SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the year ended December 31, ~~2004~~2006

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

For the transition period from to

Commission file number: 1-5666

UNION TANK CAR COMPANY

(Exact name of registrant as specified in its charter)

Delaware		36-3104688
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
181 W. Madison Street, 26th Floor, Chicago, Illinois		60602-4510
(Address of principal executive offices)		(Zip Code)

225 W. Washington Street, Chicago, Illinois		60606
(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:

Title of Each Class Name of Each Exchange ononWhich ~~Which~~ Registered None —

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No ¨

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 ~~(§ 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. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, ~~(as~~or ~~defined~~a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). ~~Yes ¨ No x~~ (Check one):

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

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

There is no voting stock held by non-affiliates of the registrant.

UNION TANK CAR COMPANY

FORM 10-K

Year Ended December 31, ~~2004~~2006

CONTENTS

Section		Page
Part I.
Item 1	Business	1
Item 2	Properties	8
Item 1A	Risk Factors	8
Item 3	Legal Proceedings	9
Item 1B	Unresolved Staff Comments	13
Item 4	Submission of Matters to a Vote of Security Holders	9
Item 2	Properties	13
Item 3	Legal Proceedings	14
Item 4	Submission of Matters to a Vote of Security Holders	14
Part II.
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1015
Item 6	Selected Financial Data	1015
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1015
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	2028
Item 8	Financial Statements and Supplementary Data	2129
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	5064
Item 9A	Controls and Procedures	5064
Item 9B	Other Information	5064
Part III.
Item 10	Directors, ~~and~~ Executive Officers ofand ~~the~~Corporate ~~Registrant~~Governance	5165
Item 11	Executive Compensation	5367
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5472
Item 13	Certain Relationships and Related Transactions, and Director Independence	5472
Item 14	Principal ~~Accounting~~Accountant Fees and Services	5473
Part IV.
Item 15	Exhibits, Financial Statement Schedules	5574
Signatures		5675

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 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.

~~Railcar~~The ~~Leasing~~Company operates its largest businesses in three segments: Railcar, ~~Services~~Metals Distribution and ~~Sales~~Intermodal Tank Container Leasing. The remaining businesses of the company are classified as All Other.

~~The principal~~Railcar 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.

The primary activity of the Railcar segment 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 and fuel products, food products and bulk plastics. The Company owns and operates one of the largest fleets of railway tank cars in the world. As of December 31, ~~2004~~2006, the Company’s railcar fleet comprised 6673,~~893~~126 tank cars and 1415,~~919~~401 railway cars of other types. A total of 2833,~~929~~755 railcars were added to the lease fleet during the ten years ended December 31, ~~2004~~2006. ~~These railcars accounted for approximately 38% of total railcar lease revenues during 2004.~~ Most of the Company’s railcars were built by the Company or to its specifications and the rest were purchased from other sources.

Railway tank cars carrying chemicals and acids account for the greatest portion of total leasing revenues, followed in order by railway tank cars carrying ~~refined~~compressed ~~petroleum~~gases ~~products~~ (~~such~~particularly asliquefied ~~fuel~~petroleum ~~oils~~gas and ~~asphalt~~anhydrous ammonia), ~~compressed~~refined ~~gases~~petroleum products (~~particularly~~such ~~liquefied~~as ~~petroleum~~fuel ~~gas~~oils and ~~anhydrous ammonia~~asphalt), food products and liquid fertilizers.

A significant portion of revenues from the Company’s non-tank railcar fleet derives from leasing of hopper cars for carrying bulk plastics. Remaining non-tank railcar revenues are attributable to leasing of railcars serving the dry bulk chemical and coal industries.

The Company builds railway tank cars primarily for its leasing business, but also builds railway tank cars for sale to others. Generally, manufacturing follows receipt of a firm order for lease or sale of a railway tank car.

Substantially all of the Company’s railcars are leased directly to several hundred manufacturers and other shippers under leases covering from one to several thousand railcars and ranging from one to twenty years. The average term of leases entered into during 2004 for newly manufactured railcars was approximately six years. The average term of leases entered into during 2004 for used railway 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 railcar repair and maintenance. The Company supplies relatively few railcars directly to railroads. The Company markets its railcars through regional sales offices located throughout the United States and Canada and through a sales agent in Mexico. To ensure optimum use of the railcar lease fleet, the Company maintains data processing systems that contain

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Substantially all of the Company’s railcars are leased directly to several hundred manufacturers and other shippers under leases covering from one to several thousand railcars and ranging from one to twenty years. The average term of leases entered into during 2006 for newly manufactured railcars was approximately seven years. The average term of leases entered into during 2006 for used railway 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 railcar repair and maintenance. The Company supplies relatively few railcars directly to railroads. The Company markets its railcars through regional sales offices located throughout the United States and Canada and through a sales agent in Mexico. To ensure optimum use of the railcar lease fleet, the Company maintains data processing systems that contain information about each railcar, including mechanical specifications, maintenance and repair data, and lease terms.

The Company maintains repair facilities at strategic points throughout North America. 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 subject to regulation or supervision as a common carrier. 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 railcars from time to time.

The Company’s facilities for manufacturing and assembling railway tank cars are located in Alexandria, Louisiana (which was completed in 2006), East Chicago, Indiana and Sheldon, Texas. The Company also operates ~~North~~ 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; Ville Platte, Louisiana; Marion, Ohio; Altoona, Pennsylvania; Cleveland, Texas; Evanston, Wyoming; Edmonton, Alberta; Sarnia and Oakville, Ontario; Regina, Saskatchewan; and Celaya, Mexico. In 2004, the Company began construction of a railcar manufacturing facility in Alexandria, Louisiana.

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 and sheets, rolled form shapes and other raw materials.

These subsidiaries serve the agriculture, capital goods, machine tool, construction, transportation, refining, petrochemical, ~~and~~industrial, and fluid power industries, as well as aerospace companies, the military, construction trades, steel fabricators, and OEMs.

Intermodal Tank Container Leasing

Subsidiaries of the Company own, manage, lease and maintain intermodal tank containers. Intermodal tank containers are capable of transporting cargo by way of multiple modes of transportation including road, rail or ship. 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. ~~These~~One of these subsidiaries also ~~own~~owns a fleet of drop frame tank chassis.

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All Other

The Company is engaged in several other activities, as described below.

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.~~

Other Railway Equipment and Services

A subsidiary of the Company manufactures mobile railcar moving vehicles for in-plant and yard switching. Another subsidiary of the Company manufactures wheels, axles and gear sets for light rail transit. 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.

Gear Drive Manufacturing

Subsidiaries of the Company manufacture right-angle gear drives for industrial and agricultural applications and wind machines used to protect fruits and vegetables from frost.

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Segment Information

The Company ~~principal~~operates ~~activity~~its oflargest ~~the~~businesses ~~Company’s~~in ~~primary~~three ~~industry~~segments: ~~segment~~Railcar, isMetals ~~railcar~~Distribution ~~leasing,~~and ~~services~~Intermodal ~~and~~Tank ~~sales~~Container Leasing. InSegmentation ~~addition,~~of the Company’s ~~has~~businesses ~~two~~is ~~secondary~~based ~~industry~~upon ~~segments as~~markets ~~shown~~served inand ~~the~~organizational ~~table below~~structure. All other businesses ~~activities~~ of the Company, as described previously, plus corporate headquarters items and eliminations, are shown as All Other in the table:

	Railcar		MetalsDistribution			IntermodalTankContainerLeasing	~~IntermodalTankContainerLeasing~~		AllOther	~~All Other~~		ConsolidatedTotals	~~ConsolidatedTotals~~
	(Dollars in Millions)
2004
2006
Services revenue	$	~~552~~629.58	$	87.57		$	$112.9	~~96.5~~	$	$69.8	~~90.4~~	$	$820.2	~~747.9~~
Net sales revenue		46.4		578.8				—			153.2			778.4
Sales revenue		94.0		785.7			—			171.8			1,051.5
Interest income		—		—			—	—		17.1	~~13.0~~		17.1	~~13.0~~
Interest expense		6068.89		0.1			15.3	~~13.8~~		11.3	~~0.1~~		95.6	~~74.8~~
Depreciation and amortization		~~125~~154.02		3.96			28.7	~~25.9~~		6.2	~~7.4~~		192.7	~~162.2~~
Income before income taxes		127.4		38.5				15.6			42.9			224.4
Income before income taxes and minority interest		165.9		85.2			32.3			36.8			320.2
Segment assets		13,~~948~~035.16		~~194~~254.35			381.3	~~347.7~~		436.2	~~787.7~~		4,107.6	~~3,277.8~~
Expenditures for long-lived assets		~~261~~703.13		34.5			51.4	~~52.9~~		9.6	~~13.9~~		768.8	~~331.4~~
2003
2005
Services revenue	$	~~544~~593.95	$	8.17		$	$103.8	~~86.5~~	$	$61.6	~~78.9~~	$	$767.6	~~718.4~~
Net sales revenue		44.6		387.2				—			127.8			559.6
Sales revenue		66.4		695.5			—			132.2			894.1
Interest income		—0.1		—			—	—		17.8	~~10.7~~		17.9	~~10.7~~
Interest expense		5869.28		~~0.1~~—			15.2	~~13.4~~		2.7	~~0.1~~		87.7	~~71.8~~
Depreciation and amortization		~~119~~130.54		3.91			27.8	~~24.2~~		5.3	~~8.0~~		166.6	~~155.6~~
Income (loss) before income taxes*		103.9		(6.1	)			10.0			0.9			108.7
Income before income taxes and minority interest		122.8		73.4			21.9			45.8			263.9
Segment assets		12,~~921~~453.04		~~159~~202.02			359.1	~~330.2~~		606.4	~~540.8~~		3,621.1	~~2,951.0~~
Expenditures for long-lived assets		~~201~~523.98		64.53			41.9	~~31.0~~		11.9	~~6.8~~		581.9	~~246.2~~
2002
2004
Services revenue	$	~~539~~552.65	$	8.65		$	$96.5	~~80.2~~	$	$90.4	~~63.3~~	$	$747.9	~~691.7~~
Net sales revenue		32.7		396.4				—			137.6			566.7
Sales revenue		46.4		578.8			—			153.2			778.4
Interest income		—		—			—	—		13.0	~~13.9~~		13.0	~~13.9~~
Interest expense		6560.08		0.1			13.8	~~13.1~~		0.1	~~0.1~~		74.8	~~78.3~~
Depreciation and amortization		~~119~~125.0		43.49			25.9	~~22.1~~		7.4	~~7.6~~		162.2	~~153.1~~
Income before income taxes		111.7		11.1				6.4			23.9			153.1
Income before income taxes and minority interest		127.4		38.5			15.6			48.7			230.2
Segment assets		1,~~853~~948.41		~~181~~194.83			347.7	~~318.9~~		787.7	~~582.5~~		3,277.8	~~2,936.6~~
Expenditures for long-lived assets		86261.01		6.3.5			52.9	~~24.8~~		13.9	~~5.6~~		331.4	~~122.7~~

* Metals Distribution includes goodwill impairment of $16.0 million and All Other includes write-down of investment in direct financing lease of $24.5 million.

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Geographic Information

The following table presents geographic information for the Company. Revenues are attributed to countries based on location of customers.

	Revenues		Long-livedAssets
	(Dollars in Millions)
2006
United States	$	1,582.6	$	2,943.7
Canada		139.7		158.2
Other countries		149.5		238.9
Consolidated total	$	1,871.8	$	3,340.8
2005
United States	$	1,430.3	$	2,381.3
Canada		129.1		169.2
Other countries		102.3		224.0
Consolidated total	$	1,661.7	$	2,774.5
2004
United States	$	1,258.9	$	1,970.6
Canada		166.5		173.3
Other countries		100.9		218.5
Consolidated total	$	1,526.3	$	2,362.4
2003
United States	$	1,027.0	$	1,844.0
Canada		162.0		165.5
Other countries		89.0		203.7
Consolidated total	$	1,278.0	$	2,213.2
2002
United States	$	1,015.5	$	1,775.7
Canada		146.8		171.0
Other countries		96.1		209.4
Consolidated total	$	1,258.4	$	2,156.1

Major Customers

Revenues from any one customer did not exceed 10% of consolidated ~~or industry segment~~ revenues during the last three years.

Raw Materials

The Company purchases raw materials from a variety of suppliers, with no one supplier being ~~significant~~ material. In management’s opinion, the Company will have adequate availability of raw materials in the future.

Increased prices and reduced availability of steel and other metals have not had and are not expected to have a material impact on the Company’s activities. The Company’s exposure is mitigated via ashort-term ~~combination~~supply ~~of purchase~~ agreements, the ability to increase prices and the discretionary nature of railcar construction.

Foreign Operations

The Company does not believe that there are other than normal business risks attendant to its foreign operations.

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Competition

All activities of the Company compete with similar activities byof other companies.

Several competitors are in the business of leasing railcars in the United States and Canada. Principal competitors are GATX Corporation, General Electric Railcar Services Corporation, ~~and~~ ACF Industries, Incorporated, and Trinity Industries Leasing Company. 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~~reputation.

In the metals distribution business, the Company has numerous competitors, both large and small. The Company is one of the largest participants 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 railway tank cars and bulk plastic hopper cars is generally met with a combination of the industry’s existing fleet and new railcar additions. The industry’s generally high overall utilization of the railway tank car and bulk plastic covered hopper car fleets evidences an appropriate level and mix of equipment to meet existing railcar demands. New railcars are needed to satisfy growth, for 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 products of the metals distribution business is primarily related to the level of manufacturing and construction activity in the United States.

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.

Manufacturing Backlog

The Company builds railway tank cars primarily for use in its leasing business and the number of railcars added in any one year is a small percentage of the Company’s lease fleet. Additionally, for railway 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.

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Employees

As of December 31, ~~2004~~2006, the Company had approximately 5,~~200~~920 employees.

Environmental Matters

The Company’s ~~believes~~operations, ~~that~~as ~~all~~well as those of its ~~facilities~~competitors, are insubject ~~substantial~~to ~~compliance~~extensive ~~with~~federal, ~~applicable~~state ~~laws~~ and ~~regulations~~local ~~relating to~~ environmental ~~protection~~regulations. ~~Over~~These ~~the~~laws ~~past~~cover ~~several~~discharges ~~years,~~to ~~the~~waters; ~~Company~~air ~~has~~emissions; ~~attempted~~toxic tosubstances; ~~identify~~ and ~~remediate~~the ~~potential~~generation, ~~problem~~handling, ~~areas. In 2004~~storage, ~~the~~transportation ~~Company~~and ~~spent~~disposal ~~approximately~~of ~~$4.5~~waste ~~million on remediation~~ and ~~related~~hazardous ~~matters, compared with $3~~materials.0 ~~million~~Environmental ~~and~~risks ~~$2.5~~are ~~million~~inherent in ~~2003~~rail ~~and 2002~~operations, ~~respectively.~~which ~~The~~frequently ~~Company~~involve ~~expects~~transporting tochemicals ~~spend approximately~~and ~~$2.3~~other ~~million~~hazardous ~~in 2005 on similar activities~~materials.

The Company ~~has~~believes ~~been designated~~that asall aof ~~Potentially~~its ~~Responsible~~facilities ~~Party~~are ~~(“PRP”)~~in bysubstantial ~~the~~compliance ~~EPA~~with atapplicable ~~the~~laws ~~Calumet Containers site in Hammond, Indiana~~ and ~~the~~regulations ~~Lake~~relating ~~Calumet Cluster in Chicago, Illinois. Costs incurred~~ to ~~date~~environmental ~~have not been material, either individually or in the aggregate~~protection. ~~Because~~Over of the ~~nature~~past several ofyears, the Company’s ~~involvement~~has atattempted ~~these sites, management believes that future costs related~~ to ~~these~~identify ~~sites~~and ~~will~~remediate ~~not~~potential beproblem ~~material, either individually or in the aggregate~~areas. ~~The~~In ~~Company~~2006, ~~has not entered into any cost sharing arrangements with other PRP’s that make it reasonably possible~~ the Company ~~will~~spent ~~incur~~approximately ~~material~~$2.8 ~~costs~~million ~~beyond~~on ~~its~~remediation ~~pro~~and ~~rata~~related ~~share. Further~~matters, ~~management~~compared ~~does~~with ~~not~~$2.7 ~~believe~~million ~~that~~and ~~any~~$4.5 ~~problems~~million orin ~~uncertainties~~2005 asand ~~to the financial liabilities~~2004, ofrespectively. ~~other~~The ~~PRP’s make it reasonably possible the~~ Company ~~will~~expects ~~incur~~to ~~material~~spend ~~costs~~approximately ~~beyond its pro rata share at these sites~~$2.7 ~~The~~million ~~Company’s~~in ~~accruals~~2007 ~~for these sites are based~~ on ~~the~~similar ~~amount it reasonably expects to pay with respect to the sites~~activities.

Two subsidiaries of the Company, Enersul Inc. and Tiger Industries L.P., have been charged with six offences under Alberta’s Environmental Protection and Enhancement Act relating to an alleged discharge of sulphur dioxide from Tiger Industries’ plant in Calgary, Alberta, Canada, on January 18, 2005. The charges were initiated on January 5, 2007. A court date in the Alberta Provincial Court has not yet been set for any trial concerning the charges. The subsidiaries are subject to a fine for each offence. The subsidiaries are engaging in informal settlement negotiations with the Province of Alberta.

The Company has been designated as a Potentially Responsible Party (“PRP”) by the United States Environmental Protection Agency (“EPA”) at the USS Lead Site in East Chicago, Indiana, and the Lake Calumet Cluster Site in Chicago, Illinois. Costs incurred to date have not been material, either individually or in the aggregate. Because of the nature 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.

Available Information

The Company files annual reports, quarterly reports, current reports and other information with the Securities and Exchange Commission. Copies of such materials can be read, copied and obtained from the Public Reference Room of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. You can access the Company’s filings electronically by visiting the Securities and Exchange Commission’s website at http://www.sec.gov. In addition, the Company will provide copies of such filings free of charge upon request to Union Tank Car Company, Attention: Secretary, 225 West Washington Street, Suite 1900, Chicago, Illinois 60606.

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Available Information

The Company files annual reports, quarterly reports, current reports and other information with the Securities and Exchange Commission. Copies of such materials can be read, copied and obtained from the Public Reference Room of the Securities and Exchange Commission at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. You can access the Company’s filings electronically by visiting the Securities and Exchange Commission’s website at http://www.sec.gov. In addition, the Company will provide copies of such filings free of charge upon request to Union Tank Car Company, Attention: Secretary, 181 W. Madison Street, 26^th Floor, Chicago, Illinois 60602-4510.

ITEM 1A.

RISK FACTORS

The terms “we,” “our,” “ours,” “us” and “Company” refer to Union Tank Car Company, along with its wholly owned and majority-owned subsidiaries, unless the context otherwise requires.

The following risk factors could have a material adverse effect on our business, financial condition and results of operations, and should be read in conjunction with the factors discussed elsewhere in this filing and our other filings with the Securities and Exchange Commission and in materials incorporated by reference in these filings. These Risk Factors are intended to highlight factors that may affect our business, financial condition and results of operations and are not meant to be an exhaustive discussion of risks that may apply to companies like ours. Like other companies, we are susceptible to macroeconomic downturns in the United States or abroad and other factors beyond our control that may affect the general economic climate and our performance and the performance of our customers.

Our financial performance is directly dependent upon customer demand for our goods and services.

Our primary goods and services consist of leased railcars, leased intermodal tank containers, and metals products. Demand for these products is based on the market demand for the products of our customers and the strength and growth of the operations of our customers. Many of our customers operate in cyclical markets and therefore experience changes in demand over time. A significant decline in demand for any or all of the major categories of goods and services that we offer could adversely impact our financial performance.

We operate in a competitive environment and the pricing offered by our competitors or our inability to respond to changes in this environment may impact our profit margins and market share.

The competitive environment for our major businesses could change whereby margins are lowered as a result of the actions of competitors related to excessive supply, attempts to rapidly gain market share or other factors. Significant reductions in margins in our key markets could adversely impact our financial performance.

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We are subject to federal and state rules and regulations that are subject to change, and those changes could adversely affect our business and costs of operations.

We have a substantial investment in railway tank cars, plastic pellet hopper cars, intermodal tank containers and facilities. The construction and use of these assets is subject to the laws, rules and regulations of a number of governments and regulatory bodies. Changes to current laws, rules and regulations could occur which could result in significant expenditures to comply with such changes, or the economic or mandated obsolescence of a significant portion of our assets.

Shipping products by railcar may become obsolete or economically prohibitive.

In addition to changes in laws, rules and regulations that may make shipping products by railcar prohibitively expensive, we may be adversely impacted by rapid and major changes to the preferred method or mode of transportation of the products shipped by our customers. These changes could result in economic obsolescence of a significant portion of our assets.

Our leased assets could become obsolete.

The industries in which our customers operate are driven by dynamic market forces and trends, which are in turn influenced by international and national economic and political events and factors. Demand for our leased railcars and intermodal tank containers is impacted by changes to the markets and operating environment of our customers as well as changes in rules and regulations that govern the construction and operation of our equipment. As a result, significant changes in demand for our leased assets could occur in major industries we serve, including but not limited to anhydrous ammonia, chlorine, ethanol, liquefied petroleum gas, plastics, sulphur, sulphuric acid, and vinyl chloride monomers. Significant reduction in demand or changes in transportation modes or patterns for one or more of these or other products could result in economic obsolescence of a significant portion of our leased assets.

We may be unable to retain our key management personnel.

Our success is due in part to the experience, knowledge, ability and customer relationships of our key management personnel. Loss of some or all of our key managers could adversely impact the performance of our business.

We may be negatively impacted by acts of terrorism, war or political instability.

Demand for our products and services is dependent upon stable and functioning economies and markets. Terrorism, war or political instability, either domestic or international, could disrupt the activities of our customers or the Company on a short-term or long-term basis, reducing the demand for our products and services, and thus adversely affect our financial performance. Terrorism, war or political instability could also lead to changes to current laws, rules and regulations which could result in significant expenditures to comply with such changes, or the economic or mandated obsolescence of a significant portion of our assets.

- 9 -

Our business may be impacted by a change of control from or of our sole stockholder.

A change of control from or of our current owner, Holdings, could result in a change to a riskier business model or financial strategy. Changes such as pursuing faster, less profitable growth or a more highly leveraged capital structure could adversely affect our financial performance.

We may not have sufficient cash flow to pay our outstanding liabilities.

Our ability to fund these liabilities depends, among other things, upon the continued success of our operations consistent with historical performance levels and the market conditions impacting our major business areas. We cannot assure you that our business will continue to generate sufficient cash flow from operations to pay our obligations.

Our indebtedness could adversely impact our financial condition and business plans.

Our indebtedness could impact our ability to fund planned capital expenditures and other business expenses in our business plan. Our indebtedness may limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate. Our indebtedness may also limit our ability to borrow additional funds, place us at a competitive disadvantage to competitors that have less debt, or hinder our ability to grow our operations.

We may no longer have access to additional or cost effective capital resources.

Our continued growth and success is dependent upon ready access to capital at competitive rates. A change in the capital markets that limits our access to external financing could prevent us from investing in the growth of our leasing businesses, refinancing outstanding debt, purchasing lease fleet assets currently subject to leveraged leases, or constructing new facilities.

We may have our debt rating lowered by a rating service, which could substantially increase our cost of obtaining additional capital or trigger adverse requirements under our existing debt instruments.

Our access to debt financing at competitive rates is dependent upon favorable ratings from the major debt rating services (Moody’s Investors Services and Standard & Poor’s). A lower rating from one or both of these agencies could significantly increase the cost of obtaining new debt capital, thus adversely affect our financial performance. If our debt rating were to drop below investment grade (Baa-/BBB-), provisions of certain outstanding debt instruments would require us to purchase additional liability and property insurance on certain of our railcars, possibly at a higher cost.

We may not be able to obtain sufficient or cost effective insurance coverage.

We manage our exposure to liability risk in part by purchasing coverage for catastrophic liability occurrences. If the cost of obtaining such coverage rises significantly, our financial performance could be adversely affected. If the cost of such coverage becomes prohibitively expensive, we could be forced to reduce the amount of coverage, thus increasing our risk profile. One or more material adverse judgments or claims involving the Company or its industries may substantially increase our cost of renewing or obtaining future liability insurance coverage, in addition to increasing the amount of our deductibles.

- 10 -

We may be subject to an adverse legal judgment that may materially impact our assets, business, or expenses.

From time to time, we are involved in lawsuits whereby claimants attempt to establish our liability for events involving our assets or business operations. An adverse judgment in an amount that significantly exceeds our liability insurance would adversely impact our financial performance, and could increase our cost of obtaining future liability insurance.

Possible future acquisitions or business decisions may be unsuccessful.

We could undertake a major acquisition or make a business decision that may result in a higher risk profile, a more highly leveraged capital structure, or both. In addition, the acquisition could perform below expectations, thus adversely affect our financial performance.

Our inability to obtain materials and resources or an increase in the cost of obtaining materials and resources for our manufacturing operations may adversely affect our ability to effectively compete.

We manufacture a number of products, including railway tank cars for lease or sale and buy metal products for distribution. We also maintain a fleet of railcars. Significant shortages and/or rapidly changing prices for key raw materials and/or railcar components could adversely affect our financial performance.

Exposure to fluctuations in commodity and energy prices may impact our costs and results of operations.

Sustained high commodity or energy prices, including natural gas prices, could negatively impact the Company and activities of our customers resulting in a corresponding adverse effect on the demand for our products and services. In addition, sustained high prices for steel and other metals could result in higher manufacturing and maintenance costs, and higher cost of sales for our metals distribution business.

Our business is subject to increases in operating costs and inflation.

We incur significant costs for goods and services including, but not limited to, salaries and wages, fringe benefits including health care costs, supplies, utilities, maintenance and repair materials and services, freight, and property and ad valorem taxes. Significant increases in these costs could adversely impact our financial performance.

Compliance with environmental laws could adversely affect our results of operations and business.

We are subject to both federal and state requirements for protection of the environment. We routinely assess our environmental exposure, including obligations and commitments for remediation of contaminated sites and assessments of ranges and probabilities of recoveries from other responsible parties. Because of the regulatory complexities and risk of unidentified contaminants relating to our properties or operations, the potential exists for remediation costs to be materially different from the costs we have estimated. If the amount of our exposure to environmental costs materially exceeds the amount of our estimate, our financial performance could be adversely affected.

