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College of Business
Financial Management FNC535M
DLSU Taft Rm. 218

Union Tank Car Company

Case Analysis & Corporate Strategy

Submitted by:
Jerelynn B. Hipolito

Dean Atty. Joe-Santos BalagtasBisquera

MBA Professor

Jerelynn B. Hipolito

Union Car Tank and Company

December 3, 2015

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Case Study
Executive Summary
Union Tank Car Company (UTC) is a railway equipment leasing company
(and car maintenance / manufacturing) headquartered in metro Chicago,
Illinois. As the name says, they specialize in tank cars, and covered hopper
cars.
Union Tank Car Company was founded in 1866 by Captain Jacob J.
Vandergrift, in response to the economic activities of John D. Rockefeller in
the years leading up to his creation of Standard Oil. Vandergrift was
involved in the conflicts in the oil regions of Western Pennsylvania in the
1860s1870s. Eventually, Union Tank Car Company and Vandergrift's other
holdings, which included pipeline and riverboat transport companies,
merged with the company that later became Standard Oil. Rockefeller,
once Captain Vandergrift's nemesis, made him Vice President of Standard
Oil. The town of Vandergrift, Pennsylvania, built in 1895 by steel company
president George G. McMurtry to house his workers, was named in
Vandergrift's honor.
TransUnion was formed as a holding company in 1968 to hold Union Tank
Car Company. UTC had been organized in 1981 and publicly owned from
1912 until June 1, 1969, when it became an operating subsidiary of Trans
Union Corporation in a holding company reorganization. TransUnion soon
began acquiring credit information and information management
companies as a second major investment. The Marmon Group acquired
TransUnion in 1981, spinning off the TransUnion name and the financial
portion of the holding company to Madison Dearborn Partners in the 1990s.
Union Tank Car Company is still owned by Marmon, which in turn is now a
100% owned subsidiary of Berkshire Hathaway.
Union Tank Car Company (UTC) engaged in the manufacture and leasing
of railway tank cars and other rail vehicle to North America shippers of bulk
liquids; compressed gas and powdered, pelletized or dry bulk products. At
the end of 1979 its fleet of vehicles comprised 55,920 cars. Approximately
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Union Car Tank and Company

December 3, 2015

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83% of consisted of tank cars and represented the second largest fleet or
privately held tank cars in the world. Revenues on the 1979 totaled to $404
million and had grown at a 15% compounded annual rate over previous 5
years.
Problem
Institutional
In winter of 1980 the top management of Union Tank Car Company was
grappling with the problems of restructuring the companys leasing
contracts for tank cars. Growing evidence indicated that recent regulatory
change was going to have a dramatic and lasting impact on the
fundamental economics underlying the use of tanks. It would also affects
shippers lease versus buy/borrow decisions. If Union Tank Car was to
remain profitable in this business, it would have tailor its leasing contracts
to fit shippers interest in the new environment.
Operational
What would be the best leasing terms would also be competitive with those
offered by other leasing company?
Corporate Objective
Union Tank Car Company aim to have a competitive leasing term in order
to remain profitable.
Areas of Consideration
Environmental Opportunities & Threats
Macro-Economic Indicators
Political

In 1891, the nation fought a war over oil. The battlegrounds

were not overseas deserts, but the halls of the U.S.
Congress. The government, armed with the newly created
Interstate Commerce Commission (ICC) and Sherman

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Union Car Tank and Company

December 3, 2015

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Antitrust Act, faced off against the Standard Oil Company,

history's largest monopoly.
Standard Oil was better known for lubrication than for
transportation, but a key to its success was Union Tank
Line, its railcar subsidiary. Standard Oil leader John D.
Rockefeller used tank cars as his "secret weapon" to
dominate the industry by gaining control of oil shipping.
Oil refined into kerosene was in big demand for lighting and
other uses. The earliest tank cars were built in 1865 to
transport oil from field wells. Although they were little more
than two large wooden tubs mounted on a flatcar, they
were much more efficient than previous shipping options.
And within five years, an improved design using the nowfamiliar cylindrical iron tanks made tank cars the obvious
transportation choice.
Economic
As competition from other companies grew, Union Tank Car
continued to focus on improving quality. Forge-welded tanks,
better safety valves and double riveting made cars more
dependable. Insulation and new heater pipe designs helped
control temperatures of sensitive cargoes.
With the collapse of the nation's economy in the early 1930s,
the number of surplus tank cars began to increase dramatically.
Union Tank Car bought back thousands of cars from customers
and eventually leased them as business recovered, launching a
trend that continues today.
Throughout the thirties, the company continued to develop new
types of cars and construction techniques. It pioneered use of

