Report of Independent Auditors........................................ 16
Financial Statements
Consolidated statement of income for each of the three years in
the period ended December 31, 2000.................................. 17
Consolidated balance sheet - December 31, 2000 and 1999.............. 18
Consolidated statement of stockholder's equity for each of the three
years in the period ended December 31, 2000......................... 19
Consolidated statement of cash flows for each of the three
years in the period ended December 31, 2000......................... 20
Notes to consolidated financial statements........................... 21
-15-
REPORT OF INDEPENDENT AUDITORS
TO UNION TANK CAR COMPANY
We have audited the accompanying consolidated balance sheet of Union Tank Car
Company and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholder's equity and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Union
Tank Car Company and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
March 15, 2001
-16-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands)
For the Year Ended December 31,
------------------------------------------------------------
2000 1999 1998
--------------- --------------- --------------
(Restated) (Restated)
Revenues
Services (leasing and other) $ 673,202 $ 631,606 $ 585,128
Net sales 773,662 789,992 706,245
------------ ----------- -----------
1,446,864 1,421,598 1,291,373
Interest income 23,037 13,669 13,264
Other income 13,756 13,750 15,884
------------ ----------- -----------
1,483,657 1,449,017 1,320,521
Costs and expenses
Cost of services 399,954 370,681 325,031
Cost of sales 646,803 663,946 579,177
General and administrative 140,923 130,257 115,137
Interest expense 76,641 73,298 71,478
------------ ----------- -----------
1,264,321 1,238,182 1,090,823
------------ ----------- -----------
Income before income taxes 219,336 210,835 229,698
Provision for income taxes 78,022 78,267 87,391
------------ ----------- -----------
Net income $ 141,314 $ 132,568 $ 142,307
============ =========== ===========
Ratio of earnings to fixed charges 3.19 x 3.24 x 3.51 x
============ =========== ===========
See Notes to Consolidated Financial Statements.
-17-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
December 31,
------------------------------
2000 1999
--------- ----------
(Restated)
Assets
- ------
Cash and cash equivalents $ 93,800 $ 50,936
Accounts receivable, primarily due within one year,
less allowance for doubtful accounts of $9,176 in 2000
and $5,229 in 1999 150,271 131,350
Accounts and notes receivable, affiliates 57,294 13,302
Inventories, net of LIFO reserves of $33,673 in 2000
and $33,481 in 1999 174,071 162,218
Prepaid expenses and deferred charges 11,772 9,796
Advances to parent company, principally at LIBOR plus 1% 260,517 266,722
Railcar lease fleet, net 1,561,644 1,653,495
Intermodal tank container fleet, net 292,375 12,332
Fixed assets, net 211,084 217,040
Investment in direct financing lease 30,641 34,012
Other assets 72,726 74,873
----------- -----------
Total assets $2,916,195 $2,626,076
=========== ===========
Liabilities, Deferred Items and Stockholder's Equity
- ----------------------------------------------------
Accounts payable $ 71,429 $ 74,891
Minority interest liability 78,067 19,397
Accrued rent 83,394 70,173
Accrued liabilities 173,365 178,255
Borrowed debt 1,124,191 986,240
----------- -----------
1,530,446 1,328,956
Deferred items
Deferred income taxes and investment tax credits 466,712 457,991
Stockholder's equity
Common stock, no par value; 1,000 shares authorized
and issued 106,689 106,689
Additional capital 133,459 96,865
Retained earnings 678,889 635,575
----------- -----------
Total stockholder's equity 919,037 839,129
=========== ===========
Total liabilities, deferred items and
stockholder's equity $2,916,195 $2,626,076
=========== ===========
See Notes to Consolidated Financial Statements.
-18-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Years Ended December 31, 2000, 1999 and 1998
(Dollars in Thousands)
Common Additional Retained
Stock Capital Earnings Total
--------- ------------- ------------ ---------
Balance at December 31, 1997 as
previously reported $106,689 $ 6,346 $481,965 $595,000
Adjustment to reflect change in
reporting entity - 90,519 50,124 140,643
--------- ----------- ------------ -----------
Balance at December 31, 1997 as
adjusted 106,689 96,865 532,089 735,643
Net income - - 142,307 142,307
Cash dividends - - (48,000) (48,000)
Non-cash dividends - - (41,339) (41,339)
--------- ----------- ------------ -----------
Balance at December 31, 1998 106,689 96,865 585,057 788,611
Net income - - 132,568 132,568
Cash dividends - - (82,000) (82,000)
Non-cash dividends - - (50) (50)
--------- ----------- ------------ -----------
Balance at December 31, 1999 106,689 96,865 635,575 839,129
Capital contribution - 36,594 - 36,594
Net income - - 141,314 141,314
Cash dividends - - (98,000) (98,000)
--------- ----------- ------------ -----------
Balance at December 31, 2000 $106,689 $133,459 $678,889 $919,037
========= =========== ============ ===========
See Notes to Consolidated Financial Statements.
-19-
UNION TANK CAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
For the Year Ended December 31,
----------------------------------------------------
2000 1999 1998
----------- ----------- ------------
(Restated) (Restated)
Cash flows from operating activities:
Net income $ 141,314 $ 132,568 $ 142,307
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 159,586 148,028 134,061
Gain on disposition of railcars and other fixed
assets (4,178) (4,357) (5,709)
Deferred taxes 11,591 22,937 11,593
Other non-cash income and expenses 4,575 2,163 1,576
Changes in operating assets and liabilities (24,148) 16,801 (18,274)
----------- ------------ ----------
Net cash provided by operating activities 288,740 318,140 265,554
Cash flows from investing activities:
Construction and purchase of railcars and
other fixed assets (213,261) (219,391) (268,782)
Decrease (increase) in advance to parent 51,514 (159,828) 37,481
(Increase) decrease in other assets and investments (896) 521 8,133
Proceeds from disposals of railcars
and other fixed assets 12,107 12,493 10,161
Purchases of businesses, net of cash acquired (284,985) (11,764) (57,906)
----------- ------------ ----------
Net cash used in investing activities (435,521) (377,969) (270,913)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt 184,157 176,900 80,550
Proceeds from sale-leaseback transactions 150,026 13,200 130,018
Principal payments of borrowed debt (44,779) (62,948) (189,088)
Cash dividends (98,000) (82,000) (48,000)
----------- ------------ ----------
Net cash provided by (used in) financing activities 191,404 45,152 (26,520)
Effect of exchange rates on cash and cash equivalents (1,759) 3,246 (6,365)
----------- ------------ ----------
Net increase (decrease) in cash and cash equivalents 42,864 (11,431) (38,244)
Cash and cash equivalents at beginning of year 50,936 62,367 100,611
----------- ------------ ----------
Cash and cash equivalents at end of year $ 93,800 $ 50,936 $ 62,367
=========== ============ ==========
See Notes to Consolidated Financial Statements
-20-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Ownership
UNION TANK CAR COMPANY (with its wholly-owned and majority-owned subsidiaries
herein collectively referred to, unless the context otherwise requires, as the
"Company") is a wholly-owned subsidiary of Marmon Industrial LLC ("MIC") and a
subsidiary of Marmon Holdings, Inc. ("Holdings"). Substantially all of the stock
of Holdings is owned, directly or indirectly, by trusts for the benefit of
certain members of the Pritzker family. As used herein, "Pritzker family" refers
to the lineal descendants of Nicholas J. Pritzker, deceased.