- 11 -

We are subject to and impacted by foreign exchange rate fluctuations.

We are exposed to foreign exchange rate fluctuations as the financial results of certain subsidiaries are translated from the local currency into U.S. dollars upon consolidation. As exchange rates vary, revenue and other operating results, when translated, may differ materially from expectations. In addition, fluctuations in foreign exchange rates can affect the demand and relative price for the services we provide domestically and internationally, and could have a negative impact on our financial performance.

Changes in domestic or international tax laws may negatively impact our business and results of operations.

We are subject to taxes in both the U.S. and various foreign jurisdictions. As a result, our effective tax rate could be adversely affected by changes in the mix of earnings in the U.S. and foreign countries with differing statutory tax rates, legislative changes impacting statutory tax rates, including the impact on recorded deferred tax assets and liabilities, changes in tax laws or by material audit assessments.

We are owned by a sole stockholder.

All of the stock of the Company is owned by Holdings. By maintaining majority ownership of our common stock, Holdings will continue to have the power to determine the persons constituting our directors and officers, and the outcome of various corporate actions requiring stockholder approval.

- 12 -

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

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 7595% of productive capacity for railcar manufacturing, 75% for railcar servicing and repair, 8075% for sulphur processing, 6575% for railcar moving vehicles manufacturing, 6065% for light rail transit product manufacturing, 7590% for containment vessel head manufacturing, and 9080% for gear drive manufacturing.

Railcars

The Company owns approximately 8493% of its total lease fleet of 8188,~~812~~527 railcars, of which 6673,~~893~~126 are tank cars and 1415,~~919~~401 are other ~~railway~~ railway freight cars. Of the approximately 6882,~~960~~077 owned railcars, 5873,~~130~~455 are free of liens. Railcars which are not owned are leased from others under long-term net leases.

Railcar Manufacturing and Assembling Facilities

~~Facilities~~The ~~for~~Company’s ~~the~~facilities for manufacturing and assembling of railcars are located atin Alexandria, Louisiana (which was completed in 2006), East Chicago, Indiana and Sheldon, Texas, together occupying about ~~172~~400 acres. ~~In 2004, the Company began construction of a railcar manufacturing facility in Alexandria, Louisiana, which will occupy 229 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; Ville Platte, Louisiana; Marion, Ohio; Altoona, Pennsylvania; Cleveland, Texas; Evanston, Wyoming; Edmonton, Alberta; Sarnia and Oakville, Ontario; Regina, Saskatchewan; and Celaya, Mexico. 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. There are 3438 warehouse and distribution centers from which products are distributed to customers.

Intermodal Tank Container Leasing

Subsidiaries of the Company maintain a fleet of approximately 2931,~~150~~600 owned/managed intermodal tank containers consisting 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,~~493~~556 drop frame tank chassis. Customer service is provided through offices, agents and depots located throughout the world. The Company owns approximately 7579% of ~~its~~the ~~intermodal~~units ~~tank~~in ~~container~~its ~~and drop frame tank chassis~~ fleet, of which approximately 4245% are free of liens.

~~Sulphur~~- ~~Processing~~13 -

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.

- 8 -

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.

Other Railway Equipment Facilities

A subsidiary of the Company owns a mobile railcar moving vehicle manufacturing facility in LaGrange, Georgia. Another subsidiary of the Company owns gear, wheels and axles manufacturing facilities in Johnstown and Blairsville, Pennsylvania and Twinsburg, Ohio.

Containment Vessel Head Manufacturing Facilities

A subsidiary of the Company owns a metal containment vessel head manufacturing facility in Sheldon, Texas.

Gear Drive Manufacturing Facilities

Subsidiaries of the Company own a gear drive manufacturing facility in Amarillo, Texas and a wind machine manufacturing facility in Exeter, California.

Other Properties

The Company and its subsidiaries maintain numerous other manufacturing facilities, sales and business offices, and warehouses, most of which are leased, throughout North America, Europe, and ~~Europe~~Asia.

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 “Business - —Environmental Matters”.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Not applicable.

ITEM 6.

SELECTED FINANCIAL DATA

	For the Year Ended December 31,
	2004			2003			2002			2001			2000
	2006			2005			2004			2003			2002
	(Dollars in Thousands)
Revenues
Services	$	~~747~~820,~~915~~236		$	~~718~~767,~~436~~590		$	~~691~~747,~~707~~915		$	~~708~~718,~~006~~436		$	~~673~~691,~~818~~707
Net sales		778,371			559,591			566,703			621,786			765,183
Sales		1,051,526			894,081			778,371			559,591			566,703
Net income		~~142~~197,~~646~~068			69201,~~754~~050			96142,~~749~~646			~~116~~69,~~651~~754			~~145~~96,~~967~~749
Ratio of earnings to fixed charges		3.2577	x		23.1336	x		23.4825	x		2.6513	x		32.2648	x
At year end:
Total assets	$	34,~~277~~107,~~817~~571		$	23,~~950~~621,~~966~~080		$	23,~~936~~277,~~583~~817		$	32,~~031~~950,~~507~~966		$	2,~~943~~936,~~775~~583
Long-term obligations		1,~~133~~137,~~104~~586			~~867~~1,~~238~~353,647			~~961~~1,~~199~~133,104			1867,~~045,828~~238			1961,~~035,408~~199

Significant items in net income during 2003 included goodwill impairment of ($(10,865) after taxes, write-down of investment in direct financing lease of ($(15,714) after taxes, adjustment to prior years’ taxes of $19,000 and deferred tax liability adjustment on foreign income previously considered permanently reinvested of ($(5,500).

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained in this annual report on Form 10-K for the year ended December 31, 2006 may include certain forward-looking ~~information~~ statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including (without limitation) statements with respect to anticipated future operating and financial performance, growth and acquisition opportunities and other similar forecasts and statements of expectation. Words such as “expects”, “anticipates”, “intends”, “plans”, “~~will”, “~~believes”, “seeks”, “estimates”, and “should” and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements made by the Company and its management are based on estimates, projections, beliefs and assumptions of management at the time of such statements and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Company and its management as a result of a number of risks, uncertainties and assumptions. In addition, certain factors, including risk factors identified in “Item 1A—Risk Factors” of this document, may affect the Company’s businesses. As a result, past financial results may not be a reliable indicator of future performance.

- 1015 -

assumptions. Representative examples of these factors include (without limitation) general industry and economic conditions, unanticipated changes in the markets served by the Company (such as the railcar leasing, service and sales, intermodal tank container leasing and metal products distribution industries), acts of terrorism, interest rate trends, cost of capital requirements, competition from other companies, changes in operating expenses, governmental and public policy changes, changes in applicable laws, rules and regulations (including changes in tax laws).

Executive Overview

The ~~core business activity of the~~ Company isoperates ~~full~~its ~~service~~largest ~~leasing~~businesses ~~of railway tank cars~~ in ~~North~~three ~~America. Key characteristics of the Company’s core business are~~segments: ~~(a) consistent and predictable cash flows~~Railcar, ~~(b)~~Metals ~~a strong and creditworthy customer base~~Distribution, ~~(c) multi-year leases that tend to bridge the Company over cyclical downturns, (d) long-lived revenue earning assets,~~ and ~~(e) diversification~~Intermodal ~~across~~Tank ~~railway~~Container ~~tank car types, customers within the industrial sectors served, and geographically across North America~~Leasing.

~~The major challenges in the business are: (a) competition from several strong and experienced competitors, and (b) continuing to provide the level of consistent, high~~Railcar ~~quality product and value-added service necessary to distinguish the Company’s products and services from the competition.~~

The primary business activity of the Railcar segment is full service leasing of railway tank cars in North America. Key characteristics of the Railcar leasing business are: (a) consistent and predictable cash flows, (b) a strong and creditworthy customer base, (c) multi-year leases that tend to bridge the Company over cyclical downturns, (d) long-lived revenue earning assets, and (e) diversification across railway tank car types, customers within the industrial sectors served, and geographically across North America.

The major challenges in the business are: (a) competition from several strong and experienced competitors and (b) continuing to provide the level of consistent, high quality product and value-added service necessary to distinguish the Company’s products and services from those of its competitors.

The key indicators of performance are revenue growth, lease fleet growth, lease fleet utilization, and profitability.

The most significant opportunities in the business are: (a) general growth in the economy, which relies on the bulk movement of chemicals, petrochemicals, foods and other liquid and gas products, and (b) displacing railway tank cars owned or net leased by shippers with equipment provided through full service leases.

Significant external factors that contribute to the long -term financial performance of full service railway tank car lessors are inflation and interest rates. New railcar lease rental rates, which are largely determined by equipment cost, operating costs, ~~and~~ interest rates, and competitive factors, influence lease rental rates (upon renewal or leasing to a different customer) on the existing lease fleet.

~~Risk~~The ~~factors~~Company inalso ~~the~~manufactures ~~business of~~tank ~~full~~cars, ~~service~~primarily ~~leasing~~for ofits ~~railway~~own ~~tank~~fleet. ~~cars~~Increased ~~include,~~prices ~~but~~and reduced availability of steel and other metals are not ~~limited~~ expected to, ~~general~~have ~~economic~~a ~~cycles,~~material ~~competitive~~impact ~~pricing,~~on ~~regulatory~~the ~~change,~~Company’s ~~asset~~activities. ~~obsolescence,~~The ~~legal~~Company’s ~~matters~~exposure is mitigated via a combination of purchase agreements, ~~environmental~~the ~~matters~~ability to increase prices, and ~~changes~~the indiscretionary ~~federal~~nature ~~tax~~of ~~policy~~railcar construction.

~~Increased~~Metals ~~prices~~Distribution and reduced availability of steel and other metals are not expected to have a material impact on the Company’s activities. The Company’s exposure is mitigated via a combination of purchase agreements, the ability to increase prices, and the discretionary nature of railcar construction.

-Subsidiaries 11comprising the Metals Distribution segment 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 and sheets, rolled form shapes and other raw materials. Key characteristics of the Metals Distribution business are: (a) niche, specialty, or value-added products relative to more generic steel distribution businesses and (b) diversification across customers within the industrial sectors served, and geographically across the U.S.

The major challenges in the business are: (a) competition from strong and experienced competitors, (b) providing the optimal level and mix of product inventory in the right locations, and (c) continuing to provide the level of consistent, high quality product and value-added service necessary to distinguish the Company’s products and services from those of its competitors.

- 16 -

~~2004~~The ~~versus~~key ~~2003~~indicators of performance are revenue growth and profit margins.

The most significant opportunities in the business are: (a) general growth in the manufacturing sector of the economy, (b) increasing business with existing customers, (c) increasing market share by delivering a high level of value-added services at competitive prices, and (d) aquisitions.

Significant external factors that contribute to the long-term financial performance of metal distributors are the level of manufacturing in U.S. and reliable sources of an adequate supply of metals at reasonable costs.

Increased prices of steel and other metals are not expected to have a material impact on the Company’s activities as the Company is generally able to pass on price increases to its customers. Occasional reduced availability of metals is not expected to have a material impact because the Company, as a major purchaser of metals, is able to negotiate reasonable and adequate supply arrangements.

Intermodal Tank Container Leasing

The Intermodal Tank Container Leasing segment is a full service lessor of intermodal tank containers to a worldwide customer base. Key characteristics of this business are: (a) consistent and predictable cash flows, (b) a strong and creditworthy customer base, (c) multi-year leases and/or renewal patterns that tend to bridge the business over cyclical downturns, (d) long-lived revenue earning assets, and (e) diversification across intermodal tank container types, customers within the markets served, and geographically around the industrialized world.

The major challenges in the business are: (a) competition from strong and experienced competitors and (b) continuing to provide the level of consistent, high quality product and value-added service necessary to distinguish the Company’s products and services from those of its competitors.

The key indicators of performance are revenue growth, lease fleet growth, lease fleet utilization, and profitability.

The most significant opportunities in the business are: (a) general growth in the worldwide economy and in world trade, which relies on the bulk movement of chemicals, foods and other liquid and gas products and (b) displacing competitive modes of transport for these products, such as barrels and parcel tanker ships.

Significant external factors that contribute to the long-term financial performance of full service intermodal tank container lessors are inflation and interest rates. New intermodal tank container lease rental rates, which are largely determined by equipment cost, operating costs and interest rates, influence lease rental rates (upon renewal or leasing to a different customer) on the existing lease fleet.

- 17 -

2006 versus 2005

Results of Operations

Performance of the ~~railcar~~equipment leasing ~~business~~businesses improved in all major markets. Demand for ~~existing~~ railcar equipment ~~improved~~and leased intermodal tank containers remained strong, resulting in ~~higher~~ fleet ~~utilization~~growth, ~~and~~ improved lease rental rates., ~~Demand~~and ~~for~~continued ~~leased intermodal~~high ~~tank~~fleet ~~containers~~utilization. ~~increased,~~Revenues ~~resulting~~and ingross ~~fleet~~profit ~~growth~~from ~~and~~services ~~higher~~were ~~utilization.~~as follows:

Revenues and gross profit from services were as follows:


	2006			2005			Increase
	(Dollars in Thousands)
Services revenue	$	820,236		$	767,590		$	52,646
Cost of services		451,542			448,776			2,766

Gross profit from services	$	368,694		$	318,814		$	49,880
Gross profit %		45	%		42	%

	2004		2003		Increase(Decrease)
	(Dollars in Thousands)
Services revenue	$	747,915	$	718,436	$	29,479
Cost of services		465,219		467,157		(1,938	)
Gross profit from services	$	282,696	$	251,279	$	31,417

Services revenue in 2006 increased from 2005 primarily due to a $36.3 million increase in railcar leasing and service revenues (equipment additions and higher lease rates), a $9.1 million increase in intermodal tank container leasing revenues (equipment additions, improved utilization rate and higher lease rates), and $7.2 million higher revenue in the contract rail switching business (higher volume).

~~Services~~Gross profit on services revenue in ~~2004~~2006 increased from ~~2003~~2005 primarily due to a $1039.15 million increase for inrailcar ~~intermodal~~leasing ~~tank~~(increased ~~container~~gains ~~leasing~~on ~~revenue~~disposals, ~~(improved~~equipment ~~utilization~~additions and higher lease rates ~~and~~more ~~equipment~~than ~~additions~~offsetting higher maintenance expense), a $98.78 million increase infor ~~revenues~~the ~~related~~intermodal totank ~~sulphur~~container ~~processing~~leasing business (equipment additions, higher utilization ~~volume~~rate and higher lease rates), and a $71.6 8 million increase infor ~~railcar~~the ~~leasing~~contract ~~and~~rail ~~services~~switching ~~revenue~~business (~~improved~~higher ~~utilization rates and equipment additions~~volume).

~~Gross~~Gains ~~profit~~ on ~~services~~disposals, primarily ~~revenue~~on inrail ~~2004~~cars ~~increased~~and ~~from~~tank ~~2003~~containers, ~~primarily~~totaled ~~due to a~~ $2421.12 million ~~improvement~~ in ~~railcar~~2006 ~~leasing~~compared ~~(improved~~with ~~utilization rates, higher gains on disposals, and equipment additions), a~~ $510.4 million ~~increase~~ in ~~intermodal~~2005, ~~tank container leasing business (improved utilization rates~~ and ~~equipment~~are ~~additions)~~treated ~~and~~as a ~~$2.5~~reduction ~~million increase related~~ to ~~sulphur~~the ~~processing~~cost ~~(higher~~of ~~volume)~~services.

~~Average~~The ~~fleet~~improvement ~~utilization~~in ofgross ~~the~~margin ~~Company’s~~on ~~railcar~~services ~~fleet~~revenue ~~was~~from 9642% ~~for~~to ~~2004, compared with 93~~45% ~~for~~was ~~2003.~~primarily ~~Utilization~~due 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~~margin ~~such~~improvement ~~demand. The potential impact of short-term fluctuations~~ in ~~demand is tempered by~~ the ~~longer-term~~railcar ~~nature~~leasing ~~of the leases. Over the past five years, the average term of leases entered into for newly manufactured railcars was approximately seven years,~~ and ~~the~~intermodal ~~average~~tank ~~term~~container ofleasing ~~leases entered into for used railcars was approximately four years~~businesses. The average term of leases entered into during 2004 for newly manufactured railcars was approximately six years, and the average term of leases entered into for used railcars was approximately four years.

Average fleet utilization of the Company’s railcar fleet was 99% for 2006 and 2005. Utilization rates of the Company’s existing railcars are driven by long-term 12requirements 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. Over the past five years, the average term of leases entered into for newly manufactured railcars was approximately seven years, and the average term of leases entered into for used railcars was approximately four years. The average term of leases entered into during 2006 was consistent with the past five years.

- 18 -

~~Sales~~Demand ~~revenue~~ increased ~~primarily~~for ~~due~~products toof ~~increased~~the ~~demand~~metals distribution business and for ~~products~~railcars, ofwith ~~the~~margin improvement driven by higher metals distribution ~~business~~volume and prices. Revenues and gross profit from sales were as follows:

Revenues and gross profit from sales were as follows:


	2006			2005			Increase
	(Dollars in Thousands)
Sales revenue	$	1,051,526		$	894,081		$	157,445
Cost of sales		883,056			744,366			138,690

Gross profit from sales	$	168,470		$	149,715		$	18,755
Gross profit %		16	%		17	%

	2004		2003		Increase(Decrease)
	(Dollars in Thousands)
Net sales	$	778,371	$	559,591	$	218,780
Cost of sales		642,813		467,883		174,930
Gross profit from sales	$	135,558	$	91,708	$	43,850

Sales revenue for 2006 increased from 2005 primarily due to $90.2 million higher sales of metals distribution products (higher volume and prices), a $31.1 million increase in sales of sulphur processing equipment (completion of a large project), $27.5 million increased sales of manufactured railcars (higher volume and prices), $6.4 million higher sales of mobile railcar moving equipment (higher volume), $4.0 million higher sales of gear drives (higher volume) and $2.3 million higher sales of light rail transit products (higher volume). These increases were partially offset by $4.7 million lower sales of sulphur-based fertilizer (business sold in April 2005).

~~Sales~~Gross profit on sales revenue ~~for~~in ~~2004~~2006 increased from ~~2003~~ 2005 primarily due to a $~~191~~13.68 million increase ~~higher~~for ~~sales of~~ metals distribution products (higher volume and prices), ~~$8.6~~more ~~million~~than offsetting higher ~~sales~~cost of ~~gear drives (higher demand~~sales), a $74.1 million ~~higher~~increase ~~sales~~in of sulphur processing equipment (~~timing~~completion of a large project), a $1.3 million increase for light rail transit ~~completion~~products (higher volume) and a $51.82 million increase infor ~~sales~~mobile ofrailcar ~~metal~~moving equipment (higher volume). These increases were partially offset by a $2.0 million decrease for containment vessel heads (higher material costs) and a $0.6 million decrease for manufactured railcars (higher material costs offsetting higher volume and higher prices).

~~Gross~~The ~~profit~~decline in gross margin on sales inrevenues ~~2004~~from 17% ~~improved~~to ~~from~~16% ~~2003,~~was primarily due to athe ~~$30.2 million~~ increase ~~for~~in ~~metals~~sales ~~distribution~~of ~~products (higher volume and prices), a $3.7 million increase for metal containment vessel heads (higher volume and prices), a $3.6 million improvement for~~ the ~~gear drive business (higher volume), a $2.7 million increase for~~ sulphur processing equipment ~~(timing~~which ofhad ~~project completion), and~~ a ~~$1.7 million improvement from sales of railcars (higher prices and~~ lower ~~unit~~margin ~~costs~~than ~~from~~the ~~increased~~overall ~~production~~gross ~~volume~~margin ~~partially~~on ~~offset~~sales ~~by higher material costs)~~revenue.

~~Interest~~General ~~income~~and administrative expenses in ~~2004~~2006 ~~was~~were $2.37 million ~~higher~~lower than in ~~2003~~2005 primarily due to $4.5 million lower expenses in the railcar business (primarily higher ~~interest~~product ~~rates~~liability expense in 2005), and ~~higher~~$1.0 ~~average~~million ~~balances~~lower ~~including~~expenses ~~available~~in the sulphur-~~for-sale~~based ~~securities~~fertilizer business (sold in April 2005) partially offset by $1.5 million higher expense in the metals distribution business (higher selling expense due to higher volume) and $1.0 million higher expense in the sulphur processing business (increased volume).

~~Other~~Interest ~~income~~expense in ~~2004~~2006 was $9.7.9 million higher than in ~~2003~~2005 ~~primarily~~ due to ~~$6.2~~ ~~million~~interest ~~income~~on advances from ~~the~~parent ~~receipt~~and affiliates and ~~disposal~~the full year of ~~certain~~interest ~~financial~~expense ~~assets~~ related to ~~settlement~~a new financing in 2005 more than offsetting lower interest expense from principal repayments of adebt ~~bankruptcy~~and ~~claim~~capitalized ~~against~~interest ~~Air~~of ~~Canada~~$3.8 ~~See~~million in 2006. Interest rates and debt are discussed in Note 510 of the Notes to Consolidated Financial Statements.

~~General~~Provision ~~& Administrative expense~~ for ~~2004~~income ~~increased~~taxes bywas $9114.26 million ~~over~~in ~~2003~~2006 ~~primarily~~with an effective tax rate of 35.8%, compared with $56.4 ~~due~~million toin ~~increased~~2005 ~~business~~with ~~activity~~an effective tax rate of 21.4%. The lower effective tax rate in 2005 was the ~~railcar~~result ~~and~~of ~~metals~~settling ~~distribution~~federal ~~businesses~~tax issues with the Internal Revenue Service. Income taxes are discussed in Note 5 of the Notes to Consolidated Financial Statements.

~~Interest~~- ~~expense~~19 in- 2004 was $3.0 million higher than in 2003 due to the interest expense related to new financing in 2004 more than offsetting lower interest expense from principal repayments of debt. Interest rates and borrowed debt are discussed in Note 7 of the Notes to Consolidated Financial Statements.

Provision for income taxes was $81.8 million in 2004 with an effective tax rate of 36.4%, compared with $39.0 million in 2003 with an effective tax rate of 35.8%. Income taxes are discussed in Note 8 of the Notes to Consolidated Financial Statements.

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Financial Condition and Liquidity

~~Operating~~The ~~activities~~funds ~~provided~~advanced ~~$283.0~~from ~~million~~parent ofand ~~cash in 2004~~affiliates, ~~compared with $311.2 million in 2003. The~~ net cash provided by operating activities, ~~was~~and ~~lower~~funds infrom ~~2004~~the ~~primarily~~liquidation ~~due~~of toshort-term ~~higher~~investments ~~inventories (increased production~~ and ~~distribution~~available-for-sale ~~activity)~~securities ~~and~~were ~~higher~~used ~~accounts~~to ~~receivable~~finance ~~(increased~~additions ~~revenue),~~to the ~~partially~~lease ~~offset~~fleet byand ~~the~~other ~~increase~~fixed inassets, ~~net~~pay ~~income~~dividends ~~and~~to ~~higher~~the ~~accounts~~Company’s ~~payable (increased~~stockholder, ~~production~~ and ~~distribution~~service ~~activity)~~debt obligations.

~~The~~It ~~net~~is ~~cash~~the ~~provided~~Company’s bypolicy to ~~operating~~pay ~~activities,~~to ~~along~~Holdings ~~with~~a ~~proceeds~~quarterly ~~from~~dividend of approximately 70% of net income. To the ~~issuance~~extent that the Company generates cash in excess of ~~borrowed~~its ~~debt~~operating needs, ~~collection~~such funds, in excess of ~~funds~~the ~~previously~~amounts paid as dividends, are advanced to ~~parent~~Holdings. Conversely, when ~~and~~the ~~redemption~~Company ofrequires ~~short-term~~additional ~~investments~~funds to support its operations and capital expenditures, ~~were~~required ~~used~~amounts are provided by Holdings. Funds advanced to ~~finance~~or ~~lease~~from ~~fleet~~Holdings ~~additions,~~bear ~~invest~~interest inat ~~available-for-sale~~commercial rates. No restrictions exist regarding the ~~securities,~~amount ~~pay~~of dividends towhich ~~the~~may ~~Company’s~~be ~~stockholder,~~paid ~~and~~or ~~service~~advances ~~borrowed~~which ~~debt~~may ~~obligations~~be made by the Company to Holdings.

ItCash isflows ~~the~~from ~~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,~~activities: such funds, in excess of the amounts paid as dividends, are advanced to its parent and bear interest at commercial rates. Conversely, when the Company requires additional funds to support its operations, prior advances are repaid by its parent. No restrictions exist regarding the amount of dividends which may be paid or advances which may be made by the Company to its parent.

InOperating ~~2004,~~activities ~~the~~provided ~~Company invested~~ $~~245~~327.54 million inof ~~available-for-sale~~net ~~securities.~~cash ~~The~~in ~~securities~~2006, ~~are~~compared ~~investment-grade~~with ~~debt~~$338.2 ~~obligations~~million ~~with~~provided ain ~~combined~~2005. ~~weighted-average~~The ~~maturity~~net ~~under~~cash ~~two~~provided ~~years.~~by ~~The~~operating ~~investments~~activities ~~are~~was ~~available~~lower ~~for~~in ~~the~~2006 ~~Company’s~~primarily ~~use~~due to ~~fund~~changes ~~repayment~~in ofoperating ~~principal~~assets ~~obligations~~and liabilities, ~~finance~~partially ~~lease~~offset ~~fleet~~by ~~additions~~higher ~~(including~~depreciation ~~the~~and ~~exercise~~deferred oftaxes ~~leveraged~~(see ~~lease~~Note ~~purchase~~16 ~~options),~~of orthe ~~fund~~Notes ~~other~~to ~~operating~~Consolidated ~~needs~~Financial Statements).

InCash ~~2004,~~flows the Company spent $331.4 million for construction and purchase of lease fleet and other fixed assets, compared with $246.2 million in 2003. The increase in capital expenditures is primarily due to increased demand from ~~leasing~~investing ~~customers~~activities: for new railway tank cars and intermodal tank containers. Of the capital expenditures for construction and purchase of lease fleet and other fixed assets over the past five years, approximately 74% have been for railcars. Since capital expenditures for railcars are generally incurred subsequent to receipt of firm customer lease orders, such expenditures are discretionary to the Company based on its desire to enter into those lease orders. Capital expenditures for intermodal tank containers are likewise discretionary in the intermodal tank container business.

