<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1999
-----------------------------------------------------
Commission File Number 1-7654
----------------------------------------------------------
XTRA CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-0954158
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 State Street, Boston, Massachusetts 02109
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(617) 367-5000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
- ------------------------ -------------------------------
Common Stock, Par Value 13,281,927
$.50 Per Share
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
INDEX
-----
Page No.
--------
Part I. Financial Information
---------------------
Management Representation.................................... 3
Consolidated Balance Sheets
March 31, 1999 and September 30, 1998...................... 4
Consolidated Statements of Operations
For the Three Months and Six Months Ended
March 31, 1999 and 1998.................................... 5
Consolidated Statements of Cash Flows
For the Six Months Ended
March 31, 1999 and 1998.................................... 6
Consolidated Statements of Stockholders' Equity
For the Six Month Periods Ended
March 31, 1999 and 1998 ................................... 7
Notes to Consolidated Financial Statements................... 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 11
Part II. Other Information
-----------------
Item 4. Submission of Matter to a Vote of Security Holders.. 19
Item 5. Other Matters....................................... 19
Item 6. Exhibits and Reports on Form 8-K.................... 22
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk....................................... 22
Signatures................................................... 23
Exhibit Index................................................ 24
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
------------------------------
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
MANAGEMENT REPRESENTATION
-------------------------
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that the disclosures are adequate
to make the information presented not misleading.
The Board of Directors carries out its responsibility for the financial
statements included herein through its Audit Committee, composed of non-employee
Directors. During the year, the Committee meets periodically with both
management and the independent public accountants to ensure that each is
carrying out its responsibilities. The independent public accountants have full
and free access to the Audit Committee and meet with its members, with and
without management being present, to discuss auditing and financial reporting
matters.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's latest Annual Report
on Form 10-K.
This financial information reflects, in the opinion of management, all
adjustments necessary to present fairly the results for the interim periods.
Such adjustments consist of only normal recurring adjustments. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full year.
3
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
March 31,
1999 September 30,
(Unaudited) 1998/(1)/
----------- ---------
<S> <C> <C>
Assets
- ------
Property and equipment $ 2,280 $ 2,200
Accumulated depreciation (818) (748)
--------- --------
Net property and equipment 1,462 1,452
Lease contracts receivable 40 42
Trade receivables, net 61 64
Other assets 20 14
Cash 3 3
--------- --------
$ 1,586 $ 1,575
========= ========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Debt $ 881 $ 802
Deferred income taxes 291 287
Accounts payable and accrued expenses 83 78
--------- --------
Total liabilities 1,255 1,167
--------- --------
Commitments and contingencies:
Stockholders' equity:
Common stock, par value $.50 per share; authorized:
30,000,000 shares; issued and outstanding;
13,280,927 shares at March 31, 1999
and 15,372,903 at September 30, 1998 7 8
Capital in excess of par value - 57
Retained earnings 332 354
Cumulative translation adjustment (8) (11)
--------- --------
Total stockholders' equity 331 408
--------- --------
$ 1,586 $ 1,575
========= ========
</TABLE>
/(1)/ Derived from XTRA Corporation's audited September 30, 1998 financial
statements.
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Millions of dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $ 110 $ 109 $ 232 $ 230
Operating expenses
Depreciation on rental equipment 38 38 76 76
Rental equipment operating expenses 28 28 56 54
Selling and administrative expense 11 11 22 22
Revenue equipment writedown 25 - 25 -
Restructuring costs 13 - 13 -
------ ------ ------ ------
115 77 192 152
------ ------ ------ ------
Operating income (loss) (5) 32 40 78
Interest expense 14 14 28 30
------ ------ ------ ------
Income (loss) from operations before provision
(benefit) for income taxes and unusual item (19) 18 12 48
Unusual item: costs related to terminated merger - - 1 -
------ ------ ------ ------
Pretax income (loss) (19) 18 11 48
Provision (benefit) for income taxes (8) 7 4 19
------ ------ ------ ------
Net income (loss) $ (11) $ 11 $ 7 $ 29
====== ====== ====== ======
Basic earnings (loss) per common share $(0.82) $ 0.71 $ 0.46 $ 1.89
Basic common shares outstanding (in millions) 13.9 15.3 14.6 15.3
Diluted earnings (loss) per common share $(0.82) $ 0.71 $ 0.46 $ 1.88
Diluted common shares outstanding (in millions) 13.9 15.4 14.6 15.4
Cash dividends declared per share $ - $ 0.22 $ - $ 0.42
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Millions of dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1999 1998
------ ------
<S> <C> <C>
Cash flows from operations: $ 7 $ 29
Net income
Add non-cash income and expense items:
Depreciation and amortization, net 75 75
Restructuring charges and revenue equipment
writedown 38 -
Deferred income taxes, net 4 17
Bad debt expense 2 2
Add other cash items:
Net change in receivables, other assets,
payables and accrued expenses (9) -
Cash receipts from lease contracts receivable 13 13
Recovery of property and equipment net book value 10 12
------ ------
Total cash provided from operations 140 148
------ ------
Cash used for investment activities:
Additions to property and equipment (129) (53)
------ ------
Total cash used for investing activities (129) (53)
------ ------
Cash flows from financing activities:
Borrowings of long-term debt 79 -
Payments of long-term debt - 87
Repurchase of common stock (90) -
Options issued and related tax benefits - 1
Dividends paid - (6)
------ ------
Total cash used for financing activities (11) (92)
------ ------
Net increase (decrease) in cash - 3
Cash at beginning of period 3 4
------ ------
Cash at end of period $ 3 $ 7
====== ======
Total interest paid $ 28 $ 30
Total net income taxes paid $ - $ 3
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Six months ended March 31, 1998 and 1999
----------------------------------------
(Millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Common
Stock Capital in Cumulative
$ 0.50 Excess of Retained Translation Comprehensive
Par Value Par Value Earnings Adjustment Income
--------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1997 $ 8 $ 52 $ 304 $ (4)
Net income - - 29 - $ 29
Foreign currency translation adjustment - - - (2) (2)
---------
Comprehensive Income $ 27
=========
Common stock cash dividends
declared at $.42 per share - - (6) -
Options exercised and related tax benefits - 1 - -
------- -------- ------- -------
Balance at March 31, 1998 $ 8 $ 53 $ 327 $ (6)
======= ======== ======= =======
Balance at September 30, 1998 $ 8 $ 57 $ 354 $ (11)
Net income - - 7 - $ 7
Foreign currency translation adjustment - - - 3 3
---------
Comprehensive Income $ 10
=========
Shares granted under restricted stock plan,
forfeitures, options exercised, and - 3 - -
related tax benefits
Common stock repurchased (1) (60) (29) -
------- -------- ------- -------
Balance at March 31, 1999 $ 7 $ - $ 332 $ (8)
======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(1) 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 prior period financial statements have been reclassified
to be consistent with the current period's presentation.
(2) The effective income tax rates used in the interim financial statements are
estimates of the fiscal years' rates. The effective income tax rate for
fiscal 1998 was 40%. For the six months ended March 31, 1999, the Company
recorded a provision for income taxes using an estimated effective income
tax rate of 40%. The Company's effective income tax rate for fiscal 1998
and its estimated effective income tax rate for fiscal 1999 are higher than
the statutory U.S. Federal income tax rate due primarily to state income
taxes.
(3) The Company's long-term debt includes a current portion of $128 million at
March 31, 1999 and $72 million at September 30, 1998.
(4) In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," (SFAS 130), which
requires companies to report all non-owner changes in equity during a
period in a financial statement for the period in which they are
recognized. The Company has chosen to disclose Comprehensive Income, which
encompasses net income and foreign currency translation adjustments, in the
Consolidated Statements of Stockholders' Equity.
