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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K*
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ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-7654
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1998
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XTRA CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 06-0954158
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
60 STATE STREET (617) 367-5000
BOSTON, MASSACHUSETTS 02109 (Registrant's telephone number)
(Address of principal executive offices) (Zip Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
Common Stock, Par Value $.50 per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: none
Shares Outstanding of the Registrant's Common Stock at November 12, 1998: 15,372,903
Aggregate market value of voting and non-voting common equity held by
non-affiliates of the Registrant at November 12, 1998: $682,000,000
</TABLE>
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 __
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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 __.
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended September 30, 1998, of which this Form 10-K is a part, are incorporated by
reference in Parts I, II and IV. Portions of the Registrant's definitive Proxy
Statement for use at the 1999 Annual Meeting of Stockholders are incorporated by
reference in Part III.
* Exhibits to Form 10-K and Parent Company Financial Statements and Schedules
have been included only in copies of the Form 10-K filed with the Securities
and Exchange Commission.
A copy of this Form 10-K, including a list of exhibits and the Parent Company
Financial Statements and Schedules, is available free of charge to stockholders
upon written request to: Vice President and Chief Financial Officer, XTRA
Corporation, 60 State Street, Boston, Massachusetts 02109. In addition, upon
similar request, copies of individual exhibits will be furnished upon payment of
a reasonable fee.
1
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FORM 10-K TABLE OF CONTENTS
XTRA Corporation and Subsidiaries
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ITEM PAGE
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<S> <C>
Part I
1. Business 3
2. Properties 8
3. Legal proceedings 8
4. Submission of matters to a vote of security holders 8
4A. Executive officers of the registrant 9
Part II
5. Market for the registrant's common equity and related shareholder matters 10
6. Selected financial data 10
7. Management's discussion and analysis of financial condition and results of operations 10
7A. Quantitative and qualitative disclosures about risk 11
8. Financial statements and supplementary data 11
9. Changes in and disagreements with accountants on accounting and financial disclosure 11
Part III
10. Directors and executive officers of the registrant 12
11. Executive compensation 12
12. Security ownership of certain beneficial owners and management 12
13. Certain relationships and related transactions 12
Part IV
14. Exhibits, financial statement schedule, and report on Form 8-K 13
Signatures 19
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2
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PART I.
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ITEM 1. BUSINESS
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The discussion below contains certain forward-looking statements including
estimates of economic and industry conditions. Actual results may vary from
those contained in such forward-looking statements. See "Cautionary Statements
for Purposes of the `Safe Harbor' Provisions of the Private Securities
Litigation Reform Act of 1995" contained below.
XTRA Corporation (the "Company" or "XTRA") is a leading global transportation
equipment lessor with operations in the highway, domestic intermodal and marine
container markets. The Company manages a diverse fleet of approximately 299,000
units, constituting a net investment of approximately $1.4 billion, consisting
of over-the-road ("OTR") trailers; intermodal equipment, including intermodal
(or "piggyback") trailers, chassis and domestic containers; and marine
containers.
Transportation equipment customers lease equipment to cover cyclical, seasonal
and geographic needs and as a substitute for purchasing. In addition, capital
and capacity-constrained transportation providers often use leasing to maximize
their asset utilization and reduce capital expenditures. By maintaining a large
and diversified fleet, leasing companies are able to provide customers with a
broad selection of equipment and quick response times, which reduce equipment
shortfalls and lost opportunities.
Lease Types and Rates
Transportation equipment is generally leased through finance or operating
leases. XTRA primarily participates in the operating lease segment, generally
placing less emphasis on finance leases because it believes the value-added
component of such leases is low. Finance leases are longer term and have lower
levels of customer service, while operating leases can be either daily ("per
diem") leases or term leases. Per diem leases are for a period of less than one
year, with the option to return the equipment without prior notice. Term leases
are for a period of one year or more, with most being three to five years. Term
lease agreements may have early termination penalties that apply in the event of
early redelivery, although in most cases equipment is not returned prior to the
expiration of the lease. Operating lessors generally offer certain customer
services, which may include roadside assistance, insurance, repair and
maintenance and regulatory compliance. For a portion of their fleet, operating
lessors will enter into term leases due to the greater revenue stability
associated with longer-term leases even though long-term lease rates are
typically lower than per diem lease rates. The percentage of equipment on term
leases versus per diem leases varies widely among leasing companies, depending
upon each company's desire to have predictable revenues and cash flows.
Many of XTRA's OTR per diem and term leases provide for additional fees if the
equipment is returned to a location other than the originating location. XTRA's
marine container and intermodal trailer leases allow the customers to return
equipment to a different location. Returns of marine containers are subject to
quantity and location limitations and additional drop-off fees are built into
the lease terms. XTRA's marine container leases may also provide customers with
incentives to return marine containers to more desirable locations.
Lease rates depend on several factors including the type of lease, length of
term, maintenance provided, type and age of the equipment and market conditions.
In addition, in the OTR trailer business, the Company charges its customers a
fee based on the number of miles the trailer has been driven or charges actual
tire and brake wear incurred. The Company offers additional value-added services
for which the Company charges specified fees. For example, in the OTR trailer
business, these services include roadside assistance, various insurance
alternatives and trailer repair and maintenance. Over the last several years,
the Company has capitalized on strong market demand by maintaining a strong
overall term lease portfolio. At September 30, 1998 approximately 37% of the
total fleet were leased to customers under term lease.
Utilization
An important indictator of the Company's performance is the portion of its fleet
that is on lease at any given time. This measure, called the utilization rate,
is defined as the number of units on lease divided by the total number of units
in the fleet. The Company leases equipment both on a term and a per diem basis
in order to effectively utilize the fleet and maintain a balance between the
greater stability of revenue associated with term leases and the increased
profitability potential of per diem lease pricing. The Company actively manages
the distribution of its units and keeps a large, diversified and well-maintained
fleet of mostly standardized equipment in order to operate at high utilization
rates.
3
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Equipment Fleet
The Company's equipment fleet has increased over time through purchases of new
equipment and through fleet acquisitions of other leasing companies. The
Company's fleet size and net investment includes equipment owned by the Company,
equipment leased-in from third parties under operating and capital leases, and
equipment leased to third parties under finance leases. At September 30, 1998,
99% of the Company's net investment in equipment was owned.
The Company's fleet and net investment consisted of the following units and net
investment at the end of its last five fiscal years:
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<CAPTION>
EQUIPMENT FLEET(1) At September 30, 1998 1997 1996 1995 1994
(Units in thousands)
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<S> <C> <C> <C> <C> <C> <C>
Over-the-road trailers 79 78 75 76 69
Marine containers 165 162 152 126 -
Intermodal trailers 22 23 24 29 34
Chassis 24 23 24 21 16
Domestic containers 9 10 8 8 8
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Total 299 296 283 260 127
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EQUIPMENT FLEET(1) At September 30, 1998 1997 1996 1995 1994
(Millions of dollars)
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Over-the-road trailers $ 770 $ 718 $ 632 $ 628 $ 508
Marine containers 388 414 419 373 -
Intermodal trailers 153 168 197 237 235
Chassis 107 112 119 107 70
Domestic containers 31 41 36 42 47
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Net investment $1,449 $1,453 $1,403 $1,387 $ 860
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</TABLE>
(1) For purposes of this presentation, the net investment in equipment leased to
the Company on an operating basis represents the present value of the remaining
lease payments. The net investment in revenue equipment leased to customers
under finance leases as well as equipment owned by the Company or leased to the
Company under capital leases represents the net carrying value of this
equipment. The significant increase in fleet units and net investment in
equipment in 1995 was primarily due to the Company's acquisition of Matson
Leasing Company, Inc.
For information regarding business information by geographic area, see Note 7 of
the Notes to Consolidated Financial Statements. For additional information,
including financing and capital expenditures, see Management's Discussion and
Analysis of Financial Condition and Results of Operations. Such information is
incorporated herein by reference.
Description of Operating Divisions
The Company conducts its leasing operations through four divisions: XTRA Lease,
XTRA Intermodal, XTRA International and XTRA Mexico. The description of
XTRA Lease provided below includes both XTRA Lease and XTRA Mexico, the
Company's smallest division.
XTRA Lease: General
XTRA Lease, the Company's OTR trailer business operation, leases trailers to
contract and common motor carriers and to private-fleet owners throughout North
America. XTRA Lease's fleet includes approximately 79,000 trailers, comprised
mostly of dry cargo vans 48' and 53' long by 102" wide. For the fiscal year
ended September 30, 1998, the average equipment utilization rate for the OTR
business was 90%. Approximately 40% of the XTRA Lease units were leased on a
term basis as of September 30, 1998, with the balance of units available for
lease on a per diem basis.
4
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XTRA Lease: Competitive Environment
XTRA estimates the leasing segment of the North American OTR trailer fleet
(fleet owned by leasing companies) to be about 300,000 units. XTRA enjoys a
strong competitive position in the OTR trailer segment and believes its fleet of
approximately 79,000 units, or 26% of the leased fleet, is exceeded by only one
competitor who has an estimated share of 32%. The remainder of the industry is
fragmented and primarily spread among many smaller, more regional equipment
providers.
XTRA Lease: Market Trends
Management believes that the leasing segment for OTR trailers will increase due
to a number of factors. One contributing factor is the increasing trend of
private fleet owners outsourcing transportation fleets as companies move towards
a variable cost approach to operating their businesses. In addition, as more
private owners seek to provide their services with fewer owned units to reduce
costs and capital commitments, they typically look to truckload carriers and
logistics companies to handle their transportation needs. Truckload carriers
and logistics companies represent a significant portion of XTRA Lease's customer
base.
A second factor, the continued move toward time definite inventory strategies,
such as just-in-time, as well as better driver time management and truck
utilization, should focus companies on leasing rather than owning trailers. An
increasing number of trailers are left empty at loading docks as drivers employ
a drop-off rather than a wait-and-unload strategy to improve efficiencies and
driver utilization. The result is an increasing ratio of trailers to trucks in
the freight transportation market. Increasingly, leasing companies are being
relied upon to handle these growing trailer needs.
Recently, some domestic freight has moved from the railroad to the trucking
industry. The Company believes this has occurred due to the increased
consolidation in the railroad industry, which has caused more rationalized track
and service availability and an increase in containerized trade from overseas,
which is placed on railroads at major ports, displacing domestic traffic. These
factors have increased the volume of the Company's truckload and less-than-
truckload customers, who in turn continue to use leasing companies such as XTRA
to satisfy increased demand.
Due to its national operating network and its strong reputation, XTRA believes
it is well positioned to capitalize on the trends which favor the use of leasing
companies.
XTRA Intermodal: General
XTRA's intermodal business is comprised of three rental products: intermodal
trailers, chassis and domestic containers. Intermodal traffic refers to the
shipment of goods in standardized containers through two or more modes of
transportation, usually rail, truck or ship. On certain routings, shipping goods
over two or more modes of transportation is more cost efficient. For example,
over long distance, high density freight lanes, intermodal transportation can be
more cost efficient than trucking. Further, containerization is more efficient
and economical than "break bulk transportation," in which the goods are unpacked
and repacked at various intermediate points en route to their final destination.
XTRA Intermodal: Intermodal ("Piggyback") Trailers
Intermodal trailers are designed to be carried on rail flatcars, pulled by
tractor over the highway and, to a lesser extent, transported over water by
ships and barges. The Company's intermodal trailer fleet of 22,000 units
consists primarily of units 45' and 48' long by 102" wide. Approximately 28% of
the intermodal trailer fleet was leased on a term basis as of September 30,
1998, with the remainder of the fleet available for lease on a per diem basis.
XTRA Intermodal: Chassis
Chassis are wheeled rectangular frames used to transport containers over the
highway. XTRA's chassis are used as transport vehicles for marine and domestic
containers, which are loaded or unloaded at shipyards, rail terminals or
consignee locations. Once loaded, the chassis and the container together are the
functional equivalent of a trailer. Loading the container on a chassis allows
the container to be delivered to or from the final inland destination.
Marine chassis are generally 20' or 40' in length to accommodate marine
containers, while domestic chassis are generally 48' or 53' in length and handle
domestic containers. The Company's fleet of 24,000 units consists primarily of
marine chassis and is leased to steamship lines, railroads and motor carriers.
Approximately 61% of the chassis fleet was leased on a term basis as of
September 30, 1998 with the balance available for lease on a per diem basis.
5
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XTRA Intermodal: Domestic Containers
Domestic containers are designed to transport freight over rail or on chassis
over highway within North America. These containers substitute for intermodal
and OTR trailers, particularly on long-haul, heavy volume routes.
XTRA's fleet of 9,000 units consists primarily of 48' long by 102" wide units
leased to North American railroads and other domestic freight carriers.
Approximately 73% of the Company's domestic containers were leased on a term
basis as of September 30, 1998, with the balance available for lease on a per
diem basis.