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the relatively new fusion welding process to increase tank

strength, and as a result various products were able to be
shipped under high pressure.
When World War II broke out, the threat of enemy submarines
kept oil tankers off the seas, and tank cars became crucial to
the wartime effort. Nearly 15,000 retired UTLX tank cars were
sent to repair shops, where they were refurbished to haul oil in
government-run unit trains.
Each day, more than 60 of these dedicated trains rushed oil
from refineries to strategic locations across the country. They
were hailed as "the stopgap between the dark threat of disaster
and ultimate victory.
Demographic
Union Tank Car Company (UTC) is a railway equipment leasing
company
(and
car
maintenance
/
manufacturing)
headquartered in metro Chicago, Illinois. Manufacturing plants
are Alexandria, Sheldon and Mckenzie Valve and Machining
Company
Socio-Cultural
The companys expansion was prompted by new federal
guidelines regarding the service of ethanol and crude oil tank
cars. A second facility will be used to upgrade the tanks and
safety measures on Union Tank Car Companys existing fleet of
tank cars to meet the new regulations.
As part of its investment, Union Tank Car Company has
committed to adding 200 jobs to its existing roster of employees
in Marion. The new jobs will include welders and technicians.
Market Profile & Outlook

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Union Car Tank and Company

December 3, 2015

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Competition

As the tank car leasing industry matured, four major competitors

emerged to dominate the market. The largest were GATX
Corporation and Union Tank Car Company.
Despite the risk and barriers to entry, two companies, Richmond Tank
Car Company and Trinity Industries had managed to break into the
car tank market in recent decades.
Technology
The companys investment will include the addition of machinery and
equipment and infrastructure at the new location. Union Tank Car
Company will also maintain its existing facility, located at 939 Holland
Road in Marion.
Resources
Corporate Franchise
According to the law dictionary, corporate franchise is the right to
exist and do business as a corporation. UTC is a corporation that has
been in the industry for several years already and can be inferred that
they are given the right by the government to do business.
Shareholders & Key Officers
Union Tank Car Company and Vandergrift's other holdings, which
included pipeline and riverboat transport companies, merged with the
company that later became Standard Oil. Rockefeller, once Captain
Vandergrift's nemesis, made him Vice President of Standard Oil. The
town of Vandergrift, Pennsylvania, built in 1895 by steel company
president George G. McMurtry to house his workers, was named in
Vandergrift's honor.
Union Tank Car Company is still owned by Marmon, which in turn is
now a 100% owned subsidiary of Berkshire Hathaway

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Marketing Profile
Product

Union Tank Car Company (UTC) engaged in the manufacture

and leasing of railway tank cars and other rail vehicle to North
America shippers of bulk liquids; compressed gas and
powdered, pelletized or dry bulk products.
Most can be roughly classified into one of four groups
according to the length of the time covered by the lease and the
party assuming ownership. (1) Net-full payout lease (2) Net
operating lease (3) Full service full payout lease and (4) full
service operating lease.
Price

Place & Distribution

Union Tank Car Company, North America's leading
manufacturer, lessor and maintainer of railroad tank cars used
primarily by the chemical, petrochemical and food industries,
will add a second facility at 1207 Cheney Avenue in Marion,
Ohio. The companys commitment also includes more than
doubling its Central Ohio workforce, with the addition of 200
new jobs over the next three years in the Columbus Region.
Promotion and Advertising
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SWOT ANALYSIS

This financial and strategic SWOT analysis of Union Tank Car

Co provides a strategic SWOT analysis of the company's
businesses and operations. The profile shows a comprehensive
view of the company's key strengths and weaknesses and the
potential opportunities and threats.