2. Summary of Accounting Principles and Practices
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
On September 1, 2000, the Company acquired a company engaged in the metals
distribution business and its wholly-owned subsidiaries, through a capital
contribution from Holdings. The acquisition has been accounted for on an "as if
pooled" basis and, accordingly, the accompanying financial statements include
the financial positions, results of operations, and cash flows of the combined
companies for all periods presented.
Total revenues and net income previously reported by the Company and the "as if
pooled" entities for the year ended December 31, 1999 and 1998 are as follows:
Total Revenues Net Income
----------------- --------------
1999
----
As previously reported $ 988,305 $116,557
"As if pooled" entities 460,712 16,011
----------------- --------------
As restated $1,449,017 $132,568
================= ==============
1998
----
As previously reported $ 906,619 $127,421
"As if pooled" entities 413,902 14,886
----------------- --------------
As restated $1,320,521 $142,307
================= ==============
For the eight months ended August 31, 2000, the "as if pooled" entities had
total revenues of $335,608 and net income of $8,648.
Cash and Cash Equivalents
Cash and cash equivalents includes all highly liquid debt instruments purchased
with an original maturity of three months or less.
-21-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lessor Accounting
Operating Leases - Most of the Company's railcar and intermodal tank container
leases are classified as operating leases. Aggregate rentals from operating
leases are reported as revenue ratably over the life of the lease. Expenses,
including depreciation and maintenance, are charged as incurred.
Direct Financing Leases - Some of the Company's railcar and other rental
equipment leases are classified as direct financing leases. Gross investment in
leases (minimum lease payments plus estimated residual values) less the cost of
the equipment is designated as unearned income. This unearned income is
recognized over the life of the lease based upon the "constant yield method" or
similar methods which generally result in an approximate level rate of return on
the investment.
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.
Shipping and Handling Costs
All freight costs incurred by the Company to ship its products to its customers
are included in cost of sales.
Depreciation and Fixed Assets Accounting
Railcars and fixed assets are recorded at cost less accumulated depreciation.
These assets are depreciated to salvage value over their estimated useful lives
on the straight-line method. The estimated useful lives are principally:
railcars, 25-30 years; intermodal tank containers, 15-20 years; buildings and
improvements, 20-30 years; and machinery and equipment, 3-20 years.
The cost of major conversions and betterments are capitalized and depreciated
over their estimated useful lives or, if shorter, the remaining useful lives of
the related assets. Maintenance and repairs are charged to expense when
incurred.
Gains or losses on disposals are included in other income, except for those
related to railcar disposals which are included in cost of services.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.
-22-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Investment Tax Credits
United States investment tax credits (as generated through 1986 and to the
extent not transferred to lessees) and Canadian investment tax credits result in
a reduction of current or deferred income taxes and are due primarily to
investments in certain new railcars. Investment tax credits retained are
deferred and amortized over the estimated useful lives of the related assets.
Foreign Currency Translation
All assets and liabilities are translated at exchange rates in effect at the
date of translation. Average exchange rates are used for revenues, costs and
expenses and income taxes.
Translation adjustments and transaction gains and losses are assumed by the
Company's parent. For the years ended December 31, 2000, 1999 and 1998, MIC
absorbed a gain of $938, a loss of $585, and a gain of $1,968, respectively.
Inventories
Inventories are stated at the lower of cost or market, using the first-in,
first-out (FIFO) or last-in, first-out (LIFO) methods. Finished goods
represented approximately 70% of net inventories at December 31, 2000.
Fair Value of Financial Instruments
All book value amounts for financial instruments approximate the instruments'
fair value except for borrowed debt discussed in Note 7.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Acquisitions
In September 2000, the Company acquired the intermodal tank container leasing
business of Transamerica Leasing, Inc. for $264 million. In addition, the
Company acquired other entities for a total of $21 million. These acquisitions
were accounted for using the purchase method.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
-23-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Railcar Lease Data
Railcars are leased directly to several hundred shippers, located throughout
North America. The Company leases to a wide variety of customers, and no
customer accounted for more than 10% of consolidated lease revenues. Each lease
involves one to several thousand cars, normally for periods ranging from one to
twenty years. The average term of leases entered into during 2000 for newly-
manufactured cars was approximately eight years. The average term of leases
entered into during 2000 for used tank cars and other railcars was approximately
four years. Under the terms of most of the leases, the Company agrees to provide
a full range of services including car repair and maintenance.
Minimum future lease rentals to be received on the railcar lease fleet
(including railcars leased from others) were as follows as of December 31, 2000:
Direct
Financing Operating
Leases Leases Total
----------- ------------- -----------
2001 $3,975 $ 424,623 $ 428,598
2002 - 339,646 339,646
2003 - 263,603 263,603
2004 - 194,653 194,653
2005 - 137,499 137,499
2006 and thereafter 1,858 286,382 288,240
-------- ---------- ----------
Totals $5,833 $1,646,406 $1,652,239
======== ========== ==========
The investment in railcars on direct financing leases is recoverable from future
lease payments and estimated residual values. Details of this investment, which
is classified in the accompanying consolidated balance sheet under railcar lease
fleet, are as follows:
December 31,
----------------------------------
2000 1999
------------- -----------
Minimum future lease rentals $ 5,833 $ 6,070
Estimated residual values 14,555 8,238
--------- --------
Gross investment 20,388 14,308
Less unearned income (4,552) (181)
--------- --------
Net investment $ 15,836 $ 14,127
========= ========
Classified as
Railcar lease fleet (cost) $ 31,230 $ 27,459
Less accumulated depreciation (15,394) (13,332)
--------- --------
$ 15,836 $ 14,127
========= ========
-24-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Lease Fleet and Fixed Assets
December 31,
-----------------------------
2000 1999
---------- --------
Railcar lease fleet
Gross cost $ 2,906,251 $ 2,935,954
Less accumulated depreciation (1,344,607) (1,282,459)
----------- -----------
$ 1,561,644 $ 1,653,495
=========== ===========
Intermodal tank container lease fleet
Gross cost $ 300,330 $ 12,842
Less accumulated depreciation (7,955) (510)
----------- -----------
$ 292,375 $ 12,332
=========== ===========
Fixed assets, at cost
Land $ 16,025 $ 15,572
Buildings and improvements 171,570 168,669
Machinery and equipment 325,950 322,089
----------- -----------
513,545 506,330
Less accumulated depreciation (302,461) (289,290)
----------- -----------
$ 211,084 $ 217,040
=========== ===========
5. Investment in Direct Financing Lease
In 1987, one of the Company's Canadian subsidiaries entered into a Canadian
dollar denominated lease of a passenger airplane to a scheduled commercial air
carrier for an 18-year period.