XTRA Intermodal: Competitive Environment
With respect to intermodal trailers, XTRA believes that it is the second largest
trailer lessor in North America, with approximately 25% of the total leasing
market. XTRA believes that its largest competitor owns in excess of 30% of the
total market.
In the leased segment of the chassis market, the Company believes that it is the
fifth largest lessor in the United States with approximately 8% of the market.
The Company believes its largest competitor owns approximately 33% of the
market.
In the leased segment of the domestic container market, the Company believes
that it is the third largest lessor in the United States with approximately 16%
of the market.
XTRA Intermodal: Market Trends
Over the last several years, there has been a gradual shift in intermodal
traffic from the use of intermodal trailers to domestic containers to transport
goods over rail. The shift has occurred primarily due to the railroad's ability
to double stack containers, which cannot be done with intermodal trailers, and
due to railroads offering better freight rates to customers for using
containers. However, the Company believes that demand for intermodal trailers
will continue for some time due to several factors, including: (i) the
preference of certain shippers to use intermodal trailers over the combination
of domestic containers and chassis due to logistical ease; and (ii) the relative
inefficiency of containers in locations where limited space precludes the
storage of a sufficient number of chassis.
Although the shift from intermodal trailers to domestic containers will likely
continue, XTRA expects that its intermodal business will continue to be a source
of cash flow as a result of controlled downsizing by XTRA to maintain an
appropriate intermodal fleet size relative to demand.
The demand for leased chassis in North America has been growing significantly
due primarily to the growth in the use of international and domestic containers.
The use of containers, which are placed on chassis to transport the container to
the next destination, has increased due to the many benefits of shipping goods
by container versus alternative methods. For the last five years, the growth
rate of containerized trade has been approximately 7% per year. As the use of
containerized trade continues to increase, the market for chassis, an essential
part of moving the container to the final destination, will similarly increase.
In addition, the railroads and shipping lines have focused on reducing their
capital expenditures on ancillary assets in favor of more core assets such as
railcars or ships. To take advantage of this trend, the Company has established
neutral chassis pools at key rail interchange locations and ports in the United
States.
XTRA International: General
The Company's 165,000 marine containers are standard, dry cargo 20' and 40'
rectangular steel boxes leased primarily to steamship lines for transporting
freight on ships worldwide. Container usage has exceeded world gross domestic
product growth primarily as a result of the logistical advantages and
efficiencies resulting from containerization. Standardization of the
construction, maintenance and handling of containers allows containers to be
picked up, dropped off, stored and repaired throughout the world.
For the 1998 fiscal year, the average utilization rate for the Company's marine
containers was 82%. Approximately 32% of XTRA's marine container fleet was
leased on a term basis at September 30, 1998, with the remainder of the fleet
available for lease on a per diem basis.
6
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XTRA International: Competitive Environment
XTRA believes that it is the eighth largest lessor of marine containers
worldwide with an estimated share of 4% of the leasing segment of the industry.
The two largest competitors in this segment each have approximately a 20% market
share. Over the last several years, there has been consolidation in the
container leasing business resulting from several acquisitions. The result of
the consolidation has been fewer lessors, a more rationalized industry, and a
stabilizing pricing environment.
XTRA International: Market Trends
The demand for leased containers is influenced primarily by the volume of
international and domestic trade. In recent years, however, the rate of growth
in the container industry has exceeded world gross domestic product as a whole
due to several factors, including the existence of geographical trade
imbalances, the expansion of shipping lines, changes in manufacturing practices
and increased exports by certain technologically advanced countries of component
parts for assembly in other countries and the subsequent re-importation of
finished products. Leasing companies currently own approximately half of the
world's container fleet. The balance is owned predominantly by the shipping
lines.
Environmental Matters
Although the nature of the Company's operations at its owned and leased
facilities is such that it is not a heavily regulated entity pursuant to Federal
and state environmental laws and regulations, the Company is required to comply
with such laws and regulations, including laws and regulations related to the
generation, handling, storage, transportation, treatment and disposal of
hazardous and solid wastes. In addition, under various Federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may become liable for the costs of removal or
remediation of hazardous or toxic substances on, under or in such property,
typically without regard to fault.
The Illinois Environmental Protection Agency has notified the Company of alleged
environmental contamination of its Fairmont City, Illinois property that
resulted from the prior owners' zinc smelting operations. As a result, the
Company has taken certain actions to suppress dust that have significantly
reduced the level of airborne contaminants at the site. Based on the Company's
current understanding of the nature of the contamination at the site, the
Company does not believe that the ultimate resolution of this matter will have a
material adverse effect on the Company's results of operations, cash flows or
financial condition.
The Company believes that its facilities are in compliance in all material
respects with all applicable United States Federal, state and local
environmental laws, ordinances and regulations, as well as comparable laws and
regulations outside the United States. No assurances can be given, however, that
the current environmental condition of the Company's owned and leased facilities
is not other than as currently understood by the Company, or will not be
adversely affected by the condition of properties in the vicinity of the
Company's owned and leased properties or by the activities of third parties
unrelated to the Company, or that future laws, ordinances or regulations will
not impose any material environmental liability on the Company.
Regulation
The Company's OTR and intermodal equipment is subject to various Federal and
state licensing and operating regulations as well as to various industry
standards. From time to time, certain Federal agencies promulgate regulations
which have a direct impact on the Company's OTR and intermodal equipment
relating to brake systems, periodic inspection systems, underride protection and
other safety-related issues. These agencies include the Federal Highway
Administration (the "FHWA") of the United States Department of Transportation,
which regulates the use of motor vehicles on the United States highways; the
National Highway Traffic Safety Administration, which regulates the manufacture
of new motor vehicles; other agencies in the United States; and similar agencies
in Mexico and Canada. Recently, the FHWA published a Notice of Proposed
Rulemaking to amend the Federal Motor Carrier Safety Regulations to require that
motor carriers engaged in interstate commerce install retroreflective tape or
reflex reflectors on the sides and rear of all trailers that (i) were
manufactured prior to December 1, 1993, (ii) have an overall width of 80 inches
or more, and (iii) have a gross vehicle weight rating of 10,000 lbs. or more.
The FHWA has proposed that motor carriers be required to install retroreflective
tape or reflex reflectors within two years of the effective date of the final
rule. A significant number of the Company's OTR and intermodal trailers would be
impacted if the proposed rule is adopted in its present form, although the
number of trailers affected will depend upon the date the rule is adopted, with
the Company's ongoing disposition of or conversion to off-road use of trailers
decreasing the number of trailers that will be affected. The Company believes
that the cost of complying with the rule (in its present form) would not have a
material adverse effect on the Company's results of operations, cash flows or
financial condition. The Company's international leasing operations also can be
adversely affected by tariff barriers and political instability in foreign
countries.
7
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Employees
The Company had 874 employees at September 30, 1998.
Corporate Organization
The Company was organized in 1957. XTRA's corporate management offices are
located at 60 State Street, Boston, Massachusetts 02109-1826 (telephone number
(617) 367-5000).
XTRA, Inc., a wholly-owned direct subsidiary of XTRA Corporation, owns
substantially all of the Company's transportation equipment and conducts the
Company's leasing business through certain of its subsidiaries pursuant to
management service agreements.
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ITEM 2. PROPERTIES
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The Company maintains 94 facilities for the storage and distribution of its OTR
and intermodal equipment throughout North America, occupying 688 acres, of which
379 acres are owned. These facilities generally occupy 2 to 16 acres. The
Company also maintains six chassis pools at various customer locations. The
international marine container operations are managed from 15 Company offices
and 8 agency locations, which utilize 159 independent depot locations worldwide
to store and maintain equipment.
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ITEM 3. LEGAL PROCEEDINGS
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From time to time, the Company is involved in various claims and legal actions
arising out of the normal course of its business. Currently, there are no
pending claims or actions that management believes will have a material adverse
effect on the Company's financial position and results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matter was submitted to stockholders of the Company during the fourth quarter
of 1998.
8
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
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The executive officers of the Company, the age of each, and the period during
which each has served in his present office are as follows:
LEWIS RUBIN (60) - President and Chief Executive Officer. Mr. Rubin was
President and Chief Executive Officer of Flexi-Van Corporation, a company
engaged in the leasing of intermodal transportation equipment, from 1981 to
1983. He served as President and Chief Executive Officer of Gelco CTI Container
Services, a subsidiary of Gelco Corporation, and as an Executive Vice President
of Gelco Corporation from 1984 to 1988. Mr. Rubin was elected President and
Chief Operating Officer of the Company in 1990. He was elected to his present
position in 1990.
ROBERT B. BLAKELEY (38) - Vice President and Controller. Mr. Blakeley joined
the Company in 1984, was promoted to Assistant Controller in 1987 and was
elected Controller and Chief Accounting Officer in 1991. Mr. Blakeley was
elected to his present position in 1996.
JEFFREY R. BLUM (46) - Vice President, Administration and Human Resources. Mr.
Blum joined the Company in 1995 as Vice President of Human Resources and was
elected to his current position in 1996. Prior to 1995, Mr. Blum served in
similar capacities at First Winthrop Corporation from 1993 to 1995 and Signal
Capital Corporation prior to 1993.
MICHAEL K. FOX (52) - Vice President, XTRA Intermodal. Mr. Fox joined the
Company in 1981 and has held several managerial positions. He was elected
Divisional Executive Vice President, XTRA Intermodal in 1993. He was elected to
his present position in 1994.
WILLIAM H. FRANZ (47) - Vice President, XTRA Lease. Mr. Franz was previously
employed by two large over-the-road lessors, Transport International Pool and
Strick Lease. He joined the Company in 1992 and was elected to the position of
Divisional Executive Vice President, XTRA Lease in 1993. He was elected to his
present position in 1993.
THOMAS A. GIACCHETTO (33) - Chief Counsel and Secretary. Mr. Giacchetto joined
the Company in 1995 as Senior Corporate Counsel. He was elected to his present
position in April 1998. Prior to joining the Company, Mr. Giacchetto was an
associate with Hutchins, Wheeler & Dittmar, a Boston law firm, from 1990 through
1995.
FREDERICK M. GUTTERSON (56) - Vice President, XTRA International. Mr. Gutterson
had been President and Chief Executive Officer of Matson Leasing Company, Inc.
since its inception in 1989. He was elected to his present position in 1995
following the Matson acquisition.
CHRISTOPHER P. JOYCE (37) - Vice President and Treasurer. Mr. Joyce joined the
Company in 1985. He was promoted to Assistant Treasurer in 1991 and was elected
Treasurer in 1993. Mr. Joyce was elected to his present position in 1996.
MICHAEL J. SOJA (49) - Vice President and Chief Financial Officer. Mr. Soja
joined the Company as Assistant Controller in 1974, was elected Controller in
1978 and Vice President in 1979. He was elected Vice President, Finance and
Administration in 1981 and Vice President, Finance and Treasurer in 1990. Mr.
Soja was elected to his present position in 1990.
All terms of office expire as of the date of the Board of Directors' meeting
following the next Annual Meeting of Stockholders and until their respective
successors are elected and qualified.
9
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PART II.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company's Common Stock is listed on the New York Stock Exchange and trades
under the symbol "XTR". The approximate number of record holders as of November
12, 1998 was 732. The following table sets forth the range of high and low sale
prices of the Company's Common Stock on the New York Stock Exchange Composite
Tape and dividends declared during fiscal years ended September 30, 1997 and
1998.
<TABLE>
<CAPTION> Dividends
High Low Declared
<S> <C> <C> <C> <C>
1997: First Quarter $47 1/8 $40 1/8 $.18
Second Quarter 43 3/4 40 1/2 .20
Third Quarter 49 41 1/4 .20
Fourth Quarter 57 1/4 42 .20
1998: First Quarter 60 50 .20
Second Quarter 66 1/16 57 3/4 .22
Third Quarter 64 13/16 45 1/2 .22
Fourth Quarter 62 7/8 46 5/16 -
</TABLE>
The Company paid quarterly cash dividends on its Common Stock from January 1977
through the third quarter of 1998. The Company agreed under the terms of the
Recapitalization Merger Agreement not to pay dividends on the Company Common
Stock pending consummation of the Merger (see Note 13 of the Notes to
Consolidated Financial Statements). Future dividends, if any, will be
determined by the Board of Directors and will be dependent upon the earnings,
financial condition, and cash requirements of the Company and other relevant
factors existing at the time.
The Company's sources of funds for the payment of dividends on its capital stock
are advances and dividends from its direct and indirect wholly-owned
subsidiaries, including XTRA, Inc. The primary sources of funds for XTRA, Inc.
are cash flows from operations, advances from its subsidiaries, and external
financing. The Company's loan agreements contain covenants that restrict the
payment of dividends or repurchases of common stock by the Company and certain
loan agreements contain covenants that restrict advances to and payment of
dividends to the Company by its subsidiaries, including XTRA, Inc. Under the
most restrictive provisions of the Company's loan agreements, the repurchase of
common stock and/or the amount of cash dividends which could be paid on the
Company's capital stock was limited to $168 million at September 30, 1998. The
Company had agreed in the Recapitalization Merger Agreement not to repurchase
any shares of Company Common Stock pending consummation of the Merger (see Note
13 of the Notes to Consolidated Financial Statements).