(5) XTRA recorded one-time charges during the second quarter of fiscal 1999 for
establishing a Shared Service Center, restructuring its marine container
operations and recording additional depreciation to adjust a portion of its
marine container fleet to realizable value. These charges were $4 million,
$9 million and $25 million, respectively. The Company will consolidate its
financial, accounting, human resources, and information technology
operations into a Shared Service Center located in St. Louis, Missouri to
achieve cost savings and efficiencies. The Company anticipates that the
transition to the Shared Service Center will be completed by the end of
fiscal 1999. The $4 million charge is principally related to severance
payments and the shutdown and consolidation of existing facilities. XTRA
has agreed to outsource the management of its international container
leasing business effective June 1, 1999. XTRA recorded a restructuring
charge of approximately $9 million related to the costs of closing its XTRA
International offices. Approximately one half of the charge is for
severance payments and the remainder is related primarily to the write-off
of non-revenue assets. Additionally, the Company has identified a number of
older and less desirable marine containers that it intends to sell over the
next twelve months, and as a result recorded a depreciation charge of $25
million to writedown the containers to their estimated net realizable
value. Excluding these charges, net income and diluted earnings per share
would have been $11 million and $.0.82 for the three months ended March 31,
1999. Excluding these charges and the one-time unusual charge of $1 million
related to the terminated merger made in the first quarter of fiscal 1999,
net income and diluted earnings per share would have been $30 million and
$2.04 for the six months ended March 31, 1999.
8
<PAGE>
(6) XTRA Corporation's assets consist substantially of the aggregate assets,
liabilities, earnings and equity of XTRA, Inc., a wholly-owned direct
subsidiary. In addition, XTRA Corporation generally guarantees the debt of
XTRA, Inc.
The condensed consolidated financial data for XTRA, Inc. included in the
consolidated financial information of the Company is summarized below:
<TABLE>
<CAPTION>
Selected Balance Sheet Data: March 31, September 30,
--------------------------- 1999 1998
(Millions of dollars) -------- ------------
<S> <C> <C>
Net property and equipment $ 1,462 $ 1,452
Receivables, net 101 106
Other assets 19 17
------- -------
Total assets $ 1,582 $ 1,575
======= =======
Debt $ 881 $ 802
Deferred income taxes 291 287
Other liabilities 83 84
------- -------
Total liabilities 1,255 1,173
------- -------
Stockholders' equity 327 402
------- -------
Total liabilities and stockholders' equity $ 1,582 $ 1,575
======= =======
</TABLE>
Selected Income Statement Data:
- ------------------------------
(Millions of dollars)
<TABLE>
<CAPTION>
For the three months ended March 31, 1999 1998
------ ------
<S> <C> <C>
Revenues $ 110 $ 109
Pretax income (loss) (15) 18
Net income (loss) (8) 11
For the six months ended March 31, 1999 1998
------ ------
Revenues $ 232 $ 230
Pretax income 15 48
Net income 11 29
</TABLE>
9
<PAGE>
(7) The following tables provide a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations, as
required by SFAS 128:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) (in millions) (numerator) $ (11) $ 11 $ 7 $ 29
======== ======== ======== ========
Computation of Basic Shares Outstanding
---------------------------------------
(in thousands, except per share amounts)
----------------------------------------
Weighted average number of basic common shares
outstanding (denominator) 13,895 15,299 14,642 15,291
======== ======== ======== ========
Basic earnings (loss) per common share $ (0.82) $ 0.71 $ 0.46 $ 1.89
======== ======== ======== ========
Computation of Diluted Shares Outstanding
-----------------------------------------
(in thousands, except per share amounts)
----------------------------------------
Weighted average common shares outstanding 13,895 15,299 14,642 15,291
Common stock equivalents for diluted common shares
outstanding -- 98 5 74
-------- -------- -------- --------
Weighted average number of diluted common shares
outstanding (denominator) 13,895 15,397 14,647 15,365
======== ======== ======== ========
Diluted earnings (loss) per common share $ (0.82) $ 0.71 $ 0.46 $ 1.88
======== ======== ======== ========
</TABLE>
(8) On March 9, 1999, XTRA announced that it had completed the $90 million
repurchase plan announced on January 25, 1999. The Company repurchased 2.2
million shares of its common stock representing 14% of the total shares
outstanding at the beginning of the year.
10
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
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 Act of 1995"
contained in Part II, Item 5.
XTRA 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 are 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.
The Three Months Ended March 31, 1999
- --------------------------------------
Versus the Three Months Ended March 31, 1998:
- ---------------------------------------------
Revenues and Changes in Business Conditions
- -------------------------------------------
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.
11
<PAGE>
The following table sets forth the Company's average equipment utilization
(dollar-weighted by net investment in equipment), average fleet size in units,
and average net investment in revenue equipment for the three months ended March
31, 1999 and 1998. The Company's fleet size and average net investment include
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.
The Three Months Ended March 31, 1999
- --------------------------------------
Versus the Three Months Ended March 31, 1998:
- ---------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
-------- --------
<S> <C> <C>
XTRA Lease
- ----------
Utilization 83% 88%
Units 83,000 77,000
Net investment in equipment (in millions) $ 824 $ 712
XTRA Intermodal:
- ---------------
Utilization 78% 79%
Units 54,000 54,000
Net investment in equipment (in millions) $ 273 $ 292
Total North America:
- -------------------
Utilization 81% 85%
Units 137,000 131,000
Net investment in equipment (in millions) $ 1,097 $ 1,004
International:
- -------------
Utilization 69% 82%
Units 163,000 165,000
Net investment in equipment (in millions) $ 361 $ 409
Consolidated:
- ------------
Utilization 78% 84%
Units 300,000 296,000
Net investment in equipment (in millions) $ 1,458 $ 1,413
</TABLE>
12
<PAGE>
Revenues increased by 1% or $1 million for the three months ended March 31,
1999 over the same period a year ago. The Company's average equipment
utilization declined from 84% in the second quarter of fiscal year 1998 to 78%
in the second quarter of fiscal 1999. Average net investment in equipment
increased by $45 million from the same quarter of the prior year due primarily
to an increase in the over-the-road fleet which more than offset a decline in
the net investment in the marine container and intermodal equipment fleets. For
the full fiscal year 1999, average equipment utilization is expected to be less
than the 1998 average of 86%.
The Company's North American revenues increased $5 million from the same
quarter a year ago due to strong levels of domestic freight leading to more
working units, as well as an improvement in over-the-road lease rates. The
Company's North American utilization averaged 81% in the second quarter of
fiscal 1999, as compared to 85% in the comparable prior year period. Increasing
demand for equipment was reflected in increased truck tonnage, which is an
indicator of domestic freight levels in the U.S. XTRA Lease's revenues increased
$5 million from the comparable prior year quarter due to an improvement in lease
rates as well as more over-the-road trailer working units. XTRA Lease's
utilization averaged 83% on a larger total fleet size in the current quarter,
compared to 88% in the comparable prior quarter. XTRA Intermodal's revenues
remained unchanged from the first quarter of fiscal 1998. XTRA Intermodal's
utilization averaged 78% in the first quarter of fiscal 1999, compared to 79% in
the same period of 1998.
The Company's North American over-the-road trailer fleet averaged 81,000
units, or 56% of average net investment in equipment in the second quarter of
fiscal year 1999, compared to 75,000 units, or 49% of average net investment in
equipment, in the comparable prior year period. The Company continues to
downsize its North American intermodal trailer fleet as the railroads shift
toward more domestic container usage. XTRA's intermodal trailer fleet averaged
22,000 units, or 10% of average net investment in equipment in the second
quarter of 1999, versus 23,000 units, or 11% of average net investment in
equipment, in the comparable prior year period.