Minimum future rentals to be received on the lease are as follows at December
31, 2000:
2001 $ 5,592
2002 5,592
2003 5,592
2004 5,592
2005 5,592
-------
Total $27,960
=======
-25-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The investment is recoverable from future lease payments and estimated residual
value, as follows:
December 31,
-----------------------------
2000 1999
---------- -----------
Minimum future lease rentals $ 27,960 $ 34,812
Estimated residual value 15,842 16,436
---------- ---------
Gross investment 43,802 51,248
Less unearned income (13,161) (17,236)
---------- ---------
Net investment $ 30,641 $ 34,012
========== =========
6. Lease Commitments
The Company as lessee has entered into long-term leases for certain railcars and
various manufacturing, office and warehouse facilities.
The railcar lease fleet includes the following capitalized leases:
December 31,
--------------------------------
2000 1999
---------- ----------
Capitalized lease cost $16,268 $16,384
Less accumulated depreciation (9,953) (9,494)
--------- --------
$ 6,315 $ 6,890
========= ========
In 2000, the Company entered into a sale-leaseback transaction with a financial
institution pursuant to which it sold and leased back an aggregate of $150,026
in railcars. The Company has an option to purchase all of the railcars at a
fixed purchase price on July 15, 2012.
In 1999, the Company entered into a sale-leaseback transaction with a financial
institution pursuant to which it sold and leased back an aggregate of $13,200 in
railcars. The Company has an option to purchase all of the railcars at a fixed
purchase price on January 31, 2019.
The exercise price of the fixed price purchase options is equal to the projected
future fair market value of the subject railcars, as determined by an
independent appraiser.
-26-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2000, future minimum rental commitments for all noncancelable
leases are as follows:
Operating Leases
-------------------------------------------------
Capitalized Sale- Other Total
Leases Leaseback Operating Operating
------------- ----------- ----------- -----------
2001 $ 86 $ 66,312 $ 6,138 $ 72,450
2002 - 66,650 6,123 72,773
2003 - 68,433 5,003 73,436
2004 - 71,470 4,080 75,550
2005 - 94,673 3,215 97,888
2006 and thereafter - 597,548 21,580 619,128
------------- ----------- ----------- -----------
86 $965,086 $46,139 $1,011,225
=========== =========== ===========
Less amount representing interest (10)
-------------
Present value of minimum lease payments 76
Less current portion (76)
-------------
Long-term obligation at December 31, 2000 $ -
=============
Minimum future sublease revenue to be received under existing capitalized and
sale-leaseback leases as of December 31, 2000 is presented below. Future
sublease revenue under other existing operating leases is not material and is
primarily included in other income. The Company expects that the subleased
railcars will be re-leased at the expiration of such leases. The rentals under
such future subleases cannot be ascertained and therefore are not reflected in
this table.
Sale-
Capitalized Leaseback
Leases Leases
------------ -----------
2001 $1,939 $ 81,440
2002 - 70,773
2003 - 60,255
2004 - 49,769
2005 - 35,955
2006 and thereafter - 87,421
------------ -----------
$1,939 $385,613
============ ===========
Sublease rentals recorded as revenue for the years ended December 31, 2000, 1999
and 1998 were approximately $93,000, $80,000 and $71,000, respectively.
Rentals charged to costs and expenses were $73,350, $65,053, and $61,055 in
2000, 1999, and 1998, respectively.
-27-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Borrowed Debt
December 31,
----------------------------
2000 1999
---------- ----------
Unsecured notes, due from 2001 - 2009 at 5.78% - 7.45%
(average rate 6.86% as of December 31, 2000 and 1999) $ 550,000 $ 550,000
Senior secured notes, due from 2010 - 2015 at 6.79% - 7.68%
(average rate 7.36% as of December 31, 2000 and 6.79% as of
December 31, 1999) 280,000 100,000
Equipment obligations, payable periodically through 2009 at
6.50% - 11.60% (average rate 7.98% as of December 31, 2000
and 8.07% as of December 31, 1999) 267,310 308,307
Other long-term borrowings, payable periodically through 2014
(average rate of 9.97% as of December 31, 2000 and 10.21% as
of December 31, 1999) 26,881 27,933
---------- ----------
$1,124,191 $ 986,240
========== ==========
Senior secured notes of $100,000 are secured by railcars with an original cost
of $132,754 and $133,347 at December 31, 2000 and 1999, respectively.
In September 2000, EXSIF Worldwide, Inc., an indirect majority-owned subsidiary
of the Company, issued $180,000 principal amount of senior secured notes.
Interest on the notes is payable semiannually on April 1 and October 1,
commencing April 1, 2001 at the rate of 7.68% per annum. Principal is payable
annually commencing on October 1, 2001 and continuing until maturity on October
1, 2015. The notes are secured by intermodal tank container assets with a total
purchase price of approximately $240,000 and the future stream of leasing income
on such intermodal tank containers. Payment of the notes has been guaranteed by
the Company.
Equipment obligations are secured by railcars with an original cost of $735,735
and $827,357 at December 31, 2000 and 1999, respectively.
The Company's Canadian subsidiaries have approximately $12,340 of credit lines
available on a no-fee basis. No amounts were outstanding as of December 31, 2000
and 1999.
Maturities of debt obligations for the years 2001 - 2005 are $371,636 as
follows: $88,783 in 2001, $86,249 in 2002, $58,394 in 2003, $92,232 in 2004 and
$45,978 in 2005.
-28-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The estimated fair value of borrowed debt is as follows:
December 31,
------------------------
2000 1999
---------- ----------
Unsecured notes $ 559,711 $ 574,789
Senior secured notes 291,328 94,453
Equipment obligations 279,230 313,691
Other long-term borrowings 29,593 30,545
---------- ----------
$1,159,862 $1,013,478
========== ==========
The current fair value of the Company's borrowed debt is estimated by
discounting the future interest and principal cash flows at the Company's
estimated incremental borrowing rate at the respective year-end for debt with
similar maturities.