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ITEM 6. SELECTED FINANCIAL DATA
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This information is set forth in the table appearing on page 1 of the Company's
1998 Annual Report, which table is incorporated herein by reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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The information required by this item appears in the Company's 1998 Annual
Report beginning at page 25 and is incorporated herein by reference.
10
<PAGE>
- -------------------------------------------------------------------
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
The Company has financed its operations with a combination of short-term
borrowings and longer term financing. The Company borrows on a short-term basis
by issuing commercial paper and using several uncommitted lines of credit. The
Company's short-term borrowings are principally at variable rates and at
September 30, 1998, constitute approximately 16% of total borrowings with the
balance representing long-term fixed rate borrowings. At September 30, 1998 the
fair value of the Company's long-term debt was $866 million. A 10% change in
interest rates would result in a $16 million change in the fair value of the
long-term debt.
The Company's earnings are affected by fluctuations in the exchange rate of the
U.S. dollar as compared to the Mexican Peso and Canadian dollar. These earnings
fluctuations are primarily a result of the Company investments in and financing
of these operations, as opposed to operating results.
- ---------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
For the Financial Statements and Supplementary Data for XTRA Corporation and its
subsidiaries, see Index to Financial Statements on page 21 of the Company's 1998
Annual Report, which Financial Statements and Supplementary Data are
incorporated herein by reference.
- -----------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -----------------------------------------------------------------------
Not Applicable.
11
<PAGE>
PART III.
- -----------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
(a) DIRECTORS - Information with respect to all directors may be found in the
Company's definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders (the "1999 Proxy Statement") under the caption "Information
with Respect to Director Nominees," which is to be filed with the Securities
and Exchange Commission. Such information is incorporated herein by
reference.
(b) EXECUTIVE OFFICERS - Information with respect to executive officers of the
registrant appears in Item 4A of this Report on Form 10-K.
- -------------------------------
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
This information is contained in the 1999 Proxy Statement under the captions
"Executive Compensation Tables" and "Compensation of Directors." Such
information is incorporated herein by reference.
- -----------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
This information is contained in the 1999 Proxy Statement under the captions
"Stock Ownership by Directors and Executive Officers" and "Beneficial Ownership
of More Than Five Percent of Voting Securities." Such information is
incorporated herein by reference.
- -------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
This information is contained in the 1999 Proxy Statement under the captions
"Information with Respect to Director Nominees" and "Certain Transactions." Such
information is incorporated herein by reference.
12
<PAGE>
PART IV.
- -----------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
- -----------------------------------------------------------------------
(a) Required exhibits are included only in the Form 10-K filed with the
Securities and Exchange Commission.
(b) The Company filed a Current Report on Form 8-K, dated November 20, 1998,
which disclosed certain financial information for the fiscal fourth quarter
ended September 30, 1998, and a Current Report on Form 8-K, dated December
15, 1998, disclosing the conditions of the merger agreement termination.
(c) For Financial Statements and Schedule, see Index to Financial Statements on
page 21 of the Company's 1998 "Annual Report, which Financial Statements
and Schedule are incorporated herein by reference.
13
<PAGE>
SCHEDULE 1
XTRA CORPORATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
-----------------------------------------
(Millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Assets
- ------
Investment in subsidiary $ 413 $ 359
Advances to subsidiaries 12 11
---------- ---------
$ 425 $ 370
========== =========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Accrued expenses $ 6 $ 6
---------- ---------
Total liabilities 6 6
Commitments and contingencies:
Stockholders' equity:
Preferred stock, without par value;
total authorized: 3,000,000 shares
Common stock, par value $.50 per share; authorized:
30,000,000 shares; issued and outstanding;
15,372,903 shares at September 30, 1998
and 15,276,600 at September 30, 1997 8 8
Capital in excess of par value 57 52
Retained earnings 354 304
---------- ---------
Total stockholders' equity 419 364
---------- ---------
$ 425 $ 370
========== =========
</TABLE>
The accompanying Notes A, B, and C and the Notes to Consolidated Financial
Statements are an integral part of these consolidated financial statements.
14
<PAGE>
SCHEDULE 1
XTRA CORPORATION
(PARENT COMPANY ONLY)
INCOME STATEMENTS
FOR THE THREE YEARS ENDED
SEPTEMBER 30, 1998
------------------
(Millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Equity in earnings of subsidiaries $ 59 $ 43 $ 41
Other income 8 - -
-------- ------- -------
67 43 41
Selling and administrative expenses 7 - -
======== ======= =======
Net income $ 60 $ 43 $ 41
======== ======= =======
</TABLE>
The accompanying Notes A, B, and C and the Notes to Consolidated Financial
Statements are an integral part of these consolidated financial statements.
15
<PAGE>
SCHEDULE 1
XTRA CORPORATION
(PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
FOR THE THREE YEARS ENDED
SEPTEMBER 30, 1998
(Millions of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operations:
Net income $ 60 $ 43 $ 41
Deduct non-cash income and expense items:
Equity in earnings of subsidiaries (59) (43) (41)
Add other cash items:
Dividends received from subsidiary 5 25 57
Net change in receivables, other assets, accounts
payable and accrued expenses (1) (1) (1)
------------- ------------- ------------
Total cash provided from operations 5 24 56
------------- ------------- ------------
Cash flows from financing activities:
Options exercised, net of related tax benefits 5 1 1
Repurchase of common stock, net - (13) (46)
Dividends paid (10) (12) (11)
------------- ------------- ------------
Total cash used for financing activities (5) (24) (56)
------------- ------------- ------------
Net increase (decrease) in cash - - -
Cash at beginning of period - - -
------------- ------------- ------------
Cash at end of period $ - $ - $ -
============= ============= ============
</TABLE>
The accompanying Notes A, B, and C and the Notes to Consolidated Financial
Statements are an integral part of these financial statements.
16
<PAGE>
XTRA CORPORATION
NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS
(A) Summary of Significant Accounting Policies
------------------------------------------
Accounting for Investment in Subsidiary
XTRA Corporation, the Parent Company, recorded its investment in its
subsidiary, XTRA, Inc., at cost plus its equity in the undistributed
earnings of this subsidiary.
Other Income
Other income includes management fees received by the Parent Company from
the subsidiaries. Prior to 1998, these management fees were earned by a
subsidiary of the Parent Company.
Operating Expenses
All administrative and interest expenses incurred by the Parent Company are
charged to its direct and indirect wholly-owned subsidiaries. Prior to
1998, these expenses were incurred by a subsidiary of the Parent Company.
(B) Capital Stock
-------------
Dividends
XTRA Corporation declared cash dividends of $.64, $.78, and $.70 per share
in the years ended September 30, 1998, 1997, and 1996, respectively. XTRA
Corporation paid out cash dividends to stockholders totaling $10 million,
$12 million, and $11 million during fiscal 1998, 1997, and 1996,
respectively. The principal source of dividends for the Parent Company are
funds advanced from its direct and indirect wholly-owned subsidiaries,
including XTRA, Inc.
Repurchase of Common Stock
The Parent Company's Board of Directors has authorized the repurchase of up
to $200 million of its common stock. The timing of the repurchases, which
could occur over an extended period of time, will depend on price, market
conditions and other factors. As of November 12, 1998, the Parent Company
had repurchased approximately $79 million of common stock.
(C) Debt and Transfers to Subsidiaries
----------------------------------
The Parent Company has guaranteed certain debt of its indirect wholly-owned
subsidiary, including the Revolving Credit Agreement, Series Notes and Term
Loans. (See Note 3 of the Parent Company's consolidated 1998 Annual
Report.)
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of XTRA Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in XTRA Corporation's Annual Report to
stockholders incorporated by reference in the Company's Annual Report on Form
10-K for the year ended September 30, 1998, and have issued our report thereon
dated November 11, 1998. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in the index
to financial statements and incorporated by reference in the Company's Annual
Report on Form 10-K for the year ended September 30, 1998, is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 11, 1998
18
<PAGE>
- ----------
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 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.
XTRA Corporation
(Registrant)
By /s/ Lewis Rubin
-------------------------------------
President and Chief Executive Officer
November 12, 1998
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.
Signatures Title Date
- --------------------------------------------------------------------------------
/s/ Robert B. Goergen Chairman of the November 12, 1998
Board of Directors
/s/ Robert M. Gintel Vice Chairman of the November 12, 1998
Board of Directors
/s/ Lewis Rubin President, Chief Executive November 12, 1998
Officer and Director
/s/ Michael J. Soja Vice President November 12, 1998
and Chief Financial Officer
/s/ Robert B. Blakeley Vice President and Controller November 12, 1998
/s/ Michael D. Bills Director November 12, 1998
/s/ H. William Brown Director November 12, 1998
/s/ Michael N. Christodolou Director November 12, 1998
/s/ Herbert C. Knortz Director November 12, 1998
/s/ Francis J. Palamara Director November 12, 1998
/s/ Martin L. Solomon Director November 12, 1998
19
<PAGE>
EXHIBIT INDEX
XTRA Corporation Form 10-K
(for fiscal year ended 9/30/98)
Exhibit Item
3.1 Restated Certificate of Incorporation of the Registrant (filed with the
Securities and Exchange Commission as Exhibit 3.1 to Registrant's Annual
Report on Form 10-K for the year ended September 30, 1989, and
incorporated herein by reference).
3.1.1 Certificate of Elimination of Designation, Preference and Rights of
Series A Participating Preferred Stock (filed with the Securities and
Exchange Commission as Exhibit 3.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, and incorporated herein by
reference).
3.1.2 Certificate of Elimination of Designation, Preference and Rights of
$1.9375 Series B Cumulative Convertible Preferred Stock (filed with the
Securities and Exchange Commission on March 5, 1993 as Exhibit 4.5 to
Registrant's Registration Statement on Form S-3 (file No. 33-59132), and
incorporated herein by reference).
3.1.3 Certificate of Amendment of Restated Certificate of Incorporation (filed
with the Securities and Exchange Commission on March 5, 1993 as Exhibit
4.4 to Registrant's Registration Statement on Form S-3 (file No. 33-
59132), and incorporated herein by reference).
3.1.4 Certificate of Elimination of Designation, Preference and Rights of the
Series C Cumulative Redeemable Exchangeable Preferred Stock (filed with
the Securities and Exchange Commission on July 26, 1994 as Exhibit 4.5 to
Registrant's Registration Statement on Form S-3 (file No. 33-54747), and
incorporated herein by reference).
3.2 Amended and Restated By Laws of the Registrant, as amended through
January 24, 1996 (filed with the Securities and Exchange Commission as
Exhibit 3(b) to Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, and incorporated herein by reference).
4.1 Indenture, dated as of February 1, 1989, between XTRA, Inc., the
Registrant and Chemical Bank, and First Supplemental Indenture, dated as
of February 1, 1989, between XTRA, Inc., XTRA Corporation and Chemical
Bank (filed with the Securities and Exchange Commission as Exhibits 4.1
and 4.2, respectively, to Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1988, and incorporated herein by
reference).
4.1.1 Second Supplemental Indenture, dated as of December 10, 1991, to the
Indenture identified in Exhibit 4.1 above, between XTRA, Inc., the
Registrant and Chemical Bank (filed with the Securities and Exchange
Commission as Exhibit 4.4.1 to Registrant's Annual Report on Form 10-K
for the year ended September 30, 1991, and incorporated herein by
reference).
20
<PAGE>
4.1.2 Third Supplemental Indenture, dated as of November 1, 1992, to the
Indenture identified in Exhibit 4.1 above, between XTRA, Inc., the
Registrant and Chemical Bank (filed with the Securities and Exchange
Commission as Exhibit 4.2 to Registrant's Quarterly Report on Form 10-Q
for the Quarter ended December 31, 1992, and incorporated herein by
reference).
4.1.3 Fourth Supplemental Indenture, dated as of September 30, 1994, to the
Indenture identified in Exhibit 4.1 above, between XTRA, Inc., the
Registrant and Chemical Bank (filed with the Securities and Exchange
Commission as Exhibit 4.1.3 to Registrant's Annual Report on Form 10-K
for the year ended September 30, 1994, and incorporated herein by
reference).
4.2 Indenture, dated as of August 15, 1994, between XTRA, Inc., the
Registrant and the First National Bank of Boston (filed with the
Securities and Exchange Commission as Exhibits 4.1 to Registrant's
Current Report on Form 8-K dated August 15, 1994, and incorporated herein
by reference).
4.2.1 First Supplemental Indenture, dated as of September 30, 1994, to the
Indenture identified in Exhibit 4.2 above, between XTRA, Inc., the
Registrant and the First National Bank of Boston (filed with the
Securities and Exchange Commission as Exhibit 4.2.1 to Registrant's
Annual Report on Form 10-K for the year ended September 30, 1994, and
incorporated herein by reference).