International revenues decreased $4 million from the same quarter of the
prior year, primarily due to fewer working units and, to a lesser extent, to
lower average lease rates. Equipment utilization declined to 69% from 82% in
the comparable prior year period. The Company's average international fleet size
of 163,000 units in the second quarter of fiscal 1999 was approximately the same
as the comparable prior year period.
Operating Expenses
- ------------------
Total operating expenses, excluding one-time charges, were approximately
the same in the three months ended March 31, 1999 as in the same period of
fiscal 1998. A decline in rental equipment operating expense in North America
was offset by higher storage and repositioning costs at XTRA International.
13
<PAGE>
One-Time Charges Included in Operating Loss
- -------------------------------------------
XTRA recorded a one-time charge of $4 million in the second fiscal quarter
of 1999 to consolidate its financial, accounting, human resources, and
information technology operations into a Shared Service Center located in St.
Louis, Missouri to achieve cost savings and gain efficiencies. Approximately $2
million of the charge is related to severance payments. The remainder is
provided for the shutdown and consolidation of existing facilities.
XTRA announced that it had agreed to outsource the management of its
international container leasing business effective June 1, 1999 to Textainer
Equipment Management Limited, a major equipment lessor. The agreement allows the
Company to achieve economies of scale by having its fleet managed by a quality
container lessor like Textainer with its significantly larger fleet and cost
effective infrastructure. XTRA recorded a one-time charge of $9 million for the
costs of closing its XTRA International offices in conjunction with this
transaction. Approximately one half of the XTRA International restructuring
charges is for severance payments and the remainder is related primarily to the
write-off of non-revenue assets.
The Company does not currently anticipate making any further investment
in the international container business and will embark on a program to sell
older and less desirable equipment located in areas with lower demand. XTRA
recorded a one-time depreciation charge of $25 million during the second quarter
of fiscal 1999 in order to write down to estimated realizable value the
containers that it expects to sell over the next twelve months. Excluding these
charges, net income and diluted earnings per share would have been $11 million
and $0.82 per share for the three months ended March 31, 1999.
Interest Expense
- ----------------
For the three months ended March 31, 1999, interest expense of $14 million
was unchanged from the same period of fiscal 1998.
Provision for Income Taxes
- --------------------------
The effective income tax rates used in the interim financial statements are
estimates of the fiscal years' rates. The effective income tax rate for fiscal
1998 was 40%. For the three months ended March 31, 1999, the Company has
recorded a provision for income taxes using an estimated effective income tax
rate of 40%. The Company's effective income tax rate for fiscal 1998 and its
estimated effective income tax rate for fiscal 1999 are higher than the
statutory U.S. Federal income tax rate due primarily to state income taxes.
14
<PAGE>
The Six Months Ended March 31, 1999
- ------------------------------------
Versus the Six Months Ended March 31, 1998: Revenues
- -----------------------------------------------------
The following table sets forth the Company's average equipment utilization
(dollar-weighted by net investment in equipment), average fleet size in units,
and average net investment in revenue equipment for the six months ended March
31, 1999 and 1998. The Company's fleet size and average net investment include
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>
Six Months Ended
March 31,
1999 1998
-------- --------
<S> <C> <C>
XTRA Lease
- ----------
Utilization 87% 91%
Units 82,000 78,000
Net investment in equipment (in millions) $ 810 $ 718
XTRA Intermodal:
- ---------------
Utilization 82% 82%
Units 54,000 54,000
Net investment in equipment (in millions) $ 275 $ 297
Total North America:
- -------------------
Utilization 85% 88%
Units 136,000 132,000
Net investment in equipment (in millions) $ 1,085 $ 1,015
International:
- -------------
Utilization 71% 83%
Units 164,000 164,000
Net investment in equipment (in millions) $ 370 $ 411
Consolidated:
- ------------
Utilization 82% 87%
Units 300,000 296,000
Net investment in equipment (in millions) $ 1,455 $ 1,426
</TABLE>
15
<PAGE>
Revenues increased by 1% or $2 million for the six months ended March 31,
1999 over the same period a year ago. The Company's average equipment
utilization declined from 87% in the first six months of fiscal year 1998 to 82%
in the first six months of fiscal 1999. Average net investment in equipment
increased by $29 million from the same period of the prior year 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 marine container and intermodal
equipment fleets. For the full fiscal year 1999, average equipment utilization
is expected to be less than the 1998 average of 86%.
The Company's North American revenues increased $9 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 85% in the first six months of fiscal 1999, as
compared to 88% in the comparable prior year period. XTRA Lease's revenues
increased $9.0 million from the comparable six months of fiscal 1998 due to an
improvement in lease rates as well as more over-the-road trailer working units.
XTRA Lease's utilization averaged 87% on a larger total fleet size for the first
six months of fiscal 1999, compared to 91% for the first six months of fiscal
1998. XTRA Intermodal's revenues were unchanged from the first six months of
fiscal 1998. XTRA Intermodal's utilization averaged 82% in the first six
months of fiscal 1999, unchanged from the first six months of 1998.
The Company's North American over-the-road trailer fleet averaged 80,000
units, or 55% of average net investment in equipment in the first six months of
fiscal year 1999, compared to 76,000 units, or 49% of average net investment in
equipment, in the comparable prior year period. The Company continues to
downsize its North American intermodal trailer fleet as the railroads shift
toward more domestic container usage. XTRA's intermodal trailer fleet averaged
22,000 units, or 10% of average net investment in equipment in the first half of
1999, versus 23,000 units, or 11% of average net investment in equipment, in the
comparable prior year period.
International revenues decreased $7 million from the same period of the
prior year, primarily due to fewer working units. Equipment utilization declined
to 71% from 83% in the comparable prior year period. Marine container lease
rates in the first six months of fiscal year 1999 show a slight decline compared
to the comparable prior year period and continue to be at low levels for the
Company and the industry as a whole. The Company's average international fleet
size was stable at 164,000 units when compared to the first six months of
fiscal 1998.
Operating Expenses
- ------------------
Total operating expenses, excluding one time charges, increased by 1% or $2
million for the six months ended March 31, 1999 from the same period of fiscal
1998. Depreciation expense was unchanged. Rental equipment operating expense
increased by 4% or $2 million due primarily to higher storage and repositioning
expenses at XTRA International. Selling and administrative expenses were
unchanged.
One-Time Charges Included in Operating Income
- ---------------------------------------------
Operating income for the six months ended March 31,1999 includes one-time
charges of $4 million to establish the Shared services Center, $9 million for
the closing of the XTRA
16
<PAGE>
International offices and $25 million to write down to estimated realizable
value the marine containers that XTRA expects to sell over the next twelve
months.
Interest Expense
- ----------------
Interest expense decreased by 7% or $2 million for the six months ended
March 31, 1999 from the same period of fiscal 1998, due to lower average
interest rates and lower average net debt outstanding.
Unusual Item: Costs Related to Terminated Merger
- ------------------------------------------------
During the first quarter of fiscal 1999, XTRA recorded approximately $1
million as an unusual item on the income statement. These costs represent the
balance of expenses related to the terminated merger with Wheels MergerCo.
Excluding this unusual charge and the one-time charges included in operating
income recorded in the second quarter of fiscal 1999, net income and diluted
earnings per share would have been $30 million and $2.04 for the six months
ended March 31, 1999.
Provision for Income Taxes
- --------------------------
The effective income tax rates used in the interim financial statements are
estimates of the fiscal years' rates. The effective income tax rate for fiscal
1998 was 40%. For the six months ended March 31, 1999, the Company has recorded
a provision for income taxes using an estimated effective income tax rate of
40%. The Company's effective income tax rate for fiscal 1998 and its estimated
effective income tax rate for fiscal 1999 are higher than the statutory U.S.
Federal income tax rate primarily due to state income taxes.