~~Proceeds~~Net ~~from~~cash ~~disposals~~used ofin ~~lease~~investing activities ~~fleet~~was ~~and other fixed assets were~~ $31554.13 million in ~~2004~~ 2006 compared with $32419.43 million used in ~~2003~~investing activities in 2005. The ~~lower~~change ~~proceeds~~ in ~~2004~~net ~~were~~cash ~~due~~used toin ~~fewer~~investing ~~railcars~~activities ~~sold~~was ~~partially~~primarily ~~offset~~due byto higher ~~prices~~capital ~~obtained~~spending for ~~railcars~~construction ~~sold~~and ~~for~~the ~~scrap~~purchase of lease fleet.

~~Net~~During ~~cash~~2006, ~~used~~the Company invested $711.5 million in ~~investing~~the ~~activities~~construction ~~was~~and purchase of lease fleet assets, compared with $~~367~~510.37 million in ~~2004~~2005. The 2006 capital expenditures included $229.3 million to exercise purchase options for railcars related to sale-leaseback transactions (compared with $~~192~~76.80 million in ~~2003~~2005). Of the $229.3 million for the railcars related to the sale-leaseback transactions, $63.9 million was paid in the first quarter of 2006, $25.0 million was paid in the second quarter of 2006, $108.1 million was paid in the third quarter of 2006 and the remaining $32.3 million was paid in the fourth quarter of 2006.

InSince ~~June~~capital ~~2004,~~expenditures ~~the~~for ~~Company~~railcars ~~issued~~are ~~$300.0~~generally ~~million~~incurred ofsubsequent ~~unsecured~~to ~~senior~~receipt ~~notes.~~of ~~During~~firm ~~2004~~customer lease orders, ~~the Company’s~~such ~~financing~~expenditures ~~activities~~are ~~included~~discretionary to the ~~use~~Company ofbased ~~$78.4 million for principal repayments~~ on ~~borrowed~~its ~~debt~~desire ~~compared~~to ~~with~~accept ~~$62.5~~those ~~million~~lease ~~in 2003~~orders. ~~Cash~~Capital ~~dividends~~expenditures ~~were~~for ~~$99.0~~intermodal ~~million~~tank incontainers ~~2004~~are ~~compared~~likewise ~~with~~discretionary ~~$48.0 million~~ in ~~2003.~~the ~~Net~~intermodal ~~cash~~tank ~~provided~~container ~~by financing activities in 2004 was $122~~business.6 ~~million compared with $110.4 million used in 2003.~~

-During 142006, -the Company invested $57.4 million in the construction and purchase of other fixed assets, compared with $71.2 million in 2005. Capital spending for the construction of a new tank car manufacturing plant in Alexandria, Louisiana from inception through December 31, 2006 totaled $100.8 million, of which $31.6 million has been reimbursed by state and local governments. The Alexandria plant is complete and in operation. Further reimbursement of capital spending by state and local governments is expected to total approximately $0.4 million.

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OnDuring ~~September 30~~2006, ~~2004,~~ the Company ~~exercised~~received ~~options~~a tonet ~~purchase~~amount ~~approximately~~of ~~1,824~~$178.7 ~~railcars~~million ~~that~~from the ~~Company~~sales ~~has~~in ~~leased since~~excess ~~1994~~of aspurchases ~~part~~ of available-for-sale ~~certain~~securities ~~sale~~and short-~~leaseback~~term ~~transactions~~investments. ~~See~~During ~~Note~~2005, 6the toCompany ~~the~~expended ~~Financial~~a ~~Statements~~net ~~contained~~amount inof ~~the~~$21.8 ~~Company’s~~million ~~Annual~~for ~~Report~~purchases onin ~~Form~~excess ~~10-K~~of ~~for~~sales ~~the~~of ~~year~~available-for-sale ~~ended~~securities ~~December~~and ~~31,~~short-term ~~1994~~investments. The ~~aggregate~~available-for-sale ~~purchase~~securities are ~~price~~investment-grade ~~payable~~debt byobligations ~~the~~with ~~Company for~~a ~~these~~combined ~~railcars~~weighted-average ismaturity ~~approximately~~under ~~$76~~two years.0 ~~million,~~The ofshort-term ~~which~~investments ~~approximately~~consist ~~$42.4~~of ~~million~~commercial ~~was~~paper ~~paid~~with onoriginal ~~January~~maturities 2,between ~~2005~~four and ~~the~~six ~~remaining approximately $33~~months.6 ~~million~~These isinvestments ~~payable~~are inavailable ~~four~~for ~~installments ending in December 2005. The~~ the Company’s ~~purchase~~use ~~of these~~to ~~railcars~~fund ~~was~~repayment ~~consummated~~of onprincipal ~~January 2~~obligations, ~~2005,~~finance atlease ~~which~~fleet ~~time~~additions (including the ~~purchased~~exercise ~~railcars~~of ~~ceased~~sale-leaseback topurchase beoptions), ~~subject~~or tofund ~~the~~other operating ~~leases~~needs.

~~Management~~Proceeds ~~expects~~from ~~that~~disposals ~~future cash to be provided by operating activities, long-term financings, and collection~~ of ~~funds~~lease ~~previously~~fleet ~~advanced to parent will be adequate to provide for continued expansion of the Company’s business~~ and ~~enable~~other itfixed toassets ~~meet~~were ~~its debt service obligations~~$37.6 ~~The~~million ~~Company~~in ~~may~~2006 ~~undertake~~compared ~~long-term~~with ~~financing~~$22.0 million in 2005.

~~Approximately~~Cash ~~16%~~flows offrom ~~Company-owned~~financing ~~railcars~~activities: ~~are pledged to secure equipment obligations and secured notes. The remaining railcars are free of liens.~~

~~The~~Net ~~following~~cash ~~table~~provided ~~presents~~by ~~the~~financing ~~scheduled~~activities ~~cash~~was ~~inflows~~$242.9 ~~and~~million ~~outflows~~in 2006 compared with $131.5 million in ~~for~~2005. ~~the~~The ~~railcar~~change ~~leasing~~in ~~business~~net ~~over~~cash ~~the~~from ~~next~~financing ~~five~~activities ~~years~~was ~~based~~primarily ondue ~~leases~~to ~~and~~the ~~railcar-related~~increased ~~indebtedness~~advances ~~outstanding~~from asparent ofand ~~December~~affiliates ~~31,~~in ~~2004:~~2006.

	2005		2006		2007			2008			2009
	(Dollars in Millions)
Railcar Leasing Cash Inflows
Minimum future lease rentals	$	417.3	$	319.2	$	239.1		$	165.8		$	102.4
Railcar Leasing Cash Outflows
Minimum future lease payments		74.5		81.8		70.4			68.9			65.5
Principal and interest amount of obligations		89.4		142.1		257.1			136.0			223.9
Excess (Deficit) of inflows over outflows	$	253.4	$	95.3	$	(88.4	)	$	(39.1	)	$	(187.0	)

During 2006, the Company’s financing activities included principal repayments on debt totaling $85.1 million compared with $40.6 million in 2005. Cash dividends to Holdings were $137.0 million in 2006 compared with $140.0 million in 2005.

~~Minimum~~Management expects future ~~lease~~cash ~~rentals~~provided ~~above relate~~from tooperating ~~railcar~~activities, ~~leases~~long-term infinancings, ~~effect~~available-for-sale ~~at December 31~~securities, ~~2004.~~and ~~Based~~advances ~~upon~~from ~~its~~parent ~~historical~~and ~~experience,~~affiliates ~~the~~will ~~Company~~be adequate ~~expects~~to ~~that~~provide for the ~~railcars~~continued ~~(other~~investment ~~than those which are retired~~ in the ~~ordinary~~Company’s ~~course of~~ business) ~~will~~and beenable ~~re-leased~~it atto ~~the~~meet ~~expiration~~its ofdebt ~~such leases.~~service ~~The rentals under such future leases cannot be ascertained and are not reflected above~~obligations.

Approximately 11% of Company-owned railcars are pledged to secure equipment obligations and secured notes. The remaining Company-owned railcars are free of liens.

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, 2006:


	2007		2008		2009		2010			2011
Railcar Leasing Cash Inflows
Minimum future lease rentals	$	479.6	$	383.7	$	296.5	$	213.9		$	127.8

Railcar Leasing Cash Outflows
Minimum future lease payments		42.4		40.1		37.2		39.6			42.6
Principal and interest amount of obligations		271.8		150.7		238.5		198.8			92.7

Excess (deficit) of inflows over outflows	$	165.4	$	192.9	$	20.8	$	(24.5	)	$	(7.5	)

Minimum future lease rentals above relate to railcar leases in effect at December 31, 2006. 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.

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In addition, maturities of debt obligations and interest payments for the intermodal tank container leasing business over the next five years are as follows (dollars in millions):

2005	2006		2007		2008	2009
2007	2008			2009		2010		2011
$22.6	$~~23.7~~	22.5	~~$22.6~~	$	~~$22~~21.54	$~~21.4~~	17.2	$	15.3

The Company has not experienced any significant impact from general inflation on its financial position or results of operations over the last several years.

The Company’s foreign subsidiaries periodically enter into foreign currency forward contracts to hedge against currency exchange rate exposures. There were no foreign currency forward contracts outstanding at December 31, ~~2004~~2006 and ~~2003~~2005.

- 15 -

Contractual Obligations

At December 31, ~~2004~~2006, contractual obligations of the Company are as follows:

	Payments Due by Period
Contractual Obligations	Total		Less than1 year		1 – 3years		3 – 5years		~~Morethan~~More ~~5years~~than5 years
	(Dollars in Millions)
Long-term Debt Obligations	$	1,591.4	$	112.0	$	445.5	$	403.9	$	630.0
Long-term debt obligations (inclusive of interest)	$	1,753.6	$	294.6	$	433.5	$	324.5	$	701.0
Operating Leases		659.6		78.1		156.7		137.1		287.7
Operating leases		363.5		45.4		82.1		84.4		151.6
Purchase Obligations		94.7		94.7		—		—		—
Purchase obligations		29.7		27.6		2.1		—		—
Total contractual obligations	$	2,~~345~~146.78	$	~~284~~367.86	$	~~602~~517.27	$	~~541~~408.09	$	~~917~~852.76

Off-Balance Sheet Arrangements

The Company currently has no “off-balance sheet arrangements” that would be required to be disclosed pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934, as amended.

Critical Accounting Policies

Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements requires the Company to make estimates and ~~judgements~~judgments that affect reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, the Company evaluates its estimates and ~~judgements~~judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The Company annually reviews its financial reporting and disclosure practices and accounting policies to ensure that its financial reporting and disclosures provide accurate and transparent information relative to the current economic and business environment. The Company believes that, of its significant accounting policies (see “Summary of Accounting Principles and Practices” more fully described in Note 2 inof ~~Item~~the 8Notes to Consolidated Financial Statements), the following policies involve a higher degree of ~~judgement~~ judgment and/or complexity.

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Revenue Recognition

Revenue from sales of products is generally recognized upon shipment to customers which is when title and the risks and rewards of ownership are passed on to the customers. Such revenue is based upon determinable sales prices and is recognized only upon collectibility being reasonably assured. Certain long-term contracts are accounted for under the completed contract method when the Company is unable to reasonably forecast costs and the time required to complete those contracts.

Lessor Accounting

Most of the Company’s railcar and intermodal tank container leases are classified as operating leases. Aggregate rentals from operating leases are reported as revenue ratably over the life of the lease as collectibility is reasonably assured. Expenses, including depreciation and maintenance, are charged as incurred.

Foreign Currency Translation

Foreign currency translation adjustments and transaction gains and losses are borne by Holdings.

Income Taxes

The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The Company records accruals for the estimated outcomes of these audits, and the accruals may change in the future due to new developments in each matter.

Available-for-Sale Securities

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

Accounts Receivable and Allowance for Doubtful Accounts

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

Inventories

Inventories are valued at the lower of cost or market, using the first-in, first-out (“FIFO”) or last-in, first-out (“LIFO”) methods.

- 23 -

Property and Equipment

Property and equipment are depreciated or amortized over their useful lives based on management’s estimates of the period over which the assets will generate revenue. The Company periodically reviews these lives relative to physical factors, economic factors and industry trends.

Asset Impairment

In assessing recoverability of the Company’s long-lived assets, the Company considers changes in economic conditions and makes assumptions regarding estimated future cash flows and other factors. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges.

- 16 -

Income Taxes

New Accounting Pronouncements

In ~~November~~ ~~2004~~February 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Statement ~~of Financial Accounting Standard (SFAS)~~ No. ~~151~~ 159, “~~Inventory~~The ~~Costs~~Fair –Value AnOption ~~Amendment~~for ofFinancial ~~Accounting~~Assets ~~Research~~and ~~Bulletin~~Financial NoLiabilities. ~~43, Chapter 4~~”. ~~SFAS~~This ~~151~~statement ~~clarifies that~~permits ~~abnormal~~entities ~~amounts~~to ofchoose ~~idle~~to ~~facility~~measure ~~expense,~~many ~~freight,~~financial ~~handling~~instruments ~~costs~~ and ~~spoilage~~certain ~~should~~other beitems ~~expensed~~at asfair ~~incurred and not included as overhead~~value. ~~SFAS~~The ~~151~~statement ~~also requires that the allocation of fixed production overhead to conversion costs be based on~~is ~~normal~~effective ~~capacity~~in of2008 for the ~~production facilities~~Company. ~~SFAS 151 must be applied prospectively beginning January 1, 2006.~~ The adoption of ~~SFAS~~this ~~151~~statement is not expected to have a material ~~impact~~effect on the Company’s consolidated financial statements.

In ~~January~~September ~~2003~~2006, the FASB issued ~~Interpretation~~FASB Statement No. 46 158, “~~Consolidation~~Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of ~~Variable Interest~~FASB ~~Entities”~~Statements No. 87, 88, 106 and 132(R).” This ~~Interpretion~~statement requires ~~that~~the recognition of overfunded or underfunded status of defined benefit plans as an ~~enterprise~~asset or liability and the recognition of changes in the funded status through comprehensive income. This statement also requires the measurement of funded status as of the Company’s ~~consolidated~~year-end. ~~financial~~This ~~statements~~statement ~~include~~is ~~subsidiaries~~effective in ~~which~~2007 for the ~~enterprise~~Company, ~~has~~with adisclosure ~~controlling~~of ~~financial~~the ~~interest~~impact in fiscal years beginning in the first quarter of 2007. AtThe ~~December~~requirement 31to use the Company’s year-end, ~~2004~~rather than the September 30 measurement date currently used, as the ~~Company~~measurement ~~did~~date is effective for fiscal years ending after December 15, 2008. The adoption of this statement is not expected to have ~~any~~a material ~~unconsolidated~~effect ~~variable~~on ~~interest~~the ~~entities~~Company’s consolidated financial statements.

~~2003~~In ~~versus~~September ~~2002~~2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements.” This statement clarifies the definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement is effective in 2008 for the Company. The adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.

In July 2006, the FASB issued FASB Staff Position No. FAS 13-2, Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction (“FSP 13-2”). FSP 13-2 addresses how a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affects the accounting by a lessor for that lease. FSP 13-2 will be effective for the Company on January 1, 2007, with any cumulative effect of the change in accounting principle recorded as an adjustment to retained earnings. The adoption of FSP 13-2 is not expected to have a material effect on the Company’s consolidated financial statements.

- 24 -

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” This interpretation clarifies the accounting for uncertainty in income taxes including defining the criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in financial statements and provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective in 2007 for the Company, with the cumulative effect of the change in accounting principle recorded as an adjustment to January 1, 2007 retained earnings. The Company is currently assessing the impact of this interpretation on its consolidated financial statements.

2005 versus 2004

Results of Operations

Performance of the ~~railcar~~equipment leasing ~~business~~businesses ~~was~~improved ~~adversely affected by the general economic slowdown~~ in all major markets. Demand for existing railcar equipment improved, ~~remained~~resulting ~~low~~in ~~causing~~fleet ~~downward~~growth, ~~pressure~~higher onfleet ~~both~~utilization and improved lease rental rates. ~~and~~Demand for leased intermodal tank containers improved, resulting in fleet growth and higher utilization. Revenues and gross profit from services were as follows:

Revenues and gross profit from services were as follows:


	2005			2004			Increase (Decrease)
	(Dollars in Thousands)
Services revenue	$	767,590		$	747,915		$	19,675
Cost of services		448,776			465,219			(16,443	)

Gross profit from services	$	318,814		$	282,696		$	36,118
Gross profit %		42	%		38	%

	2003		2002		Increase(Decrease)
	(Dollars in Thousands)
Services revenue	$	718,436	$	691,707	$	26,729
Cost of services		467,157		440,276		26,881
Gross profit from services	$	251,279	$	251,431	$	(152	)

Services revenue in 2005 increased from 2004 primarily due to a $41.0 million increase in railcar leasing and service revenues (improved utilization rates and equipment additions), a $7.3 million increase in intermodal tank container leasing revenues (improved utilization rates and equipment additions), and $3.6 million higher revenue in the contract rail switching business, which more than offset a $30.4 million decrease in revenues from eliminating low-margin transportation and terminaling activity related to sulphur processing.

~~Services~~Gross profit on services revenue in ~~2003~~2005 increased ~~over~~ ~~2002~~from 2004 primarily due to a $1325.74 million inimprovement ~~increased~~for ~~revenues~~railcar ~~related~~leasing (improved utilization rates, lower external lease expense due to ~~sulphur~~exercising ~~processing~~purchase options ~~(higher~~on ~~rates~~certain leases and ~~volume~~equipment additions), a $69.32 million increase infor the intermodal tank container leasing business (~~higher~~improved utilization rates and equipment additions), and a $51.30 million increase infor ~~railcar~~contract ~~leasing~~rail ~~and~~switching ~~service revenues~~ (~~favorable~~higher volume ~~currency exchange rates~~ and ~~equipment~~improved ~~additions offsetting lower rental rates~~margins).

Average fleet utilization of the Company’s railcar fleet was 99% for 2005, compared with 96% for 2004. Utilization rates of the Company’s existing railcars are driven by long-term 17requirements 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. Over the past five years, the average term of leases entered into for newly manufactured railcars was approximately seven years, and the average term of leases entered into for used railcars was approximately four years. The average term of leases entered into during 2005 was consistent with the past five years.

- 25 -

~~Gross~~Sales ~~profit on services~~ revenue ofincreased ~~$251.3 million in 2003 decreased slightly from 2002. Railcar leasing was $6.1 million lower~~ primarily due to ~~lower~~increased ~~rental~~demand ~~rates~~for ~~and~~products ~~higher~~of ~~maintenance~~the ~~expense.~~metals ~~Intermodal~~distribution ~~tank container leasing was $4~~business.6 ~~million~~Revenues ~~higher primarily due to new fleet additions~~ and gross ~~higher~~profit ~~utilization.~~from ~~Sulphur~~sales ~~processing~~were ~~was~~as ~~$1.6~~follows: ~~million higher due to higher rates and volume.~~

Average fleet utilization of the Company’s railcar fleet was 93% for 2003, the same as for 2002. 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. Over the past five years, the average term of leases entered into for newly manufactured railcars was approximately seven years, and the average term of leases entered into for used railcars was approximately four years. The average term of leases entered into during 2003 for newly manufactured railcars was approximately eight years, and the average term of leases entered into for used railcars was approximately three years.


	2005			2004			Increase
	(Dollars in Thousands)
Sales revenue	$	894,081		$	778,371		$	115,710
Cost of sales		744,366			642,813			101,553

Gross profit from sales	$	149,715		$	135,558		$	14,157
Gross profit %		17	%		17	%

Sales revenue ~~decreased~~for as2005 ~~demand~~increased ~~for~~from ~~products~~2004 ofprimarily ~~the~~due to $116.7 million higher sales of metals distribution products ~~business~~(higher ~~continued~~prices toand bevolume), ~~adversely~~$20.0 ~~impacted~~million byincreased ~~the~~sales ~~general~~of ~~economic~~manufactured ~~slowdown~~railcars in(higher ~~the~~volume Uand prices), $7.S5 million higher sales of containment vessel heads (higher volume and prices), $5.4 ~~Demand~~million higher sales of mobile railcar ~~for~~moving ~~new~~vehicles ~~railcars~~(higher involume), ~~2003~~and ~~improved~~$4.6 ~~over~~million ~~2002~~higher sales of light rail transit components, ~~resulting~~more than offsetting $18.0 million lower sales of fasteners (transferred to an affiliate of Holdings in ~~higher~~December, ~~production~~2004), $10.8 million lower sales of sulphur-based fertilizer (certain assets of the business sold in April, 2005), and ~~capacity~~$8.5 ~~utilization~~million lower sales of sulphur processing equipment (timing of project completion).

~~Revenues~~Gross ~~and~~profit ~~gross~~on ~~profit~~sales in 2005 increased from ~~sales~~2004 primarily due to a $34.1 million increase for metals distribution products (higher prices partially offset by higher costs), a $1.9 million increase for containment vessel heads (higher volume and prices), a $1.5 million increase for mobile railcar moving vehicles, and a $1.3 million increase for light rail transit components. These increases were aspartially ~~follows:~~offset by a $12.4 million decrease for manufactured railcars (primarily caused by higher material prices), a $4.4 million decrease for fasteners (transferred to an affiliate of Holdings in December, 2004), a $4.1 million decrease for sulphur processing equipment (timing of project completion), and a $3.4 million decrease for sulphur-based fertilizer (certain assets of the business sold in April, 2005).

	2003		2002		Increase(Decrease)
	(Dollars in Thousands)
Net sales	$	559,591	$	566,703	$	(7,112	)
Cost of sales		467,883		468,281		(398	)
Gross profit from sales	$	91,708	$	98,422	$	(6,714	)

General and administrative expenses in 2005 were $2.2 million higher than 2004 due to higher costs in the railcar and intermodal tank container leasing businesses, partially offset by reductions due to the transfer of the fastener business to an affiliate of Holdings in December, 2004 and the sale of certain assets related to the sulphur-based fertilizer business in April, 2005.

~~Sales~~Interest ~~revenue~~expense ~~for~~in ~~2003~~2005 ~~decreased~~was ~~from 2002~~$12.9 ~~primarily~~million higher than 2004 due to ~~$9.3~~the interest ~~million~~expense ~~lower~~related ~~sales~~to ofnew ~~metals~~financing ~~distribution~~in ~~products~~2004 ~~(reduced~~and ~~demand),~~2005 ~~$7.0~~more ~~million~~than offsetting lower ~~sales~~interest ofexpense ~~sulphur~~from ~~processing~~principal ~~equipment~~repayments ~~(timing~~ of ~~project~~debt. ~~completion),~~Interest ~~partially~~rates ~~offset~~and bydebt ~~$11.9~~are ~~million~~discussed ~~higher~~in ~~sales~~Note 10 of ~~railcars (higher~~the ~~volume)~~Notes to Consolidated Financial Statements.

~~Gross~~Interest ~~profit~~income ~~on sales~~ in ~~2003~~2005 ~~decreased~~was ~~from 2002, primarily due to a~~ $5.4.9 million ~~decrease~~higher ~~for~~than ~~metals~~2004 ~~distribution~~due ~~products~~to ~~(reduced~~higher ~~demand)~~average ~~partially~~balances ~~offset by $2.0 million improved gross profit on sales~~ of ~~railcars~~available-for-sale ~~(higher volume)~~securities.

~~Interest~~Other income, net of expenses, in ~~2003~~2005 was $36.14 million lower than in ~~2002~~2004 ~~primarily~~ due to ~~lower~~$6.2 ~~interest~~million ~~rates~~of income in 2004 from the receipt and ~~lower~~disposal ~~average~~of ~~balances~~certain financial assets related to settlement of a bankruptcy claim against Air Canada and a gain of $3.0 million in 2004 on the sale of an unused parcel of land.

~~The~~Provision ~~write-down~~for income taxes was $56.4 million in 2005 with an effective tax rate of ~~investment~~21.4%, compared with $81.8 million in ~~direct~~2004 ~~financing~~with ~~lease~~an iseffective ~~related~~tax torate of 35.5%. The lower effective tax rate in 2005 is the ~~Boeing~~result ~~767-233~~of settling federal tax ~~aircraft~~issues with the Internal Revenue Service. Income taxes are discussed in Note 5 of the Notes to Consolidated Financial Statements.

~~Goodwill~~- ~~impairment~~26 ~~expense of $16.0 million is from the write~~-~~off~~ ~~of goodwill in the metals distribution business.~~

- 18 -

Interest expense in 2003 was $6.4 million lower than in 2002 due to principal repayments of debt with no significant new financing in 2003. Interest rates and borrowed debt are discussed in Note 7 of the Notes to Consolidated Financial Statements.

Provision for income taxes was $39.0 million in 2003 with an effective tax rate of 35.8%, compared with $56.3 million in 2002 with an effective tax rate of 36.8%. Income taxes are discussed in Note 8 of the Notes to Consolidated Financial Statements.

Financial Condition and Liquidity

Operating activities provided $~~311~~338.2 million of net cash in ~~2003~~2005, compared with $~~282~~285.79 million in ~~2002~~2004. ~~These~~The funds, along with proceeds from redemption of short-term investments, were used to finance lease fleet additions, service borrowed debt obligations, and pay dividends to the Company’s stockholder. 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 inprovided ~~excess~~by ~~of its~~ operating ~~needs,~~activities ~~such~~was ~~funds,~~higher in ~~excess~~ of2005 ~~the~~primarily ~~amounts~~due ~~paid as dividends, are advanced~~ to ~~its~~higher ~~parent~~net income and ~~bear~~a ~~interest~~smaller increase atin ~~commercial~~working ~~rates. Conversely~~capital, ~~when~~partially ~~the~~offset ~~Company requires additional funds to support its operations, prior advances are repaid~~ by ~~its~~a ~~parent.~~smaller Noincrease ~~restrictions exist~~in ~~regarding~~deferred ~~the amount of dividends which may be paid or advances which may be made by the Company to its parent~~taxes.