4.2.2 Second Supplemental Indenture, dated as of May 16, 1997, to the Indenture
identified in Exhibit 4.2 above, between XTRA, Inc., the Registrant and
State Street Bank and Trust Company (filed with the Securities and
Exchange Commission as Exhibit 4.2.2 to Registrant's Annual Report on
Form 10-K for the year ended September 30, 1997, and incorporated herein
by reference).
4.2.3 Form of fixed-rate Series C Medium-Term Note (filed with the Securities
and Exchange Commission as Exhibit 4.9 to Registrant's Post-Effective
Amendment No. 1 to Registration Statement on Form S-3 (file No. 33-
65293), and incorporated herein by reference).
4.2.4 Form of floating-rate Series C Medium-Term Note (filed with the
Securities and Exchange Commission as Exhibit 4.10 to Registrant's Post-
Effective Amendment No. 1 to Registration Statement on Form S-3 (file No.
33-65293), and incorporated herein by reference).
Note: Registrant agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of any other instrument with respect to
long-term debt of the registrant and its subsidiaries. Such other
instruments are not filed herewith because no such instrument relates to
outstanding debt in amount greater than 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
21
<PAGE>
4.3 Credit Agreement, dated as of June 30, 1995, among XTRA, Inc., Bank of
America Illinois and Each of the Other Financial Institutions From Time
To Time Parties Thereto, with Bank of America National Trust and Savings
Association as Administrative Agent and The First National Bank of Boston
as Documentation Agent (filed with the Securities and Exchange Commission
as Exhibit 2.2 to Registrant's Current Report on Form 8-K dated July 14,
1995, and incorporated herein by reference).
4.3.1 Guaranty, dated June 30, 1995 by the Registrant (filed with the
Securities and Exchange Commission as Exhibit 2.3 to Registrant's Current
Report on Form 8-K dated July 14, 1995, and incorporated herein by
reference).
4.3.2 First Amendment, dated as of June 28, 1996, to the Credit Agreement
identified in Exhibit 4.3 above, among Bank of America Illinois and Each
of the Other Financial Institutions From Time To Time Parties Thereto,
with Bank of America National Trust and Savings Association as
Administrative Agent and The First National Bank of Boston as
Documentation Agent (filed with the Securities and Exchange Commission as
Exhibit 4.3.2 to Registrant's Annual Report on Form 10-K for the year
ended September 30, 1996, and incorporated herein by reference).
4.3.3 Second Amendment, dated as of June 19, 1997, to the Credit Agreement
identified in Exhibit 4.3 above, among Bank of America Illinois and Each
of the Other Financial Institutions From Time to Time Parties Thereto,
with Bank of America National Trust and Savings Association as
Administrative Agent and BankBoston, N.A. as Documentation Agent (filed
with the Securities and Exchange Commission as Exhibit 4 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and
incorporated herein by reference).
10.1 Agreement and Plan of Reorganization, dated as of July 26, 1992, among
Registrant, ST Trailer Corp., Distribution International Corporation
("DI"), Strick Corporation and certain individuals owning approximately
70% of the capital of stock of DI (filed with the Securities and Exchange
Commission as Exhibit 2.1 to Registrant's Current Report on Form 8-K
dated August 4, 1992, and incorporated herein by reference).
10.2 U.S. Fleet Finance Services Agreement dated as of October 1, 1994 between
XTRA, Inc., and XTRA Intermodal, Inc. (filed with the Securities and
Exchange Commission as Exhibit 10.2 to Registrant's Annual Report on Form
10-K for the year ended September 30, 1994, and incorporated herein by
reference).
10.3 U.S. Fleet Finance Services Agreement dated as of October 1, 1994 between
XTRA, Inc., and XTRA Lease Inc. (filed with the Securities and Exchange
Commission as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for
the year ended September 30, 1994, and incorporated herein by reference).
10.4 Fleet Finance Services Agreement dated as of July 1, 1995 between XTRA,
Inc., and XTRA International Ltd. (filed with the Securities and Exchange
Commission as Exhibit 10.4 to Registrant's Annual Report on Form 10-K for
the year ended September 30, 1994, and incorporated herein by reference).
22
<PAGE>
EXECUTIVE COMPENSATION PLANS
10.5 1991 Stock Option Plan for Non-Employee Directors, as amended through
November 14, 1996 (filed with the Securities and Exchange Commission as
Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996, and incorporated herein by reference).
10.6 1987 Stock Incentive Plan, as amended through November 16, 1995 (filed
with the Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995, and incorporated herein by reference).
10.7 Deferred Director Fee Option Plan (filed with the Securities and Exchange
Commission as Exhibit 10.5 to Registrant's Annual Report on Form 10-K for
the year ended September 30, 1993, and incorporated herein by reference).
10.8 Deferred Compensation Plan for Non-Employee Directors, effective January
1, 1994 (filed with the Securities and Exchange Commission as Exhibit
10.6 to Registrant's Annual Report on Form 10-K for the year ended
September 30, 1993, and incorporated herein by reference).
10.9 Deferred Compensation Plan for Senior Executives, effective January 1,
1994 (filed with the Securities and Exchange Commission as Exhibit 10.7
to Registrant's Annual Report on Form 10-K for the year ended September
30, 1993, and incorporated herein by reference).
10.10 Form of Indemnification Agreement entered into between the Registrant and
certain former Directors and certain former and current officers of the
Registrant and its subsidiaries (filed with the Securities and Exchange
Commission on June 11, 1987 as Exhibit 10 to Registrant's Registration
Statement on Form S-3 (file No. 33-14996), and incorporated herein by
reference).
10.11 Agreement, dated as of June 30, 1995, between the Registrant and
Frederick M.Gutterson (filed with the Securities and Exchange Commission
as Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year
ended September 30, 1996, and incorporated herein by reference).
10.12 Individual Pension Agreement, dated as of July 1, 1994, between the
Registrant and Lewis Rubin (filed with the Securities and Exchange
Commission as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, and incorporated herein by
reference).
10.13 Economic Profit Incentive Plan (filed with the Securities and Exchange
Commission as Exhibit 10.13 to Registrant's Annual Report on Form 10-K
for the year ended September 30, 1997, and incorporated herein by
reference).
10.14 Severance Agreement, dated as of December 8, 1997, between the Registrant
and Lewis Rubin (filed with the Securities and Exchange Commission as
Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year
ended September 30, 1997, and incorporated herein by reference).
23
<PAGE>
10.15 Severance Agreement, dated as of December 8, 1997, between the Registrant
and William H. Franz (filed with the Securities and Exchange Commission
as Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year
ended September 30, 1997, and incorporated herein by reference).
10.16 Severance Agreement, dated as of December 8, 1997, between the Registrant
and Michael J. Soja (filed with the Securities and Exchange Commission as
Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the year
ended September 30, 1997, and incorporated herein by reference).
10.17 Severance Agreement, dated as of December 8, 1997, between the Registrant
and Michael K. Fox (filed with the Securities and Exchange Commission as
Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the year
ended September 30, 1997, and incorporated herein by reference).
10.18 Agreement, dated as of December 1994, between Matson Leasing Company,
Inc. and Frederick M. Gutterson, assumed by XTRA, Inc. as of June 30,
1995 (filed with the Securities and Exchange Commission as Exhibit 10.18
to Registrant's Annual Report on Form 10-K for the year ended September
30, 1997, and incorporated herein by reference).
10.19 Form of Severance Agreement entered into between the Registrant and
certain officers of the Registrant (filed with the Securities and
Exchange Commission as Exhibit 10.19 to Registrant's Annual Report on
Form 10-K for the year ended September 30, 1997, and incorporated herein
by reference).
10.20 1997 Stock Incentive Plan (filed with the Securities and Exchange
Commission as Exhibit 10 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1997, and incorporated herein by
reference).
11.2 Statement re: calculation of weighted average shares outstanding
12.1 Statement re: computation of ratios (XTRA Corporation).
12.2 Statement re: computation of ratios (XTRA, Inc.).
13.1 Five Year Selected Financial Data.
13.2 Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Years Ended September 30, 1998 (not covered
by the Report of Independent Public Accountants).
13.3 XTRA Corporation and Subsidiaries Consolidated Financial Statements.
21 Subsidiaries of Registrant.
23 Consent of Independent Public Accountants.
24
<PAGE>
27 Financial Data Schedule.
27.1 Amended Financial Data Schedule
25
<PAGE>
EXHIBIT 11.2
XTRA CORPORATION
CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
FOR THE FOUR QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997
-------------------------------------------------------
(Millions of Shares)
<TABLE>
<CAPTION>
QUARTER ENDED:
12/31/97 3/31/98 6/30/98 9/30/98 YTD 1998
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Computation of Basic Shares Outstanding:
- ----------------------------------------
Weighted average basic common shares
outstanding 15.3 15.3 15.3 15.4 15.3
========== ========= ========= ========= =========
Computation of Diluted Shares Outstanding:
- -----------------------------------------
Weighted average basic common shares
outstanding 15.3 15.3 15.3 15.4 15.3
Common stock equivalents for diluted common
shares outstanding: 0.1 0.1 0.1 - 0.1
---------- --------- --------- --------- ---------
Weighted average number of diluted common
shares outstanding 15.4 15.4 15.4 15.4 15.4
========== ========= ========= ========= =========
QUARTER ENDED:
12/31/96 3/31/97 6/30/97 9/30/97 YTD 1997
---------- --------- --------- --------- ---------
Computation of Basic Shares Outstanding:
- ----------------------------------------
Weighted average basic common shares
outstanding 15.3 15.3 15.3 15.3 15.3
========== ========= ========= ========= =========
Computation of Diluted Shares Outstanding:
- -----------------------------------------
Weighted average basic common shares
outstanding 15.3 15.3 15.3 15.3 15.3
Common stock equivalents for diluted common
shares outstanding: - - - - -
---------- --------- --------- --------- ---------
Weighted average number of diluted common
shares outstanding 15.3 15.3 15.3 15.3 15.3
========== ========= ========= ========= =========
</TABLE>
26
<PAGE>
EXHIBIT 12.1
XTRA CORPORATION
STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1998
(Millions of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- ------
<S> <C> <C> <C>
EARNINGS
Income from operations before provision for income taxes $ 99 $ 71 $ 69
Add: Fixed charges (below) 58 63 66
--------- ------- ------
$ 157 $ 134 $ 135
========= ======= ======
FIXED CHARGES $ 58 $ 63 $ 66
========= ======= ======
Ratio of Earnings to Fixed Charges 2.7 2.1 2.0
========= ======= ======
</TABLE>
Note: For purposes of computing the ratio of earnings to fixed charges,
earnings represent income from operations before taxes plus fixed
charges. Fixed charges for operations consist of interest on
indebtedness and the portion of rental expense which represents
interest.
27
<PAGE>
EXHIBIT 12.2
XTRA INC.
STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1998
(Millions of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- --------
<S> <C> <C> <C>
EARNINGS
Income from operations before provision for income taxes $ 99 $ 71 $ 69
Add: Fixed charges (below) 58 63 66
-------- ------- --------
$ 157 $ 134 $ 135
======== ======= ========
FIXED CHARGES $ 58 $ 63 $ 66
======== ======= ========
Ratio of Earnings to Fixed Charges 2.7 2.1 2.0
======== ======= ========
</TABLE>
Note: For purposes of computing the ratio of earnings to fixed charges,
earnings represent income from operations before taxes plus fixed
charges. Fixed charges for operations consist of interest on
indebtedness and the portion of rental expense which represents
interest.
28
<PAGE>
EXHIBIT 13.1
FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended September 30, 1998 1997 1996 1995 1994
(Millions of dollars except
per share amounts)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Revenues $ 461 $ 435 $ 422 $ 378 $ 355
Cash provided from operations 293 269 272 237 233
Capital expenditures (1) 199 249 210 699 236
Pretax income 99 71 69 98 98
Net income 60 43 41 57 58
PER SHARE INFORMATION
Basic earnings per share $ 3.90 $ 2.79 $ 2.56 $ 3.40 $ 3.41
Diluted earnings per share $ 3.88 $ 2.78 $ 2.56 $ 3.39 $ 3.38
Dividends declared per share (2) $ .64 $ .78 $ .70 $ .62 $ .54
FINANCIAL POSITION
Total assets $1,575 $1,585 $1,537 $1,516 $1,005
Total debt 802 892 892 898 444
Total stockholders' equity 408 360 342 359 331
-----------------------------------------------
</TABLE>
(1) Includes capital expenditures for acquisitions.