Share Repurchases
- -----------------
On March 9, 1999, XTRA announced that it had completed the $90 million
repurchase plan announced on January 25,1999. The Company has repurchased
approximately 2.2 million shares of its common stock representing 14% of the
total shares outstanding at the beginning of the year. The repurchases will be
accretive to earnings per share and have increased the debt/equity ratio from
approximately 1.9:1.0 at December 31, 1998 to 2.6:1.0 at March 31, 1999.
Liquidity and Capital Resources
- -------------------------------
During the six months ended March 31, 1999, the Company generated cash
flows from operations of $140 million. During the same period, XTRA invested
$129 million in property and equipment and repurchased $90 million of common
stock. Net debt outstanding (debt less cash) increased $79 million.
As of April 30, 1999, committed capital expenditures for revenue equipment
for fiscal 1999 amounted to $255 million. Any additional capital expenditures
for the remainder of fiscal year 1999 will likely be modest.
17
<PAGE>
As of April 30, 1999, XTRA Inc. had $487 million available for future
issuance under its $604 million Shelf Registration. As of April 30, 1999, the
Company had $87 million of unused credit available under its $300 million
Revolving Credit Agreement.
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 approximate $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.
Federal Motor Carrier Safety Regulation
- ---------------------------------------
The Company's over-the-road and intermodal equipment is subject to various
Federal and state licensing and operating regulations as well as to various
industry standards. In early April, 1999 the Federal Highway Administration (the
"FHWA") published a rule, effective June 1, 1999, to amend the Federal Motor
Carrier Safety Regulations. The rule requires 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 mandated that motor
carriers complete the installation within two years of the effective date of the
rule. The Company's over-the-road and intermodal trailers are impacted by the
rule, although the number of trailers ultimately impacted will depend upon the
ongoing disposition or conversion to off-road use, thereby decreasing the number
of trailers that will be effected. The Company currently believes that the cost
of complying with the regulation could amount to more than $5 million. The
Company currently anticipates that the cost to install the reflective tape will
be capitalized and depreciated over the remaining life of the trailers.
18
<PAGE>
Part II - OTHER INFORMATION
-----------------------------
Item 4 - Submission of Matter to a Vote of Security Holders
- ------------------------------------------------------------
At the 1999 Annual Meeting of Stockholders held on February 18, 1999, at
which a quorum was present, the stockholders re-elected eight of the incumbent
Directors by the number of shares of common stock as noted:
(1) Nominees for the office of Director:
<TABLE>
<CAPTION>
Number of Shares
----------------------------------
Voted For Withheld
--------- --------
<S> <C> <C>
Michael D. Bills 14,083,094 42,751
H. William Brown 14,083,698 42,147
Michael N. Christodolou 14,083,698 42,147
Robert B. Goergen 14,083,298 42,547
Herbert C. Knortz 14,082,918 42,927
Francis J. Palamara 14,081,918 43,927
Lewis Rubin 14,083,014 42,831
Martin L. Solomon 14,083,698 42,147
</TABLE>
Item 5 - Other Matters
- -----------------------
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
- -------------------------------------------------------------------------
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- ------------------------------------------------
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains 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.
19
<PAGE>
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 of 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.
20
<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.
21
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
- --- --------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ----------------------------------------------------------------
<C> <S>
10 Equipment Management Services Agreement, dated as of April 1,
1999, between XTRA International Ltd. and TexTainer Equipment
Management Limited.
12.1 Statement of the calculation of earnings to fixed charges for
the six months ended March 31, 1999 and 1998 for XTRA
Corporation
12.2 Statement of the calculation of earnings to fixed charges for
the six months ended March 31, 1999 and 1998 for XTRA, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
--- -------------------
</TABLE>
On March 22, 1999, a Current Report on Form 8-K was filed by the Company to
disclose the retirement of two Directors under Item 5, "Other Events".
On April 30, 1999, a Current Report on Form 8-K was filed by the Company to
disclose certain financial information under Item 5, "Other Events", for the
second fiscal quarter ended March 31, 1999.
On May 7, 1999, a Current Report on Form 8-K was filed by the Company to
disclose the retirement of a Director under Item 5, "Other Events".
Item 7A - Quantitative and Qualitative Disclosures about Market Risk
- ---------------------------------------------------------------------
At March 31, 1999, there were no material changes in the market rate risks
reported in the Company's Form 10-K for the fiscal year ended September 30,
1998.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XTRA CORPORATION
-------------------------------------
(Registrant)
Date: May 17, 1999 /s/ Michael J. Soja
------------ -------------------------------------
Michael J. Soja
Vice President and Chief Financial Officer
Date: May 17, 1999 /s/ Thomas S. McHugh
------------ -------------------------------------
Thomas S. McHugh
Controller
23
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ------------------------------------------------- --------
<C> <S> <C>
10 Equipment Management Services Agreement, dated as
of April 1, 1999, between XTRA International Ltd.
and TexTainer Equipment Management Limited.* 10
12.1 Statement of the calculation of earnings to fixed
charges for the six months ended March 31, 1999
and 1998 for XTRA Corporation 26
12.2 Statement of the calculation of earnings to fixed
charges for the six months ended March 31, 1999
and 1998 for XTRA, Inc. 27
27 Financial Data Schedule 27
</TABLE>
*Confidential treatment has been requested for certain portions of this exhibit.
<PAGE>
Exhibit 10
EQUIPMENT MANAGEMENT SERVICES AGREEMENT
TEXTAINER EQUIPMENT MANAGEMENT LIMITED
AND
XTRA INTERNATIONAL LTD.
April 1, 1999
Portions of this exhibit have been redacted pursuant to a confidential treatment
request filed with the Commission. All redactions have been appropriately
indicated in the text.
<PAGE>
EQUIPMENT MANAGEMENT SERVICES AGREEMENT
THIS EQUIPMENT MANAGEMENT SERVICES AGREEMENT (the "Agreement") is made as of the
1st day of April, 1999 between XTRA INTERNATIONAL LTD., a Delaware corporation
whose principal office is at One California Street, Suite 2400, San Francisco,
CA 94111, U.S.A. ("XTRA International") and TEXTAINER EQUIPMENT MANAGEMENT
LIMITED, a Bermuda corporation whose principal office is at Century House, 16
Par-la-Ville Road, Hamilton, HM HX, Bermuda ("Manager").
RECITALS
XTRA International manages certain Containers for Affiliates and other
third parties, and Manager manages other Containers for other third parties as
agent. XTRA International and Manager desire to enter into a contract pursuant
to which Manager will manage certain Containers managed by XTRA International,
and pursuant to which Manager will acquire and manage, on behalf of XTRA
International, such Containers as XTRA International and Manager shall, from
time to time, mutually agree will be acquired for XTRA International and managed
by Manager hereunder.
Trencor Limited, a South African corporation and an Affiliate of Manager
("Trencor") has provided a letter to XTRA International, dated as of the date
hereof, confirming, among other things, its support of the transactions
contemplated by this Agreement, which letter is attached as Schedule 13 hereto.
-----------
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. DEFINITIONS.
In this Agreement:
"Acquisition Fee" has the meaning set forth in Clause 5.1(c) of this
Agreement.
"Additional XTRA International Insurance" has the meaning set forth in
Clause 10.5 of this Agreement.
"Affiliate" means, when used with reference to a specified Person (i) any
Person that directly or indirectly through one or more intermediaries controls
or is controlled by or is under common control with the specified Person; (ii)
any Person that is an executive officer of, partner in, or serves in a similar
capacity to, the specified Person or of which the specified Person is an
executive officer or partner or with respect to which the specified Person
serves in a similar
2
<PAGE>
capacity; or (iii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting securities of such other entity. For the purposes of
this definition, "control", when used with respect to any specified Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent" means a Person who, on behalf of and authorized by Manager, manages
existing Leases, negotiates renewal Leases, and conducts certain related
activities including, but not limited to, supervising the operation of Manager's
depots within an assigned territory, arranging repairs and storage of
Containers, and other activities Manager may deem necessary to maintain
Manager's day-to-day business in such territory;
"Agreement" has the meaning set forth in the Preamble of this Agreement.