~~Net~~The net cash ~~used~~provided inby ~~investing~~operating activities, ~~was~~along ~~$192.8~~with ~~million~~proceeds from inthe ~~2003~~issuance ~~compared~~of ~~with~~debt ~~$48.9~~and ~~million~~collection of funds previously advanced to parent, were used to finance additions to the lease fleet and other fixed assets, pay dividends to the Company’s stockholder, service debt obligations, and invest in available-for-sale ~~2002~~securities and short-term investments.

InDuring ~~2003~~2005, the Company ~~spent~~reduced ~~$246.2~~its ~~million~~investment ~~for~~in ~~construction~~available ~~and~~for-sale ~~purchase~~securities ofby ~~lease fleet and other fixed assets, compared with~~ $~~122~~11.7 ~~million~~ ~~in 2002~~million. The ~~increase~~securities ~~was~~are ~~primarily higher~~ investment-grade indebt ~~additions~~obligations towith ~~the~~a ~~railcar~~combined ~~lease~~weighted-average ~~fleet.~~maturity Ofunder ~~the~~two ~~capital expenditures for construction and purchase of lease fleet and other fixed assets over the past five~~ years~~, approximately 78% have been for railcars~~. ~~Since~~The ~~capital~~investments ~~expenditures for railcars~~ are ~~generally~~available ~~incurred~~for ~~subsequent to receipt of firm customer lease orders, such expenditures are discretionary to~~ the Company’s ~~based~~use onto ~~its~~fund ~~desire~~repayment toof ~~enter~~principal ~~into~~obligations, ~~those~~finance lease ~~orders. Capital~~fleet ~~expenditures~~additions ~~for~~(including ~~intermodal~~the ~~tank~~exercise ~~containers~~of ~~are~~sale-leaseback ~~likewise~~purchase ~~discretionary~~options), inor ~~the~~fund ~~intermodal~~other ~~tank~~operating ~~container business~~needs.

~~Proceeds~~During ~~from~~2005, ~~disposals~~the Company invested $581.9 million in the construction and purchase of lease fleet and other fixed assets, ~~was~~compared with $32331.4 million in ~~2003~~2004. ~~compared~~The ~~with~~increase in capital expenditures was due to increased demand from leasing customers for new railway tank cars and intermodal tank containers, a $1376.90 million expenditure to exercise purchase options for railcars related to sale-leaseback transactions, and investment in ~~2002~~railcar manufacturing assets. ~~The~~Of ~~higher~~the ~~proceeds~~capital inexpenditures ~~2003~~for ~~was~~construction ~~due~~and topurchase aof lease fleet and ~~higher~~other ~~number~~fixed ofassets ~~railcars~~over ~~sold~~the aspast ~~well~~five asyears, ~~higher~~approximately ~~prices~~76% ~~obtained~~have been for railcars. ~~sold~~Since capital expenditures for ~~scrap~~railcars are generally incurred subsequent to receipt of firm customer lease orders, such expenditures are discretionary to the Company based on its desire to accept those lease orders. Capital expenditures for intermodal tank containers are likewise discretionary in the intermodal tank container business.

~~Net~~Capital ~~cash~~spending ~~used~~as of the end of 2005 for the construction of a new tank car manufacturing plant in ~~financing~~Alexandria, ~~activities~~Louisiana ~~was~~totaled $~~110~~49.47 million, inof ~~2003~~which ~~compared with~~ $~~204~~16.92 million ~~used~~has inbeen ~~2002~~reimbursed by state and local governments.

InProceeds ~~2003,~~from ~~the~~disposals ~~Company~~of ~~used~~lease ~~$62.5~~fleet ~~million~~and ~~for~~other ~~principal~~fixed ~~repayments~~assets onwere ~~borrowed~~$22.0 ~~debt~~million in 2005 compared with $~~141~~31.31 million in ~~2002~~2004. OfThe ~~the~~lower proceeds ~~2003~~in ~~principal~~2005 ~~repayments, $17.6 million~~ were ~~prepayments~~due ~~compared~~to ~~with~~fewer ~~$52.0~~railcars ~~million~~sold ofpartially ~~prepayments~~offset inby ~~2002.~~higher ~~Cash~~prices ~~dividends~~obtained ~~were~~for ~~$48.0~~railcars ~~million~~sold infor ~~2003 compared with $67~~scrap.0 ~~million in 2002.~~

-Net 19cash -used in investing activities was $419.3 million in 2005 compared with $370.2 million used in 2004.

During 2005, the Company’s financing activities included a $311.0 million issuance of unsecured Senior Notes and a $1.1 million capital lease obligation, for a total of $312.1 million in debt proceeds, compared with $300.0 million of debt issued in 2004. Principal repayments on debt totaled $40.6 million compared with $78.4 million in 2004. Cash dividends were $140.0 million in 2005 compared with $99.0 million in 2004. Net cash provided by financing activities was $131.5 million in 2005 compared with $122.6 million in 2004.

- 27 -

On September 28, 2005, the Company exercised options to purchase 2,424 railcars that the Company has leased since 1994 and 1995 as part of certain sale-leaseback transactions. The aggregate purchase price paid by the Company for these railcars was approximately $113.9 million, of which $63.9 million was paid on January 2, 2006 and the remaining $50.0 million is payable in four installments ending in December 2006. The Company’s purchase of these railcars was consummated on January 2, 2006, at which time the purchased railcars ceased to be subject to the operating leases.

It is the Company’s policy to pay to its parent a quarterly dividend of approximately 70% of net income. To the extent that the Company generates cash in excess of its operating needs, such funds, in excess of the amounts paid as dividends, are advanced to its parent. Conversely, when the Company requires additional funds to support its operations, prior advances are repaid by or advanced from its parent. Funds advanced to or from its parent bear interest at commercial rates. No restrictions exist regarding the amount of dividends which may be paid or advances which may be made by the Company to its parent.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE 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 with fair ~~value~~values 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.

	2005			2006			2007			2008			2009			Thereafter			Total			Fair Value 12-31-2004
	2007			2008			2009			2010			2011			Thereafter			Total			Fair Value12-31-2006
	(Dollars in Millions)
Fixed rate debt	$	34216.1		$	91107.5		$	~~216~~205.01		$	~~107~~174.42		$	~~205~~73.09		$	~~513~~576.29		$	1,~~167~~353.27		$	1,~~276~~372.59
Average interest rate		7.4604	%		76.0975	%		7.0418	%		6.7531	%		75.1870	%		65.2951	%		6.7322	%

- 2028 -

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

		Page
Report of Independent Registered Public Accounting Firm		22
Reports of Independent Registered Public Accounting Firms		30
Financial Statements
Consolidated statement of income for each of the three years in the period ended December 31, 2004		23
Consolidated statements of income for each of the three years in the period ended December 31, 2006		32
Consolidated balance sheet - December 31, 2004 and 2003		24
Consolidated balance sheets—December 31, 2006 and 2005		33
Consolidated statement of stockholder’s equity for each of the three years in the period ended December 31, 2004		25
Consolidated statements of stockholder’s equity for each of the three years in the period ended December 31, 2006		34
Consolidated statement of cash flows for each of the three years in the period ended December 31, 2004		26
Consolidated statements of cash flows for each of the three years in the period ended December 31, 2006		35
Notes to consolidated financial statements		2736

- 2129 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

Union Tank Car Company:

We have audited the accompanying consolidated balance sheets of Union Tank Car Company and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholder’s equity, and cash flows for the years then ended. Our audit also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and financial schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. The consolidated financial statements of the Company for the year ended December 31, 2004 were audited by other auditors whose report, dated March 9, 2005, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.


		DELOITTE & TOUCHE LLP

Chicago, Illinois
March 21, 2007

- 30 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Union Tank Car Company

We have audited the accompanying consolidated ~~balance sheet of Union Tank Car Company and subsidiaries as of December 31, 2004 and 2003, and the related consolidated~~ statements of income, stockholder’s equity and cash flows ~~for~~of ~~each~~Union ofTank ~~the~~Car ~~three~~Company ~~years~~and insubsidiaries for the ~~period~~ year ended December 31, 2004. Our ~~audits~~audit for this period also included the financial statement schedule listed in the index at Item 15(a)2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our ~~audits~~audit.

We conducted our ~~audits~~audit in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our ~~audits~~audit provides ~~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, 2004 and 2003, and the consolidated~~ results of ~~their~~ operations and ~~their~~ cash flows ~~for~~of ~~each~~Union ofTank ~~the~~Car ~~three~~Company ~~years in~~for the ~~period~~year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for this period, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

ERNST & YOUNG LLP Chicago, Illinois March 9, 2005

~~Chicago,~~- ~~Illinois~~ 31 -

March 9, 2005

- 22 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF INCOME

(Dollars in Thousands)

	For the Year Ended December 31,
	2004		2003				2002
	2006		2005			2004
Revenues
Services (leasing and other)	$	~~747~~820,~~915~~236	$	~~718~~767,~~436~~590		$	$747,915	~~691,707~~
Net sales		778,371		559,591				566,703
Sales		1,051,526		894,081			778,371
		1,526,286		1,278,027				1,258,410
		1,871,762		1,661,671			1,526,286
Interest income		13,029		10,714				13,858
Costs and expenses
Other income (expense), net		9,489		(259	)			2,094
Cost of services		451,542		448,776			465,219
		1,548,804		1,288,482				1,274,362
Cost of sales		883,056		744,366			642,813
Costs and expenses
General and administrative		141,031		143,740			141,546
Cost of services		465,219		467,157				440,276
Interest expense		95,598		87,675			74,796
Cost of sales		642,813		467,883				468,281
		1,571,227		1,424,557			1,324,374
Write-down of investment in direct financing lease		—		24,506				—
Operating income		300,535		237,114			201,912
Goodwill impairment		—		16,044				—
Interest income		17,050		17,926			13,029
General and administrative		141,546		132,320				134,463
Other income, net		2,576		8,855			15,286
Interest expense		74,796		71,840				78,289
Income before income taxes and minority interest		320,161		263,895			230,227
		1,324,374		1,179,750				1,121,309
Provision for income taxes		114,566		56,436			81,784
Income before income taxes		224,430		108,732				153,053
		205,595		207,459			148,443
Provision for income taxes		81,784		38,978				56,304
Minority interest		8,527		6,409			5,797
Net income	$	~~142~~197,~~646~~068	$	69201,~~754~~050		$	$142,646	~~96,749~~

See Notes to Consolidated Financial Statements.

- 2332 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE ~~SHEET~~SHEETS

(Dollars in Thousands)

	December 31,
	2004			2003
	2006			2005
Assets
Cash and cash equivalents	$	98165,~~336~~588		$	56150,~~197~~628
Short-term investments		4597,~~429~~542			6282,~~606~~003
Available-for-sale securities		~~244~~24,~~896~~445			—224,000
Accounts receivable, primarily due within one year, less allowance for doubtful accounts of $10,938 in 2004 and $11,647 in 2003		172,689			133,036
Accounts receivable, primarily due within one year, less allowance for doubtful accounts of $6,577 in 2006 and $8,117 in 2005		205,336			182,205
Accounts and notes receivable, affiliates		43,626			43,546
Accounts and notes receivable, affiliate		44,012			43,853
Inventories, net of LIFO reserves of $74,379 in 2004 and $35,056 in 2003		146,944			121,899
Inventories, net of LIFO reserves of $103,543 in 2006 and $84,184 in 2005		218,879			154,395
Prepaid expenses and deferred charges		1310,~~292~~923			9,~~711~~448
Advances to parent company, principally at LIBOR plus 1%		150,246			310,792
Railcar lease fleet, net		2,669,700			2,155,425
Railcar lease fleet, net		1,804,350			1,676,293
Intermodal tank container lease fleet, net		356,329			335,510
Intermodal tank container lease fleet, net		323,601			299,897
Other fixed assets, net		276,478			243,833
Other fixed assets, net		198,986			192,818
Other assets		38,339			39,780
Investment in direct financing lease (see Note 5)		—			2,082
Total assets	$	4,107,571		$	3,621,080
Other assets		35,422			42,089
Liabilities and Stockholder’s Equity
Total assets	$	3,277,817		$	2,950,966
Accounts payable	$	96,418		$	103,133
Liabilities and Stockholder’s Equity
Accrued rent		40,468			60,954
Accounts payable	$	74,606		$	60,336
Accrued liabilities		190,641			182,663
Accrued rent		94,508			95,164
Advances from parent and affiliates		472,146			10,577
Accrued liabilities		170,972			169,648
Debt		1,353,647			1,438,790
Borrowed debt		1,167,251			945,687
Deferred income taxes and investment tax credits		643,453			585,698
		1,507,337			1,270,835
Total liabilities		2,796,773			2,381,815
Deferred income taxes and investment tax credits		596,126			554,819
Minority interest		101,208			92,681
Minority interest		97,355			91,558
Stockholder’s equity
Stockholder’s equity
Common stock, no par value; 1,000 shares authorized and issued as of December 31, 2006 and 2005		106,689			106,689
Common stock, no par value; 1,000 shares authorized and issued		106,689			106,689
Additional capital		169,455			167,608
Additional capital		158,372			158,372
Retained earnings		933,457			873,389
Retained earnings		812,339			768,693
Accumulated other comprehensive losses		(11	)		(1,102	)
Unrealized losses on available-for-sale securities, net		(401	)		—
Total stockholder’s equity		1,209,590			1,146,584
Total stockholder’s equity		1,076,999			1,033,754
Total liabilities and stockholder’s equity	$	4,107,571		$	3,621,080
Total liabilities and stockholder’s equity	$	3,277,817		$	2,950,966

See Notes to Consolidated Financial Statements.

- 2433 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDER’S EQUITY

Years Ended December 31, ~~2004~~2006, ~~2003~~2005 and ~~2002~~2004

(Dollars in Thousands)

	Common Stock		AdditionalCapital		RetainedEarnings			Other Comprehensive Loss			Total
	CommonStock		AdditionalCapital		RetainedEarnings			AccumulatedOtherComprehensiveGains (Losses)			Total
Balance at December 31, 2001	$	106,689	$	158,372	$	717,190		$	—		$	982,251
Balance at December 31, 2003	$	106,689	$	158,372	$	768,693		$	—		$	1,033,754
Net income		—		—		96,749			—			96,749
Cash dividends		—		—		(67,000	)		—			(67,000	)
Balance at December 31, 2002		106,689		158,372		746,939			—			1,012,000
Net income		—		—		69,754			—			69,754
Cash dividends		—		—		(48,000	)		—			(48,000	)
Balance at December 31, 2003		106,689		158,372		768,693			—			1,033,754
Net income		—		—		142,646			—			142,646
Unrealized losses on available-for-sale securities, net		—		—		—			(401	)		(401	)
Comprehensive income												142,245
Cash dividends		—		—		(99,000	)		—			(99,000	)
Balance at December 31, 2004	$	106,689	$	158,372	$	812,339		$	(401	)	$	1,076,999
Net income		—		—		201,050			—			201,050
Unrealized losses on available-for-sale securities, net		—		—		—			(701	)		(701	)
Comprehensive income												200,349
Capital contribution		—		9,236		—			—			9,236
Cash dividends		—		—		(140,000	)		—			(140,000	)
Balance at December 31, 2005		106,689		167,608		873,389			(1,102	)		1,146,584
Net income		—		—		197,068			—			197,068
Unrealized gains on available-for-sale securities, net		—		—		—			1,091			1,091
Comprehensive income												198,159
Capital contribution		—		1,847		—			—			1,847
Cash dividends		—		—		(137,000	)		—			(137,000	)
Balance at December 31, 2006	$	106,689	$	169,455	$	933,457		$	(11	)	$	1,209,590

See Notes to Consolidated Financial Statements.

- 2534 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

	For the Year Ended December 31,
	2004			2003			2002
	2006			2005			2004
Cash flows from operating activities:
Net income	$	~~142~~197,~~646~~068		$	69201,~~754~~050		$	96142,~~749~~646
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		~~162~~192,~~190~~670			~~155~~166,~~649~~586			~~153~~162,~~102~~190
Deferred taxes		37,072			25,169			42,448
Deferred income taxes		60,744			986			37,069
Write-down of investment in direct financing lease		—			24,506			—
Gain on disposition of lease fleet and other fixed assets		(21,150	)		(10,371	)		(10,785	)
Goodwill impairment		—			16,044			—
Gain on disposition of business		(267	)		—			—
Gain on disposition of lease fleet and other fixed assets		(10,785	)		(5,988	)		(1,288	)
Other non-cash income and expenses		15,349			12,981			12,034
Loss on disposition of business		—			1,494			—
Changes in operating assets and liabilities (see Note 16)		(116,991	)		(33,076	)		(57,296	)
Other non-cash income and expenses		9,138			8,309			7,232
Net cash provided by operating activities		327,423			338,156			285,858
Changes in operating assets and liabilities		(57,299	)		16,269			(15,519	)
Net cash provided by operating activities		282,962			311,206			282,724
Cash flows from investing activities:
Construction and purchase of lease fleet and other fixed assets		(331,385	)		(246,217	)		(122,726	)
Construction and purchase of lease fleet		(711,468	)		(510,722	)		(287,975	)
Decrease in short-term investments		15,614			11,706			33,758
Purchases of other fixed assets		(57,360	)		(71,188	)		(43,410	)
Increase in available-for-sale securities		(245,510	)		—			—
Purchases of available-for-sale securities		—			(103,088	)		(296,140	)
Decrease in advance to parent		148,209			10,455			36,278
Proceeds from sales of available-for-sale securities		197,452			114,791			47,734
Decrease (Increase) in other assets and investments		8,256			(1,679	)		(1,014	)
Purchases of short-term investments		(116,084	)		(78,915	)		(46,992	)
Proceeds from disposals of lease fleet and other fixed assets		31,125			32,350			13,925
Proceeds from sales of short-term investments		97,313			45,429			62,606
Proceeds from disposition of business		6,344			625			—
Increase in advances from parent and affiliates		—			155,265			148,209
Purchases of businesses, net of cash acquired		—			—			(9,074	)
(Increase) decrease in other assets and investments		(2,682	)		(169	)		8,256
Net cash used in investing activities		(367,347	)		(192,760	)		(48,853	)
Proceeds from disposals of lease fleet and other fixed assets		37,631			22,039			31,125
Proceeds from disposition of business		900			7,274			6,344
Net cash used in investing activities		(554,298	)		(419,284	)		(370,243	)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt		300,000			145			3,412
Increase in advances from parent and affiliates		465,083			—			—
Principal payments of borrowed debt		(78,436	)		(62,549	)		(141,313	)
Proceeds from issuance of debt		—			312,121			300,000
Cash dividends		(99,000	)		(48,000	)		(67,000	)
Principal payments of debt		(85,143	)		(40,583	)		(78,436	)
Net cash provided by (used in) financing activities		122,564			(110,404	)		(204,901	)
Cash dividends		(137,000	)		(140,000	)		(99,000	)
Effect of exchange rates on cash and cash equivalents		3,960			7,933			121
Net cash provided by financing activities		242,940			131,538			122,564
Net increase in cash and cash equivalents		42,139			15,975			29,091
Effect of exchange rates on cash and cash equivalents		(1,105	)		1,882			3,960
Cash and cash equivalents at beginning of year		56,197			40,222			11,131
Net increase in cash and cash equivalents		14,960			52,292			42,139
Cash and cash equivalents at end of year	$	98,336		$	56,197		$	40,222
Cash and cash equivalents at beginning of year		150,628			98,336			56,197
Cash and cash equivalents at end of year	$	165,588		$	150,628		$	98,336

See Notes to Consolidated Financial Statements.

- 2635 -

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 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 majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

AtThe ~~the~~consolidated ~~close~~financial ofstatements ~~business~~include ~~on June 30, 2002,~~ the ~~Company~~accounts ~~distributed~~of the ~~stock of Atlas Bolt & Screw~~ Company, ~~Atlas Bolt & Screw Sp.zo.o~~ and ~~Pan~~its ~~American~~majority-owned ~~Screw, Inc~~subsidiaries. toInvestments ~~Marmon~~in ~~Industrial~~companies ~~LLC~~where ~~(MIC), MIC distributed~~ the ~~stock of the~~ Company tohas Holdings and Holdings contributed the stock of Amarillo Gear Company, Penn Machine Company and WCTU Railway Company to the Company. As a result of such realignment, (i) Holdings owns all of the Company’sgreater ~~capital~~than ~~stock,~~50% ~~(ii)~~ownership ~~the~~interests ~~Company~~are ~~ceased~~fully ~~to own any capital stock of Atlas Bolt & Screw Company~~consolidated, ~~Atlas~~with ~~Bolt & Screw Sp.zo.o or Pan American Screw, Inc. and (iii)~~ the ~~Company~~equity ~~owns~~owned ~~all~~by of the ~~capital~~respective ~~stock~~partners ofshown ~~Amarillo Gear Company, Penn Machine Company and WCTU Railway Company. The transactions have been accounted for~~ as aminority ~~change~~interest ~~in reporting entity~~ on anthe ~~“as~~consolidated ifbalance ~~pooled”~~sheets ~~basis~~ and, ~~accordingly,~~their ~~all~~portion ~~financial~~of ~~and~~net ~~other~~income ~~information~~or ~~has~~loss ~~been~~shown ~~restated~~separately toin ~~reflect~~the ~~these transactions for~~consolidated ~~comparative~~statements ~~purpose for all periods presented. The impact~~ of ~~this realignment is not material~~income.

~~Effective~~Reclassifications December 30, 2004, the Company transferred all of its shares in Robertson Inc. and acquired a minority interest in Marmon Holdings Corporation, a Canadian federal corporation. The impact of these transactions is not material.

~~Cash~~Certain ~~and~~prior ~~Cash~~year ~~Equivalents~~amounts have been reclassified to conform to the current year presentation. These reclassifications included presenting the consolidated balance sheets amounts related to certain long-term contracts accounted for under the completed contract method on a net basis. These changes in presentation have no impact on previously reported net income and are deemed to be immaterial.

~~Cash~~Revenue ~~and~~Recognition ~~cash equivalents includes all highly liquid debt instruments purchased with an original maturity of three months or less.~~

~~Short~~Revenue from sales of products is generally recognized upon shipment to customers which is when title and the risks and rewards of ownership are passed on to the customers. Such revenue is based upon determinable sales prices and is recognized only upon collectibility being reasonably assured. Certain long-~~Term~~term ~~Investments~~contracts are accounted for under the completed contract method when the Company is unable to reasonably forecast costs and the time required to complete those contracts.

~~Short~~-~~term~~ ~~investments~~36 ~~consist~~- ~~of commercial paper with original maturities between four and six months.~~

- 27 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Receivables~~2. ~~and~~Summary ~~Allowance~~of ~~for~~Accounting ~~Doubtful~~Principles ~~Accounts~~and Practices (Continued)

Lessor Accounting

~~Operating Leases -~~ Most of the Company’s railcar and intermodal tank container leases with its customers are classified as operating leases. Aggregate rentals from operating leases are reported as revenue ratably over the life of the lease as collectibility is reasonably assured. Expenses, including depreciation and maintenance, are charged as incurred.

~~Direct~~The ~~Financing~~Company ~~Leases~~periodically -reviews ~~Some~~and ofevaluates the ~~Company’s railcar and~~ultimate ~~other~~realization ~~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~~receivables isand ~~designated~~properties asunder ~~unearned~~lease ~~income~~contracts. ~~This~~Allowances ~~unearned~~for ~~income~~losses ~~is recognized~~are ~~over~~maintained ~~the~~at ~~life~~amounts ofnecessary ~~the~~to ~~lease~~cover ~~based~~anticipated ~~upon~~losses ~~the~~based ~~“constant~~on ~~yield~~management’s ~~method”~~assessment orof ~~similar~~various ~~methods~~factors, ~~which~~including ~~generally~~loss ~~result~~experience inand ~~an approximate level rate~~ review of ~~return~~specific ~~on the investment~~accounts.

Revenue Recognition

Shipping and Handling Costs

All freight costs incurred by the Company to ship its products to its customers are included in cost of sales.

-Foreign 28Currency Translation -

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

Translation adjustments and transaction gains and losses are borne by Holdings. For the years ended December 31, 2006, 2005 and 2004, Holdings absorbed losses of $2,605, $732, and $1,126, respectively.

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.

- 37 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Depreciation~~2. ~~and~~Summary ~~Fixed~~of ~~Assets~~ Accounting Principles and Practices (Continued)

~~Railcars,~~Cash ~~intermodal tank containers~~ and ~~other~~Cash ~~fixed~~Equivalents 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, 20-30 years; intermodal tank containers, 20 years; buildings and improvements, 10-50 years; and machinery and equipment, 3-20 years.

~~The~~Cash ~~cost of major conversions~~ and ~~betterments~~cash ~~are~~equivalents ~~capitalized~~includes ~~and~~all ~~depreciated over~~highly ~~their~~liquid ~~estimated~~debt ~~useful~~instruments ~~lives~~purchased ~~or,~~with ifan ~~shorter,~~original ~~the~~maturity ~~remaining useful lives~~ of ~~the~~three ~~related~~months ~~assets.~~or ~~Maintenance and repairs are charged to expense when incurred~~less.

~~Gains~~Short-Term orInvestments ~~losses on disposals are included in other income, except for those related to railcar and intermodal tank containers disposals which are included in cost of services.~~

~~Impairment~~Short-term investments consist of ~~Long-lived~~ ~~and~~commercial ~~Identifiable~~paper ~~Intangible~~with ~~Assets~~original maturities between four and six months.

~~Carrying values of long~~Available-~~lived assets~~for-Sale ~~and~~Securities identifiable intangible assets are reviewed if facts and circumstances suggest that they may be impaired. If this review indicates that the carrying value of an asset will not be recoverable, as determined based on the undiscounted net cash flows of the asset acquired over the remaining depreciation or amortization period, the carrying value of the asset is reduced to its estimated fair value (based on an estimate of discounted net future cash flows).

~~Deferred~~Available-for-Sale Securities ~~Income~~consist ~~Taxes~~of investment-grade corporate debt securities and U.S. government obligations. Management determines the appropriate classification of our investments at the time of acquisition and reevaluates such determination at each balance sheet date. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses, net of tax, reported as a separate component of stockholder’s equity. Fair value is primarily determined by quoted market prices at the end of the reporting period. In determining gains and losses, both realized and unrealized, cost basis is specifically identified for each security.