(2) See Note 13 of the Notes to Consolidated Financial Statements.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE YEARS ENDED SEPTEMBER 30, 1998
(Not covered by Report of Independent Public Accountants)
The discussion below contains certain forward-looking statements including
estimates of economic and industry conditions, equipment utilization, and
capital expenditures. Actual results may vary from those contained in such
forward-looking statements. See "Cautionary Statements for Purposes of the
'Safe Harbor' Provisions of the Private Securities Litigation Reform Act of
1995" contained below. Reference to years in the discussion below refer to XTRA
Corporation's fiscal years (the period from October 1 to September 30).
XTRA Corporation leases, primarily on an operating basis, freight transportation
equipment including over-the-road trailers, marine containers, intermodal
trailers, chassis, and domestic containers. XTRA's equipment utilization, lease
rates, and therefore, profitability, are impacted by the supply of and demand
for available equipment, the level of economic activity in North America, world
trade activity, the actions of its competitors, and other factors in the freight
transportation industry. Utilization and profitability are usually seasonally
lower in the second and third fiscal quarters than in the first and fourth
fiscal quarters. In general, the Company's receivable collection experience has
been good. However, industry downturns tend to lengthen the collection period of
certain receivables.
The Company's pretax profits have been cyclical, principally due to the
variability of the Company's revenues and the high percentage of fixed costs. To
moderate this cyclicality, the Company attempts to maintain a balance between
the amount of equipment leased on a per diem and term basis and maintains a mix
of various types of freight transportation equipment available for lease. The
Company has historically maintained a high proportion of its debt at fixed rates
to reduce the impact of fluctuations in interest rates.
XTRA's marine container leasing operation reduces XTRA's dependence on the
North American transportation industry. Although the marine container business
is international, substantially all transactions are denominated in U.S.
dollars.
Revenues
Revenues are a function of lease rates and working units; the latter depends on
fleet size and equipment utilization. Utilization, the ratio of revenue-earning
units to the total fleet, is derived from billing information, usage reports and
other information from customers, assumptions based on historical experience,
and equipment inventories taken at Company depots, and is an approximation.
Utilization is impacted by the supply of, and demand for, available equipment,
the level of economic activity in North America, and world trade activity.
30
<PAGE>
The following table sets forth the Company's average equipment utilization
(dollar weighted by investment in each type of equipment), average fleet size in
units, and average net investment in revenue equipment for the years ended
September 30, 1998, 1997, and 1996. The Company's average fleet size and net
investment includes equipment owned by the Company, equipment leased-in from
third parties under operating and capital leases, and equipment leased to third
parties under finance leases.
<TABLE>
<CAPTION>
Year ended September 30, 1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C> <C>
NORTH AMERICA
XTRA Lease
Utilization 90% 88% 84%
Units 79,000 77,000 77,000
Net investment in equipment (in millions) $ 738 $ 674 $ 648
XTRA Intermodal
Utilization 81% 82% 78%
Units 54,000 54,000 56,000
Net investment in equipment (in millions) $ 290 $ 322 $ 357
Total
Utilization 87% 86% 81%
Units 133,000 131,000 133,000
Net investment in equipment (in millions) $ 1,028 $ 996 $ 1,005
INTERNATIONAL
Utilization 82% 79% 81%
Units 164,000 157,000 141,000
Net investment in equipment (in millions) $ 404 $ 418 $ 403
CONSOLIDATED
Utilization 86% 84% 81%
Units 297,000 288,000 274,000
Net investment in equipment (in millions) $ 1,432 $ 1,414 $ 1,408
-------------------------------
</TABLE>
Overall, 1997 revenues increased 3% or $13 million to $435 million in 1997,
primarily due to improvement in the North American businesses. In 1997, the
Company's overall average equipment utilization increased by 3%. XTRA's North
American revenues increased 3% or $12 million due to higher equipment
utilization and improving lease rates. North American utilization averaged 85%
in 1997, as compared to 81% in 1996. The 2,000 unit decrease in the North
American fleet size in 1997 was due to reductions in the intermodal trailer
fleet.
XTRA's 1997 International revenues increased 2% or $1 million, primarily due to
a larger fleet size and an increase in the number of working units in the second
half of 1997, offset by a lower average effective lease rate. XTRA's marine
container utilization declined to average 79% in 1997 from 81% in 1996. Industry
over-capacity and sluggish demand for leased marine containers exerted pressure
on container lease rates. The Company's average international fleet size
increased to 157,000 units in 1997 from 141,000 units in 1996 as a result of
modest capital spending.
Revenues increased by 6% or $26 million in 1998. The Company's average
equipment utilization improved from 84% in 1997 to 86% in 1998. Average net
investment in equipment increased by $18 million due primarily to an increase in
the net investment in over-the-road trailers, which was partially offset by a
decline in the net investment in the intermodal equipment and marine container
fleets.
31
<PAGE>
The Company's North American revenues increased 6% or $22 million from the same
period a year ago due to strong levels of domestic freight leading to more
working units, as well as an improvement in lease rates. The Company's North
American utilization averaged 87% in 1998, as compared to 86% in 1997. XTRA
Lease's revenues increased $25 million from 1997 due to strong levels of
domestic freight leading to more working units, as well as an improvement in
lease rates. XTRA Lease's utilization averaged 90% in fiscal year 1998, as
compared to 88% in 1997. Increasing demand for equipment was reflected in
increased truck tonnage, an indicator of domestic freight levels in the U.S.
XTRA Intermodal's revenues decreased $3 million from fiscal 1997 due to a
decrease in working units, as well as declining lease rates. XTRA Intermodal's
utilization averaged 81% in fiscal 1998, compared to 82% in 1997.
The Company's North American over-the-road fleet of 79,000 units, consisting
primarily of over-the-road trailers, represented 51% of average net investment
in equipment in 1998, compared to 77,000 units, or 47% of average net investment
in equipment in 1997. The Company continues to review its North American
intermodal trailer fleet as the railroads shift toward more domestic container
usage. Given the reduced demand for intermodal trailers and the expected
continued trend toward domestic containers from trailers, XTRA believes its
fleet is appropriately sized. XTRA's intermodal trailer fleet averaged 23,000
units in 1998 and 1997, or 11% of average net investment in equipment in 1998,
versus 13% of average net investment in equipment in 1997.
International revenues increased 5% or $4 million in 1998. An increase in
revenues attributable to more working units was partially offset by lower
average effective lease rates. Equipment utilization improved to 82% from 79% in
the comparable prior year period. While International utilization improved this
year, the utilization trend declined for the second half of the fiscal year.
Marine container lease rates, which had been experiencing a steady decline since
fiscal year 1996, remained relatively flat during the most recent twelve month
period. Overall, lease rates in 1998 declined compared to the 1997 rates. The
Company's average international fleet size increased to 164,000 units in 1998
from 157,000 units in 1997.
Operating Expenses
Depreciation expense increased 2% or $3 million in 1997 and 1% or $2 million in
1998 due to a larger fleet investment.
In 1997, rental equipment operating expenses increased 8% or $8 million due to
higher storage and repositioning costs associated with more idle marine
containers, as well as increased facility costs. In 1998, rental equipment
operating expenses decreased 1% or $1 million, due to lower repair and
maintenance and storage and repositioning costs, which were partially offset by
higher facility costs.
In 1997, selling and administrative expenses increased 8% or $3 million.
Approximately half of the increase was due to an increase in bad debt expense,
with no other single factor contributing significantly to the increase. Selling
and administrative expenses in 1998 remained unchanged from 1997 levels.
Interest Expense
Interest expense is a function of the amount of average net debt outstanding
(long-term debt less cash) and average interest rates. The following table sets
forth total average net debt outstanding and interest expense as a percentage of
total average net debt outstanding.
<TABLE>
<CAPTION>
Year ended September 30, 1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C> <C>
Average net debt outstanding (millions of dollars) $ 831 $ 882 $ 906
Interest expense as a percentage of
average net debt outstanding 6.9% 7.1% 7.3%
</TABLE>
In 1997, interest expense decreased 5% or $3 million, due to a decrease in
average net debt outstanding, as well as a decrease in the average effective
interest rate. Interest expense in 1998 decreased 8% or $5 million, due
primarily to a decrease in average net debt outstanding as well as a lower
average effective interest rate.
Foreign Exchange Loss
The $2 million foreign exchange loss in 1998 is due to a strengthening of the
U.S. dollar against the Canadian and Mexican currencies. The value of the
Mexican peso and the Canadian dollar decreased by 24% and 10%, respectively,
from September 30, 1997 to September 30, 1998. The Company's operation in Mexico
are accounted for as a highly inflationary economy and as a result, all
translation gains or losses are recorded to the income statement.
32
<PAGE>
Pretax Income
In 1997, pretax income increased 3% or $2 million due primarily to improving
utilization. In 1998, pretax income increased 39% or $28 million due to higher
equipment utilization, improved North American lease rates and lower expenses,
including interest expense.
Provision for Income Taxes
The Company's effective income tax rate was approximately 41%, 40%, and 40% in
1996, 1997, and 1998, respectively. For additional information regarding the
provision for income taxes, see Notes 1 and 4 of the Notes to Consolidated
Financial Statements.
Financial Liquidity and Capital Resources
Significant capital investment is required by the Company's leasing operations,
not only for growth but also for replacement of units retired from service.
However, during periods of slower economic growth or excess equipment supplies,
capital expenditures may be curtailed until demand for transportation equipment
increases.
The following table sets forth capital expenditures by equipment type, including
units acquired by acquisition, units purchased, and units leased-in from third
parties under operating leases and capital leases. The capital expenditures for
fiscal 1999 represent XTRA's commitments for 1999 as of November 12, 1998.
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Over-the-road trailers $ 98 $ 176 $ 193 $ 100
Marine containers - 10 30 79
Intermodal trailers - - - 2
Chassis 17 6 2 22
Domestic containers - - 18 2
Non-revenue equipment - 7 6 5
--------------------------
Total $ 115 $ 199 $ 249 $ 210
==========================
</TABLE>
The Company recognizes the importance of managing capital spending as essential
to maintaining the quality of its fleet. The Company increases its fleet by
purchasing new and used equipment and by acquiring equipment from other leasing
companies. In 1997, capital expenditures increased to $249 million as XTRA
purchased over-the-road trailers to respond to current and anticipated strong
future market demand. In 1998, capital expenditures declined to $199 million, of
which $176 million was for over-the road trailers. As of November 12, 1998,
XTRA's committed capital expenditures for 1999 amounted to $115 million. The
Company may increase capital spending in 1999 if conditions warrant. Actual
capital expenditures for 1999 will depend on the Company's assessment of
business conditions.
During the three years ended September 30, 1998, the Company generated $834
million of cash flow from operations. During this same period, XTRA invested
$658 million in property and equipment including acquisitions, paid dividends of
$33 million, repurchased $51 million of common stock net of stock options
exercised, and reduced net debt (debt less cash) outstanding by $92 million.
The Company has authorized the repurchase of up to $200 million of Company
common stock. As of November 12, 1998, the Company had repurchased $79 million
of common stock under this authorization. The Company had agreed in the
Recapitalization Merger Agreement not to repurchase any shares of Company Common
Stock pending consummation of the Merger (see Note 13 of the Notes to
Consolidated Financial Statements).
Although some level of future capital spending can be financed internally, the
ability to fund expenditures above that level will depend upon the availability
of external financing. The Company historically has had available to it a
variety of external sources at favorable rates and terms to finance its
acquisitions and the growth of its leasing equipment fleet. However, the
availability of such capital depends heavily upon prevailing market conditions
and the Company's capital structure and credit ratings.
33
<PAGE>
Currently, the Company's external financing options include a combination of
medium-term and long-term borrowings in the public and non-public debt market, a
revolving credit agreement, intermediate- and long-term financing from banks and
institutional investors, and lease financing. XTRA and XTRA, Inc. have
registered with the Securities and Exchange Commission $604 million of
securities consisting of Preferred Stock and Company Common Stock of XTRA as
well as senior and subordinated debt securities of XTRA, Inc., fully and
unconditionally guaranteed by XTRA Corporation (the "Shelf Registration") (see
Note 3 of Notes to Consolidated Financial Statements). As of November 12, 1998,
XTRA, Inc. had $532 million available for issuance under this Shelf
Registration. As of November 12, 1998, the Company had $189 million of unused
committed credit available under its $300 million Revolving Credit Agreement.
For additional information regarding debt, see Notes 3 and 13 of the Notes to
Consolidated Financial Statements.
Year 2000
The Company has completed an assessment of the majority of its systems and has
developed a specific workplan to address the year 2000 issue. The Company's
assessment resulted in the identification of certain applications and
information systems that needed to be replaced or modified. The applications
consisted of certain purchased software packages used on the Company's personal
computers and the information systems are primarily those used by the Company's
XTRA Intermodal business. With respect to the purchased software packages, work
plans were created and new applications were installed to replace each of the
purchased software packages with applications that are year 2000 compliant. The
Company has completed modification and testing of its systems applications used
by the Intermodal business. The Company expects that the total costs to fix its
year 2000 issues Company-wide will amount to approximately $1 million.