8. Income Taxes
The Company and its more than 80% owned U.S. subsidiaries are included in the
consolidated U.S. federal income tax return of Holdings. Under an arrangement
with MIC, federal income taxes, before consideration of investment 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, MIC on this basis. If deductions and credits available to
Holdings' entire consolidated group exceed those which can be used on the
return, allocation of the related benefits between the Company and others will
be at the sole discretion of Holdings. As a member of a consolidated federal
income tax group, the Company is contingently liable for the federal income
taxes of the other members of the consolidated group.
Undistributed earnings of the Company's non-U.S. subsidiaries reflect full
provision for non-U.S. income taxes. However, since the earnings are
indefinitely reinvested in non-U.S. operations, no provision has been made for
taxes that might be payable upon remittance of such earnings nor is it
practicable to determine the amount of any such liability.
-29-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following summarizes the provision for income taxes:
2000 1999 1998
-------- -------- --------
State
Current $ 4,049 $ 4,015 $ 4,785
Deferred (221) 910 124
Federal
Current 37,596 33,658 42,137
Deferred and investment tax credit 17,042 26,320 16,743
Foreign
Current 24,786 17,657 28,876
Deferred and investment tax credit (5,230) (4,293) (5,274)
-------- -------- --------
Total $ 78,022 $ 78,267 $ 87,391
======== ======== ========
In 2000, 1999, and 1998, the Company paid foreign withholding taxes of $1,210,
$2,112, and $2,594, respectively.
Income tax expense is based upon domestic and foreign income before taxes as
follows:
2000 1999 1998
-------- -------- --------
Domestic $173,337 $181,370 $184,999
Foreign 45,999 29,465 44,699
-------- -------- --------
Total $219,336 $210,835 $229,698
======== ======== ========
Income tax effects of significant items which resulted in effective tax rates of
35.6% in 2000, 37.1% in 1999, and 38.0% in 1998 follow:
2000 1999 1998
-------- -------- --------
Federal income taxes at 35% statutory rate $ 76,768 $ 73,792 $ 80,394
Increase (decrease) resulting from:
Amortization of investment tax credits (1,876) (2,013) (2,139)
State income taxes, net of federal income
tax benefit 2,411 3,520 3,234
Excess tax provided on foreign income 1,198 2,388 5,309
Amortization of goodwill 2,133 2,133 1,658
Other, net (2,612) (1,553) (1,065)
-------- -------- --------
Total income taxes $ 78,022 $ 78,267 $ 87,391
======== ======== ========
The excess tax on foreign income represents differences due to higher foreign
tax rates and foreign tax credits not benefited.
-30-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of net
deferred tax balances are as follows:
2000 1999
---------- ----------
Excess of tax over book depreciation $ (479,544) $ (468,591)
Other (31,096) (33,506)
---------- ----------
Gross liabilities (510,640) (502,097)
Expenses per books not yet deductible for tax 34,555 34,923
Other 20,935 22,798
---------- ----------
Gross assets 55,490 57,721
Deferred investment tax credits (11,562) (13,615)
---------- ----------
Net deferred income tax liability $ (466,712) $ (457,991)
========== ==========
The above assets exclude certain state deferred income tax assets related to
loss carryforwards (which expire over the next eight years) in the gross amount
of $2,600 at December 31, 2000 and $4,000 at December 31, 1999.
9. Contingencies
The Company and its subsidiaries have been named as defendants in a number of
lawsuits and certain claims are pending. The Company has accrued what it
reasonably expects to pay to resolve such claims, and, in the opinion of
management, their ultimate resolution will not have a material effect on the
Company's consolidated financial position or results of operations.
As part of its risk management plan, the Company self-insures certain levels of
its property damage, general liability and products liability exposures, as well
as certain workers' compensation liabilities in states where it is authorized to
do so. The Company maintains no property damage insurance on its railcars or
intermodal tank containers. The Company has accrued for the estimated costs of
reported, as well as incurred but not reported, self-insured claims. The Company
reserves the full estimated value of claims. It does not discount its claims
liability.
The Company has certain environmental matters currently pending, none of which
are significant to the Company's results of operations or financial condition,
either individually or in the aggregate. See further discussion of such matters
under the "Environmental Matters" caption of Item 1 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
-31-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Pension Benefits
Substantially all of the Company's employees are covered by discretionary
contribution or defined benefit retirement plans.
Costs of the discretionary contribution pension plans are accrued in amounts
determined on the basis of percentages, generally established annually by the
Company, of employee compensation of the various units covered by such plans.
The contributions are funded as accrued. Discretionary and defined contribution
plan expense for 2000, 1999 and 1998 was $11,046, $12,142, and $10,356,
respectively.
As of December 31, 2000, the Company's defined benefit plans either had their
benefits frozen or were terminated. The benefits are based on payment of a
specific amount, which varies by plan, for each year of service. The Company's
funding policy is to contribute the minimum amount required either by law or
union agreement. Contributions are intended to provide not only for benefits
attributed to service through the plans' termination dates, but also for those
expected to be earned in the future. Benefits are based on both years of service
and compensation. Defined benefit pension plan income was $590, $441, and $191
for 2000, 1999, and 1998, respectively. Accrued defined benefit pension
liability recognized in the consolidated balance sheet was $307 and $897 at
December 31, 2000 and 1999, respectively.
11. Retirement Health Care and Life Insurance Benefits
The Company provides limited health care and life insurance benefits for certain
retired employees. These benefits are subject to deductible and copayment
provisions, Medicare supplements and other limitations. At December 31, 2000 and
1999, the liability for postretirement health care and life insurance benefits
was $4,444 and $4,439 respectively, and was included in accrued liabilities in
the consolidated balance sheet.
Expense related to these benefits was $685, $511, and $558 in 2000, 1999, and
1998, respectively.
12. Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges represents the number of times that
interest expense, amortization of debt discount, and the interest component of
rent expense were covered by income before income taxes and such interest,
amortization, and the interest component of rentals.