~~Deferred~~Accounts ~~income~~Receivable ~~taxes reflect the net tax effects of temporary differences between the carrying amount of assets~~ and ~~liabilities~~Allowance for ~~financial~~Doubtful ~~reporting~~Accounts ~~purposes and the amount used for income tax purposes.~~

~~Foreign~~The ~~Currency~~Company ~~Translation~~carries its accounts receivable at their face amounts less an allowance for doubtful accounts. On a regular basis, the Company evaluates its accounts receivable as well as establishes the allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions and based on a history of write-offs and collections. A receivable is considered past due if payments have not been received within agreed upon invoice terms. Uncollectible receivables are charged against the allowance for doubtful accounts when approved by management after all collection efforts have been exhausted. Revenues from any one customer did not exceed 10% of consolidated revenues during the last three years.

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

Translation adjustments and transaction gains and losses are borne by the Company’s parent. For the years ended December 31, 2004, 2003 and 2002, the Company’s parent absorbed a loss of $1,126, a loss of $8,178, and a gain of $1,344, respectively.

Inventories

Inventories are ~~stated~~valued 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 60% of net inventories at December 31, 2004. The Company uses the LIFO costing method for approximately 70% of its total gross inventories at December 31, 2004.

- 2938 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Accounting Principles and Practices (Continued)

Depreciation and Fixed Asset Accounting

Railcars, intermodal tank containers and other fixed assets are recorded at cost less accumulated depreciation. These assets are depreciated to salvage value over their estimated useful lives primarily on the straight-line method. The estimated useful lives are: railcars, 20-30 years; intermodal tank containers, 20 years; buildings and improvements, 10-50 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 and losses on disposals are included in other income, except for those related to railcar and intermodal tank container disposals, which are included in cost of services.

Impairment of Long-lived and Identifiable Intangible Assets

Carrying values of long-lived assets and identifiable intangible assets are reviewed if facts and circumstances suggest that they may be impaired. If this review indicates that the carrying value of an asset will not be recoverable, as determined based on the undiscounted net cash flows of the asset over the remaining useful life, the carrying value of the asset is reduced to its estimated fair value (based on an estimate of discounted net future cash flows). There were no significant impairments in 2006, 2005 or 2004.

Fair Value of Financial Instruments

~~All~~Recorded ~~book value~~ amounts for financial instruments approximate the instruments’ fair value except for ~~borrowed~~ debt discussed in Note 710.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrated risks consist primarily of trade receivables. Credit risk on trade receivables is minimized as a result of the large and diverse nature of the Company’s customer base. The Company also maintains deposits of cash and cash equivalents with major financial institutions of high credit quality. The Company’s policy is designed to limit exposure to any one institution.

Use of Estimates

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

~~Reclassifications~~- 39 -

CertainTable priorof year amounts have been reclassified to conform to the current year presentation. Contents

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 railcars, normally for periods ranging from one to twenty years. The average term of leases entered into during ~~2004~~2006 for newly manufactured railcars was approximately ~~six~~seven years. The average term of leases entered into during ~~2004~~2006 for used railway 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 railcar 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, ~~2004~~2006:

	Operating Leases
	OperatingLeases
2005	$	417,263
2007	$	479,554
2006		319,220
2008		383,687
2007		239,107
2009		296,460
2008		165,753
2010		213,874
2009		102,406
2011		127,817
2010 and thereafter		170,532
2012 and thereafter		196,301
Totals	$	1,414,281
	$	1,697,693

-4. 30Lease -Commitments

The Company and its subsidiaries, as lessee, have entered into long-term leases for certain railcars and various manufacturing, office and warehouse facilities.

At December 31, 2006, future minimum rental commitments for all noncancelable operating leases are as follows:


	Operating Leases
	Sale- Leaseback		Others		Total
2007	$	40,741	$	4,682	$	45,423
2008		38,413		4,662		43,075
2009		35,412		3,600		39,012
2010		37,758		3,018		40,776
2011		40,753		2,843		43,596
2012 and thereafter		142,187		9,402		151,589

	$	335,264	$	28,207	$	363,471

Amounts under “Sale-Leaseback” involve financing transactions in which railcars are sold by the Company to outside investors and leased back under operating leases.

- 40 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Lease ~~Fleet~~Commitments ~~and~~(Continued) ~~Other Fixed Assets~~

	December 31,
	2004			2003
Railcar lease fleet
Gross cost	$	3,413,293		$	3,208,673
Less accumulated depreciation		(1,608,943	)		(1,532,380	)
	$	1,804,350		$	1,676,293
Intermodal tank container lease fleet
Gross cost	$	419,304		$	371,484
Less accumulated depreciation		(95,703	)		(71,587	)
	$	323,601		$	299,897
Other Fixed assets, at cost
Land	$	16,628		$	18,145
Buildings and improvements		194,657			194,702
Machinery and equipment		360,061			341,747
		571,346			554,594
Less accumulated depreciation		(372,360	)		(361,776	)
	$	198,986		$	192,818

In September 2005 and March 2006, the Company exercised options to purchase a total of 4,579 railcars that the Company has leased as part of certain sale-leaseback transactions in 1994, 1995 and 1996. The Company’s purchases of these railcars were consummated in January 2006 and July 2006, respectively, at which time the purchased railcars ceased to be subject to the operating leases under these sale-leaseback transactions. The aggregate purchase price paid by the Company for these railcars was $229,344, all of which was paid in 2006. The Company has early buyout options on its remaining sale-leaseback transactions.

5Minimum future sublease revenue to be received under existing railcar sale-leaseback leases as of December 31, 2006 is presented below. Sublease revenue under other ~~Investment~~existing operating leases is not material and is primarily included in ~~Direct~~other ~~Financing~~income. ~~Lease~~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 below.

On February 8, 1988, Procor Limited (“Procor”) entered into a Canadian dollar denominated Operating Lease Agreement (“Lease”) for an 18-year period with Air Canada for one Boeing 767-233 aircraft, the only aircraft owned by the Company. On the same day and as part of the same transaction, Procor entered into a Trust Indenture (“Indenture”) under which it borrowed Cdn$45.0 million and granted a security interest in the aircraft to the trustee. On April 1, 2003, Air Canada filed for an interim court order for protection from its creditors under the Canadian Companies Creditors Arrangement Act. On May 9, 2003, Air Canada notified Procor that it was electing to terminate the Lease effective as of May 30, 2003. This filing and the termination of the Lease constituted defaults under the Lease. The defaults under the Lease constituted defaults under the Indenture and would have allowed the trustee, among other things, to declare the remaining principal and interest immediately due. The trustee did not do so, and on July 29, 2003, with the consent of the Indenture holders, Procor prepaid the remaining debt of Cdn$17.7 million and paid a make-whole premium of Cdn$2.4 million.


	Sale- Leaseback Leases
2007	$	64,867
2008		51,522
2009		36,321
2010		22,834
2011		13,464
2012 and thereafter		27,172

	$	216,180

~~The~~Sublease ~~net~~rentals ~~book~~recorded ~~value~~as ofrevenue for the ~~aircraft~~years ~~was~~ended ~~Cdn$37.3 million as of March~~ December 31, ~~2003.~~2006, ~~During~~2005 ~~the second~~and ~~quarter~~2004 ofwere ~~2003~~approximately $54,000, ~~the~~$76,000 ~~value~~and ~~of the aircraft was written down to Cdn~~$~~2.7~~83,000, ~~million based on advice Procor received concerning the then-current value of the aircraft~~respectively.

-Rentals 31charged -to costs and expenses were $49,890, $67,220 and $77,315 in 2006, 2005 and 2004, respectively.

- 41 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~In the fourth quarter of 2004, Air Canada emerged from court protection~~5. AtIncome ~~about~~Taxes the same time, Procor received a distribution of shares and options for shares in ACE Aviation Holdings Ltd. (“ACE”), Air Canada’s holding company, from the court-appointed monitor in the Air Canada restructuring. Procor exercised these options and then sold all of its shares in ACE for a gain of Cdn$7.7 million (US$6.2 million) which is included in other income.

~~Procor~~The ~~has~~Company ~~entered~~and anits ~~agreement~~more ~~for~~than 80% owned U.S. subsidiaries are included in the ~~sale~~consolidated U.S. federal income tax return of Holdings. State, local and foreign income taxes, in general, are reflected on the ~~aircraft~~basis ~~for~~of ~~parts~~individual company liabilities, except as follows. ~~Procor~~Under an arrangement with Holdings, federal income taxes, before consideration of tax credits, are computed as if the Company files a separate consolidated return. For this computation, the Company generally uses tax accounting methods which minimize the current tax liability (these methods may differ from those used in the consolidated tax return). Tax liabilities are remitted to, and refunds are obtained from, Holdings on this basis. If deductions and credits available to Holdings’ entire consolidated group exceed those which can be used on its tax return, allocation of the related benefits between the Company and others will ~~receive~~be ~~payments~~at the sole discretion of Holdings. In 2006, ~~less~~the tax credits allocated to the Company were lower than as if the Company filed a ~~commission~~separate consolidated return by $1,260. In prior years, the consolidated tax credits allocated to the Company exceeded those computed as if the ~~parts~~Company ~~are~~had ~~sold~~filed a separate consolidated tax return by $183 and $3,920 in 2005 and 2004, respectively. ~~The~~As ~~amount~~a ~~received~~member soof ~~far~~a consolidated federal income tax group, the Company is ~~not~~contingently ~~material~~liable for the federal income taxes of the other members of the consolidated group.

6Undistributed earnings of the Company’s foreign subsidiaries reflect full provisions for income taxes. ~~Lease~~The ~~Commitments~~Company recorded a provision (benefit) for taxes that would be payable upon repatriation of such earnings into the U.S of $(1,208), $(134) and $3,314 in 2006, 2005 and 2004, respectively.

The ~~Company,~~following assummarizes ~~lessee,~~the ~~has~~provision ~~entered~~(benefit) ~~into long-term leases~~ for ~~certain~~income ~~railcars~~taxes: ~~and various manufacturing, office and warehouse facilities.~~

At December 31, 2004, future minimum rental commitments for all noncancelable leases are as follows:


	2006			2005			2004
State
Current	$	1,077		$	2,691		$	6,638
Deferred		2,503			408			73
Federal
Current		29,025			36,405			20,353
Deferred and investment tax credit		59,593			5,167			38,057
Foreign
Current		23,720			16,354			17,724
Deferred and investment tax credit		(1,352	)		(4,589	)		(1,061	)

Total	$	114,566		$	56,436		$	81,784

	Operating Leases
	Sale-Leaseback		Others		Total
2005	$	72,882	$	5,241	$	78,123
2006		80,131		4,213		84,344
2007		68,746		3,591		72,337
2008		67,127		3,312		70,439
2009		63,695		3,045		66,740
2010 and thereafter		273,296		14,361		287,657
	$	625,877	$	33,763	$	659,640

- 42 -

Minimum future sublease revenue to be received under existing railcar sale-leaseback leases as of December 31, 2004 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- Leaseback Leases
2005	$	71,283
2006		54,032
2007		40,241
2008		27,237
2009		15,413
2010 and thereafter		33,575
	$	241,781

- 32 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Sublease~~5. ~~rentals~~Income ~~recorded~~Taxes as(Continued) ~~revenue for the years ended December 31, 2004, 2003 and 2002 were approximately $83,000, $82,000 and $87,000, respectively.~~

~~Rentals~~In ~~charged~~2006, to2005 ~~costs~~ and ~~expenses~~2004, ~~were~~the Company paid foreign withholding taxes of $777,~~315~~098, $782,~~794~~314 and $774,~~726 in 2004~~858, ~~2003 and 2002,~~ respectively.

7Income tax effects of significant items which resulted in effective tax rates of 35.8% ~~Borrowed~~in ~~Debt~~2006, 21.4% in 2005, and 35.5% in 2004 follow:

	December 31,
	2006				2005			2004
	2004			2003
Income taxes at 35% federal statutory rate	$	112,056			$	92,363		$	80,579
Unsecured notes, payable periodically through 2019 at 5.64% - 7.45% (average rate of 6.48% as of December 31, 2004 and 7.02% as of December 31, 2003)	$	720,000		$	465,000
Increase (decrease) resulting from:
Senior secured notes, payable periodically through 2016 at 6.79% - 7.68% (average rate of 7.16% as of December 31, 2004 and 7.18% as of December 31, 2003)		336,411			352,529
Amortization of investment tax credits		(675	)			(723	)		(843	)
Equipment obligations, payable periodically through 2009 at 6.50% - 9.34% (average rate of 7.01% as of December 31, 2004 and 7.06% as of December 31, 2003)		110,693			127,864
State income taxes, net of federal income tax benefit		3,203				2,157			4,387
Other long-term borrowings, payable periodically through 2013 (average rate of 4.76% as of December 31, 2004 and December 31, 2003)		147			294
Excess tax (benefit) on foreign income		(458	)			331			(7,792	)
	$	1,167,251		$	945,687
Additional tax on unremitted foreign earnings		(1,208	)			(134	)		3,314
Resolution of tax contingencies and adjustment to prior years’ taxes		2,683				(34,937	)		1,400
Other, net		(1,035	)			(2,621	)		739
Total income taxes	$	114,566			$	56,436		$	81,784

InDuring ~~June~~the ~~2004,~~fourth ~~the~~quarter ~~Company~~of ~~issued $300~~2005,~~000~~ ~~principal~~Holdings ~~amount~~and ofthe ~~unsecured~~Internal ~~Senior~~Revenue ~~Notes.~~Service ~~Interest~~reached agreement on all unresolved tax issues for 1976 through 1999, with the ~~notes~~1985-1990 issettlement ~~payable~~subject ~~semiannually~~to onapproval ~~June~~by 1the ~~and~~Joint ~~December~~Committee 1on Taxation. As a result, ~~commencing~~the ~~December~~Company 1recorded a $34,937 ~~2004~~adjustment atin 2005 reflecting the ~~rate~~Company’s ofallocated 5liability reduction.~~64%~~ During ~~per~~the ~~annum.~~second ~~Principal~~quarter isof ~~payable~~2006, ~~annually~~Holdings ~~commencing~~completed onfederal ~~June~~tax 1,examinations ~~2009~~for ~~and continuing~~the ~~until~~years ~~maturity~~2000 onthrough ~~June~~2002 1,with ~~2019~~the Internal Revenue Service. The issues that were settled resulted in an insignificant reduction of the Company’s income taxes.

~~Senior~~Provisions ~~secured~~have ~~notes~~been ofreflected ~~$98,411~~in ~~are secured~~the byaccompanying ~~approximately~~consolidated ~~1,900~~financials ~~railcars~~statements ~~with~~for anthe ~~original~~estimated ~~cost~~income oftaxes ~~approximately $122,700~~ and ~~1,100~~interest ~~intermodal~~thereon ~~tank~~through ~~containers and wheeled chassis with an original cost of approximately $23,800~~2006. ~~Senior secured notes of $100,000 are secured by railcars~~ ~~with~~Management anbelieves ~~original~~the ~~cost~~amounts ofprovided ~~approximately~~for ~~$133,100.~~taxes ~~Senior~~and ~~secured~~interest ~~notes~~for ~~of $138,000 are secured by intermodal tank container assets with an original cost of approximately $240,000 and~~ the ~~future~~remaining ~~stream~~open oftax ~~leasing~~years ~~income~~are ~~on such intermodal tank containers~~adequate.

~~Equipment~~The ~~obligations~~excess ~~are~~tax ~~secured~~(benefit) on foreign income represents rates different than the U.S. federal statutory rate. The benefit in 2006 is a result of a reduction in Canadian tax rates, partially offset by ~~railcars~~higher ~~with~~taxes anon ~~original~~the repatriation of foreign earnings. The additional tax expense in 2005 ~~cost~~results from foreign withholding taxes without the offset of ~~approximately~~a ~~$407,100~~U.S. ~~and~~foreign ~~$407,200~~tax atcredit. ~~December~~The ~~31,~~excess benefit on foreign income in 2004 ~~and~~is ~~2003,~~due ~~respectively~~primarily to Holdings’ allocation of 2004 foreign tax credits pursuant to the Holdings’ tax sharing agreement as noted above.

~~The~~Income ~~Company’s~~tax ~~Canadian~~expense ~~subsidiaries~~is ~~have~~based ~~approximately~~upon ~~$11,259~~domestic ofand ~~credit~~foreign ~~lines~~income ~~available~~before ontaxes ~~a no-fee basis. No amounts were outstanding~~ as offollows: ~~December 31, 2004 and 2003.~~

- 33 -


	2006		2005		2004
Domestic	$	272,466	$	233,621	$	190,253
Foreign		47,695		30,274		39,974

Total	$	320,161	$	263,895	$	230,227

- 43 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Maturities~~5. ofIncome ~~debt~~Taxes ~~obligations~~(Continued) ~~for the years 2005 - 2009 are as follows:~~

2005		2006		2007		2008		2009
$34,147		$91,502		$215,978		$107,397		$205,006

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. These deferred tax assets and (liabilities) result from the following temporary differences:

The estimated fair value of borrowed debt is as follows:


	2006			2005
Excess of tax over book depreciation	$	(673,147	)	$	(609,632	)
Other		(3,468	)		(11,628	)

Gross liabilities		(676,615	)		(621,260	)

Accrued expenses and reserves		27,985			29,259
Foreign net operating losses		260			578
Foreign tax credit carryforwards		—			21,916
Other		5,177			6,106

Gross assets		33,422			57,859

Valuation allowance		(260	)		(22,297	)

Net deferred income tax liability	$	(643,453	)	$	(585,698	)

	December 31,
	2004		2003
Unsecured notes	$	774,386	$	527,457
Senior secured notes		384,315		412,954
Equipment obligations		117,671		141,549
Other long-term borrowings		150		294
	$	1,276,522	$	1,082,254

The Company had approximately $869 and $1,909 of net operating loss carryforwards available to offset future taxable income in various foreign jurisdictions for 2006 and 2005, respectively. These carryforwards expire between 2009 and 2015. Due to the uncertain realization of the benefit of the carryforwards, appropriate valuation allowances have been provided of $260 and $381 for foreign jurisdiction net operating losses for 2006 and 2005, respectively, and $21,916 for U.S. foreign tax credits for 2005. In 2006, the carryforward foreign tax credits were realized by Holdings as a result of a transaction not related to the Company and therefore the benefit was allocated to that transaction. The Company has no U.S. foreign tax credit carryforwards available to reduce future U.S. federal income taxes due to utilization of all such carryforwards during 2006.

~~The~~In ~~current~~June ~~fair~~2006, ~~value~~the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” This interpretation clarifies the accounting for uncertainty in income taxes including defining the ~~Company’s~~criteria ~~borrowed~~that ~~debt~~an isindividual ~~estimated~~tax byposition ~~discounting~~must meet for any part of the ~~future~~benefit of that position to be recognized in the financial statements and provides guidance on measurement, derecognition, classification, interest and ~~principal~~penalties, ~~cash~~accounting ~~flows~~in interim atperiods, disclosure and transition. This interpretation is effective for 2007, with the ~~Company’s~~cumulative ~~estimated~~effect ~~incremental~~of ~~borrowing~~the ~~rate~~change atin accounting principle recorded as an adjustment of January 1, 2007 retained earnings. The Company is currently assessing the ~~respective~~impact ~~year-end~~of ~~for~~this ~~debt~~interpretation ~~with~~on ~~similar~~its ~~maturities~~consolidated financial statements.

8.- ~~Income~~44 ~~Taxes~~-

The Company and its more than 80% owned U.S. subsidiaries are included in the consolidated U.S. federal income tax return of Holdings. Under an arrangement with Holdings, federal income taxes, before consideration of tax credits, are computed as if the Company files a separate consolidated return. For this computation, the Company generally uses tax accounting methods which minimize the current tax liability (these methods may differ from those used in the consolidated tax return). Tax liabilities are remitted to, and refunds are obtained from, Holdings on this basis. If deductions and credits available to Holdings’ entire consolidated group exceed those which can be used on its tax return, allocation of the related benefits between the Company and others will be at the sole discretion of Holdings. The consolidated tax credits allocated to the Company exceeded those computed as if the company had filed a separate consolidated tax return by $3.9 million in 2004 and $2.4 million in 2003. 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. The Company recorded a provision for taxes that would be payable upon repatriation of such earnings into the U.S of $3.3 million in 2004 and $5.5 million in 2003.

- 34 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~The~~6. ~~following summarizes the provision (benefit)~~ Available-for-Sale ~~income~~Securities ~~taxes:~~

	2004			2003			2002
State
Current	$	6,638		$	217		$	2,026
Deferred		73			3,108			(769	)
Federal
Current		20,353			245			5,751
Deferred and investment tax credit		38,057			32,471			37,173
Foreign
Current		17,724			13,347			6,079
Deferred and investment tax credit		(1,061	)		(10,410	)		6,044
Total	$	81,784		$	38,978		$	56,304

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

In 2004, 2003, and 2002, the Company paid foreign withholding taxes of $4,858, $4,169 and $2,821, respectively.


December 31, 2006	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate debt securities	$	19,404	$	—	$	(12	)	$	19,392
U.S. government obligations		5,056		—		(3	)		5,053

	$	24,460	$	—	$	(15	)	$	24,445


December 31, 2005	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate debt securities	$	202,863	$	—	$	(1,509	)	$	201,354
U.S. government obligations		22,812		—		(166	)		22,646

	$	225,675	$	—	$	(1,675	)	$	224,000

~~Income~~The ~~tax~~gross ~~expense~~unrealized isholding ~~based~~losses, ~~upon~~less ~~domestic~~related taxes ($5 and ~~foreign~~$586 ~~income~~at ~~before~~December 31, ~~taxes~~2006 and December 31, 2005, respectively) have been reported as ~~follows:~~a separate component of stockholders’ equity in the accompanying consolidated balance sheets.

	2004		2003			2002
Domestic	$	184,456	$	116,918		$	128,691
Foreign		39,974		(8,186	)		24,362
Total	$	224,430	$	108,732		$	153,053

The fair values of investments with gross unrealized losses were $24,445 and $224,000 at December 31, 2006 and 2005, respectively. The Company considers unrealized losses to be temporary.

~~Income~~The ~~tax~~following ~~effects~~table ofsummarizes ~~significant items~~the ~~which~~contractual ~~resulted~~maturities ~~in effective tax rates~~ of ~~36.4%~~available-for-sale insecurities ~~2004,~~at ~~35.8% in 2003~~December 31, ~~and 36.8% in 2002 follow~~2006:

	2004			2003			2002
Less than one year	$	21,415
Income taxes at 35% federal statutory rate	$	78,550		$	38,056		$	53,569
Due in 3 years		3,030
Increase (decrease) resulting from:
Total	$	24,445
Amortization of investment tax credits		(843	)		(945	)		(1,399	)
State income taxes, net of federal income tax benefit		4,387			3,249			548
Excess tax (benefit) on foreign income		(7,792	)		10,634			3,578
Tax on unremitted foreign earnings		3,314			5,500			—
Adjustment to prior years’ taxes		1,400			(19,000	)		—
Other, net		2,768			1,484			8
Total income taxes	$	81,784		$	38,978		$	56,304

- 3545 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~The excess benefit on foreign income in 2004 is due primarily to Holdings’ allocation in 2004 of 2003 and 2004 foreign tax credits pursuant to the Holdings’ tax sharing agreement as noted above~~7. Inventories

The excess tax (benefit) on foreign income represents differences due to lower foreign tax rates and foreign tax credits not benefited. In 2004, the Company recorded a $1.4 million adjustment based on the adjustments required for prior years’ tax matters with the various taxing authorities.


	December 31,
	2006			2005
Raw materials	$	35,012		$	49,548
Work-in-process		52,222			21,274
Finished goods		240,556			173,718
Obsolescence and other reserves		(5,368	)		(5,961	)

		322,422			238,579
LIFO reserve		(103,543	)		(84,184	)

Net	$	218,879		$	154,395

~~Deferred~~Inventories ~~income~~valued ~~taxes~~under ~~reflect~~ the ~~net~~LIFO ~~tax~~method ~~effects~~(72% ofand ~~temporary~~68% ~~differences~~in ~~between~~2006 ~~the carrying amounts of assets~~ and ~~liabilities~~2005, ~~for~~respectively) ~~financial~~were approximately ~~reporting~~$103,543 ~~purposes~~ and ~~the~~$84,184 ~~amounts~~less ~~used~~than ~~for~~the ~~income~~current ~~tax~~costs ~~purposes. Components~~ of ~~net~~such ~~deferred~~inventories ~~tax~~at ~~balances~~December 31, ~~are~~2006 asand ~~follows:~~2005, respectively.

	2004			2003
Excess of tax over book depreciation	$	(613,938	)	$	(582,346	)
Other		(10,912	)		(8,593	)
Gross liabilities		(624,850	)		(590,939	)
Expenses per books not yet deductible for tax		29,027			34,241
Other		5,437			8,842
Gross assets		34,464			43,083
Deferred investment tax credits		(5,740	)		(6,963	)
Net deferred income tax liability	$	(596,126	)	$	(554,819	)

8. Lease Fleet and Other Fixed Assets

The Company has approximately $47.1 million of foreign tax credit carryforwards available to reduce future income taxes at December 31, 2004. Due to the uncertain realization of the benefit of these credits, they are subject to a 100% valuation allowance.


	December 31,
	2006			2005
Railcar lease fleet
Gross cost	$	4,437,125		$	3,852,919
Less accumulated depreciation		(1,767,425	)		(1,697,494	)

	$	2,669,700		$	2,155,425

Intermodal tank container lease fleet
Gross cost	$	497,665		$	455,202
Less accumulated depreciation		(141,336	)		(119,692	)

	$	356,329		$	335,510

Other fixed assets, at cost
Land	$	16,386		$	16,386
Buildings and improvements		239,993			198,318
Machinery and equipment		372,681			355,380
Construction in progress		51,383			60,579

		680,443			630,663
Less accumulated depreciation		(403,965	)		(386,830	)

	$	276,478		$	243,833

9.- ~~Contingencies~~46 -

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, products liability and workers’ compensation liabilities. The Company maintains no property damage insurance on its railcars or intermodal tank containers. The Company has accrued for the estimated costs of reported, 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.