The Company is in the process of completing an assessment of the potential risks
associated with business disruption as a result of year 2000 issues experienced
by the Company's vendors, suppliers and customers. Upon completion of this
assessment, the Company will determine whether certain contingency plans should
be put in place and what the cost of those plans will be. At this point, the
Company has not identified any required contingency plans which would require
that material expenditures be made by the Company.
While the Company does not believe that the year 2000 matters discussed above
will have a material impact on its business, financial conditions, or results of
operations, no assurances can be given as to what extent the Company may be
affected by such matters.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income," which established standards for the reporting and
displaying of comprehensive income in general-purpose financial statements.
Statement 130 is effective for fiscal years beginning after December 15, 1997,
Adoption of this standard will not impact the Company's consolidated financial
position, results of operations, or cash flows, and any effect will be limited
to the form and content of the Company's disclosures.
The Financial Accounting Standards Board issued Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which requires
companies to present segment information based upon the way that management
organizes the segments within a company. Statement 131 is effective for periods
beginning after December 15, 1997. In the initial year its application, this
statement need not be applied to interim financial statements. Adoption of this
standard will not impact the Company's consolidated financial position, result
of operations, or cash flows, and any effect will be limited to the form and
content of the Company's disclosures.
34
<PAGE>
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing Part I, Item 1. Business; Management's Discussion and Analysis of
Financial Condition and Results of Operations; and letter to our shareholders
contain certain forward-looking statements, including estimates of economic and
industry conditions, equipment utilization, and capital expenditures. In
addition, the Company may occasionally make forward-looking statements and
estimates such as forecasts and projections of the Company's future performance
or statements of management's plans and objectives. These forward-looking
statements may be contained in, among other things, SEC filings and press
releases made by the Company and in oral statements made by the officers of the
Company. Actual results could differ materially from those contained in such
forward-looking statements. Therefore, no assurances can be given that the
results in such forward-looking statements will be achieved. Important factors
that could cause the Company's actual results to differ from those contained in
such forward-looking statements include, among others, the factors mentioned
below. An additional risk factor is the Company's ability to address the "Year
2000 problem" in a timely and efficient manner.
- ---------------------------------------
VARIABLE REVENUES AND OPERATING RESULTS
- ---------------------------------------
The Company's revenues may vary significantly from period to period while a high
percentage of its operating costs are fixed. As a result of the variability of
the Company's revenues and the Company's limited ability to reduce its fixed
operating costs, the Company's profitability may be cyclical and subject to
significant fluctuation from period-to-period. The Company's revenues are a
function of lease rates and working units; the latter depends on fleet size and
equipment utilization (the ratio of revenue earning equipment to the total
fleet). Some of the factors which affect lease rates and working units are
competition, economic conditions and world trade activity, the supply and demand
for available equipment, aggressive purchasing of equipment by the Company's
customers and competitors leading to an excess supply of equipment and reduced
lease rates and utilization, shifting traffic trends in the industry, severe
adverse weather conditions, strikes by transportation unions and other factors
in the freight transportation industry. The Company's fixed costs include
depreciation, a portion of rental equipment operating expenses and selling and
administrative expenses.
- -----------------------------
AVAILABILITY OF NEW EQUIPMENT
- -----------------------------
New equipment is built to the Company's specifications and reflects industry
standards and customer needs. The Company obtains new equipment from a number of
manufacturers. Certain of these manufacturers have consolidated and, in the
process, eliminated manufacturing facilities. These manufacturers are, in turn
dependent on the prompt delivery and supply of the components required to
assemble the trailers, chassis and containers. Historically, delivery times have
varied from three to fifteen months from when the order is placed, and there can
be no assurance that equipment will be available at the times or of the types
needed by the Company. In addition, it is difficult to accurately predict demand
for the Company's equipment in future periods. As a result, the Company's
performance in a given period may be adversely affected because of its inability
to quickly increase fleet size to take advantage of unexpectedly strong demand
due to extended back orders.
- -----------
COMPETITION
- -----------
Leasing transportation equipment is a highly competitive business and is
affected by factors related to the transportation market. Lease terms and lease
rates, as well as availability, condition and size of equipment and customer
service are all important factors to the lessee. The Company has many
competitors, some of which have leasing fleets that are larger in size than the
Company's leasing fleet and some of which have greater resources. Various types
of transportation equipment compete for freight movement. Over-the-road
trailers, intermodal trailers, marine and domestic containers and railroad
rolling stock are all potential vehicles for the movement of freight.
35
<PAGE>
- ----------------------
CUSTOMER CONSOLIDATION
- ----------------------
Certain industries in which the Company competes, including trucking and
shipping, are in the process of consolidation. As a result of this
consolidation, the Company's customers may be better able to manage their
equipment requirements and may seek increased efficiencies through direct
ownership of equipment. In such event, the ratio of leased equipment to owned
equipment may decrease, which could reduce the overall market for the Company's
services.
- -----------------------
AVAILABILITY OF CAPITAL
- -----------------------
The acquisition of new equipment, both for growth as well as replacement of
older equipment, requires significant capital. In addition, over the past
several years, the Company has grown its fleet through acquisitions of other
companies such as Strick Lease, Inc. and Matson Leasing Company, Inc., requiring
additional capital. The Company plans to continue to pursue acquisition
opportunities. Historically, the Company generally has had available a variety
of sources to finance such expenditures and acquisitions at favorable rates and
terms. However, the availability of such capital depends heavily upon prevailing
market conditions, the Company's capital structure, and its credit ratings. No
assurances can be given that the Company will be able to obtain sufficient
financing on terms that are acceptable to it to fund its operations and capital
expenditures or to enable the Company to take advantage of favorable acquisition
opportunities.
36
<PAGE>
EXHIBIT 13.3
INDEX TO FINANCIAL STATEMENTS
XTRA Corporation and Subsidiaries
(Information required by Part II, Items 7 and 8 and Part IV, Item 14 of Form
10-K)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS PAGE
- -------------------------------------------------------------------------------------------------------
<S> <C>
Consolidated balance sheets September 30, 1998 and 1997 38
Consolidated income statements for the three years ended September 30, 39
Consolidated statements of cash flows for the three years ended September 30, 1998 40
Unaudited quarterly condensed consolidated income statements for the years end
September 30, 1998 and 1997 41
Consolidated statements of stockholders' equity for the three years ended September 30, 1998 42
Notes to consolidated financial statements 43
Report of independent public accountants 55
Parent and subsidiaries 56
</TABLE>
37
<PAGE>
CONSOLIDATED BALANCE SHEETS
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
September 30, 1998 1997
(Millions of dollars except
per share and share amounts)
----------------------------------------------------
<S> <C> <C>
ASSETS
Property and equipment $2,200 $2,112
Accumulated depreciation (748) (658)
-----------------------
Net property and equipment 1,452 1,454
-----------------------
Lease contracts receivable 42 43
Trade receivables, net 64 65
Other assets 14 19
Cash 3 4
-----------------------
$1,575 $1,585
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Debt $ 802 $ 892
Deferred income taxes 287 252
Accounts payable and accrued expenses 78 81
-----------------------
Total liabilities 1,167 1,225
-----------------------
Commitments and contingencies (Note 5)
Stockholders' equity
Preferred Stock, without par value; total authorized: 3,000,000 shares
Common Stock, par value $.50 per share; authorized:
30,000,000 shares; issued and outstanding:
15,372,903 shares at September 30, 1998;
15,276,600 shares at September 30, 1997 8 8
Capital in excess of par value 57 52
Retained earnings 354 304
Cumulative translation adjustment (11) (4)
-----------------------
Total stockholders' equity 408 360
-----------------------
$1,575 $1,585
=======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE>
CONSOLIDATED INCOME STATEMENTS
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the year ended September 30, 1998 1997 1996
(Millions of dollars except
per share amounts)
-----------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 461 $ 435 $ 422
OPERATING EXPENSES
Depreciation on rental equipment 151 149 146
Rental equipment operating expense 108 109 101
Selling and administrative expense 43 43 40
------------------------------
302 301 287
------------------------------
Operating income 159 134 135
INTEREST EXPENSE 58 63 66
FOREIGN EXCHANGE LOSS 2 - -
------------------------------
Pretax income 99 71 69
PROVISION FOR INCOME TAXES 39 28 28
------------------------------
NET INCOME $ 60 $ 43 $ 41
==============================
EARNINGS PER BASIC COMMON SHARE $3.90 $2.79 $ 2.56
BASIC SHARES OUTSTANDING (IN MILLIONS) 15.3 15.3 16.0
EARNINGS PER DILUTED COMMON SHARE $3.88 $2.78 $ 2.56
DILUTED SHARES OUTSTANDING (IN MILLIONS) 15.4 15.3 16.1
------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the year ended September 30, 1998 1997 1996
(Millions of dollars)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income $ 60 $ 43 $ 41
Add non-cash income and expense items:
Depreciation and amortization, net 150 148 146
Deferred income taxes, net 36 26 31
Bad debt expense 5 5 3
Add other cash items:
Net change in receivables, other assets,
payables and accrued expenses (8) (7) 2
Cash receipts on lease contracts receivable 24 21 18
Recovery of property and equipment net book value 26 33 31
---------------------------
Total cash provided from operations 293 269 272
---------------------------
CASH USED FOR INVESTMENT ACTIVITIES
Additions to property and equipment (199) (249) (210)
---------------------------
Total cash used for investment activities (199) (249) (210)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of debt - 72 247
Payments of debt (90) (72) (252)
Net proceeds from exercise of stock options 5 1 1
Repurchase of common stock - (13) (45)
Dividends paid (10) (12) (11)
---------------------------
Total cash used for financing activities (95) (24) (60)
---------------------------
Net increase (decrease) in cash (1) (4) 2
Cash at beginning of year 4 8 6
---------------------------
Cash at end of year $ 3 $ 4 $ 8
---------------------------
Total interest paid $ 58 $ 59 $ 52
Total income taxes paid (refunded) $ 3 $ (5) $ (2)
---------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE>
Unaudited Quarterly Condensed Consolidated Income Statements
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the four quarters ended
September 30, 1998 and 1997 First Second Third Fourth
(Millions of dollars except Quarter Quarter Quarter Quarter
per share amounts)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Revenues $ 121 $ 109 $ 112 $ 119
Expenses(1) 91 91 92 88
-------------------------------------
Pretax income 30 18 20 31
Provision for income taxes 12 7 8 12
-------------------------------------
Net income $ 18 $ 11 $ 12 $ 19
-------------------------------------
Earnings per basic common share $1.18 $ .71 $ .80 $1.20
Basic shares outstanding (in millions) 15.3 15.3 15.3 15.4
Earnings per diluted common share $1.17 $ .71 $ .80 $1.20
Diluted shares outstanding (in millions) 15.4 15.4 15.4 15.4
1997
Revenues $ 111 $ 102 $ 105 $ 117
Expenses(1) 89 89 91 95
-------------------------------------
Pretax income 22 13 14 22
Provision for income taxes 9 5 5 9
-------------------------------------
Net income $ 13 $ 8 $ 9 $ 13
-------------------------------------
Earnings per basic common share $ .85 $ .49 $ .56 $ .89
Basic shares outstanding (in millions) 15.3 15.3 15.3 15.3
Earnings per diluted common share $ .85 $ .49 $ .56 $ .89
Diluted shares outstanding (in millions) 15.3 15.3 15.3 15.3
-------------------------------------
</TABLE>
(1) Includes operating and interest expenses.
41
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
Common Capital in
For the three years ended Stock Excess Cumulative
September 30, 1998 $.50 Par of Par Retained Translation
(Millions of dollars) Value Value Earnings Adjustment
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 $ 8 $108 $243 $ -
Net income - - 41 -
Common stock cash dividends
declared at $.70 per share - - (11) -
Options exercised and related tax
benefits - 1 - -
Repurchase of common stock - (45) - -
Translation adjustment - - - (3)
-----------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 8 64 273 (3)
Net income - - 43 -
Common stock cash dividends
declared at $.78 per share - - (12) -
Options exercised and related tax
benefits - 1 - -
Repurchase of common stock - (13) - -
Translation adjustment - - - (1)
-----------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 8 52 304 (4)
Net income - - 60 -
Common stock cash dividends
declared at $.64 per share - - (10) -
Options exercised and related tax
benefits - 5 - -
Repurchase of common stock - - - -
Translation adjustment - - - (7)
-----------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 $ 8 $ 57 $354 $ (11)
-----------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XTRA Corporation and Subsidiaries
1
- ------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------
Nature of Operations
XTRA Corporation leases, primarily on an operating basis, freight transportation
equipment including over-the-road trailers, marine containers, intermodal
trailers, chassis, and domestic containers. XTRA leases over-the-road and
intermodal equipment throughout North America, predominantly within the United
States, to contract and common motor carriers, railroads, and private fleet
owners. In addition, the Company leases marine containers worldwide to steamship
lines.