-32-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13 Consolidating Financial Information
Condensed consolidated statements of income for the years ended December 31,
2000, 1999 and 1998 are as follows:
Year Ended December 31, 2000
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Revenues
Services (leasing and other) $469,117 $ 76,329 $148,780 $(21,024) $ 673,202
Net sales 121,832 27,830 649,127 (25,127) 773,662
-------------- --------- ------------ ------------ ------------
590,949 104,159 797,907 (46,151) 1,446,864
Other income (776) 9,484 12,509 15,576 36,793
-------------- --------- ------------ ------------ ------------
590,173 113,643 810,416 (30,575) 1,483,657
Costs and expenses
Cost of services 267,083 41,053 112,842 (21,024) 399,954
Cost of sales 112,416 27,284 532,230 (25,127) 646,803
General and administrative 34,378 3,983 102,562 - 140,923
Interest 50,237 5,403 5,425 15,576 76,641
-------------- --------- ------------ ------------ ------------
464,114 77,723 753,059 (30,575) 1,264,321
-------------- --------- ------------ ------------ ------------
Income before income taxes 126,059 35,920 57,357 - 219,336
Provision for income taxes 38,826 13,759 25,437 - 78,022
-------------- --------- ------------ ------------ ------------
Net income $ 87,233 $ 22,161 $ 31,920 $ - $ 141,314
============== ========= ============ ============ ============
-33-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
Year Ended December 31, 1999
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Revenues
Services (leasing and other) $464,144 $ 75,396 $ 97,883 $ (5,817) $ 631,606
Net sales 199,483 37,495 591,491 (38,477) 789,992
-------------- --------- ------------ ------------ ------------
663,627 112,891 689,374 (44,294) 1,421,598
Other income 1,601 7,749 10,617 7,452 27,419
-------------- --------- ------------ ------------ ------------
665,228 120,640 699,991 (36,842) 1,449,017
Costs and expenses
Cost of services 253,594 43,399 79,505 (5,817) 370,681
Cost of sales 187,975 34,672 479,776 (38,477) 663,946
General and administrative 35,621 3,742 90,894 - 130,257
Interest 55,949 9,642 255 7,452 73,298
-------------- --------- ------------ ------------ ------------
533,139 91,455 650,430 (36,842) 1,238,182
-------------- --------- ------------ ------------ ------------
Income before income taxes 132,089 29,185 49,561 - 210,835
Provision for income taxes 48,902 10,815 18,550 - 78,267
-------------- --------- ------------ ------------ ------------
Net income $ 83,187 $ 18,370 $ 31,011 $ - $ 132,568
============== ========= ============ ============ ============
Year Ended December 31, 1998
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Revenues
Services (leasing and other) $436,139 $ 81,240 $ 72,791 $ (5,042) $ 585,128
Net sales 172,317 32,187 537,691 (35,950) 706,245
-------------- --------- ------------ ------------ ------------
608,456 113,427 610,482 (40,992) 1,291,373
Other income (1,953) 11,056 13,215 6,830 29,148
-------------- --------- ------------ ------------ ------------
606,503 124,483 623,697 (34,162) 1,320,521
Costs and expenses
Cost of services 225,381 43,797 60,895 (5,042) 325,031
Cost of sales 159,221 28,785 427,121 (35,950) 579,177
General and administrative 34,756 4,071 76,310 - 115,137
Interest 51,700 12,004 944 6,830 71,478
-------------- --------- ------------ ------------ ------------
471,058 88,657 565,270 (34,162) 1,090,823
-------------- --------- ------------ ------------ ------------
Income before income taxes 135,445 35,826 58,427 - 229,698
Provision for income taxes 53,593 10,035 23,763 - 87,391
-------------- --------- ------------ ------------ ------------
Net income $ 81,852 $ 25,791 $ 34,664 $ - $ 142,307
============== ========= ============ ============ ============
-34-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
Condensed consolidated balance sheets as of December 31, 2000 and 1999 are as
follows:
December 31, 2000
-----------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Assets
- ------
Cash and cash equivalents $ 4,494 $ 82,344 $ 6,962 $ - $ 93,800
Accounts receivable 29,133 12,696 113,185 (4,743) 150,271
Accounts and notes receivable,
affiliates - 83 57,211 - 57,294
Inventories, net 28,191 8,122 137,758 - 174,071
Prepaid expenses and deferred
charges 6,210 763 5,167 (368) 11,772
Advances to parent 142,673 (12,869) 132,042 (1,329) 260,517
Railcar lease fleet, net 1,220,966 156,513 184,165 - 1,561,644
Intermodal tank container fleet,
net - - 292,375 - 292,375
Fixed assets, net 100,631 18,335 92,118 - 211,084
Investment in aircraft direct
financing lease - 30,641 - - 30,641
Investment in subsidiaries 823,329 - - (823,329) -
Other assets 596 503 71,627 - 72,726
---------- -------- ---------- --------- ----------
Total assets $2,356,223 $297,131 $1,092,610 $(829,769) $2,916,195
========== ======== ========== ========= ==========
Liabilities, Deferred Items and
- -------------------------------
Stockholder's Equity
- --------------------
Accounts payable $ 27,412 $ 2,702 $ 45,639 $ (4,324) $ 71,429
Minority interest - - - 78,067 78,067
Accrued liabilities 191,528 11,670 49,728 3,833 256,759
Borrowed debt 875,767 63,800 184,624 - 1,124,191
---------- -------- ---------- --------- ----------
1,094,707 78,172 279,991 77,576 1,530,446
Deferred income taxes and
investment tax credits 342,719 68,590 55,403 - 466,712
Stockholder's equity
Common stock and additional
capital 323,104 13,012 495,344 (591,312) 240,148
Retained earnings 560,034 142,352 292,557 (316,054) 678,889
Equity adjustment from foreign
currency translation 35,659 (4,995) (30,685) 21 -
---------- -------- ---------- --------- ----------
Total stockholder's equity 918,797 150,369 757,216 (907,345) 919,037
---------- -------- ---------- --------- ----------
Total liabilities, deferred
items and stockholder's
equity $2,356,223 $297,131 $1,092,610 $(829,769) $2,916,195
========== ======== ========== ========= ==========
-35-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
December 31, 1999
-----------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Assets
- ------
Cash and cash equivalents $ 50 $ 48,254 $ 2,632 $ - $ 50,936
Accounts receivable 29,277 15,934 87,393 (1,254) 131,350
Accounts and notes receivable,
affiliates - 137 13,155 10 13,302
Inventories, net 39,950 9,869 112,399 - 162,218
Prepaid expenses and deferred
charges 6,731 564 1,411 1,090 9,796
Advances to parent 176,079 7,060 84,820 (1,237) 266,722
Railcar lease fleet, net 1,465,605 174,909 12,981 - 1,653,495
Intermodal tank container fleet,
net - - 12,332 - 12,332
Fixed assets, net 101,123 20,628 95,289 - 217,040
Investment in aircraft direct
financing lease - 34,012 - - 34,012