- 36 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Lease Fleet and Other Fixed Assets (Continued)

Capital spending as of the end of 2006 for the construction of a new tank car manufacturing plant in Alexandria, Louisiana totaled $100,755, of which $31,604 has been reimbursed by state and local governments. The net amount is included in other fixed assets shown above. This railcar manufacturing facility was completed in 2006.

During 2006, the Company capitalized interest expense of $3,835 on its Alexandria, Louisiana facility.

Depreciation expense recorded in the consolidated statements of income totaled $192,413, $165,642, and $160,649, for the years ended December 31, 2006, 2005 and 2004, respectively.

9. Completed Contracts

Certain projects are accounted for using the completed contract method because of inherent difficulty and uncertainty in estimating the total cost of completion and the extent of progress toward completion.


	December 31,
	2006			2005
Cost incurred	$	16,274		$	17,606
Deferred revenue		(36,971	)		(18,993	)

Net billing in excess of cost included in accrued liabilities in consolidated balance sheets	$	(20,697	)	$	(1,387	)

- 47 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Debt


	December 31,
	2006		2005
Unsecured senior and medium-term notes, payable periodically through 2020 at 4.71%—7.45% (average rate of 5.94% as of December 31, 2006 and 5.95% as of December 31, 2005)	$	1,021,000	$	1,031,000

Senior secured notes, payable periodically through 2016 at 6.79%—7.68% (average rate of 7.13% as of December 31, 2006 and 7.15% as of December 31, 2005)		301,205		319,980

Equipment trust certificates, payable periodically through 2009 at 6.50%—6.60% (average rate of 6.57% as of December 31, 2006 and 6.74% as of December 31, 2005)		30,296		86,574

Other long-term borrowings, payable periodically through 2015 (average rate of 8.21% as of December 31, 2006 and 8.17% as of December 31, 2005)		1,146		1,236

	$	1,353,647	$	1,438,790

In June 2005, the Company issued $311,000 principal amount of unsecured Senior Notes. Interest on the notes is payable semiannually on May 15 and November 15 at the rate of 4.71% per annum. Principal is payable annually commencing on May 15, 2010 and continuing until maturity on May 15, 2020.

The remaining $710,000 principal amount of unsecured Notes consists of $600,000 unsecured Senior Notes and $110,000 unsecured Medium-Term Notes. The notes were issued between 1997 and 2004. The notes bear interest at rates between 5.64% and 7.45% with maturities ranging from 2007 to 2019. Interest on all notes is paid semiannually.

Senior Secured Notes of $89,205 are secured by approximately 1,900 railcars with an original cost of approximately $121,800 and 1,095 intermodal tank containers and wheeled chassis with an original cost of approximately $23,700. Senior Secured Notes of $100,000 are secured by railcars with an original cost of approximately $134,100. Senior Secured Notes of $112,000 are secured by intermodal tank container assets with an original cost of approximately $240,500 and the future stream of leasing income on such intermodal tank containers.

- 48 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Debt (Continued)

Equipment Trust Certificates are secured by railcars with an original cost of approximately $268,500 and $403,700 at December 31, 2006 and 2005, respectively.

The Company’s Canadian subsidiaries have approximately $30,030 and $30,100 of demand credit facility available on a no-fee basis at December 31, 2006 and 2005, respectively. Holdings is a guarantor of this demand credit facility. At December 31, 2006 and 2005, $4,739 and $7,521 of letters of credit were outstanding, respectively. No amounts were outstanding for overdrafts or borrowings as of December 31, 2006 and 2005.

Maturities of debt obligations for the years 2007—2011 are as follows:


2007	2008		2009		2010		2011
$216,061	$	107,486	$	205,104	$	174,248	$	73,888

The estimated fair value of debt is as follows:


	December 31,
	2006		2005
Unsecured senior and medium-term notes	$	1,016,636	$	1,050,247
Senior secured notes		324,304		352,084
Equipment trust certificates		30,824		88,516
Other long-term borrowings		1,146		1,236

	$	1,372,910	$	1,492,083

The current fair value of the Company’s 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. The Company currently anticipates holding all debt until maturity.

- 49 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. 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 its best estimate of such claims, and, in the opinion of management, their ultimate resolution will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

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

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

The Company has one residual value guarantee totaling $2.1 million until March 2006, several performance guarantees totaling $7.1 million until June 2007, and several standby letters of credit totaling $18.5 million. Additionally, the Company provides warranties on certain products for varying lengths of time. The Company estimates the costs that may be incurred and records a liability in the amount of such costs at the time product revenue is recognized. Changes to the Company’s product warranty accrual during the year are as follows:

	2004			2003
	2006			2005
Balance, beginning of year	$	~~602~~833		$	~~724~~1,687
Warranties issued		1,332			360
Warranties issued (written off)		347			(22	)
Settlements		(~~247~~484	)		(~~482~~832	)
Balance, end of year	$	~~1,687~~696		$	~~602~~833

The Company maintains appropriate allowances for warranties and periodically reviews the amount of allowances based on management’s assessment of various factors, including claims experience.

1012. ~~Pension~~Purchase ~~Benefits~~Obligation Commitments

At December 31, 2006, the Company had purchase obligation commitments outstanding of $29,731 primarily for the purchase of hopper cars and intermodal tank containers in 2007.

- 50 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. 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 ~~2004~~2006, ~~2003~~ 2005 and ~~2002~~2004 was $1215,~~444~~445, $1215,~~060~~100 and $12,~~525~~444, respectively.

As of December 31, ~~2004~~ 2006, 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 expense (income) ~~expense~~ was ($~~25)~~5, $~~264~~684 and ($~~140~~(25) for 2006, 2005 and 2004, ~~2003~~respectively. Prepaid pension costs recognized in the consolidated balance sheets were $1,751 and ~~2002~~$1,571 at December 31, 2006 and 2005, respectively. Accrued pension costs recognized in the consolidated balance ~~sheet were~~sheets were $2,~~276~~523 and $32,~~717~~410 at December 31, ~~2004~~2006 and ~~2003~~2005, respectively. The amounts and timing of payments related to these plans are not material to the consolidated financial statements.

-14. 37Retirement -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 co-payment provisions, Medicare supplements and other limitations. At December 31, 2006 and 2005, the liability for postretirement health care and life insurance benefits was $11,145 and $5,598, respectively, and was included in accrued liabilities in the consolidated balance sheets. The assumption used in determining the 2006 liability included a 5.75% discount rate and healthcare trend rate of 12.00% in 2006 trending down to 5.00% in 2013. The amounts and timing of payments related to these plans are not material to the consolidated financial statements.

Expense related to these benefits was $3,189, $766 and $923 in 2006, 2005 and 2004, respectively. The increase relates primarily to adjustments in annuity factors and other assumptions.

15. Derivative Financial Instruments

- 51 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1116. ~~Retirement~~Supplementary ~~Health~~Disclosures ~~Care~~of ~~and~~Cash ~~Life~~Flow Information ~~Insurance Benefits~~


	For the Year Ended December 31,
	2006			2005			2004
Changes in operating assets and liabilities:
Accounts receivable	$	(23,881	)	$	(10,830	)	$	(40,606	)
Inventories		(64,972	)		(8,725	)		(36,675	)
Prepaid expenses and deferred charges		(202	)		(3,452	)		(1,692	)
Accounts payable, accrued rent and accrued liabilities		(27,936	)		(10,069	)		21,677

	$	(116,991	)	$	(33,076	)	$	(57,296	)

Cash paid during the year for:
Interest	$	88,620		$	86,075		$	74,275
Income taxes		57,055			56,179			40,594

~~Expense~~Unrealized ~~related~~foreign tocurrency ~~these benefits~~translation ~~was~~gains ~~$923~~and losses, ~~$803~~which ~~and~~are ~~$724~~non-cash items, are excluded from the change in ~~2004,~~short-term ~~2003~~investments and ~~2002,~~advances ~~respectively~~from parent.

1217. ~~Purchase~~Related ~~Obligation~~Party ~~Commitments~~Transactions

~~At December~~The ~~31,~~following ~~2004,~~table sets forth the ~~Company~~related ~~had~~party ~~purchase~~transaction ~~obligation~~amounts ~~commitments~~included ~~outstanding~~in ofthe ~~$94,746~~consolidated ~~primarily~~financial ~~for~~statements, ~~the~~other ~~purchase~~than ofthose ~~hopper~~disclosed ~~cars~~elsewhere ~~and~~in ~~intermodal~~these ~~tank~~consolidated ~~containers~~financial statements.

13. Consolidating Financial Information


	Interest Expense (Income)			Administrative Services Fee		Insurance Billed
2006	$	10,001		$	4,314	$	5,427
2005		(5,921	)		4,314		6,087
2004		(7,774	)		4,314		5,616

The ~~following~~Company ~~condensed~~from ~~consolidating~~time ~~statements~~to ~~for~~time ~~the~~advances ~~years~~funds ~~ended~~in ~~December~~excess ~~31,~~of ~~2004,~~its ~~2003~~current ~~and~~cash ~~2002~~requirements ~~are~~for ~~provided~~domestic ~~because~~operations ~~Procor~~to Holdings ~~Limited,~~on ~~a wholly-owned~~an ~~subsidiary~~unsecured ofdemand basis. Conversely, when the Company, ~~has~~requires ~~issued~~additional ~~three~~funds ~~separate~~to ~~series~~support ofits ~~equipment~~operations ~~trust~~and ~~certificates~~capital expenditures, ~~guaranteed~~required amounts are provided by ~~Union~~Holdings. ~~Tank~~Such ~~Car~~advances ~~Company~~from/(to) Holdings, aswhich ~~part~~bear ofinterest principally ~~certain~~at ~~public~~30-day ~~debt~~LIBOR ~~offerings~~plus ~~issued~~1%, byamounted ~~Union~~to ~~Tank~~$422,436 ~~Car~~and ~~Company~~$(17,098) inat ~~the~~December 31, ~~United~~2006 ~~States~~and 2005, respectively.

~~Condensed~~Certain ~~consolidating~~of ~~statements~~the ofCompany’s Canadian ~~income~~operations ~~for~~and its affiliates enter into intercompany loans utilizing their respective excess cash balances. These advances between the ~~years~~Company ~~ended~~and ~~December~~subsidiaries 31of Holdings resulted in payables of $49,710 and $27,675 at ~~2004~~December 31, 2006 ~~2003~~ and ~~2002~~2005, respectively, which are asincluded ~~follows:~~in advances from parent and affiliates in the consolidated balance sheets.

~~Year~~- ~~Ended~~52 ~~December~~- ~~31, 2004~~

	Union Tank CarCompany		ProcorLimited		OtherSubsidiaries		Eliminations			Consolidated
Revenues
Services	$	481,324	$	23,303	$	317,030	$	(73,742	)	$	747,915
Net sales		46,448		464		742,501		(11,042	)		778,371
		527,772		23,767		1,059,531		(84,784	)		1,526,286
Other income, net		103,906		9,936		2,015		(93,339	)		22,518
		631,678		33,703		1,061,546		(178,123	)		1,548,804
Costs and expenses
Cost of services		316,302		17,245		205,414		(73,742	)		465,219
Cost of sales		45,183		344		607,597		(10,311	)		642,813
General and administrative		37,508		3,662		100,376		—			141,546
Interest		57,610		2,364		14,822		—			74,796
		456,603		23,615		928,209		(84,053	)		1,324,374
Income before income taxes		175,075		10,088		133,337		(94,070	)		224,430
Provision for income taxes		32,429		1,883		47,472		—			81,784
Net income	$	142,646	$	8,205	$	85,865	$	(94,070	)	$	142,646

- 38 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1317. ~~Consolidating~~Related ~~Financial~~Party ~~Information~~Transactions (Continued)

~~Year~~An ~~Ended~~administrative ~~December~~services 31fee is paid to The Marmon Group, ~~2003~~Inc. (“Marmon”), a subsidiary of Holdings, 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 the Company. The Company obtains these services from Marmon because it is considered more cost efficient to obtain such services in this manner. This administrative services fee also includes amounts in respect of the compensation of executive officers of the Company employed by Marmon.

	Union Tank CarCompany		ProcorLimited			OtherSubsidiaries		Eliminations			Consolidated
Revenues
Services	$	468,758	$	25,885		$	294,049	$	(70,256	)	$	718,436
Net sales		44,625		858			523,010		(8,902	)		559,591
		513,383		26,743			817,059		(79,158	)		1,278,027
Other income (expense), net		37,574		(5,644	)		2,897		(24,372	)		10,455
		550,957		21,099			819,956		(103,530	)		1,288,482
Costs and expenses
Cost of services		322,362		25,739			189,312		(70,256	)		467,157
Cost of sales		45,265		821			430,699		(8,902	)		467,883
Write-down of investment in direct financing lease		—		24,506			—		—			24,506
Goodwill impairment		—		—			16,044		—			16,044
General and administrative		36,150		658			95,512		—			132,320
Interest		52,303		4,464			15,073		—			71,840
		456,080		56,188			746,640		(79,158	)		1,179,750
Income (loss) before income taxes		94,877		(35,089	)		73,316		(24,372	)		108,732
Provision for income taxes		25,123		(10,639	)		24,494		—			38,978
Net income (loss)	$	69,754	$	(24,450	)	$	48,822	$	(24,372	)	$	69,754
Year Ended December 31, 2002
	Union Tank CarCompany		ProcorLimited			OtherSubsidiaries		Eliminations			Consolidated
Revenues
Services	$	469,132	$	26,548		$	259,251	$	(63,224	)	$	691,707
Net sales		30,957		6,002			539,059		(9,315	)		566,703
		500,089		32,550			798,310		(72,539	)		1,258,410
Other income, net		70,987		6,149			478		(61,662	)		15,952
		571,076		38,699			798,788		(134,201	)		1,274,362
Costs and expenses
Cost of services		317,410		22,887			163,203		(63,224	)		440,276
Cost of sales		33,252		5,728			438,616		(9,315	)		468,281
General and administrative		37,079		1,118			96,266		—			134,463
Interest		60,571		3,254			14,464		—			78,289
		448,312		32,987			712,549		(72,539	)		1,121,309
Income before income taxes		122,764		5,712			86,239		(61,662	)		153,053
Provision for income taxes		26,015		1,116			29,173		—			56,304
Net income	$	96,749	$	4,596		$	57,066	$	(61,662	)	$	96,749

Worldwide Containers, Inc. (“WCI”), an indirect majority-owned subsidiary of the Company, is approximately 20% owned by an affiliate of the Company. The Company’s minority partners’ interest in WCI at December 31, 2006 and 2005 was $101,208 and $92,681, respectively. The minority interest in income for the years ended December 31, 2006, 2005 and 2004 was $8,527, $6,409 and $5,797, respectively.

-WCI 39has a demand note with Holdings which bears interest at 30-day LIBOR plus 0.2% payable quarterly. The amount outstanding under this note as of December 31, 2006 and 2005 totaled $44,012 and $43,853, respectively. These amounts are recorded in accounts and notes receivable, affiliate in the consolidated balance sheets.

WCI has a 20.0% minority investment in a domestic subsidiary of Holdings. This minority investment included in other assets in the consolidated balance sheets at December 31, 2006 and 2005 was $6,480 and $5,486, respectively.

Another subsidiary of the Company has a 23.7% minority investment in a foreign subsidiary of Holdings. This minority investment included in other assets in the consolidated balance sheets at December 31, 2006 and 2005 was $12,342 and $11,008, respectively.

- 53 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1318. ~~Consolidating~~Quarterly ~~Financial~~Data ~~Information~~ (~~Continued~~Unaudited)

Condensed consolidating balance sheets as of December 31, 2004 and 2003 are as follows:


	Three Months Ended
	Mar. 31		June 30		Sept. 30		Dec. 31
2006
Sales and services revenues	$	457,701	$	507,681	$	456,450	$	449,930
Cost of sales and services		332,138		365,384		322,983		314,093

Gross profit		125,563		142,297		133,467		135,837

Net income	$	43,800	$	59,934	$	46,146	$	47,188

2005
Sales and services revenues	$	400,707	$	416,464	$	417,176	$	427,324
Cost of sales and services		287,244		298,710		296,116		311,072

Gross profit		113,463		117,754		121,060		116,252

Net income	$	35,851	$	39,672	$	45,467	$	80,060

~~December~~Results 31for the second quarter of 2006 included the completion of a major sulphur equipment processing project, increases ~~2004~~in metal distribution product sales and an increase in railcar service revenues, which in total increased gross profit approximately $14,000.

	Union Tank CarCompany			ProcorLimited			OtherSubsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	61,663		$	33,123		$	3,550		$	—		$	98,336
Short-term investments		—			45,429			—			—			45,429
Available-for-sale securities		243,986			—			910			—			244,896
Accounts receivable		39,971			2,668			193,962			(63,912	)		172,689
Accounts and notes receivable, affiliates		—			—			43,626			—			43,626
Inventories, net		44,780			1,924			100,240			—			146,944
Prepaid expenses and deferred charges		4,592			2,840			5,860			—			13,292
Advances (from) to parent		(122,196	)		(73,143	)		345,133			452			150,246
Railcar lease fleet, net		1,557,425			31,661			215,995			(731	)		1,804,350
Intermodal tank container lease fleet, net		—			—			323,601			—			323,601
Other fixed assets, net		90,524			15,303			93,159			—			198,986
Investment in subsidiaries		813,631			75,455			77,512			(966,598	)		—
Other assets		13			3,792			31,617			—			35,422
Total assets	$	2,734,389		$	139,052		$	1,435,165		$	(1,030,789	)	$	3,277,817
Liabilities and Stockholder’s Equity
Accounts payable	$	55,474		$	17,132		$	65,589		$	(63,589	)	$	74,606
Accrued liabilities		185,005			5,505			72,403			2,567			265,480
Borrowed debt		1,010,625			18,479			138,147			—			1,167,251
		1,251,104			41,116			276,139			(61,022	)		1,507,337
Deferred income taxes and investment tax credits		442,416			23,453			130,257			—			596,126
Minority interest		—			—			97,355			—			97,355
Stockholder’s equity
Common stock and additional capital		358,475			13,345			358,799			(465,558	)		265,061
Retained earnings		691,547			61,830			563,267			(504,305	)		812,339
Unrealized losses on available-for-sale securities, net		(399	)		—			(2	)		—			(401	)
Equity adjustment from foreign currency translation		(8,754	)		(692	)		9,350			96			—
Total stockholder’s equity		1,040,869			74,483			931,414			(969,767	)		1,076,999
Total liabilities and stockholder’s equity	$	2,734,389		$	139,052		$	1,435,165		$	(1,030,789	)	$	3,277,817

Results for the fourth quarter of 2005 included a $34,937 tax benefit as a result of settling federal tax issues with the Internal Revenue Service for 1976 through 1999 (see Note 5).

- 4054 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1319. Consolidating Financial Information ~~(Continued)~~

~~December~~The following condensed consolidating statements for the years ended December 31, ~~2003~~2006, 2005 and 2004 are provided as a result of Procor Limited, a 100% owned subsidiary of the Company, issuing three separate series of equipment trust certificates, fully and unconditionally guaranteed by Union Tank Car Company, as part of certain public debt offerings issued by Union Tank Car Company in the United States.

	Union Tank CarCompany		ProcorLimited			OtherSubsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	82	$	48,759		$	7,356		$	—		$	56,197
Short-term investments		—		62,606			—			—			62,606
Accounts receivable		36,036		2,957			153,195			(59,152	)		133,036
Accounts and notes receivable, affiliates		—		—			43,546			—			43,546
Inventories, net		27,820		3,739			90,340			—			121,899
Prepaid expenses and deferred charges		3,873		2,503			3,335			—			9,711
Advances to (from) parent		104,831		(90,828	)		296,316			473			310,792
Railcar lease fleet, net		1,411,232		30,200			234,861			—			1,676,293
Intermodal tank container lease fleet, net		—		—			299,897			—			299,897
Other fixed assets, net		83,313		16,224			93,281			—			192,818
Investment in direct financing lease		—		2,082			—			—			2,082
Investment in subsidiaries		780,205		75,452			126,655			(982,312	)		—
Other assets		92		(1	)		41,997			1			42,089
Total assets	$	2,447,484	$	153,693		$	1,390,779		$	(1,040,990	)	$	2,950,966
Liabilities and Stockholder’s Equity
Accounts payable	$	51,242	$	17,525		$	50,431		$	(58,862	)	$	60,336
Accrued liabilities		189,729		3,654			68,809			2,620			264,812
Borrowed debt		775,854		19,538			150,295			—			945,687
		1,016,825		40,717			269,535			(56,242	)		1,270,835
Deferred income taxes and investment tax credits		417,885		21,114			115,820			—			554,819
Minority interest		—		—			91,557			1			91,558
Stockholder’s equity
Common stock and additional capital		358,475		13,345			359,606			(466,365	)		265,061
Retained earnings		647,271		78,318			561,596			(518,492	)		768,693
Equity adjustment from foreign currency translation		7,028		199			(7,335	)		108			—
Total stockholder’s equity		1,012,774		91,862			913,867			(984,749	)		1,033,754
Total liabilities and stockholder’s equity	$	2,447,484	$	153,693		$	1,390,779		$	(1,040,990	)	$	2,950,966

Condensed consolidating statements of income for the years ended December 31, 2006, 2005 and 2004 are as follows:

- 41 -


	Year Ended December 31, 2006
	Union Tank Car Company		Procor Limited		Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	551,225	$	26,538	$	328,382	$	(85,909	)	$	820,236
Sales		—		—		1,466,768		(415,242	)		1,051,526

		551,225		26,538		1,795,150		(501,151	)		1,871,762

Costs and expenses
Cost of services		336,346		17,950		183,155		(85,909	)		451,542
Cost of sales		—		—		1,298,120		(415,064	)		883,056
General and administrative		34,830		4,403		101,798		—			141,031
Interest expense		79,775		2,643		13,180		—			95,598

		450,951		24,996		1,596,253		(500,973	)		1,571,227

Operating income		100,274		1,542		198,897		(178	)		300,535

Other income, net		6,611		6,428		6,587		—			19,626

Income before income taxes and minority interest		106,885		7,970		205,484		(178	)		320,161
Provision for income taxes		42,796		1,009		70,761		—			114,566

		64,089		6,961		134,723		(178	)		205,595
Equity in income of subsidiaries		132,979		—		—		(132,979	)		—
Minority interest		—		—		8,527		—			8,527

Net income	$	197,068	$	6,961	$	126,196	$	(133,157	)	$	197,068

- 55 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1319. Consolidating Financial Information (Continued)

Condensed consolidating statements of cash flows for the years ended December 31, 2004, 2003 and 2002 are as follows:


	Year Ended December 31, 2005
	Union Tank Car Company			Procor Limited		Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	521,348		$	22,430	$	299,995	$	(76,183	)	$	767,590
Sales		—			—		1,228,670		(334,589	)		894,081

		521,348			22,430		1,528,665		(410,772	)		1,661,671

Costs and expenses
Cost of services		330,754			14,659		179,546		(76,183	)		448,776
Cost of sales		406			—		1,078,161		(334,201	)		744,366
General and administrative		40,341			3,941		99,458		—			143,740
Interest expense		69,628			2,152		15,894		1			87,675

		441,129			20,752		1,373,059		(410,383	)		1,424,557

Operating income		80,219			1,678		155,606		(389	)		237,114

Other income, net		9,507			3,496		8,879		4,899			26,781

Income before income taxes and minority interest		89,726			5,174		164,485		4,510			263,895
Provision for income taxes		(1,558	)		1,529		56,465		—			56,436

		91,284			3,645		108,020		4,510			207,459
Equity in income of subsidiaries		109,766			—		—		(109,766	)		—
Minority interest		—			—		6,409		—			6,409

Net income	$	201,050		$	3,645	$	101,611	$	(105,256	)	$	201,050


	Year Ended December 31, 2004
	Union Tank Car Company			Procor Limited		Other Subsidiaries		Eliminations			Consolidated
Revenues
Services	$	481,324		$	23,303	$	317,030	$	(73,742	)	$	747,915
Sales		46,448			464		742,501		(11,042	)		778,371

		527,772			23,767		1,059,531		(84,784	)		1,526,286

Costs and expenses
Cost of services		316,302			17,245		205,414		(73,742	)		465,219
Cost of sales		45,183			344		607,597		(10,311	)		642,813
General and administrative		37,508			3,662		100,376		—			141,546
Interest expense		57,610			2,364		14,822		—			74,796

		456,603			23,615		928,209		(84,053	)		1,324,374

Operating income		71,169			152		131,322		(731	)		201,912

Other income, net		10,567			9,936		7,812		—			28,315

Income before income taxes and minority interest		81,736			10,088		139,134		(731	)		230,227
Provision for income taxes		32,429			1,883		47,472		—			81,784

		49,307			8,205		91,662		(731	)		148,443
Equity in income of subsidiaries		93,339			—		—		(93,339	)		—
Minority interest		—			—		5,797		—			5,797

Net income	$	142,646		$	8,205	$	85,865	$	(94,070	)	$	142,646

~~Year~~- ~~Ended~~56 ~~December~~- ~~31, 2004~~

	Union Tank CarCompany			ProcorLimited			OtherSubsidiaries			Eliminations			Consolidated
Net cash provided by operating activities:	$	144,134		$	7,514		$	131,314		$	—		$	282,962
Cash flows from investing activities:
Construction and purchase of lease fleet and other fixed assets		(260,358	)		(1,294	)		(69,733	)		—			(331,385	)
Decrease in short-term investments		—			15,614			—			—			15,614
Increase in available-for-sale securities		(244,598	)		—			(912	)		—			(245,510	)
Decrease (increase) in advance to parent		266,185			(17,685	)		(20,001	)		(80,290	)		148,209
(Increase) decrease in other assets		—			(1,612	)		9,868			—			8,256
Proceeds from disposals of lease fleet and other fixed assets		14,103			4,018			13,004			—			31,125
Proceeds from disposition of business		6,344			—			—			—			6,344
Net cash used in investing activities		(218,324	)		(959	)		(67,774	)		(80,290	)		(367,347	)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt		300,000			—			—			—			300,000
Principal payments of borrowed debt		(65,229	)		(1,060	)		(12,147	)		—			(78,436	)
Cash dividends		(99,000	)		(25,115	)		(55,175	)		80,290			(99,000	)
Net cash provided by (used in) financing activities		135,771			(26,175	)		(67,322	)		80,290			122,564
Effect of exchange rates on cash and cash equivalents		—			3,984			(24	)		—			3,960
Net increase (decrease) in cash and cash equivalents		61,581			(15,636	)		(3,806	)		—			42,139
Cash and cash equivalents at beginning of year		82			48,759			7,356			—			56,197
Cash and cash equivalents at end of year	$	61,663		$	33,123		$	3,550		$	—		$	98,336