"Agreement Termination Date" means the date this Agreement is terminated
pursuant to the provisions of Clause 12.1.
"Bad Debt Adjustment" has the meaning set forth in Clause 5.1(d) of this
Agreement.
"Base Management Fee" means a fee calculated as follows:
(a) for the first and second calendar month in any calendar quarter an
estimated fee equal to the sum of:
NOI per CEU Available Day for such month up to and including [*] per
CEU Available Day multiplied by [*], plus
----
NOI per CEU Available Day for such month in excess of [*] per CEU
Available Day up to and including [*] per CEU Available Day multiplied
by [*], plus
----
NOI per CEU Available Day for such month in excess of [*] per CEU
Available Day up to and including [*] per CEU Available Day multiplied
by [*], plus
----
NOI per CEU Available Day for such month in excess of [*] per CEU
Available Day multiplied by [*], multiplied by the CEU Available Days
-------------
for such month; and
(b) for the third month of any calendar quarter an actual fee equal to
the sum of:
* This confidential portion has been omitted and filed separately with the
Commission.
3
<PAGE>
NOI per CEU Available Day for such quarter up to and including [*] per
CEU Available Day multiplied by [*], plus
----
NOI per CEU Available Day for such quarter in excess of [*] per CEU
Available Day up to and including [*] per CEU Available Day multiplied
by [*], plus
----
NOI per CEU Available Day for such quarter in excess of [*] per CEU
Available Day up to and including [*] per CEU Available Day multiplied
by [*], plus
----
NOI per CEU Available Day for such quarter in excess of [*] per CEU
Available Day multiplied by [*]),
multiplied by the CEU Available Days for such quarter, minus the sum
------------- -----
of the estimated Base Management Fee calculated for the first and
second month of such quarter. An example of this calculation is shown
on Schedule 3 hereto.
----------
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in either New York City or San Francisco are
authorized or are obligated by law, executive order or governmental decree to be
closed.
"Casualty Proceeds" means, for any accounting period, all proceeds due to
Manager, as agent of XTRA International, from insurance or other sources,
including proceeds from the insurance specified in Clauses 10.1 and 10.2, as a
result of any of the following events with respect to a Container in the XTRA
International Fleet: (a) the loss, theft or destruction of such Container, or
(b) if such Container is subject to a Lease, such Container shall have been
deemed under its Lease to have suffered a casualty loss.
"CEU" or "Cost-equivalent Unit" means a fixed unit of measurement based on
the cost of a Container relative to the cost of a twenty-foot Container.
"CEU Available Days" means, with respect to the XTRA International Fleet,
the sum of the individual products, for each Container Type, of: (a) the total
number of days in a given period that all Containers of such Container Type are
managed by Manager, multiplied by (b) the CEU Value of such Container Type.
"CEU On-hire Days" means the sum of the individual products for each
Container which is in the XTRA International Fleet or the TEM Fleet, as the case
may be, of: (x) the On-hire Days for each such Container, multiplied by (y) the
CEU Value of such Container.
* This confidential portion has been omitted and filed separately with the
Commission.
4
<PAGE>
"CEU On-hire Days Ratio" means, for any accounting period, the quotient of
(a) CEU On-hire Days for the XTRA International Fleet for such period divided by
(b) CEU On-hire Days for the TEM Fleet for such period.
"CEU Value" means, (a) for an individual Container, the value of such
Container based on its Container Type, as set forth in Schedule 1 hereto, and,
----------
(b) for a group of Containers, the sum of the individual products, for each
Container Type in such group, of: (x) the total number of Containers of such
Container Type in such group, multiplied by (y) the value of such Container
based on its Container Type, as set forth in Schedule 1 hereto.
----------
"Change of Control" means any direct or indirect event that causes Trencor
to own, directly or indirectly, less than a majority of the voting power of the
voting securities of Manager immediately following such event, or the sale or
transfer of all or substantially all of Manager's assets, provided, that if
--------
following such event Trencor continues to own, directly or indirectly, at least
forty percent (40%) of the equity of Manager and has the right to elect a
majority of the board of directors of Manager, such event shall be deemed not to
constitute a Change of Control.
"Confidential Information" means any and all information or data, whether
written, oral, maintained on a computer or otherwise, and copies and
reproductions thereof, of about or concerning the ownership, business,
operations or assets of Manager or any Affiliate of Manager, including, but not
limited to all lists, records, reports, interpretations, forecasts, records,
financial and/or market information, technical data, drawings, photographs,
specifications, trade secrets, proprietary information, processes, customer
lists, names, habits and practices of customers, marketing methods and related
data, names of vendors or suppliers, costs of material, prices of products or
services, manufacturing and sales costs, compensation paid to employees and
other terms of employment, and any other confidential information or proprietary
data of any kind, nature or description to which XTRA International has access
or which is furnished to XTRA International by Manager or any Affiliate of
Manager, or any director, employee, agent, advisor, attorney, accountant, or
consultant of Manager or any Affiliate of Manager, and all notes, analyses,
compilations, studies, interpretations and other documents which are prepared by
XTRA International which contain, reflect or are based upon, in whole or in
part, the Confidential Information. Confidential Information shall not be
deemed to include information which (i) is generally known to the public at the
time of disclosure, or becomes generally known to the public other than as a
result of a breach of this Agreement or disclosure by XTRA International or any
employee or representative of XTRA International, or through any wrongful act of
the recipient; (ii) was within the possession of XTRA International prior to it
being furnished to XTRA International by Manager or any Affiliate of Manager,
provided that the source of such information was not known by XTRA International
to be bound by a confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to Manager or any Affiliate of Manager
with respect to such information; (iii) becomes available to XTRA International
on a non-confidential basis from a source other than Manager or any Affiliate of
Manager, provided that such source is not known to be bound by a
5
<PAGE>
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to Manager, any Affiliate of Manager or any other
party with respect to such information; or (iv) is approved for release by
written authorization of Manager. Subject to the provisions of Clause 16, this
Agreement and all attachments hereto are deemed to be Confidential Information.
"Container" means a marine cargo container.
"Container Identification Number" means the unique alpha-numeric reference
assigned to a Container which is painted on or affixed to such Container.
"Container Type" means the type of a Container, as set forth in Schedule 1
----------
hereto.
"Dedicated Agent" means an Agent that is an Affiliate of Manager.
"Dedicated Agent Allocated Expenses" means Dedicated Agent Total Expenses
minus Dedicated Agent Commissions (i.e., the sum of Dedicated Agent Commissions
- -----
plus Dedicated Agent Allocated Expenses for any accounting period shall not
- ----
exceed Dedicated Agent Total Expenses for such period). See Schedule 14 hereto
-----------
for examples of the calculation of Dedicated Agent Allocated Expenses.
"Dedicated Agent Commissions" means all fees and commissions for any
accounting period paid to Dedicated Agents for the leasing of Containers in the
TEM Fleet. See Schedule 14 hereto for examples of the calculation of Dedicated
-----------
Agent Commissions.
"Dedicated Agent Total Expenses" means all expenses of whatever type
incurred or accrued by Dedicated Agents for any accounting period.
"Distributed Estimated XTRA International Proceeds" means, for any calendar
month, the total Estimated XTRA International Proceeds, as adjusted pursuant to
Clause 7.3, distributed to the XTRA International Bank Account for such month.
"Effective Date" means June 1, 1999 or such other date as the parties
hereto mutually agree in writing.
"Estimated XTRA International Proceeds" has the meaning set forth in
Clause 7.1.