Investment in subsidiaries 381,254 - - (381,254) -
Other assets 322 - 74,551 - 74,873
---------- -------- ---------- --------- ----------
Total assets $2,200,391 $311,367 $496,963 $(382,645) $2,626,076
========== ======== ========== ========= ==========
Liabilities, Deferred Items and
- -------------------------------
Stockholder's Equity
- --------------------
Accounts payable $ 22,534 $ 4,555 $ 48,945 $ (1,143) $ 74,891
Minority interest - - - 19,397 19,397
Accrued liabilities 173,974 4,811 83,918 (14,275) 248,428
Borrowed debt 910,308 72,738 3,194 - 986,240
---------- -------- ---------- --------- ----------
1,106,816 82,104 136,057 3,979 1,328,956
Deferred income taxes and
investment tax credits 421,753 78,414 (42,176) - 457,991
Stockholder's equity
Common stock and additional
capital 113,035 13,012 197,227 (119,720) 203,554
Retained earnings 532,775 137,372 232,358 (266,930) 635,575
Equity adjustment from foreign
currency translation 26,012 465 (26,503) 26 -
---------- -------- ---------- --------- ----------
Total stockholder's equity 671,822 150,849 403,082 (386,624) 839,129
---------- -------- ---------- --------- ----------
Total liabilities, deferred
items and stockholder's
equity $2,200,391 $311,367 $496,963 $(382,645) $2,626,076
========== ======== ========== ========= ==========
-36-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
Condensed consolidated statements of cash flows for the years ended December 31,
2000, 1999 and 1998 are as follows:
Year Ended December 31, 2000
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Net cash provided by operating $ 72,503 $27,508 $ 188,729 $ - $ 288,740
activities
Cash flows from investing activities:
Construction and purchase of
railcars and other fixed assets (172,116) (6,661) (34,484) - (213,261)
Decrease (increase) in advance to
parent 78,710 19,929 (47,125) - 51,514
(Increase) decrease in other
assets - - (896) - ( 896)
Proceeds from disposals of
railcars and other fixed assets 7,862 2,604 1,641 - 12,107
Purchases of businesses, net of
cash acquired - - (284,985) - (284,985)
--------- ------- --------- -------- ----------
Net cash (used in) provided by
investing activities (85,544) 15,872 (365,849) - (435,521)
Cash flows from financing activities:
Proceeds from issuance of borrowed
debt - - 184,157 - 184,157
Proceeds from sale-leaseback
transactions 150,026 - - - 150,026
Principal payments of borrowed debt (34,541) (7,531) (2,707) - (44,779)
Cash dividends (98,000) - - - (98,000)
--------- ------- --------- -------- ----------
Net cash provided by (used in)
financing activities 17,485 (7,531) 181,450 - 191,404
Effect of exchange rates on cash and
cash equivalents - (1,759) - - (1,759)
--------- ------- --------- -------- ----------
Net increase in cash and cash
equivalents 4,444 34,090 4,330 - 42,864
Cash and cash equivalents at
beginning of year 50 48,254 2,632 - 50,936
--------- ------- --------- -------- ----------
Cash and cash equivalents at end of
year $ 4,494 $82,344 $ 6,962 $ - $ 93,800
========= ======= ========= ======== ==========
-37-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
Year Ended December 31, 1999
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Net cash provided by operating
activities $ 205,511 $ 32,464 $ 80,165 $ - $ 318,140
Cash flows from investing activities:
Construction and purchase of
railcars and other fixed assets (199,865) (2,273) (17,253) - (219,391)
Decrease (increase) in advance to
parent (82,106) (20,227) (57,495) - (159,828)
(Increase) decrease in other
assets - - 521 - 521
Proceeds from disposals of
railcars and other fixed assets 7,180 4,212 1,101 - 12,493
Purchases of businesses, net of
cash acquired - - (11,764) - (11,764)
--------- -------- -------- -------- ---------
Net cash (used in) provided by
investing activities (274,791) (18,288) (84,890) - (377,969)
Cash flows from financing activities:
Proceeds from issuance of borrowed
debt 175,000 - 1,900 - 176,900
Proceeds from sale-leaseback
transactions 13,200 - - - 13,200
Principal payments of borrowed debt (38,107) (24,332) (509) - (62,948)
Cash dividends (82,000) - - - (82,000)
--------- -------- -------- -------- ---------
Net cash provided by (used in)
financing activities 68,093 (24,332) 1,391 - 45,152
Effect of exchange rates on cash and
cash equivalents - 3,246 - - 3,246
--------- -------- -------- -------- ---------
Net decrease in cash and cash
equivalents (1,187) (6,910) (3,334) - (11,431)
Cash and cash equivalents at
beginning of year 1,237 55,164 5,966 - 62,367
--------- -------- -------- -------- ---------
Cash and cash equivalents at end of
year $ 50 $ 48,254 $ 2,632 $ - $ 50,936
========= ======== ======== ======== =========
-38-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Consolidating Financial Information (Continued)
Year Ended December 31, 1998
----------------------------
Union Tank Car Procor Other
Company Limited Subsidiaries Eliminations Consolidated
-------------- --------- ------------ ------------ ------------
Net cash provided by operating
activities $ 171,708 $ 17,800 76,046 $ - $ 265,554
Cash flows from investing activities:
Construction and purchase of
railcars and other fixed assets (250,209) (3,706) (14,867) - (268,782)
Decrease (Increase) in advance to
parent 28,936 (32,466) 41,011 - 37,481
(Increase) decrease in other
assets - - 8,133 - 8,133
Proceeds from disposals of railcars
and other fixed assets 4,884 4,534 743 - 10,161
Purchases of businesses, net of
cash acquired (5,940) - (51,966) - (57,906)
--------- -------- -------- -------- ---------
Net cash (used in) provided by
investing activities (222,329) (31,638) (16,946) - (270,913)
Cash flows from financing activities:
Proceeds from issuance of borrowed
debt 80,000 - 550 - 80,550
Proceeds from sale-leaseback
transactions 130,018 - - - 130,018
Principal payments of borrowed debt (110,615) (22,897) (55,576) - (189,088)
Cash dividends (48,000) - - - (48,000)
--------- -------- -------- -------- ---------
Net cash provided by (used in)
financing activities 51,403 (22,897) (55,026) - (26,520)
Effect of exchange rates on cash and
cash equivalents - (6,365) - - (6,365)
--------- -------- -------- -------- ---------
Net increase (decrease) in cash and
cash equivalents 782 (43,100) 4,074 - (38,244)
Cash and cash equivalents at
beginning of year 455 98,264 1,892 - 100,611
--------- -------- -------- -------- ---------
Cash and cash equivalents at end of
year $ 1,237 $ 55,164 $ 5,966 $ - $ 62,367
========= ======== ======== ======== =========
-39-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Related Party Transactions
The following table sets forth the major related party transaction amounts
included in the consolidated financial statements.