- 42 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1319. Consolidating Financial Information (Continued)

~~Year~~Condensed ~~Ended~~consolidating ~~December~~balance sheets as of December 31, ~~2003~~2006 and 2005 are as follows:

	Union Tank CarCompany			ProcorLimited				OtherSubsidiaries				Eliminations				Consolidated
	December 31, 2006
Net cash provided by operating activities:	$	153,880		$	13,451			$	143,875			$	—			$	311,206
	Union Tank CarCompany			ProcorLimited			OtherSubsidiaries			Eliminations				Consolidated
Cash flows from investing activities:
Assets
Construction and purchase of lease fleet and other fixed assets		(198,640	)		(1,194	)			(46,383	)			—				(246,217	)
Cash and cash equivalents	$	48,935		$	115,723		$	930		$	—			$	165,588
Decrease in short-term investments		—			11,706				—				—				11,706
Short-term investments		—			97,542			—			—				97,542
Decrease (increase) in advance to parent		107,340			46,151				(45,709	)			(97,327	)			10,455
Available-for-sale securities		24,445			—			—			—				24,445
Increase in other assets		—			—				(1,679	)			—				(1,679	)
Accounts receivable, net		122,788			1,737			237,665			(156,854	)			205,336
Proceeds from disposals of lease fleet and other fixed assets		19,815			590				11,945				—				32,350
Accounts and notes receivable, affiliate		—			—			44,012			—				44,012
Proceeds from disposition of business		—			—				625				—				625
Inventories, net		7,246			1,429			210,204			—				218,879
Net cash (used in) provided by investing activities		(71,485	)		57,253				(81,201	)			(97,327	)			(192,760	)
Prepaid expenses and deferred charges		3,323			3,568			4,032			—				10,923
Cash flows from financing activities:
Advances to parent and affiliates		—			—			343,224			(343,224	)			—
Proceeds from issuance of borrowed debt		—			—				145				—				145
Railcar lease fleet, net		2,450,558			30,164			189,544			(566	)			2,669,700
Principal payments of borrowed debt		(34,472	)		(15,525	)			(12,552	)			—				(62,549	)
Intermodal tank container lease fleet, net		—			—			356,329			—				356,329
Cash dividends		(48,000	)		(50,815	)			(46,512	)			97,327				(48,000	)
Other fixed assets, net		40,867			15,321			220,290			—				276,478
Net cash (used in) provided by financing activities		(82,472	)		(66,340	)			(58,919	)			97,327				(110,404	)
Investment in subsidiaries		934,687			75,453			40,944			(1,051,084	)			—
Effect of exchange rates on cash and cash equivalents		—			7,773				160				—				7,933
Other assets		6,630			359			31,350			—				38,339
Net (decrease) increase in cash and cash equivalents		(77	)		12,137				3,915				—				15,975
Total assets	$	3,639,479		$	341,296		$	1,678,524		$	(1,551,728	)		$	4,107,571
Cash and cash equivalents at beginning of year		159			36,622				3,441				—				40,222
Liabilities and Stockholder’s Equity
Cash and cash equivalents at end of year	$	82		$	48,759			$	7,356			$	—			$	56,197
Accounts payable	$	67,588		$	17,335		$	168,336		$	(156,841	)		$	96,418
Accrued liabilities		122,997			6,349			101,372			391				231,109
Advances from parent and affiliates		557,753			257,813			—			(343,420	)			472,146
Debt		1,238,382			2,119			113,146			—				1,353,647
Deferred income taxes and investment tax credits		485,275			17,530			140,648			—				643,453
Total liabilities		2,471,995			301,146			523,502			(499,870	)			2,796,773
Minority interest		—			—			101,208			—				101,208
Stockholder’s equity
Common stock and additional capital		369,558			13,345			370,791			(477,550	)			276,144
Retained earnings		810,814			26,687			670,264			(574,308	)			933,457
Accumulated other comprehensive (losses) gains		(12	)		—			1			—				(11	)
Equity adjustment from foreign currency translation		(12,876	)		118			12,758			—				—
Total stockholder’s equity		1,167,484			40,150			1,053,814			(1,051,858	)			1,209,590
Total liabilities and stockholder’s equity	$	3,639,479		$	341,296		$	1,678,524		$	(1,551,728	)		$	4,107,571

- 4357 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1319. Consolidating Financial Information (Continued)

Year Ended December 31, 2002


	December 31, 2005
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Assets

Cash and cash equivalents	$	70,943		$	75,151		$	4,534		$	—		$	150,628
Short-term investments		—			82,003			—			—			82,003
Available-for-sale securities		224,000			—			—			—			224,000
Accounts receivable, net		40,682			1,445			203,808			(63,730	)		182,205
Accounts and notes receivable, affiliate		—			—			43,853			—			43,853
Inventories, net		9,464			1,652			143,348			(69	)		154,395
Prepaid expenses and deferred charges		3,296			2,479			3,673			—			9,448
Advances to parent and affiliates		—			—			386,205			(386,205	)		—
Railcar lease fleet, net		1,911,056			31,398			213,290			(319	)		2,155,425
Intermodal tank container lease fleet, net		—			—			335,510			—			335,510
Other fixed assets, net		41,261			15,196			187,376			—			243,833
Investment in subsidiaries		978,377			75,455			83,416			(1,137,248	)		—
Other assets		5,820			791			33,169			—			39,780

Total assets	$	3,284,899		$	285,570		$	1,638,182		$	(1,587,571	)	$	3,621,080


Liabilities and Stockholder’s Equity

Accounts payable	$	54,864		$	16,492		$	95,506		$	(63,729	)	$	103,133
Accrued liabilities		158,123			3,687			81,432			375			243,617
Advances from parent and affiliates		250,875			146,074			—			(386,372	)		10,577
Debt		1,294,134			17,419			127,237			—			1,438,790
Deferred income taxes and investment tax credits		420,937			23,308			141,453			—			585,698

Total liabilities		2,178,933			206,980			445,628			(449,726	)		2,381,815

Minority interest		—			—			92,681			—			92,681

Stockholder’s equity
Common stock and additional capital		367,711			13,345			368,339			(475,098	)		274,297
Retained earnings		751,967			65,843			718,326			(662,747	)		873,389
Accumulated other comprehensive losses		(1,098	)		—			(4	)		—			(1,102	)
Equity adjustment from foreign currency translation		(12,614	)		(598	)		13,212			—			—

Total stockholder’s equity		1,105,966			78,590			1,099,873			(1,137,845	)		1,146,584

Total liabilities and stockholder’s equity	$	3,284,899		$	285,570		$	1,638,182		$	(1,587,571	)	$	3,621,080

	Union Tank CarCompany			ProcorLimited			OtherSubsidiaries			Eliminations			Consolidated
Net cash provided by operating activities:	$	122,891		$	16,053		$	143,780		$	—		$	282,724
Cash flows from investing activities:
Construction and purchase of lease fleet and other fixed assets		(83,842	)		(1,093	)		(37,791	)		—			(122,726	)
Decrease in short-term investments		—			33,758			—			—			33,758
Decrease (increase) in advance to parent		132,422			(5,797	)		(63,919	)		(26,428	)		36,278
Increase in other assets		—			—			(1,014	)		—			(1,014	)
Proceeds from disposals of lease fleet and other fixed assets		7,835			853			5,237			—			13,925
Purchases of businesses, net of cash acquired		—			—			(9,074	)		—			(9,074	)
Net cash provided by (used in) investing activities		56,415			27,721			(106,561	)		(26,428	)		(48,853	)
Cash flows from financing activities:
Proceeds from issuance of borrowed debt		—			—			3,412			—			3,412
Principal payments of borrowed debt		(112,207	)		(15,851	)		(13,255	)		—			(141,313	)
Cash dividends		(67,000	)		—			(26,428	)		26,428			(67,000	)
Net cash (used in) provided by financing activities		(179,207	)		(15,851	)		(36,271	)		26,428			(204,901	)
Effect of exchange rates on cash and cash equivalents		—			109			12			—			121
Net increase in cash and cash equivalents		99			28,032			960			—			29,091
Cash and cash equivalents at beginning of year		60			8,590			2,481			—			11,131
Cash and cash equivalents at end of year	$	159		$	36,622		$	3,441		$	—		$	40,222

- 58 -

- 44 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1419. ~~Related~~Consolidating ~~Party~~Financial ~~Transactions~~Information (Continued)

~~The~~Condensed ~~following~~consolidating ~~table~~statements ~~sets~~of ~~forth~~cash ~~the~~flows ~~major~~for ~~related~~the ~~party~~years ~~transaction~~ended ~~amounts~~December 31, ~~included~~2006, in2005 ~~the~~and ~~consolidated~~2004 ~~financial~~are ~~statements,~~as ~~other~~follows: ~~than those disclosed elsewhere.~~

	Interest Income			Management Expense			Insurance Billed
	Year Ended December 31, 2006
2004	$	7,774		$	4,314		$	5,616
	Union Tank CarCompany				ProcorLimited				OtherSubsidiaries			Eliminations			Consolidated
2003		8,649			4,314			5,595
Net cash provided by operating activities:	$	130,910			$	11,999			$	184,746		$	(232	)	$	327,423
2002		11,015			4,314			5,258
Cash flows from investing activities:
Construction and purchase of lease fleet		(658,785	)			(118	)			(52,826	)		261			(711,468	)
Purchases of other fixed assets		(5,142	)			(2,519	)			(49,699	)		—			(57,360	)
Proceeds from sales of available-for-sale securities		197,452				—				—			—			197,452
Purchases of short-term investments		—				(116,084	)			—			—			(116,084	)
Proceeds from sales of short-term investments		—				97,313				—			—			97,313
(Increase) decrease in other assets		(403	)			432				(2,711	)		—			(2,682	)
Proceeds from disposals of lease fleet and other fixed assets		18,370				49				19,212			—			37,631
Proceeds from disposition of business		—				—				900			—			900
Net cash used in investing activities		(448,508	)			(20,927	)			(85,124	)		261			(554,298	)
Cash flows from financing activities:
Increase in advances from parent and affiliates		488,342				111,739				89,805			(224,803	)		465,083
Principal payments of debt		(55,752	)			(15,300	)			(14,091	)		—			(85,143	)
Cash dividends		(137,000	)			(46,494	)			(178,280	)		224,774			(137,000	)
Net cash provided by (used in) financing activities		295,590				49,945				(102,566	)		(29	)		242,940
Effect of exchange rates on cash and cash equivalents		—				(445	)			(660	)		—			(1,105	)
Net (decrease) increase in cash and cash equivalents		(22,008	)			40,572				(3,604	)		—			14,960
Cash and cash equivalents at beginning of year		70,943				75,151				4,534			—			150,628
Cash and cash equivalents at end of year	$	48,935			$	115,723			$	930		$	—		$	165,588

~~The~~- ~~Company~~59 ~~from~~- time to time advances funds in excess of its current cash requirements for domestic operations to Holdings or its subsidiaries on an unsecured demand basis. Such advances, which bear interest principally at LIBOR plus 1%, amounted to $130,459 and $297,437 at December 31, 2004 and 2003, 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 Holdings resulted in receivables of $19,787 and $13,355 at December 31, 2004 and 2003, 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, 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’ subsidiaries and affiliates. The Company obtains these services from Marmon because it is considered more cost efficient to obtain such services in this manner.

The interest of minority shareholders in Worldwide Containers, Inc. at December 31, 2004 and 2003 was $97,355 and $91,558, respectively. The minority interest in income for the years ended December 31, 2004, 2003 and 2002 was $5,797, $4,918 and $4,257, respectively.

All minority interest in income was included as a charge against other income.

- 45 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1519. ~~Derivative~~Consolidating Financial ~~Instruments~~Information (Continued)


	Year Ended December 31, 2005
	Union Tank Car Company			Procor Limited			Other Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities:	$	174,873		$	835		$	162,320		$	128		$	338,156

Cash flows from investing activities:
Construction and purchase of lease fleet		(451,322	)		(164	)		(58,823	)		(413	)		(510,722	)
Purchases of other fixed assets		(3,782	)		(1,178	)		(66,228	)		—			(71,188	)
Purchases of available-for-sale securities		(103,088	)		—			—			—			(103,088	)
Proceeds from sales of available-for-sale securities		114,791			—			—			—			114,791
Purchases of short-term investments		—			(78,915	)		—			—			(78,915	)
Proceeds from sales of short-term investments		—			45,429			—			—			45,429
Increase (decrease) in advances from parent and affiliates		124,138			72,053			(41,211	)		285			155,265
(Increase) decrease in other assets		(1,778	)		2,960			(1,351	)		—			(169	)
Proceeds from disposals of lease fleet and other fixed assets		11,938			186			9,915			—			22,039
Proceeds from disposition of business		—			—			7,274			—			7,274

Net cash (used in) provided by investing activities		(309,103	)		40,371			(150,424	)		(128	)		(419,284	)

Cash flows from financing activities:
Proceeds from issuance of debt		311,000			—			1,121			—			312,121
Principal payments of debt		(27,490	)		(1,060	)		(12,033	)		—			(40,583	)
Cash dividends		(140,000	)		—			—			—			(140,000	)

Net cash provided by (used in) financing activities		143,510			(1,060	)		(10,912	)		—			131,538

Effect of exchange rates on cash and cash equivalents		—			1,882			—			—			1,882

Net increase in cash and cash equivalents		9,280			42,028			984			—			52,292

Cash and cash equivalents at beginning of year		61,663			33,123			3,550			—			98,336

Cash and cash equivalents at end of year	$	70,943		$	75,151		$	4,534		$	—		$	150,628

~~16.~~- ~~Quarterly~~60 ~~Data~~- ~~(Unaudited)~~

	Three Months Ended
	March 31		June 30		Sept. 30		Dec. 31
2004
Net sales and services revenues	$	348,166	$	374,536	$	394,304	$	409,280
Cost of sales and services		250,714		266,307		284,669		306,342
Gross profit		97,452		108,229		109,635		102,938
Net income	$	28,457	$	34,981	$	37,945	$	41,263
2003
Net sales and services revenues	$	306,057	$	317,095	$	321,972	$	332,903
Cost of sales and services		221,370		232,319		232,380		248,971
Gross profit		84,687		84,776		89,592		83,932
Net income	$	20,859	$	5,025	$	27,093	$	16,777

Results for the second quarter of 2003 included the write-down of $15.7 million in value of the investment in direct financing lease (see Note 5). Results for the fourth quarter of 2003 included a $10.9 million goodwill impairment and a $13.5 million tax adjustment.

Certain amounts previously reported in the Form 10-Q for 2004 and 2003 have been reclassified from general and administrative to cost of sales and services to conform to the year-end presentation.

- 46 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1719. ~~Supplementary~~Consolidating ~~Disclosures~~Financial ~~of Cash Flow~~ Information (Continued)

	For the Year Ended December 31,
	Year Ended December 31, 2004
	2004			2003			2002
	Union Tank CarCompany			ProcorLimited			OtherSubsidiaries			Eliminations			Consolidated
Changes in operating assets and liabilities:
Net cash provided by operating activities:	$	145,092		$	7,514		$	133,252		$	—		$	285,858
Accounts receivable	$	(40,606	)	$	(15,528	)	$	13,568
Cash flows from investing activities:
Inventories		(36,675	)		8,804			(190	)
Construction and purchase of lease fleet		(234,484	)		(219	)		(53,272	)		—			(287,975	)
Prepaid expenses and deferred charges		(3,928	)		1,277			(1,087	)
Purchases of other fixed assets		(23,936	)		(1,075	)		(18,399	)		—			(43,410	)
Accounts payable, accrued rent and accrued liabilities		23,910			21,716			(27,810	)
Purchases of available-for-sale securities		(295,228	)		—			(912	)		—			(296,140	)
	$	(57,299	)	$	16,269		$	(15,519	)
Proceeds from sales of available-for-sale securities		47,734			—			—			—			47,734
Cash paid during the year for:
Purchases of short-term investments		—			(46,992	)		—			—			(46,992	)
Interest	$	74,275		$	72,565		$	84,106
Proceeds from sales of short-term investments		—			62,606			—			—			62,606
Income taxes		40,594			1,130			17,868
Decrease (increase) in advance to parent and affiliates		266,185			(17,685	)		(20,001	)		(80,290	)		148,209
(Increase) decrease in other assets		—			(1,612	)		9,868			—			8,256
Proceeds from disposals of lease fleet and other fixed assets		14,103			4,018			13,004			—			31,125
Proceeds from disposition of business		6,344			—			—			—			6,344
Net cash used in investing activities		(219,282	)		(959	)		(69,712	)		(80,290	)		(370,243	)
Cash flows from financing activities:
Proceeds from issuance of debt		300,000			—			—			—			300,000
Principal payments of debt		(65,229	)		(1,060	)		(12,147	)		—			(78,436	)
Cash dividends		(99,000	)		(25,115	)		(55,175	)		80,290			(99,000	)
Net cash provided by (used in) financing activities		135,771			(26,175	)		(67,322	)		80,290			122,564
Effect of exchange rates on cash and cash equivalents		—			3,984			(24	)		—			3,960
Net increase (decrease) in cash and cash equivalents		61,581			(15,636	)		(3,806	)		—			42,139
Cash and cash equivalents at beginning of year		82			48,759			7,356			—			56,197
Cash and cash equivalents at end of year	$	61,663		$	33,123		$	3,550		$	—		$	98,336

~~Unrealized foreign currency translation gains and losses, which are non~~-~~cash~~ ~~items,~~61 ~~are excluded from the change in short~~-~~term~~ ~~investments and advances to parent.~~

18. Investment in Marketable Securities

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

December 31, 2004		Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
U.S. Corporate Securities		$	245,510		$	—		$	(614	)		$	244,896

The gross unrealized holding losses, less related tax of $213, have been reported as a separate component of stockholder’s equity in the accompanying condensed consolidated balance sheet.

- 47 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1920. Industry Segment Information

The ~~principal~~Company ~~activity~~operates ofits ~~the~~largest ~~Company’s~~businesses ~~primary~~in ~~industry~~three ~~segment~~segments: ~~is railcar leasing~~Railcar, ~~services~~Metals Distribution and ~~sales~~Intermodal Tank Container Leasing. InSegmentation ~~addition,~~of the Company’s businesses ~~has~~is ~~two~~based ~~secondary~~upon ~~industry~~markets ~~segments as~~served ~~shown~~and inorganizational ~~the table below~~structure. ~~All~~The ~~other~~remaining ~~activities~~businesses of the Company, ~~as described previously,~~ plus corporate headquarters items and eliminations, are shown as All Other in the table:

	Railcar		MetalsDistribution			IntermodalTankContainerLeasing	~~IntermodalTankContainerLeasing~~		AllOther	~~All Other~~		ConsolidatedTotals	~~ConsolidatedTotals~~
	(Dollars in Millions)
2004
2006
Services revenue	$	~~552~~629.58	$	87.57		$	$112.9	~~96.5~~	$	$69.8	~~90.4~~	$	$820.2	~~747.9~~
Net sales revenue		46.4		578.8				—			153.2			778.4
Sales revenue		94.0		785.7			—			171.8			1,051.5
Interest income		—		—			—	—		17.1	~~13.0~~		17.1	~~13.0~~
Interest expense		6068.89		0.1			15.3	~~13.8~~		11.3	~~0.1~~		95.6	~~74.8~~
Depreciation and amortization		~~125~~154.02		3.96			28.7	~~25.9~~		6.2	~~7.4~~		192.7	~~162.2~~
Income before income taxes		127.4		38.5				15.6			42.9			224.4
Income before income taxes and minority interest		165.9		85.2			32.3			36.8			320.2
Segment assets		13,~~948~~035.16		~~194~~254.35			381.3	~~347.7~~		436.2	~~787.7~~		4,107.6	~~3,277.8~~
Expenditures for long-lived assets		~~261~~703.13		34.5			51.4	~~52.9~~		9.6	~~13.9~~		768.8	~~331.4~~
2003
2005
Services revenue	$	~~544~~593.95	$	8.17		$	$103.8	~~86.5~~	$	$61.6	~~78.9~~	$	$767.6	~~718.4~~
Net sales revenue		44.6		387.2				—			127.8			559.6
Sales revenue		66.4		695.5			—			132.2			894.1
Interest income		—0.1		—			—	—		17.8	~~10.7~~		17.9	~~10.7~~
Interest expense		5869.28		~~0.1~~—			15.2	~~13.4~~		2.7	~~0.1~~		87.7	~~71.8~~
Depreciation and amortization		~~119~~130.54		3.91			27.8	~~24.2~~		5.3	~~8.0~~		166.6	~~155.6~~
Income (loss) before income taxes*		103.9		(6.1	)			10.0			0.9			108.7
Income before income taxes and minority interest		122.8		73.4			21.9			45.8			263.9
Segment assets		12,~~921~~453.04		~~159~~202.02			359.1	~~330.2~~		606.4	~~540.8~~		3,621.1	~~2,951.0~~
Expenditures for long-lived assets		~~201~~523.98		64.53			41.9	~~31.0~~		11.9	~~6.8~~		581.9	~~246.2~~
2002
2004
Services revenue	$	~~539~~552.65	$	8.65		$	$96.5	~~80.2~~	$	$90.4	~~63.3~~	$	$747.9	~~691.7~~
Net sales revenue		32.7		396.4				—			137.6			566.7
Sales revenue		46.4		578.8			—			153.2			778.4
Interest income		—		—			—	—		13.0	~~13.9~~		13.0	~~13.9~~
Interest expense		6560.08		0.1			13.8	~~13.1~~		0.1	~~0.1~~		74.8	~~78.3~~
Depreciation and amortization		~~119~~125.0		43.49			25.9	~~22.1~~		7.4	~~7.6~~		162.2	~~153.1~~
Income before income taxes		111.7		11.1				6.4			23.9			153.1
Income before income taxes and minority interest		127.4		38.5			15.6			48.7			230.2
Segment assets		1,~~853~~948.41		~~181~~194.83			347.7	~~318.9~~		787.7	~~582.5~~		3,277.8	~~2,936.6~~
Expenditures for long-lived assets		86261.01		6.3.5			52.9	~~24.8~~		13.9	~~5.6~~		331.4	~~122.7~~

*- ~~Metals~~62 ~~Distribution includes goodwill impairment of $16.0 million and All Other includes write~~-~~down~~ ~~of investment in direct financing lease of $24.5 million.~~

- 48 -

UNION TANK CAR COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1920. Industry Segment Information (Continued)

Geographic Information

The following table presents geographic information for the Company. Revenues are attributed to countries based on location of customers.

	Revenues		Long-livedAssets
	(Dollars in Millions)
2006
United States	$	1,582.6	$	2,943.7
Canada		139.7		158.2
Other countries		149.5		238.9
Consolidated total	$	1,871.8	$	3,340.8
2005
United States	$	1,430.3	$	2,381.3
Canada		129.1		169.2
Other countries		102.3		224.0
Consolidated total	$	1,661.7	$	2,774.5
2004
United States	$	1,258.9	$	1,970.6
Canada		166.5		173.3
Other countries		100.9		218.5
Consolidated total	$	1,526.3	$	2,362.4
2003
United States	$	1,027.0	$	1,844.0
Canada		162.0		165.5
Other countries		89.0		203.7
Consolidated total	$	1,278.0	$	2,213.2
2002
United States	$	1,015.5	$	1,775.7
Canada		146.8		171.0
Other countries		96.1		209.4
Consolidated total	$	1,258.4	$	2,156.1

-21. 49Subsequent -Events

In March 2007, a subsidiary of the Company acquired two companies for approximately $39,000 in cash that have steel service centers in Pennsylvania, Ohio and Kentucky.

- 63 -

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

The Company’s management, including the Principal Executive Officer and Principal Financial Officer, does not expect that its disclosure controls and procedures or internal controls and procedures will prevent all error and all fraud. A control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

ITEM 9B.

OTHER INFORMATION

None.

- 5064 -

PART III

ITEM 10. DIRECTORS, ~~AND~~ EXECUTIVE OFFICERS OFAND ~~THE~~CORPORATE ~~REGISTRANT~~ GOVERNANCE

Name	Age	Current Positions or Offices	First ~~Elected~~Electedto to Position
Kenneth P. Fischl	5558	President, Chief Executive Officer ~~Director~~	~~20021994~~2002
Mark J. Garrette	51	Vice President, Principal Financial Officer Vice President of the Company andSenior Vice President andController - Tank Car Division	20021994
		Director	1994
Frank D. Lester	64	Vice President of the Company andPresident - Tank Car Division	1999
Mark J. Garrette	53	Vice President, Principal Financial Officer	2002
Robert K. Lorch	58	Vice President	2002
		Vice President	1994
John D. Nichols	74	Director	2002
Norman E. Gottschalk, Jr.	62	President, Marmon Distribution Services LLC	2002
Robert W. Webb	65	Director General Counsel and Secretary	20031986
Robert K. Lorch	61	Director	2006
		Vice President	2002
Frank S. Ptak	63	Director	2006
Robert W. Webb	68	Director	2003
		General Counsel and Secretary	1986

Messrs. Fischl, Garrette, and Gottschalk are executive officers of the Company.

Kenneth P. Fischl

Mr. Fischl was elected President of the Company in January 2002 and was elected President, Chief Executive Officer of the Company in August 2002. He was elected a Vice President of The Marmon Group, Inc. (“Marmon”) in May 1998. He 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 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.~~

Mark J. Garrette

Mr. Garrette was elected Principal Financial Officer of the Company in August 2002. He joined Marmon as a sector Chief Financial Officer in April 2002. He was appointed Senior Vice President and Controller of the Tank Car Division and elected Vice President ~~of the Company~~ in August 1994. He joined the Company ~~Tank Car Division as Vice President and Assistant Controller~~ in ~~May~~ 1994.

- 5165 -

~~Frank~~Norman DE. ~~Lester~~Gottschalk, Jr.