"Finance Lease" means as of any period of determination any Lease of one or
more Containers that is, or should be in accordance with Financial Accounting
Standards Board Statement No. 13 (or other applicable authoritative
pronouncement), classified and accounted for as a capital lease on XTRA
International's balance sheet prepared in accordance with U.S. a.
6
<PAGE>
"Force Majeure Circumstances" means any circumstances whatsoever outside
the control of Manager and affecting the performance of Manager's duties
hereunder, and not preventable through the reasonable diligence and care of the
Manager, including, without limitation, any act of God, war, riot, civil
commotion, strike, lock-out, trade dispute or labor disturbance, accident,
breakdown of plant or machinery, explosion, fire, flood, difficulty in obtaining
workmen, materials or transport, government action, epidemic, and difficulty or
impossibility in obtaining access to any Container in the XTRA International
Fleet.
"Gross Revenue" means all income (without reduction for expenses or costs),
calculated on an accrual basis in accordance with U.S. a, earned in
connection with the ownership, use and/or operation of Containers in the XTRA
International Fleet, or where indicated, the TEM Fleet, including, but not
limited to, rental, handling, Location Revenue, damage protection, interchange
fees and other rental-related charges arising from leasing of such Containers,
but excluding Miscellaneous XTRA International Proceeds, Casualty Proceeds,
Indemnification Proceeds and Sales Proceeds.
"Indemnification Proceeds" means, for any accounting period, all proceeds
due to Manager, on its own behalf or as agent of XTRA International, from
Lessees pursuant to the Leases, insurance or other sources, including proceeds
from the insurance specified in Clauses 10.1 and 10.2, for indemnification of
liability and loss with respect to the XTRA International Fleet, excluding
Casualty Proceeds, Sales Proceeds and Miscellaneous XTRA International Proceeds.
"Independent Agent" means an Agent that is not an Affiliate of Manager.
"Independent Agent Commissions" means all fees and commissions for any
accounting period paid to Independent Agents by Manager for the leasing of
Containers.
"Independent Agent Expenses" means all expenses of whatever type incurred
or accrued by Independent Agents for any accounting period and paid by Manager.
"Lease" means a lease for one or more Containers between XTRA International
or Manager on behalf of XTRA International, as lessor, and the user of such
Container(s), as lessee, which is administered by Manager as agent of XTRA
International.
"Lessee" means the user of one or more Containers under a Lease.
"Liabilities" shall have the meaning set forth in Clause 6.1(c) of this
Agreement.
"List of Containers" means a printed list of the Containers in the XTRA
International Fleet, such list to include the following information for each
such Container as of the date the list is prepared: (i) its Container
Identification Number, (ii) the Container Type, (iii) if on-hire,
7
<PAGE>
the Lessee to whom such Container is leased, (iv) if off-hire, the depot in
which the Container is located.
"Location Revenue" means the net amount (which can be a positive or
negative number) of charges and credits to Lessees related to delivery and
return of Containers in geographic locations, including but not limited to
Container pick-up charges and Container drop-off charges.
"Manager" has the meaning set forth in the Preamble of this Agreement.
"Manager Default" has the meaning set forth in Clause 18 of this Agreement.
"Manager Dissolution Default" has the meaning set forth in Clause 18.4 of
this Agreement.
"Manager Insurance" has the meaning set forth in Clause 10.2 of this
Agreement.
"Manager Master Lease" means a Master Lease entered into by Manager.
"Manager Payment Default" has the meaning set forth in Clause 18.1 of this
Agreement.
"Manager Term Lease" means a Term Lease entered into by Manager.
"Manager Trust Account" means the trust account maintained by Manager, as
trustee, into which all revenue (without reduction for expenses or costs) with
respect to the TEM Fleet, excluding Indemnification Proceeds, is deposited.
"Master Lease" means a Lease with (i) an indefinite term with respect to
any individual Container, (ii) or a fixed term of less than one (1) year.
"Material Adverse Effect" means any change, effect or circumstance that is
materially adverse to (a) the business, assets or financial condition of XTRA
International or the Manager, as applicable, in each case, taken as a whole, or
(b) to the ability of XTRA International or Manager, as the case may be, to
perform its obligations under this Agreement.
"MG&A Expenses" means all marketing, general and administrative expenses
(excluding Dedicated Agent Total Expenses, Independent Agent Commissions and
Independent Agent Expenses) now or hereafter incurred by Manager and/or its
Affiliates, directly or indirectly, in connection with the Containers in the TEM
Fleet (including the Containers in the XTRA International Fleet), including but
not limited to, salaries, rents, legal (except legal fees included in the
definition of Operating Expenses below), accounting
8
<PAGE>
(including accounting fees associated with the quarterly review and annual
audit of Manager's financial condition and preparation of related financial
statements referenced in Clause 8.3 of this Agreement, but excluding accounting
fees related to (i) the annual review by Manager's auditors of the Gross
Revenue, Operating Expenses and management fees for the TEM Fleet and (ii) for
the audit referenced in Clause 8.2 of this Agreement), utilities, travel and
entertainment, capital expenditures and other similar items constituting
Manager's overhead. Manager's MG&A Expenses shall be for Manager's own account.
"Miscellaneous XTRA International Proceeds" means amounts due to Manager,
as agent of XTRA International: (i) from the manufacturers or sellers of
Containers in the XTRA International Fleet for breach of sale warranties
relating thereto, (ii) from Lessees for repair rebill proceeds on Containers
which are designated for sale, and (iii) in payment or settlement of any claims,
losses, disputes or proceedings relating to such Containers, including proceeds
from the insurance specified in Clauses 10.1 and 10.2 for damage to such
Containers; provided, however, Miscellaneous XTRA International Proceeds shall
not include Sales Proceeds, Casualty Proceeds, and Indemnification Proceeds.
"Net XTRA International Accruals" means, as of the end of any calendar
month, (i) accounts receivable (excluding accounts receivable for Casualty
Proceeds, Sales Proceeds and Miscellaneous XTRA International Proceeds), minus
-----
(ii) the sum of (a) accounts payable plus (b) accrued expenses, in each case
----
related to the XTRA International Fleet.
"Net XTRA International Proceeds" means, for any calendar month, the sum
of: (i) NOI for the XTRA International Fleet for such month, plus (ii) the sum
----
of (a) Casualty Proceeds, (b) Sales Proceeds and (c) Miscellaneous XTRA
International Proceeds for such month, in each case to the extent actually
received during such calendar month, plus (iii) Net XTRA International Accruals
----
as of the end of the previous calendar month, minus (iv) Net XTRA International
-----
Accruals as of the end of such month.
"NOI per CEU Available Day" means, for any accounting period, the NOI for
the XTRA International Fleet for such period divided by the CEU Available Days
for the XTRA International Fleet for such period.
"NOI" means, for any accounting period, Gross Revenue for such period minus
Operating Expenses for such period.
"On-hire Days" means, for any accounting period, the number of days that a
Container has been subject to a Lease.
"Operating Expenses" means all expenses and costs incurred or accrued
(excluding the Total Manager Fee, MG&A Expenses and costs included in the
definition of Sales Proceeds), calculated on an accrual basis in accordance with
U.S. GAAP, incurred in connection with the
9
<PAGE>
operation and management of the Containers in the XTRA International Fleet, or,
where indicated, the TEM Fleet. Operating Expenses include, but are not limited
to, the following:
(a) all direct expenses and costs related to the operation and management
of the Containers in the XTRA International Fleet or the TEM Fleet, as
applicable, including but not limited to: (i) the expenses of maintaining,
repairing (including the cost of repairs made pursuant to a damage
protection plan), refurbishing, storing, repositioning, surveying,
recovering, and handling such Containers, including the cost of spare
parts; (ii) Dedicated Agent Commissions and Independent Agent Commissions;
(iii) depot fees; (iv) the expenses of inspecting, marking and remarking
such Containers, except for factory inspection costs associated with the
acquisition of new Containers pursuant to Clause 3.3; (v) bad debt expense
on a specific Lessee identification basis; (vi) bankruptcy recovery
expense; (vii) legal fees incurred in connection with enforcing rights
under the Leases or repossessing such Containers; (viii) legal fees and
other costs incurred by reason of uninsured claims for personal injury or
property damage; (ix) legal fees related to the collection of bad debts or
legal fees incurred in connection with a proceeding against the supplier or
manufacturer of such Containers; (x) charges, assessments or levies of
whatever kind or nature imposed upon or against such Containers including
ad valorem, gross receipts and/or other property taxes imposed against such
Containers or against the revenues generated by such Containers; and (xi)
non-recoverable sales and value-added taxes on such expenses and costs.