Interest Management Insurance
Income Expense Billed
-------- ---------- ---------
2000 $17,794 $3,107 $3,088
1999 9,682 5,063 3,396
1998 9,056 5,344 2,756
The Company from time to time advances funds in excess of its current cash
requirements for domestic operations to MIC or MIC's subsidiaries on an
unsecured demand basis. Such advances, which bear interest principally at LIBOR
plus 1%, amounted to $219,169 and $221,548 at December 31, 2000 and 1999,
respectively.
Certain of the Company's Canadian operations and its affiliates enter into
intercompany loans utilizing their respective excess cash balances. These
advances between the Company and subsidiaries of MIC resulted in receivables of
$41,348 and $45,174 at December 31, 2000 and 1999, respectively, that are
included in advances to parent company.
An administrative services fee is paid to The Marmon Group, Inc. ("Marmon"), a
subsidiary of Holdings and an affiliate of MIC, for certain services provided by
Marmon's officers and employees including services with respect to accounting,
tax, finance, legal and related matters which Marmon provides to certain of
Holdings' divisions, subsidiaries and affiliates. Marmon provides these services
to the Company because it is considered more cost efficient to provide such
services in this manner.
The administrative fee which Marmon charges to the Company and other entities to
which it provides services is calculated using activity-based management
concepts. The various Marmon departments allocate both time and expenses to the
entities for which it provided services for the previous year.
Marmon takes the amount derived from this exercise and applies discretion to
determine the final administrative services fee to be charged. The factors which
are considered include matters such as the following: any known operating
problems and risks that require or may require additional time to be devoted to
the Company by Marmon; significant expansion programs; significant contracts;
unusual tax or accounting matters; and the experience and length of service of
the Company's management.
Included in the preceding table as insurance billed are $2,238 in 2000, $1,631
in 1999 and $1,618 in 1998 for insurance premiums for coverage that was insured
or reinsured with an insurance company which the Company has been advised is
controlled by trusts for the benefit of an individual related by marriage to a
member of the Pritzker family.
-40-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In September 2000, Worldwide Containers, Inc. ("WCI"), a majority-owned
subsidiary of the Company, received a capital contribution from an affiliate
consisting of a $43,400 demand note of another affiliate of the Company and 20%
of the capital stock of Webb Wheel Products, Inc., another affiliate of the
Company, in exchange for approximately 15.1% of the capital stock of WCI. WCI
also received a capital contribution from another affiliate consisting of a 20%
limited partnership interest in Rail Car Associates Limited Partnership in
exchange for approximately 4.2% of the capital stock of WCI. These noncash
transactions have been excluded from the consolidated statement of cash flows.
The Company's minority partners' interest in Worldwide Containers, Inc. at
December 31, 2000 and 1999 was $78,067 and $4,100, respectively. The minority
interest in income was $1,539 for the year ended December 31, 2000.
Prior to its acquisition of the 20% minority interest in September 2000, the
Company owned an 80% interest in Rail Car Associates Limited Partnership. The
Company's minority partner's interest in the partnership at December 31, 1999
was $15,297. The minority interest in income was $582, $894, and $900 for the
years ended December 31, 2000, 1999 and 1998, respectively. All minority
interest in income was included as a charge against other income.
15. Derivative Financial Instruments
The Company's Canadian subsidiaries periodically enter into foreign currency
forward contracts to hedge against U.S. dollar exposures. Foreign currency
forward contracts, all with initial maturities of less than one year, amounted
to $8,700 and $9,100 at December 31, 2000 and 1999, respectively.
16. Quarterly Data (Unaudited)
Three Months Ended
--------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
2000 (March and June Restated)
Net sales and services revenues $352,962 $371,511 $356,089 $366,302
Cost of sales and services 254,540 269,164 257,092 265,961
-------- -------- -------- --------
Gross profit 98,422 102,347 98,997 100,341
Net income $ 33,893 $ 36,959 $ 37,371 $ 33,091
======== ======== ======== ========
1999 (Restated)
Net sales and services revenues $344,613 $371,687 $353,830 $351,468
Cost of sales and services 248,216 275,367 259,941 251,103
-------- -------- -------- --------
Gross profit 96,397 96,320 93,889 100,365
Net income $ 31,597 $ 31,678 $ 30,618 $ 38,675
======== ======== ======== ========
-41-
UNION TANK CAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Supplementary Disclosures of Cash Flow Information
For the Year Ended December 31,
----------------------------------------------------
2000 1999 1998
-------- ------- --------
(Restated) (Restated)
Changes in operating assets and liabilities:
Accounts receivable $ (5,494) $ 3,151 $ 9,053
Inventories (4,886) 11,943 (15,631)
Prepaid expenses and deferred charges 263 2,089 1,961
Accounts payable, accrued rent and accrued
liabilities (14,031) (382) (13,657)
-------- ------- --------
$(24,148) $16,801 $(18,274)
======== ======= ========
Cash paid during the year for:
Interest (net of amount capitalized) $ 75,782 $73,739 $ 73,496
Income taxes 62,201 66,450 69,509
Unrealized foreign currency translation gains and losses, which are non-cash
items, are excluded from the change in advances to parent.
18. Industry Segment Information
The Company's industry and geographic data are found under the "Segment
Information" caption of Item 1 of the Company's Annual Report on Form 10-K for
the year ended December 31, 2000. The aforementioned data are an integral part
of the Notes to Consolidated Financial Statements.
-42-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
First Elected
Name Age Current Positions or Offices to Position
- ----------------------- ----- ------------------------------ -------------
Frank D. Lester 60 Vice President of the Company and 1999
President - Tank Car Division
Mark J. Garrette 47 Vice President of the Company and 1994
Senior Vice President and
Controller - Tank Car Division
Kenneth P. Fischl 51 Vice President of the Company 1992
Director 1994
Robert C. Gluth 76 Director, Executive Vice President 1981
and served as Treasurer between
February, 1986 and January, 1987
and since October, 1989
Robert A. Pritzker 74 Director and President of the Company 1981
Robert W. Webb 61 General Counsel and Secretary 1986
of the Company
-43-
Frank D. Lester
Mr. Lester joined the Tank Car Division in 1979 as a district sales manager. In
1981, he was promoted to Vice President - Sales, and in 1988, he was named Vice
President - Quality. In 1994, Mr. Lester was promoted to President of Procor
Division. In August 1999, Mr. Lester was named President of the Tank Car
Division and appointed a Vice President of the Company.