Principles of Consolidation
The consolidated financial statements include the accounts of XTRA Corporation
and its wholly-owned subsidiaries ("the Company"). All material intercompany
accounts and transactions have been eliminated. Certain amounts in the prior
year financial statements have been reclassified to be consistent with the
current year's presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Income Taxes
Provisions for income taxes recognize the tax effect of all revenue and expense
transactions as well as any change during the period in deferred tax assets and
liabilities. The effects of changes in tax rates and laws on deferred tax assets
and liabilities are reflected in net income in the period in which such changes
are enacted.
Leases
The Company records the majority of its leases using the operating method of
accounting. Full-payout or near full-payout leases, where the present value of
the of the minimum lease payments at the beginning of the lease term equals or
exceeds 90% of the fair value of the leased property, are accounted for under
the finance method.
Depreciation
The Company provides for depreciation by using the straight-line method to
amortize the cost of property and equipment to its estimated residual value over
its estimated useful life. Revenue equipment is depreciated using estimated
useful lives of 10 to 20 years. In addition, the Company reviews the condition
and types of its revenue equipment to determine if any impairment has occurred.
When equipment is sold or retired, its cost and accumulated depreciation are
removed from the balance sheet, and any gain or loss is included in revenues.
Revenue equipment with an original cost of approximately $122 million, which has
reached the end of its estimated useful life, remains in service and is included
in Revenue Equipment at September 30, 1998.
Equipment Disposals
For purposes of the statements of cash flows, the net book value of equipment
sold is included in cash flow from operations to reflect the total proceeds,
including the gain or loss on sale already included in income, from the
continuous disposal of fleet assets.
Repair and Maintenance
Repair and maintenance expenses are charged to operating expenses when incurred
and amounted to $28 million, $29 million, and $27 million in 1998, 1997, and
1996, respectively.
43
<PAGE>
Earnings per Share
The computation of basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by weighted average shares
outstanding. Diluted earnings per share reflects the effect of all other
outstanding common stock equivalents under the treasury stock method.
Foreign Currency Translation
The Company translates the assets and liabilities of its foreign operations at
the exchange rates in effect at year-end. Revenues and expenses are translated
using average exchange rates in effect during the year. Gains and losses from
foreign currency translation for the Company's Canadian operations are credited
or charged to cumulative translation adjustment included in stockholders' equity
in the accompanying Consolidated Balance Sheets. The gains and losses from
remeasurement of certain intercompany liabilities of the Company's Canadian
businesses are included in foreign exchange loss. The Company's operations in
Mexico are accounted for as a highly inflationary economy and, accordingly, all
translation gains and losses are charged to foreign exchange loss.
2
- ----------------
EQUIPMENT LEASES
- ----------------
The Company uses the operating method of accounting for the majority of its
equipment leases. Under this method, revenue is recognized in the month earned
based on the terms of the lease contract, and the equipment is depreciated to
its estimated residual value over its estimated useful life.
The finance method of accounting is used for revenue equipment leased to
customers on a full-payout or near full-payout basis at lease inception. Under
this method, finance lease income, the difference between the total lease
receivable and the net book value less the unguaranteed residual value of the
related equipment, is deferred and amortized as revenue over the lease term
using the interest method, which provides a level rate of return on the net
investment in the lease.
The following schedule summarizes the future minimum rental receipts on
operating and finance leases by year as of September 30, 1998:
<TABLE>
<CAPTION>
Operating Finance
(Millions of dollars) Leases Leases
---------------------------------------------------------
<S> <C> <C>
1999 $ 112 $ 21
2000 56 15
2001 33 10
2002 23 3
2003 13 1
2004 and thereafter 10 1
--------------------------
Total $ 247 $ 51
--------------------------
</TABLE>
The components of the net investment in finance leases as of September 30, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Minimum lease payments receivable $ 51 $ 53
Add: estimated unguaranteed residual values 7 7
-----------------------
58 60
Less: deferred finance lease income (16) (17)
-----------------------
Lease contracts receivable, net $ 42 $ 43
-----------------------
</TABLE>
44
<PAGE>
3
- ----
DEBT
- ----
Debt as of September 30, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997
-----------------------------------------------
<S> <C> <C>
UNSECURED FINANCING
Medium-term Notes $ 656 $ 703
Revolving Credit Agreement 128 161
-----------------
Total unsecured financing 784 864
SECURED FINANCING 18 28
-----------------
Total debt 802 892
Less: current portion (72) (57)
-----------------
Long-term debt $ 730 $ 835
=================
</TABLE>
The $656 million of Medium-term Notes have a weighted average interest rate of
7.1% and maturities from 1999 to 2012. At September 30, 1998, $532 million
remained available under the shelf registration for future debt issuance. The
weighted average interest rates incurred were 7.0%, 7.0%, and 7.1% during 1998,
1997, and 1996, respectively.
The Company's Revolving Credit Agreement has bank commitments of $300 million at
September 30, 1998 and a revolving period maturity date of June 30, 1999.
Pricing on the Revolving Credit Agreement is dependent on the Company's credit
ratings and is based on a fixed spread over the London Interbank Offered Rate
(LIBOR). The Company pays a facility fee on any unused commitment in the
facility.
Unless the Company requests and the banks approve a renewal or extension of the
agreement, borrowings outstanding on the revolving period maturity date will be
converted to a five year term loan payable in equal quarterly installments with
a final term maturity of June 30, 2004.
The Company borrows on a short-term basis by issuing commercial paper and using
uncommitted lines of credit. Short-term borrowings are back-stopped by the
unused borrowing capacity under the Revolving Credit Agreement. They have
therefore been classified as Revolving Credit Agreement borrowings. At September
30, 1998 and September 30, 1997, such borrowings amounted to $78 million and
$161 million, respectively. At September 30, 1998, the $128 million of Revolving
Credit Agreement borrowings had a weighted average interest rate of 5.8%. The
weighted average interest rates incurred under the Revolving Credit Agreement,
consisting primarily of short-term borrowings, were 5.8%, 5.7%, and 5.8% during
1998, 1997, and 1996, respectively. At September 30, 1998, $172 million of
unused commitment was available under the Revolving Credit Agreement.
The secured financing at September 30, 1998, consisting of capital lease
obligations, has a weighted average interest rate of 8.8% and is payable in
installments through 2001. The weighted average interest rates incurred under
the secured financing were 9.1%, 10.0%, and 9.4% during 1998, 1997, and 1996,
respectively.
Revenue equipment recorded on the consolidated balance sheets related to secured
financing was as follows at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997
-----------------------------------------------
<S> <C> <C>
Revenue equipment $ 41 $ 61
Accumulated depreciation (22) (28)
-----------------
Net secured equipment $ 19 $ 33
=================
</TABLE>
45
<PAGE>
Assuming the Company were to convert the Revolving Credit Agreement to a term
loan on its revolving period maturity date, the amount of minimum maturities of
all debt during each of the next five fiscal years and thereafter would be as
follows:
<TABLE>
<CAPTION>
Minimum
(Millions of dollars) Debt Maturities
--------------------------------------
<S> <C>
1999 $ 72
2000 100
2001 99
2002 98
2003 95
2004 and thereafter 338
----------------
Total payments and maturities $802
================
</TABLE>
The Company's loan agreements contain minimum debt service tests and restrictive
covenants including restrictions on the amount of debt in relation to revenue
equipment and stockholders' equity and limitations on secured borrowings. The
Company's loan agreements contain covenants that restrict the payment of
dividends or repurchases of common stock by the Company. In addition, certain
loan agreements contain covenants that restrict advances to and the payment of
dividends to the Company by its subsidiaries, including XTRA, Inc. Under the
most restrictive provisions of the Company's loan agreements, the repurchase of
common stock and/or the amount of cash dividends which could be paid on the
Company's capital stock was limited to $168 million at September 30, 1998. The
Company had agreed in the Recapitalization Merger Agreement not to pay dividends
on the Company Common Stock and not to repurchase any shares of Company Common
Stock pending consummation of the Merger (see Note 13 of the Notes to
Consolidated Financial Statements).
4
- ------------
INCOME TAXES
- ------------
The components of the provision for income taxes for 1998, 1997, and 1996 are as
follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
CURRENT TAX PROVISION
Federal $ 2 $ 1 $ (4)
State 2 1 1
----------------------
Current tax provision 4 2 (3)
----------------------
DEFERRED TAX PROVISION
Federal 30 22 25
State 6 4 6
----------------------
Deferred tax provision 36 26 31
----------------------
Provision for income taxes $ 40 $ 28 $ 28
======================
</TABLE>
The provision differs from income taxes currently payable because certain items
of income and expense are recognized in different periods for financial
statement purposes than for tax return purposes.
46
<PAGE>
The reasons for the difference between the statutory U.S. Federal income tax
rates and the Company's effective income tax rates for 1998, 1997, and 1996 are
as follows:
<TABLE>
<CAPTION>
Percent of Pretax Income 1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 35% 35%
Increase in taxes resulting from:
State taxes and other 5% 5% 6%
---------------------
Effective income tax rate 40% 40% 41%
=====================
</TABLE>
The components of the net deferred tax liability as of September 30, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997
--------------------------------------------
<S> <C> <C>
ASSETS
Capital lease obligations $ 7 $ 15
Investment tax credits 1 3
Alternative minimum tax credits 22 20
Other 16 16
-------------------
Total deferred tax assets $ 46 $ 54
===================
LIABILITIES
Revenue equipment $ 312 $ 286
Other 21 20
-------------------
Total deferred tax liabilities 333 306
-------------------
Net deferred tax liability $ 287 $ 252
===================
</TABLE>
The Company estimates that after filing its fiscal 1998 tax return, it will have
$1 million of investment tax credit carryforwards available to reduce future
federal income tax liabilities. The investment tax credit carryforwards expire
beginning in 2000. The Company also estimates that after filing its fiscal 1998
tax return, it will have $22 million of alternative minimum tax credit carry
forwards available to reduce future federal income tax liabilities. The benefit
of both tax credit carry forwards has been recorded in the Company's financial
statements. The Company has not recognized a valuation allowance for deferred
tax assets.
47
<PAGE>
5
- -----------------------------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
The Company's offices and certain facilities are occupied under leases expiring
at various dates. At September 30, 1998, the Company's lease commitments under
the non-cancelable portion of these leases for the next five years and in total
thereafter were as follows:
<TABLE>
<CAPTION>
Total Lease
(Millions of dollars) Commitments
------------------------------------
<S> <C>
1999 $ 6
2000 5
2001 4
2002 3
2003 2
2004 and thereafter 5
------------
Total $25
------------
</TABLE>
Rental equipment lease financing expense amounted to $1 million in both 1997 and
1996, which is included in the income statement under the caption "Depreciation
on rental equipment." Other rental expense amounted to $6 million, $6 million,
and $5 million in 1998, 1997, and 1996, respectively.
As of November 11, 1998, the Company had committed capital expenditures of $115
million, principally for revenue equipment in fiscal 1999.
The Illinois Environmental Protection Agency has notified the Company of alleged
environmental contamination of its Fairmont City, Illinois property that
resulted from the prior owners' zinc smelting operations. As a result, the
Company has taken certain actions to suppress dust that have significantly
reduced the level of airborne contaminants at the site. Based on the Company's
current understanding of the nature of the contamination at the site, the
Company does not believe that the ultimate resolution of this matter will have a
material adverse effect on the Company's results of operations, cash flows or
financial condition.
6
- ----------------
RETIREMENT PLANS
- ----------------
The Company provides retirement benefits to substantially all of its employees
through a qualified and funded defined contribution retirement plan. The
Company's yearly profit sharing cash contributions are discretionary and the
retirement trust fund's assets are administered by a trustee. The Company's
contributions include an employee-matching contribution to a 401(k) plan and a
profit sharing contribution and are based on a specified percentage of employee
qualified compensation. Participants are entitled to their vested portion of the
retirement assets upon termination of employment. The Company recorded expenses
of $2 million each year in 1998, 1997, and 1996 in connection with the defined
contribution retirement plan.
48
<PAGE>
7
- --------------------
BUSINESS INFORMATION
- --------------------
The Company leases transportation equipment throughout North America and
internationally. The over-the-road and intermodal equipment is leased throughout
North America and the marine containers are moved between countries in
international commerce. Information about the business of the Company by
geographic area is presented in the table below.
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997 1996
----------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
North America $ 381 $ 359 $ 347
International 80 76 75
----------------------
$ 461 $ 435 $ 422
======================
OPERATING INCOME
North America $ 141 $ 121 $ 115
International 18 13 20
----------------------
$ 159 $ 134 $ 135
======================
IDENTIFIABLE ASSETS
North America $1,165 $1,150 $1,100
International 410 435 437
----------------------
$1,575 $1,585 $1,537
======================
</TABLE>
8
- ------------
COMMON STOCK
- ------------
Repurchase of Common Stock
The Company has authorized the repurchase of up to $200 million of its common
stock. The timing of the repurchases, which could occur over an extended period
of time, will depend on price, market conditions, and other factors. As of
November 12, 1998, the Company repurchased $79 million of common stock. The
Company had agreed in the Recapitalization Merger Agreement not to repurchase
any shares of Company Common Stock pending consummation of the Merger (see Note
13 of the Notes to Consolidated Financial Statements).