(b) certain indirect expenses that are reasonably attributable to the
operation and management of the Containers in the TEM Fleet and are
therefore allocated among all such Containers, including the Containers in
the XTRA International Fleet, on an equitable, non-discriminatory basis
(proportionally based on the ratio of the total number of CEU Available
Days in each fleet of Containers managed by Manager, including the
Containers in the XTRA International Fleet, to the total number of CEU
Available Days in the TEM Fleet). Such indirect expenses may include, but
are not limited to: (i) examination, investigation and other costs incurred
as a result of governmental regulatory actions or the collection of bad
debts; (ii) Dedicated Agent Allocated Expenses and Independent Agent
Expenses (provided, however, that the total of Dedicated Agent Commissions
-------- -------
under subsection (a)(ii) above and Dedicated Agent Allocated Expenses shall
not exceed Dedicated Agent Total Expenses); (iii) accounting fees related
to the annual review by Manager's auditors of the Gross Revenue, Operating
Expenses and management fees for the TEM Fleet (but excluding the
accounting fees for the audit or accounting work referenced in Clauses 8.2
and 8.3); (iv) the cost of insurance premiums for Manager Insurance
pursuant to the provisions of Clauses 3.1(h) and 10.2), if such coverage
includes the Containers in the XTRA International Fleet; and (v) bad debt
expense on a general reserve basis.
10
<PAGE>
(c) for purposes of determining the NOI in calculating the Base Management
Fee only, the proforma insurance costs referred to in Clause 10.6(d).
See Schedule 7 hereto for a list of the most common Operating Expenses with
----------
notations as to the method used to charge such expenses to XTRA International.
"Performance Level" means the average NOI per CEU, per day, during the
relevant six-month period of measurement.
"Performance Improvement Notice" has the meaning set forth in Clause 12.1
of this Agreement.
"Performance Improvement Plan" has the meaning set forth in Clause 12.1 of
this Agreement.
"Performance Target" means, for any six-month period during the term of
this Agreement commencing at least eighteen (18) months after the Effective
Date, ninety percent (90%) of Manager's Performance Level for the preceding six-
month period (an example of a calculation of the Performance Target is shown in
Schedule 11, attached hereto);
- -----------
"Person" means an individual, partnership, joint venture, limited liability
company, corporation, trust, estate, or other entity.
"Qualified Third Parties" means third parties engaged in due diligence
with respect to the direct or indirect sale of (i) the Containers in the XTRA
International Fleet; (ii) XTRA International; or (iii) any Affiliate of XTRA
International, provided such third parties have signed a confidentiality
agreement with XTRA International or an Affiliate of XTRA International that
includes the Confidential Information.
"Sales Commission" has the meaning set forth in Clause 5.1(b) of this
Agreement.
"Sales Proceeds" means the gross proceeds (including but not limited to
cash sales price, but excluding repair rebill proceeds from Lessee) due to
Manager, as agent of XTRA International, from the sale or other disposition of
Containers in the XTRA International Fleet, less commissions, administrative
fees, handling charges or other amounts paid or to be paid to third parties in
connection with the sale or other disposition of such Containers.
"SEC" means the United States Securities and Exchange Commission.
"Substitute XTRA International Insurance" has the meaning set forth in
Clause 10.6 of this Agreement.
11
<PAGE>
"TEM Fleet" means, at any time, the fleet of Containers managed by Manager
and any other direct or indirect subsidiaries of TGH.
"Term Lease" means a Lease with an initial fixed term of one (1) year or
longer.
"Terminated Container" means a Container in the XTRA International Fleet
which: (i) is off-hire and in a depot on the Agreement Termination Date, or (ii)
is subject to a Finance Lease on the Agreement Termination Date, or (iii) after
the Agreement Termination Date is (a) off-hired and returned to a depot, or (b)
declared lost or unrecoverable by Lessee or Manager.
"Termination Notice" means written notice by either party that it is
exercising its right to terminate this Agreement pursuant to Clause 12.1.
"TGH" means Textainer Group Holdings Limited, a Bermuda corporation and the
parent company of Manager.
"Total Manager Fee" has the meaning set forth in Clause 5.1.
"Transferred Containers" means the Containers specified on Schedule 6
----------
hereto, such schedule to include the following information for each such
Transferred Container as of the Effective Date: (i) its Container Identification
Number, (ii) the Container Type, (iii) if on-hire, the Lessee to whom such
Container is leased, (iv) if off-hire, the depot in which the Container is
located.
"Trencor" has the meaning set forth in the Recitals of this Agreement.
"U.S. GAAP" means United States generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, and statements and
pronouncements of the Financial Accounting Standards Board, or in such other
statements by such other Person as may be approved by the significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"US$ or US Dollars" means the lawful currency of the United States of
America.
"Waived Fee" has the meaning set forth in Clause 5.2 of this Agreement.
"XTRA International" has the meaning set forth in the Preamble of this
Agreement.
"XTRA International Bank Account" means a bank account identified by XTRA
International to Manager as the account to which all payments from Manager to
XTRA International under the terms of this Agreement are to be deposited.
12
<PAGE>
"XTRA International Fleet" means (i) the Transferred Containers, plus (ii)
----
any additional Containers added to the XTRA International Fleet under the terms
of Clause 3.3 of this Agreement, minus (iii) any Containers which have (a) been
-----
destroyed or lost by a Lessee or other third-party, (b) been sold by Manager
under the terms of this Agreement, or (c) become Terminated Containers.
"XTRA International Master Lease" means a Master Lease that was in effect
as of the Effective Date.
"XTRA International Reports" means fleet statements, revenue summary
reports and unit status reports for the XTRA International Fleet, in the format
which Manager uses for the TEM Fleet, which itemize by Container Type in total
dollars and/or on a per unit or CEU per-day basis: revenue, Operating Expenses,
NOI, utilization, Container additions, disposals, lease outs and returns and on-
hire status, such reports to be produced by Manager in substantially the form as
shown in Schedule 5 hereto.
----------
"XTRA International Term Lease" means a Term Lease that was in effect as of
the Effective Date.
2. APPOINTMENT.
Upon the terms and conditions hereinafter provided, XTRA International hereby
engages Manager to provide, as agent for and on behalf of XTRA International,
and Manager hereby undertakes to provide, management services to XTRA
International, in respect of the XTRA International Fleet, as agent for and on
behalf of XTRA International. Containers in the XTRA International Fleet shall
remain subject to the provisions of this Agreement and Manager shall be entitled
to retain possession and control of such Containers until such Containers become
Terminated Containers.