Mark J. Garrette
Mr. Garrette was appointed Senior Vice President and Controller of the Tank Car
Division and Vice President of the Company in August 1994. He joined the Tank
Car Division as Vice President and Assistant Controller in May 1994.
Kenneth P. Fischl
Mr. Fischl was elected as a Director in March 1994, and served as President of
the Tank Car Division from February 1993 to August 1999. He was appointed a Vice
President of the Company and Executive Vice President and General Manager of the
Tank Car Division in July 1992. He joined the Company in 1977 as a Market
Analyst. Mr. Fischl was promoted to Manager of Tank Car Marketing and
Administration in 1979 and became Vice President of Fleet Management in 1981.
Mr. Fischl was appointed a Vice President of The Marmon Group, Inc. ("Marmon")
in May 1998.
Robert C. Gluth
Mr. Gluth is Executive Vice President and a Director of Marmon Industrial LLC
("MIC"), Vice President, Treasurer and a Director of Holdings, Executive Vice
President and Director of The Marmon Corporation ("TMC"), and Executive Vice
President and a Director of Marmon. Mr. Gluth is also Treasurer of each of TMC,
MIC and Marmon.
Robert A. Pritzker
Mr. Robert A. Pritzker is President and a Director of each of MIC, Holdings, TMC
and Marmon. Mr. Pritzker is also a director of Hyatt Corporation.
Robert W. Webb
Mr. Webb is Secretary and a Vice President of each of MIC, Holdings, TMC and
Marmon.
There are no family relationships among the directors and executive officers of
the Company.
Directors and executive officers are elected for a term of one year, or until a
successor is appointed.
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Other Directorships
Mr. Robert A. Pritzker is a Director of Southern Peru Copper Corporation.
Otherwise, none of the members of the Company's Board of Directors are members
of the board of directors of companies with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the
requirements of Section 15(d) of that Act or of a company registered as an
investment company under the Investment Company Act of 1940.
ITEM 11. EXECUTIVE COMPENSATION
Frank D. Lester, Vice President, and Mark J. Garrette, Vice President, were the
only executive officers of the Company who in the year ended December 31, 2000,
received salary and bonus in excess of $100,000 from the Company and its
subsidiaries for services in all capacities to the Company.
All other officers of the Company received their 2000 compensation from Marmon
and are primarily involved in the management of MIC and Marmon. The Company,
together with the other subsidiaries of MIC, has been required to pay Marmon a
portion of such compensation which is encompassed in the charge for certain
common services provided by Marmon to the Company and such other subsidiaries.
The amount of such charge has been determined pursuant to a formula based upon
the dollar value of revenues, earnings and assets. See Note 14 to the
consolidated financial statements included in Item 8 of the Company's Annual
Report on Form 10-K for the year ended December 31, 2000. Directors of the
Company do not receive any compensation in such capacity.
Shown below is the aggregate of all forms of compensation paid by the Company to
Mr. Lester and Mr. Garrette:
Summary Compensation Table
Annual Compensation All Other
--------------------------------------
Name and Principal Position Year Salary Bonus Compensation *
- --------------------------- ---- ------ ----- --------------
Frank D. Lester,
Vice President of the Company 2000 $263,200 $50,000 $29,800
and President of the Tank Car 1999 220,200 33,600 15,000
Division
Mark J. Garrette,
Vice President of the Company 2000 189,700 40,000 21,800
and Senior Vice President of the 1999 180,300 38,000 21,000
Tank Car Division 1998 171,700 35,000 20,200
* Represents the aggregate amounts of Company contributions to defined
contribution plans on behalf of each of the named individuals.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
MIC, a Delaware single member limited liability company having its principal
executive offices at 225 West Washington Street, Chicago, Illinois, owns 1,000
shares, or 100% of the Company's issued and outstanding common stock. MIC is a
subsidiary of Holdings.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Note 14 to the consolidated financial statements included in Item 8 of the
Company's Annual Report on Form 10-K for the year ended December 31, 2000 which
contains a description of certain related party transactions is incorporated
herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
a) 1. Financial Statements -
Consolidated statement of income for each of the three years
in the period ended December 31, 2000............................. 17
Consolidated balance sheet - December 31, 2000 and 1999........... 18
Consolidated statement of stockholder's equity for each of
the three years in the period ended December 31, 2000............. 19
Consolidated statement of cash flows for each of the three
years in the period ended December 31, 2000....................... 20
Notes to consolidated financial statements......................... 21
2. Schedules
Financial statement schedules are not submitted because they are not
applicable or because the required information is
included in the financial statements or notes thereto
3. Index to Exhibits..................................................... 49
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
December 31, 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Robert C. Gluth
-------------------
Robert C. Gluth
Executive Vice President,
Director and Treasurer
Dated: March 27, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
- ------------------------- ----------------------- ------------------
/s/ Robert A. Pritzker President and Director March 27, 2001
- -------------------------
Robert A. Pritzker (principal executive officer)
/s/ Robert C. Gluth Executive Vice President, March 27, 2001
- -------------------------
Robert C. Gluth Director and Treasurer
(principal financial officer
and principal accounting
officer)
/s/ Kenneth P. Fischl Vice President and Director March 27, 2001
- -------------------------
Kenneth P. Fischl
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UNION TANK CAR COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
2 (a) Asset Purchase Agreement between Transamerica Leasing Inc., Trans
Ocean Tank Services Corporation and EXSIF Worldwide, Inc. (as
assignee of Worldwide Containers, Inc.) dated as of July 11, 2000
3 (a) Restated Certificate of Incorporation of the Company, as filed with
the Secretary of State of Delaware on September 2, 1982 (which was
filed as Exhibit 3(a) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1982, and is incorporated herein by
reference)
3 (b) By-Laws of the Company, as adopted November 25, 1987 (which was filed
as Exhibit 3(b) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1988, and is incorporated herein by reference)
4 (a) Trust Indenture and Security Agreement (UTC Trust No. 2000-A) (L-16)
dated June 29, 2000 between Norwest Bank Minnesota, National
Association, as Owner Trustee, and LaSalle Bank National Association,
as Indenture Trustee
4 (b) Indenture and Security Agreement dated September 28, 2000 among Bank
One, N.A., EXSIF Worldwide, Inc. and the Company
12 Statements re computation of ratios
The computation of the Ratio of Earnings to Fixed Charges (summarized
in Note 12 to the consolidated financial statements
21 Subsidiaries of the registrant
23 Consent of Ernst & Young LLP, Independent Auditors
Instruments defining the rights of holders of long-term debt are not being filed
herewith pursuant to the provisions of paragraph 4(iii) 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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