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Union Car Tank and Company

December 3, 2015

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Financial Profile
MRC
Profitability

Turnovers

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Union Car Tank and Company

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turnover

capital

4.62

10

1979

Page

1978

4.19

Capacity Utilization
According to ReadyRatios, Capacity utilization rate is a metric which is
used to compute the rate at which probable output levels are being met or
used. Although there was no definite value that the company seeks for its
capacity usage UTC need to utilize their capacity and make sure to
increase its sales and corporate force, diversify and expand the production
facilities and increase the products in the product lines.
Financial Leverage
According to Investopedia, financial leverage is the degree to which a
company uses fixed-income securities such as debt and preferred equity.
The more debt financing a company uses, the higher its financial leverage.
A high degree of financial leverage means high interest payments, which
negatively affects the company's bottom-line earnings per share. The
financial leverage describes the companys dependency in using the
borrowed money. The more debt financing the company uses, the higher its
financial leverage. Leverage can be computed by dividing long term debt
by the equity. Which UTC has a very high leverage and very dependent to
debt.
1978

1979

Long Term Debt

530,44
2

619,24
5

Preferred and Common

shareholder's equity

219,64
0

240,69
6

2.42

2.57

Financial Leverage
Conclusion

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Union Car Tank and Company

December 3, 2015

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Union Tank Car began its second century with a strength that would
probably impress even the demanding Rockefeller. Computers, robots and
microwave technology make it a far cry from the original company that
tracked cars by pasting sheets of paper to long roller shades. In-line
manufacturing plants located in Alexandria, Louisiana and Sheldon, Texas
provide high quality car supply for both leasing and sales. Car repair,
maintenance, and qualification are provided by specialized repair shops,
On-Site mini-shops, and Mobile Repair teams. Tank and plastics hopper
interior coating and rubber lining facilities continue to raise the bar for lining
performance and reliability.
Financial Benefits

Leasing gives your company the use of a productive railcar fleet and frees
cash for investment in the business itself, where the returns are usually
greater. Other financial benefits include:
Leasing payments are tax deductible and may provide certain
financial advantages.
UTC full-service leases are operating leases, which provide offbalance sheet financing.
Leasing can leave intact your established lines of credit without
restricting your ability to obtain new credit at attractive borrowing
rates. Cash budgeting is more accurate and less complex when
monthly expenses are predictable.
Leasing provides 100% financing, as opposed to 75-80% through
most other methods.
Leasing Reduces Your Risk
Leasing terms typically range from three to five years for railcars which
have a DOT-mandated maximum life of 50 years. By leasing, you gain the
flexibility to manage your fleet size and the mix of car types as your
business conditions and needs change. You may even be able to terminate
some of your leases early if Union Tank Car can find a new lessee for the
cars.
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Union Car Tank and Company

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A lease also transfers the risk of equipment obsolescence to Union Tank

Car. Although future market predictions and projections of conditions at
termination of the lease can be made, rapid evolution and
regulation/deregulation within the industry can create an inventory of
outmoded equipment. If you are a UTLX lessee, that's not your problem
when your lease expires.
Leasing Reduces Your Administrative Costs
Many of the administrative burdens that are normally the responsibility of a
railcar owner can be provided under the terms of a railcar lease. A UTLX
full-service lease, in addition to providing and maintaining the railcars you
need, includes the administrative care of Union Tank Car's professional
staff for the equipment covered by the lease. Typical car ownership
responsibilities that we handle for you include:
Mileage payment accounting, auditing and claims filing.
Maintenance scheduling and car repair.
Maintenance expense accounting, auditing and claims filing.
Compliance with Association of American Railroads (AAR) and
Department of Transportation (DOT) reporting rules and car design
regulations.
Car design engineering and representation on regulatory committees.
Field technical service support.
Payment of state ad valorem taxes.
Registration in UMLER and The Official Railway Equipment

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Attachments
Financial Outlook
Income Statement / Balance Sheet

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