1997 Stock Incentive Plan
The 1997 Stock Incentive Plan authorizes the issuance of 500,000 shares of
common stock under the plan. The plan allows the Company to grant awards to key
employees including restricted stock awards, stock options, and stock
appreciation rights, subject primarily to the requirement of continuing
employment. The awards under this plan are available for grant over a period of
ten years from the date on which the plan was adopted, but the grants may vest
beyond the ten year period. Stock options issued by the Company are exercisable
at a future time as specified by the Company and generally expire from five to
ten years from the date of grant. The exercise price of stock options may not
be less than the fair market value of the common stock at the date of grant.
1991 Stock Option Plan for Non-Employee Directors
The 1991 Stock Option Plan for Non-Employee Directors authorizes the granting of
options for a maximum of 100,000 shares. The option price per share is equal to
the fair market value of the common stock on the date of grant. The term of each
option is five years and options become exercisable one year after the date of
grant.
49
<PAGE>
The XTRA Corporation Deferred Director Fee Option Plan
The Deferred Director Fee Option Plan allows a non-employee director to elect to
receive, in lieu of his annual retainer fee and/or board and committee meeting
fees, a non-qualified stock option. The option exercise price is 50% of the fair
market value of the shares at the time the options are awarded and the amount of
shares is determined by dividing the director's fees by the exercise price.
1987 Stock Incentive Plan
The 1987 Stock Incentive Plan, which expired November 1997, authorized the
issuance of 1,150,000 shares of common stock under the plan. The plan allowed
the Company to grant awards to key employees including restricted stock awards,
stock options, and stock appreciation rights, subject primarily to the
requirement of continuing employment. The awards under this plan were available
for grant over a period of ten years from the date on which the plan was
adopted, but grants were allowed to vest beyond the ten year period. Stock
options issued by the Company are exercisable at a future time as specified by
the Company and generally expire from five to ten years from the date of grant.
The exercise price of stock options may not be less than the fair market value
of the common stock at the date of grant.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Accounting Standards Number 123 (SFAS 123), "Accounting for Stock-Based
Compensation," which sets forth a fair-value-based method of recognizing stock-
based compensation expense. As permitted by SFAS 123, the Company has elected to
continue to apply APB No. 25, "Accounting for Stock Issued to Employees," to
account for its stock-based compensation plans.
Had the compensation cost for these plans been determined according to SFAS 123,
the Company's net income and earnings per share would have been the following
pro forma amounts:
<TABLE>
<CAPTION>
(Millions of dollars, 1998 1997 1996
except per share amounts)
-------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME
As reported $ 60 $ 43 $ 41
Pro forma $ 59 $ 41 $ 41
BASIC EPS
As reported $3.90 $2.79 $ 2.56
Pro forma $3.87 $2.72 $ 2.56
DILUTED EPS
As reported $3.88 $2.78 $ 2.56
Pro forma $3.86 $2.71 $ 2.55
--------------------
</TABLE>
For purposes of the pro forma disclosure, the fair value of each option is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------
<S> <C> <C> <C>
Volatility 20.1% 20.1% 22.9%
Risk-free interest rate 4.4% 5.8% 6.3%
Dividend yield 1.8% 1.8% 1.6%
Expected life of options 3 years 3 years 3 years
---------------------------
</TABLE>
50
<PAGE>
For shares granted under the 1987 Stock Incentive Plan, the weighted average
grant date fair value of options granted during 1997 and 1996 was $9.32 and
$9.35 per share, respectively. For shares granted under the 1991 Stock Option
Plan for Non-Employee Directors, the weighted average grant date fair value of
options granted during 1998, 1997, and 1996 was $9.86, $8.29, and $8.83 per
share, respectively. The weighted average grant date fair value of options
granted during 1998, 1997, and 1996 for the shares granted under the Deferred
Director Fee Option Plan was $4.92, $4.02, and $4.40 per share respectively.
For shares granted under the 1997 Stock Incentive Plan, the weighted average
grant fair value of options granted during 1998 was $8.59 per share.
Because SFAS 123 does not require a fair-value-based method of accounting to be
applied to options granted prior to October 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The following table summarizes the stock option transactions pursuant to the
Company's stock incentive and stock option plans for the three-year period ended
September 30, 1998:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
(000s) Per Share ($)
---------------------------
<S> <C> <C>
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1995 666 $46.71
Granted 21 41.08
Exercised (36) 14.43
Forfeited (11) 47.96
-----------------------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1996 640 48.27
Group 262 50.05
Exercised (30) 34.95
Forfeited (64) 50.04
-----------------------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1997 808 49.10
Granted 95 52.52
Exercised (96) 45.03
Forfeited (14) 47.17
-----------------------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1998 793 49.95
=======================
Exercisable options at September 30, 1998 641 50.45
Shares available for grant at September 30, 1998 496
-----------------------
</TABLE>
51
<PAGE>
The following table summarizes information about stock options outstanding at
September 30, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
at 9/30/98 Contractual Exercise at 9/30/98 Exercise
(000s) Life (Years) Price (000s) Price
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RANGE OF EXERCISE PRICES
$20.75 to $29.88 7 2.7 $24.47 5 $23.28
$40.75 to $60.44 786 2.4 50.17 636 50.68
-------------------------------------------------------------------
Total 793 2.4 $49.95 641 $50.45
===================================================================
</TABLE>
9
- -----------------------------------------------------
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Short-term Investments
The carrying amount approximates fair value because of the short maturity of
those instruments.
Debt
The fair value of the Company's fixed rate debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The fair value of the
Company's floating rate debt is its carrying amount.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
For the two years ended September 30, 1998 Carrying Fair
(Millions of dollars) Amount Value
----------------------------------------------------------------
<S> <C> <C> <C>
1998
Cash and short-term investments $ 3 $ 3
Debt 802 866
1997
Cash and short-term investments $ 4 $ 4
Debt 892 917
------------------
</TABLE>
52
<PAGE>
10
- -------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- -------------------------------
The allowance for doubtful accounts as of September 30, 1998, 1997, and 1996
consists of the following:
<TABLE>
<CAPTION>
For the year ended September 30, 1998 1997 1996
(Millions of dollars)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 14 $ 13 $ 16
Additions charged to operating expenses 5 5 3
Deductions(1) (3) (4) (6)
----------------------
Balance at end of year $ 16 $ 14 $ 13
======================
</TABLE>
(1) Amounts charged against reserves, net of recoveries.
11
- ---------------------------------------------------
SELECTED FINANCIAL DATA OF SIGNIFICANT SUBSIDIARIES
- ---------------------------------------------------
The condensed consolidated data for XTRA, Inc., a wholly-owned subsidiary of
XTRA Corporation, included in the consolidated financial information of the
Company, is summarized below:
<TABLE>
<CAPTION>
For the three years ended September 30, 1998 1997 1996
(Millions of dollars)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues $ 461 $ 435 $ 422
Pretax income 99 71 69
Net income 59 43 41
SELECTED BALANCE SHEET DATA
Receivables, net $ 106 $ 108 $ 94
Net property and equipment 1,452 1,454 1,407
Other assets 17 23 35
----------------------
Total assets $1,575 $1,585 $1,536
======================
Debt $ 802 $ 892 $ 892
Deferred income taxes 287 252 227
Other liabilities 84 86 76
----------------------
Total liabilities 1,173 1,230 1,195
Stockholders' equity 402 355 341
----------------------
Total liabilities and stockholders' equity $1,575 $1,585 $1,536
======================
</TABLE>
53
<PAGE>
12
- ------------------------------------
BASIC AND DILUTED EARNINGS PER SHARE
- ------------------------------------
The following tables provide a reconciliation of the numerators and denominators
of basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
Year ended September 30, 1998 1997 1996
(Millions of dollars except
per share amounts)
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (in millions) (numerator) $ 60 $ 43 $ 41
============================
COMPUTATION OF BASIC SHARES OUTSTANDING
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Weighted average number of basic shares
outstanding (denominator) 15,319 15,268 16,027
----------------------------
Basic earnings per common share $ 3.90 $ 2.79 $ 2.56
============================
COMPUTATION OF DILUTED SHARE OUTSTANDING
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Weight average number of basic shares outstanding 15,319 15,268 16,027
Common Stock equivalents for diluted
shares outstanding 72 18 25
----------------------------
Weight average number of diluted shares
outstanding (denominator) 15,391 15,288 16,052
----------------------------
Diluted earnings per common share $ 3.88 $ 2.78 $ 2.56
============================
</TABLE>
13
- --------------------------------------
TERMINATION OF RECAPITALIZATION MERGER
- --------------------------------------
XTRA entered into an Agreement and Plan of Merger and Recapitalization dated as
of June 18, 1998, as amended and restated as of July 31, 1998, with Wheels
MergerCo LLC ("MergerCo"). MergerCo is a newly organized Delaware limited
liability company formed by Apollo Management IV, L.P. and Atlas Capital
Partners LLC, an affiliate of Interpool, Inc. On June 26, 1998, a Current Report
on Form 8-K was filed by the Company which included a copy of the Agreement and
Plan of Merger and Recapitalization. In addition, the Company filed a proxy
statement on October 30, 1998 which included further information regarding the
merger. Among other restrictions in the Agreement, the Company was restricted
from paying dividends and repurchasing stock.
On November 25, 1998, the Company and MergerCo mutually agreed to terminate
their existing merger agreement. Previously, MergerCo had indicated that due to
market conditions it did not think it would be able to obtain the financing
necessary to complete the deal. The Company filed a Current Report on Form 8-K
on December 15, 1998, disclosing the conditions of the merger agreement
termination.
54
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of XTRA Corporation:
We have audited the accompanying consolidated balance sheets of XTRA Corporation
(a Delaware corporation) and subsidiaries as of September 30, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of XTRA Corporation and
subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 11, 1998
(except with respect to the matters discussed
in Note 13, as to which the date is
November 13, 1998)
55
<PAGE>
- ------------------------
PARENT AND SUBSIDIARIES*
- ------------------------
Name State or Province of Incorporation
- --------------------------------------------------------------------------------
XTRA Corporation Delaware
SUBSIDIARY OF XTRA CORPORATION
XTRA, Inc. Maine
SUBSIDIARIES OF XTRA, INC.
XTRA Intermodal, Inc. Delaware
XTRA International Ltd. Delaware
XTRA Mexicana, S.A. de C.V. Mexico
Distribution International Corporation Delaware
SUBSIDIARIES OF DISTRIBUTION INTERNATIONAL CORPORATION
Strick Canada Limited Ontario
XTRA Lease, Inc. Delaware
*Certain inactive subsidiaries have been omitted.
- --
56
- --
56
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report, incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (No. 33-41360, No. 33-
57609, No. 33-57607, No. 33-45564, and No. 333-27783) and on Form S-3 (No. 33-
54747 and No. 33-65293).
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 17, 1998
57
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF XTRA CORPORATION FOR THE PERIOD
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,000,000
<SECURITIES> 0
<RECEIVABLES> 122,000,000
<ALLOWANCES> 16,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,200,000,000
<DEPRECIATION> 748,000,000
<TOTAL-ASSETS> 1,575,000,000
<CURRENT-LIABILITIES> 0
<BONDS> 802,000,000
0
0
<COMMON> 8,000,000
<OTHER-SE> 354,000,000
<TOTAL-LIABILITY-AND-EQUITY> 1,575,000,000
<SALES> 0
<TOTAL-REVENUES> 461,000,000
<CGS> 0
<TOTAL-COSTS> 302,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,000,000
<INCOME-PRETAX> 99,000,000
<INCOME-TAX> 39,000,000
<INCOME-CONTINUING> 60,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,000,000
<EPS-PRIMARY> 3.90
<EPS-DILUTED> 3.88
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF XTRA CORPORATION FOR THE PERIOD
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,000,000
<SECURITIES> 0
<RECEIVABLES> 79,000,000
<ALLOWANCES> 14,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,112,000,000
<DEPRECIATION> 658,000,000
<TOTAL-ASSETS> 1,585,000,000
<CURRENT-LIABILITIES> 0
<BONDS> 892,000,000
0
0
<COMMON> 8,000,000
<OTHER-SE> 352,000,000
<TOTAL-LIABILITY-AND-EQUITY> 1,585,000,000
<SALES> 0
<TOTAL-REVENUES> 435,000,000
<CGS> 0
<TOTAL-COSTS> 301,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,000,000
<INCOME-PRETAX> 71,000,000
<INCOME-TAX> 28,000,000
<INCOME-CONTINUING> 43,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,000,000
<EPS-PRIMARY> 2.79
<EPS-DILUTED> 2.78
</TABLE>