~~In August 1999,~~ Mr. Gottschalk ~~Lester~~has ~~was~~been ~~named~~ President of ~~the~~Marmon ~~Tank~~Distribution ~~Car~~Services ~~Division~~LLC, ~~and elected~~ a ~~Vice~~subsidiary ~~President~~ of the Company. ~~Mr.~~in ~~Lester joined~~ the ~~Tank~~ ~~Car~~metal ~~Division~~distribution inbusiness, ~~1979~~since asMay ~~a district sales manager~~2002. InHe ~~1981,~~has hebeen ~~was promoted to Vice~~ President -of ~~Sales,~~a ~~and~~subsidiary inof ~~1988,~~the heCompany ~~was~~since ~~named~~April ~~Vice President - Quality~~1989. ~~In 1994, Mr. Lester was elected to President of Procor Limited.~~

Robert K. Lorch

Mr. Lorch was elected as a Director of the Company in July 2006. Mr. Lorch has been Vice President of the Company insince September 2002. He has served as Vice President and Chief Financial Officer of Holdings and Senior Vice President and Chief Financial Officer of Marmon since April 2002. Prior to joining Marmon, Mr. Lorch was Vice President, Global Picture Tube Business, for Thomson Multimedia. He was appointed to that position in 1998 after having served Thomson Multimedia since 1988, first as General Manager, Sales, Marketing and New Business Development, and then as Vice President, Americas Business.

~~John~~Frank DS. ~~Nichols~~Ptak

Mr. Ptak ~~Nichols~~ was elected as a Director of the Company in January ~~2002~~2006. He is President and Chief Executive Officer of each of Holdings and Marmon. Prior to joining Marmon in January ~~2002~~2006, Mr. Ptak ~~Nichols~~ was ~~Chief Executive Officer and chairman of the board of~~ with Illinois Tool Works Inc. ~~(ITW)~~since ~~before~~1975, ~~his~~serving ~~retirement~~as inVice Chairman since 1996. Mr. Ptak ~~Nichols~~is ~~joined~~a ~~ITW~~member ~~in 1980~~of asthe ~~executive~~board ~~vice~~of ~~president~~directors of Morningstar, Inc.

Robert W. Webb

Mr. Webb was elected as a Director of the Company in May 2003. Mr. Webb is Vice President and Secretary of Holdings and Senior Vice President, Secretary and General Counsel of Marmon. Mr. Webb has served in these or other capacities for each of the Company, Holdings and Marmon in excess of five years.

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.

~~Other~~- ~~Directorships~~ 66 -

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.

- 52 -

Audit Committee and Audit Committee Financial Expert

The Company is not subject to the listing requirements of a national exchange. As a result, the Company is not required to have a separately designated standing audit committee, and the entire Board of Directors acts as the Company’s audit committee. While the Company does not have on its Board of Directors an “Audit Committee Financial Expert” (as that term is defined under federal securities laws), the Company and its Board of Directors have available to them, through Holdings and Marmon, financial experts and financial expertise relating to accounting and auditing matters.

Code of Ethics

The Company has adopted a written Code of Ethics that applies to its executive officers, ~~including~~ including the Principal Executive Officer and Principal Financial Officer, as well as the head and senior financial officer of each operating unit and all other key financial and accounting personnel having responsibility in connection with the preparation, review, or disclosure of any aspect of the Company’s financial statements or other financial information or data. Copies of the Company’s Code of Ethics, including any future amendments, are available without charge upon request to Union Tank Car Company, Attention: Secretary, ~~225~~181 ~~West~~W. ~~Washington~~Madison Street, ~~Suite~~26th ~~1900~~Floor, Chicago, Illinois 60606-4510.

ITEM 11.

EXECUTIVE COMPENSATION

~~Frank~~Compensation D.Discussion ~~Lester, Vice President, was the only executive officer of the Company who in the year ended December 31, 2004, received salary~~ and ~~bonus in excess of $100,000 from the Company and its subsidiaries for services in all capacities to the Company.~~ Analysis

~~All~~Overview other officers of the Company received their 2004 compensation from Marmon and are primarily involved in the management of Marmon. The Company, together with the other subsidiaries of Holdings, 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, 2004. Directors of the Company do not receive any compensation in such capacity.

~~Shown~~Our ~~below~~executive compensation program is ~~the~~designed to ~~aggregate~~attract, ofretain ~~all~~and ~~forms~~reward qualified executives and encourage decisions and actions that have a positive impact on Company performance. A further objective of the compensation ~~paid~~program byis to provide incentives and rewards to each executive for their contribution to the Company. toThe Mrcompensation program is determined and implemented by Holdings. Holdings’ board of directors has a compensation committee that reviews the compensation of Holdings’ executives, including Messrs. Fischl and Gottschalk. Messrs. Lester: and Garrette’s compensation is determined by Mr. Fischl, on a basis consistent with Holdings’ compensation policy. The Company does not have a compensation committee.

Purpose and Elements of Compensation Program

The compensation program is designed to reward our named executive officers for achieving the short and long-term financial objectives of the Company, as well as for attaining their individual achievement goals. It is Holdings’ intent to set total executive compensation at a level that attracts and retains strong, competent leadership for the Company. The named executive officers’ annual compensation consists of a base salary component and an incentive bonus component. The salary component is designed to provide a base of cash compensation to the named executive officers throughout the year. The incentive bonus portion, which ties into the financial performance of the Company as well as the achievement of personal goals, is designed to reward and encourage the named executive officers’ efforts and effectiveness in increasing Company profitability.

- 67 -

The financial measurement utilized in the Company’s compensation program to gauge the level of the named executive officers’ efforts is typically the Company’s operating income. This is measured against the budgeted objective established prior to the year being measured. The individual achievement goals that are also reviewed for each named executive officer are traditional ones that encourage the named executive officer’s personal improvement or the long-term viability of the Company’s business.

In 2006, the compensation program provided a large degree of discretion to Holdings’ compensation committee and Mr. Fischl in determining executive officer compensation. The yearly goals for the Company and the individual goals for each named executive officer were communicated to each such named executive officer prior to the beginning of each year. These goals were used as guidance for Holdings’ compensation committee and Mr. Fischl in making compensation determinations with the flexibility to take other circumstances into account.

Salary

Salaries are based on the responsibilities of each named executive officer and are determined in the first quarter of the year.

In the annual review of named executive officers’ salaries, factors that are considered in increasing an executive’s compensation are generally (a) merit, (b) promotions to a new position or level and/or (c) adjustments reflecting a more appropriate compensation level based on industry/market data. In 2006, the Company conducted informal compensation surveys.

Annual Bonuses

Bonuses are generally paid in March following the end of the calendar year for which services are being rewarded, after the Company’s fiscal results have been determined. In 2006, the bonuses paid to named executive officers were generally allocated equally between financial goals/performance and personal goals/performance. The named executive officer’s performance against financial goals was generally an objective determination based on whether the budgeted operating income was achieved but unusual factors affecting financial performance were also considered. The personal goal portion of the incentive measurement had more flexibility depending on the quality of effort and level of attainment against the executive’s specific individual goals. The bonuses vary based on the performance of the executive officer but generally do not exceed 100% of the executive officer’s base salary.

2007 Changes

In March 2007, Holdings’ board of directors approved changes in the compensation programs for Holdings and its affiliates, including the Company, beginning with the year ending December 31, 2007. Under the revised compensation program, the Company will conduct more formal surveys of competitors for compensation information and the bonus program will be formalized so that financial and personal goals for the year will be communicated in advance to the named executive officers and maximum award amounts will be identified in advance.

- 68 -

Other

The Company provides all eligible employees a 50% matching contribution on up to 6% of compensation (base plus bonus) deferred through an IRS qualified 401(k) plan. That same plan also provides for a discretionary contribution determined by the Company that is allocated to all eligible employees. The Company approved a discretionary contribution of up to 6% of compensation for the 2006 calendar year that is payable in 2007. The named executive officers are provided a deferred compensation program through which each named executive may elect to defer receipt of compensation and to earn income on the amount deferred. Additionally, the deferred compensation program permits the named executive to receive credit for matching and discretionary contributions which may not be credited to the executive under an IRS qualified 401(k) plan due to IRS imposed limits. The Company does not have a pension plan.

The Company’s compensation program, consisting of salary and bonus payments to the named executive officers, is a cash program. As the Company is a wholly owned subsidiary of Holdings, there are no stock options, stock awards or any other equity-based programs as part of the Company’s compensation program.

The Company’s executives do not have employment agreements that might include provisions for such matters as change in control, severance arrangements, equity or security ownership, or other such matters.

Most executives of the Company have significant tenure with the Company.

Summary Compensation Table

	Annual Compensation					All Other Compensation*
Name and Principal Position	Year	Salary		Bonus
Frank D. Lester,Vice President of the Companyand President of the Tank Car Division	200420032002	$	318,021294,554282,600	$	116,16368,40080,000	$	48,72541,64243,715

The following table summarizes the compensation for the year ended December 31, 2006 of the Chief Executive Officer, Principal Financial Officer and the two other executive officers of the Company. See “Compensation Discussion and Analysis” for additional information about the salaries and bonuses of the executive officers.

* Primarily represents the aggregate amounts of Company contributions to defined contribution plans on behalf of the named individual.


Name and Principal Position	Year	Salary ($)		Bonus ($)		All Other Compensation (1) ($)		Total (2) ($)
Kenneth P. Fischl
President, Chief Executive Officer (3)	2006	$	493,750	$	500,000	$	86,348	$	1,080,098

Mark J. Garrette
Vice President, Principal Financial Officer	2006	$	251,250	$	140,100	$	36,167	$	427,517

Frank D. Lester
Vice President of the Company and President-Tank Car Division until January 1, 2007 (4)	2006	$	329,923	$	164,805	$	59,092	$	553,820

Norman E. Gottschalk, Jr.
President, Marmon Distribution Services LLC	2006	$	368,740	$	330,000	$	47,119	$	745,859

-(1) 53The -amounts shown in this column include:

Mr. Fischl: $65,138 for matching and retirement contributions under his nonqualified retirement and 401(k) Supplemental Agreement and $19,800 for matching and retirement contributions to his accounts under Marmon’s 401(k) Plan.

- 69 -

Mr. Garrette: $14,957 for matching and retirement contributions under his nonqualified retirement and 401(k) Supplemental Agreement and $19,800 for matching and retirement contributions to his accounts under Marmon’s 401(k) Plan.

Mr. Lester: $25,246 for matching and retirement contributions under his nonqualified retirement and 401(k) Supplemental Agreement and $19,800 for matching and retirement contributions to his accounts under Marmon’s 401(k) Plan. In addition, Mr. Lester is entitled to a retirement benefit under the Supplemental Retirement Plan for a Select Group of Key Executives that is described below. The present value of his benefit as of December 31, 2006 is $510,167, based on a 5.75% discount rate and the 1994 Group Annuity Mortality Table.

Mr. Gottschalk: $29,499 for matching and retirement contributions under his nonqualified retirement and 401(k) Supplemental Agreement and $17,600 for matching and retirement contributions to his accounts under Marmon’s 401(k) Plan.

(2)	Represents the sum of the amounts in all of the columns of the Summary Compensation Table for each named executive officer.

(3)	Mr. Fischl is also a director of the Company, but he does not receive any compensation for that service.

(4)

Effective January 1, 2007, Mr. Lester was named UTLX Group Vice President and is no longer serving as the President-Tank Car Division of the Company. He remains a Vice President of the Company. The Company anticipates that Mr. Lester will continue to be employed in these non-executive officer positions until his contemplated retirement at the end of 2007.

Nonqualified Deferred Compensation

The following table includes information related to the benefits provided to the Company’s executive officers under nonqualified deferred compensation plans sponsored by the Company or one of its affiliates for the year ended December 31, 2006.


Name	Plan	Executive Contributions in Last Fiscal Year ($)		Registrant Contributions in Last Fiscal Year (1) ($)		Aggregate Earnings in Last Fiscal Year ($)		Aggregate Balance at Last Fiscal Year ($)
Kenneth P. Fischl	Retirement and 401(k) supplemental agreement	$	169,256	$	65,138	$	78,370	$	1,924,700
	Union Tank Car deferred income plan		—		—		800		15,645

	Total	$	169,256	$	65,138	$	79,170	$	1,940,345

Mark J. Garrette	Retirement and 401(k) supplemental agreement	$	26,764	$	14,957	$	13,418	$	331,591

Frank D. Lester	Retirement and 401(k) supplemental agreement	$	15,030	$	25,246	$	24,177	$	583,676

Norman E. Gottschalk, Jr.	Retirement and 401(k) supplemental agreement	$	24,624	$	29,499	$	44,875	$	887,767

(1)	The amounts in this column are also included in the Summary Compensation Table in the “Other Compensation” column.

- 70 -

Each of the executive officers has a nonqualified retirement and 401(k) Supplemental Agreement (“401(k) Supplemental Agreement”) that provides him with certain benefits that he is unable to receive under Marmon’s 401(k) plan because of limitations imposed by the Internal Revenue Code of 1986, as amended. Each executive officer is entitled to the following benefits under his 401(k) Supplemental Agreement: (a) the right to defer receipt of up to 100% of his compensation; (b) an employer match equal to 50% of the executive officer’s deferrals, up to 6% of compensation; and (c) an employer retirement contribution to make up for the retirement contribution that could not be made to Marmon’s 401(k) plan because of IRS limits. In 2006, the retirement contribution to the 401(k) Supplemental Agreements was up to 6% of the executive officer’s compensation in excess of $220,000. The amounts contributed to the 401(k) Supplemental Agreement are annually credited with interest, which was 4.59% in 2006, equal to the average of the rate earned by the stable value or equivalent fund under the Marmon Employees’ Retirement Trust and the rate earned on five-year U.S. Treasury Notes on the most recent sale date prior to the December 31 on which interest is credited. Upon termination of employment, including retirement, each executive officer is entitled to receive, in a lump sum or in ten annual installments, the aggregate balance in his account under his 401(k) Supplemental Agreement. Withdrawals during employment are only permitted in the event of a severe financial hardship.

Mr. Lester is a participant in the Supplemental Retirement Plan for a Select Group of Key Executives that was adopted on September 27, 1982 (the “Supplemental Retirement Plan”). The Supplemental Retirement Plan is intended to provide a participant with a benefit that is equal in value to the retirement benefit the participant would have received under a certain terminated pension plan (the “Pension Plan”) if the Pension Plan had not been terminated. The benefit to be paid under the Supplemental Retirement Plan is determined, with certain adjustments, by first calculating the benefit the participant would have received under the Pension Plan if it had remained in effect until the participant terminated his employment. This amount is then reduced by the pension benefit that may be provided by the sum of the retirement contributions to Marmon’s 401(k) plan (and earnings thereon), Mr. Lester’s benefit under the terminated Pension Plan (and earnings) and certain benefits, plus earnings, provided to Mr. Lester by the Company. Any benefit owed to an executive officer under the Supplemental Retirement Plan may be paid in the same manner and form as it would have been paid under the Pension Plan or the employer may elect to pay the benefit in any actuarially equivalent form of payment, including a lump sum payment. The present value of Mr. Lester’s benefit under the Supplemental Retirement Plan as of December 31, 2006 is $510,167. The assumptions used to calculate the present value were a discount rate of 5.75% and the 1994 Group Annuity Mortality Table.

Mr. Fischl has a deferred income agreement dated as of February 26, 1982 under which contributions are no longer being made. Mr. Fischl’s balance is increased each year based on U.S. Treasury and corporate bond yields.

The 401(k) Supplemental Agreements, the Deferred Income Agreement and the Supplemental Retirement Plan are unfunded, although a rabbi trust has been established and funded for the 401(k) Supplemental Agreements. The rabbi trust provides that its assets are subject to the claims of the employer’s creditors. Thus, benefits under both plans are subject to forfeiture in the event of bankruptcy.

- 71 -

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Holdings, a Delaware corporation having its principal executive offices at ~~225~~181 ~~West~~W. ~~Washington~~Madison Street, 26th Floor, Chicago, Illinois, owns 1,000 shares, or 100%, of the Company’s issued and outstanding common stock. No common stock of the Company is authorized for issuance under equity compensation plans.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

~~Note~~The 14Company topaid ~~the~~Marmon ~~consolidated~~an ~~financial~~administrative ~~statements~~services ~~included~~fee inof ~~Item~~$4.3 8million offor the ~~Company~~year ended December 31, 2006 for certain services provided by Marmon’s ~~Annual~~officers ~~Report~~and onemployees ~~Form~~to ~~10-K~~the ~~for~~Company including accounting, tax, finance, legal and related matters. The fee also covers the compensation paid to Messrs. Fischl and Garrette during the year ended December 31, ~~2004,~~2006. ~~which~~See ~~contains~~“Compensation” aand ~~description~~Note 17 of ~~certain~~the ~~related~~Notes ~~party~~to ~~transactions,~~Consolidated isFinancial ~~incorporated herein by reference~~Statements.

The Company paid dividends of $137.0 million to Holdings during 2006. For information on translation adjustments and transaction gains and losses on the Company’s ~~ITEM~~foreign 14currency translation for accounting purposes borne by Holdings, see Note 2 of the Notes to Consolidated Financial Statements. ~~PRINCIPAL~~For ~~ACCOUNTING~~information ~~FEES~~on ~~AND~~the ~~SERVICES~~Company’s tax arrangement with Holdings, see Note 5 of the Notes to Consolidated Financial Statements.

~~Independent~~The ~~Auditor~~Company ~~Fee~~has ~~Information~~a written conflicts of interest policy (the “Policy”) which applies to all employees of the Company and its subsidiaries, including the executive officers and directors of the Company. Under the Policy, employees are obligated to disclose any activity or interest which is potentially or possibly a conflict of interest (as defined in the Policy) so that each situation can be reviewed on a case-by-case basis with the Company’s General Counsel for a determination of whether such activity is a conflict and whether some accommodation or change in employment status is appropriate. An employee may not be involved in a conflict of interest situation without the review and approval of the General Counsel of the Company.

~~Fees~~In ~~for~~order ~~professional~~to ~~services~~enforce this ~~provided~~Policy, bythe ~~our~~Company ~~independent~~requires ~~auditors~~every inemployee, ~~each~~including the executive officers and directors of the ~~last~~Company, ~~two~~to ~~fiscal~~annually ~~years~~disclose in writing any activity or interest which is potentially or possibly a conflict of interest. Furthermore, all managerial employees, including the executive officers and directors of the Company must state affirmatively or negatively whether they own any stock in ~~each~~or have a business relationship with any of the ~~following~~customers, ~~categories~~suppliers ~~are:~~or competitors of the Company or its affiliates.

	For the Year EndedDecember 31,
	2004		2003
	(Dollars in Thousands)
Audit fees	$	848	$	912
Audit-related fees		8		213
Tax fees		189		213
All other fees		2		2
	$	1,047	$	1,340

The Policy provides that an employee may hold investments in publicly owned companies, including banks and trust companies, whose securities are listed on national securities exchanges or are otherwise generally traded and available in the open market. However, if any of these companies is a customer, supplier or competitor of the Company or its affiliates, neither the employee nor his/her immediate family or close associates may hold more than one percent (1%) of the outstanding stock of that company.

~~Fees for audit services include fees associated with the annual audit which have been allocated to the Company by Holdings, the reviews of the Company’s quarterly reports on Form 10~~-Q, ~~and~~72 ~~statutory audits required internationally. Audit~~-~~related~~ ~~fees principally included internal control review and compliance reports. Tax fees included tax compliance, tax advice and tax planning, including expatriate tax services.~~

The Policy’s definition of conflict of interest includes: (1) any involvement in any outside activity, business or employment which may conceivably conflict with the employee’s duties or responsibilities or which is not compatible with the best interest of the Company or its affiliates, particularly including an employee’s involvement, whether for remuneration or not, in any entity that is a present or prospective competitor, customer or supplier of the Company or its affiliates; (2) a circumstance in which a relative (defined as a person connected with another by blood or affinity, including marriage) or someone with whom the employee has a personal relationship is or becomes involved in a business or activity, including employment, that may conflict with the employee’s duties or responsibilities or affect the employee’s judgment in making a decision affecting the Company or its affiliates and (3) a circumstance where related employees are permitted to hold positions such that one relative can influence the performance or the performance appraisal of the other, e.g., supervising a relative in the same department, having access to confidential material that would benefit their relative; being assigned to a position which might jeopardize proper internal control procedures.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Independent Registered Public Accounting Firm Fee Information

Fees for professional services provided by Deloitte & Touche LLP in 2006 and 2005, in each of the following categories are:


	For the Year Ended December 31,
	2006		2005
	(Dollars in Thousands)
Audit fees	$	884	$	820
Audit-related fees		605		596

	$	1,489	$	1,416

Audit Fees. This category includes the audit of the Company’s annual financial statements, review of financial statements included in its Quarterly Reports on Form 10-Q or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years.

Audit-Related Fees. This category consists of assurance and related services provided that are reasonably related to the performance of an audit or review of the Company’s financial statements and are not reported above under “Audit Fees”. In 2006 and 2005, these services were primarily related to Sarbanes-Oxley Act Section 404 advisory services.

Tax Fees. This category consists of professional services rendered for tax compliance, tax advice and tax planning. Tax compliance services are services rendered with respect to general tax advisory matters.

All Other Fees. This category consists of any other products or services provided not described above.

Pre-Approval Policies and Procedures

~~The~~As ~~Company’s~~a ~~Board~~voluntary filer, ofthe ~~Directors~~Company ~~currently~~is ~~has~~not asubject ~~policy~~to inSection 202 ~~place~~of ~~that~~the ~~requires~~Sarbanes-Oxley ~~its~~Act ~~review~~which ~~and~~requires the pre-approval of all audit services and ~~permissible~~permitted non-audit services provided by ~~its~~ independent auditors. ~~These services requiring pre-approval by the Board of Directors may include audit services, audit-related services, tax services and other services.~~

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PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

	Page	~~Page~~
a)	1. Financial Statements -
a) 1. Financial Statements -
	Consolidated statement of income for each of the three years in the period ended December 31, 2004	23
Consolidated statements of income for each of the three years in the period ended December 31, 2006	32
	Consolidated balance sheet - December 31, 2004 and 2003	24
Consolidated balance sheets—December 31, 2006 and 2005	33
	Consolidated statement of stockholder’s equity for each of the three years in the period ended December 31, 2004	25
Consolidated statements of stockholder’s equity for each of the three years in the period ended December 31, 2006	34
	Consolidated statement of cash flows for each of the three years in the period ended December 31, 2004	26
Consolidated statements of cash flows for each of the three years in the period ended December 31, 2006	35
Notes to consolidated financial statements	~~Notes to consolidated financial statements~~36	27
2. Schedules	~~2. Schedules~~
The following consolidated financial schedule of Union Tank Car Company is included in response to Item 15(a).	~~The following consolidated financial schedule of Union Tank Car Company is included in response to Item 15(a).~~
II – Valuation and qualifying accounts	~~II – Valuation and qualifying accounts~~76	57
All other financial statement schedules have been omitted because they are not applicable or because the required information is included in the financial statements or notes thereto.	~~All other financial statement schedules have been omitted because they are not applicable or because the required information is included in the financial statements or notes thereto.~~
3. Index to Exhibits	~~3. Index to Exhibits~~77	58

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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/ Mark J. Garrette
		Mark J. Garrette
		Vice President

Dated: March 28 23, ~~2005~~ 2007

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/ Kenneth P. Fischl Kenneth P. Fischl	President and Director(principal executive officer)	March 28, 2005
/s/ Kenneth P. Fischl	President and Director	March 23, 2007
/s/ Mark J. Garrette Mark J. Garrette	Vice President(principal financial officerand principal accounting officer)	March 28, 2005
Kenneth P. Fischl	(principal executive officer)
/s/ John D. Nichols John D. Nichols	Director	March 28, 2005
/s/ Mark J. Garrette	Vice President	March 23, 2007
/s/ Robert W. Webb Robert W. Webb	Director, General Counseland Secretary	March 28, 2005
Mark J. Garrette	(principal financial officer and principal accounting officer)
/s/ Frank S. Ptak	Director	March 23, 2007
Frank S. Ptak
/s/ Robert K. Lorch	Vice President and Director	March 23, 2007
Robert K. Lorch
/s/ Robert W. Webb	Director, General Counsel and Secretary	March 23, 2007
Robert W. Webb

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UNION TANK CAR COMPANY AND SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

(Dollars in Thousands)

	Balance atBeginningof Period		Additions Charged to					Deductions			Balance atatEnd ~~End~~ ofPeriod
			Costs andExpenses		Other
Year Ended December 31, 2004
Year Ended December 31, 2006
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts	$	118,~~647~~117	$	~~1,808~~441	$	~~244~~(5	) (1)	$	21,~~761~~976	(2)	$	106,~~938~~577
Year Ended December 31, 2003
Year Ended December 31, 2005
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts	$	1110,~~151~~938	$	41,~~338~~502	$	~~132~~35	(1)	$	34,~~974~~358	(32)	$	118,~~647~~117
Year Ended December 31, 2002
Year Ended December 31, 2004
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts	$	911,~~613~~647	$	21,~~787~~808	$	23244	(1)	$	12,~~272~~761	(23)	$	1110,~~151~~938

(1) Foreign currency translation gain (loss).

(2)	Amount determined not to be collectible, net of recoveries.

(3)	Amounts determined not to be collectible, net of recoveries. Amount also includes a reduction in the reserve from the divestiture of a subsidiary of $143.

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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(submitted with the electronic filing to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and is incorporated herein by reference)
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 (submitted with the electronic filing to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and is incorporated herein by reference)
4 (b)		Indenture and Security Agreement dated September 28, 2000 among Bank One, N.A., EXSIF Worldwide, Inc. and the Company (submitted with the electronic filing to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and is incorporated herein by reference)
12		Statements re computation of ~~ratiosThe computation of the Ratio of Earnings to Fixed Charges~~ratios
		Computation of the Ratio of Earnings to Fixed Charges
21		Subsidiaries of the registrant
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Instruments defining the rights of holders of long-term debt are not being filed herewith pursuant to the provisions of paragraph 4(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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Table of Contents

Table of Contents

CertainTable priorof year amounts have been reclassified to conform to the current year presentation. Contents

Filing Compare · UNION TANK CAR CO