3. DUTIES OF MANAGER.
3.1 Manager shall, in the name of Manager but as agent for and on behalf
of XTRA International, manage and administer the Containers in the XTRA
International Fleet, arrange the leasing and enter into Leases of such
Containers, and administer such Leases. Without prejudice to the generality
of the foregoing Manager shall:
(a) decide the identity of each Lessee, the period of the Lease, the
rental or other sums payable thereunder, and the form and content of
the Lease, and seek Lessees and enter into Leases as lessor in the
name of Manager; in doing so, Manager shall use commercially
reasonable efforts to provide for the lease of the Containers in the
XTRA International Fleet on such terms as are commercially reasonable,
to financially responsible Lessees as determined at the time such
Lessees enter into the Leases;
13
<PAGE>
(b) perform on behalf of XTRA International the obligations of the
lessor under the Leases;
(c) exercise all rights of the lessor under the Leases, including,
without limitation, the invoicing and collection of rental and other
payments due from Lessees;
(d) take any actions Manager deems necessary to ensure compliance by
Lessees with the terms of their Leases;
(e) log interchanges of Containers in the XTRA International Fleet
including the return and issue of such Containers from depots;
(f) inspect, repair, maintain, service and store Containers in the
XTRA International Fleet to the highest of the following standards:
(a) those required under industry convention or governmental law or
regulation; (b) those required by the terms of any insurance policy
provided by Manager under which the Containers are insured, and
(c) those of prudent companies in the same industry;
(g) sell Containers in the XTRA International Fleet, outright or
through a Finance Lease, in accordance with either (i) Manager's
sell/repair decision-making procedures that are from time to time in
effect, a current version of which is attached as Schedule 8 hereto
----------
(provided, that Manager notifies XTRA International as to any material
---------
changes to its sell/repair decision-making procedures) or, at XTRA
International's option, (ii) any sell/repair policies established by
XTRA International (provided, that (A) such policies shall be
--------
established in a general form which shall not obligate Manager to seek
individual approval of XTRA International for the sale of each
Container in the XTRA International Fleet; (B) XTRA International
shall consult with Manager prior to establishing any such policies;
(C) such policies shall not materially decrease what would otherwise
have been the rate of sale of Containers in the XTRA International
Fleet by Manager, and (D) if such policies would have a material
adverse effect on the utilization rate of such Containers, Manager
shall have consented to such policies); and
(h) obtain insurance in respect of any matters which Manager considers
necessary or prudent, including, without limitation, public liability
insurance.
3.2 In performing its duties pursuant to this Agreement and providing the
services described herein, Manager shall operate the XTRA International
Fleet in accordance with reasonable business practice and, except as
described in Clause 3.1(g)(ii), without preference to ownership thereof,
and, except as described in Clause 3.1(g)(ii),
14
<PAGE>
no preference will be afforded to or against the XTRA International Fleet.
Without limiting the foregoing, Manager shall, in performing its duties
hereunder, use a degree of care and diligence no less than that which it
uses in leasing, maintenance and operation of Containers owned or operated
by Manager for its own account or for the account of any third parties
including Affiliates, and in no event less than that which a reasonably
prudent owner or operator of Containers would use under the circumstances.
3.3 XTRA International may request that Manager purchase Containers on
behalf of XTRA International. Such request shall be made in writing and
contain all information necessary or appropriate to enable Manager to carry
out such request. Manager in its sole discretion may either accept or
reject XTRA International's request; provided, however, that with respect
-------- -------
to Containers which Manager elects to purchase for the XTRA International
Fleet, Manager is bound by and will observe the equipment acquisition
policy imposed on the General Partners as described in the last full
paragraph of page 19 of the Prospectus for Textainer Equipment Income Fund
VI, L.P. dated May 10, 1996. A copy of such section of the Prospectus is
attached hereto as Schedule 2.
----------
4. AUTHORITY/CONSENTS.
XTRA International confers on Manager all such authorities and grants all such
consents as may be necessary for Manager's performance of its duties under this
Agreement, and will, at the request of Manager, confirm any such authorities and
consents to any third parties, execute such other documents and do such other
things as Manager may reasonably request for the purpose of giving full effect
to this Agreement and enabling Manager to carry out its duties hereunder.
5. REMUNERATION.
5.1. In consideration of Manager providing services to XTRA International
hereunder, XTRA International shall pay to Manager each month a fee ("Total
Manager Fee") equal to the sum of:
(a) the Base Management Fee for such month; plus
----
(b) a sales commission ("Sales Commission") with respect to each sale
for such month (except for sales to Manager, to any Affiliate of
Manager or to any Person in which the Manager has a pecuniary interest
(which shall not be deemed to include ownership of less than one
percent (1%) of the common stock of a Person whose shares of common
stock are publicly traded in the United States securities markets) of
a Container in the XTRA International Fleet that is equal to a base
fee of [*] plus [*] of the Sales Proceeds over the following
----
thresholds:
* This confidential portion has been omitted and filed separately with the
Commission.
15
<PAGE>
Container Type Threshold
-------------- ---------
20' Standard [*]
40' Standard [*]
40' High Cube [*]
plus
----
(c) a fee equal to [*] of the ex-factory invoice price of each
Container acquired during such month pursuant to Clause 3.3
("Acquisition Fee"); minus
-----
(d) an adjustment to the amounts in Clause 5.1(b) above based on any
Sales Proceeds determined by Manager in accordance with U.S. GAAP to
be uncollectible during such month ("Bad Debt Adjustment"); plus
----
(e) a reimbursement for any Bad Debt Adjustment previously made, to
the extent that any Sales Proceeds on which such Bad Debt Adjustment
was based were collected during such month.
Notwithstanding the foregoing, Manager shall not be entitled to any
commissions either (i) for the sale of a Container in the XTRA
International Fleet pursuant to the exercise of a purchase option contained
in a Lease; or (ii) for the sale of a Container in the XTRA International
fleet that generates Casualty Proceeds.
5.2. Manager hereby agrees to waive the Base Management Fee earned by
Manager during [*] (the "Waived Fee"), provided, however, that under
-------- -------
certain circumstances set forth in Clause 12.2(e), XTRA International shall
pay to Manager the unamortized portion of the Waived Fee. The unamortized
portion of the Waived Fee shall mean the portion of the Waived Fee
determined as follows:
Date of Termination of Agreement Percentage of the Waived Fee
-------------------------------- ----------------------------
Payable
-------
Prior to or on [*] [*]
After [*] [*]
After [*] [*]
* This confidential portion has been omitted and filed separately with the
Commission.
16
<PAGE>
After [*] [*]
After [*] [*]
After [*] [*]
6. COSTS /EXPENSES/REIMBURSEMENTS; INDEMNITY.
6.1 XTRA International shall be responsible for the payment of and shall
reimburse Manager for, and shall indemnify, defend and hold Manager
harmless from and against, all:
(a) Operating Expenses for the Containers in the XTRA International
Fleet;
(b) all taxes, levies, duties, charges, assessments, fees, penalties,
deductions or withholdings assessed, charged or imposed upon or
against Manager, XTRA International or Containers in the XTRA
International Fleet, arising as a result of the operation, ownership
or management of such Containers, excluding all such items assessed,
charged or imposed upon, or as a result of fees paid by XTRA
International to Manager under the terms of this Agreement.
Notwithstanding anything in this Agreement to the contrary, XTRA
International and Manager agree that each is responsible for taxes
imposed on its income or profits; and
(c) all claims, actions, damages, expenses, losses or liabilities
(including, without limitation, reasonable attorneys' fees)
(collectively, "Liabilities") incurred by, or asserted by any third
party, against Manager which (i) arose or accrued with respect to the
Containers in the XTRA International Fleet or the operation, ownership
or management of thereof prior to the commencement of the term of this
Agreement; (ii) arise or accrue as a result of the execution and/or
performance of this Agreement by XTRA International; (iii) arise or
accrue as a result of XTRA International's nonperformance of any of
its obligations hereunder, or (iv) arise or accrue as a result of the
use, management, operation, possession, control, maintenance or repair
of such Containers;
provided, however, that the foregoing indemnity shall not apply to any
claim, action, damage, expense, loss or liability to the extent directly or
indirectly caused by or arising from (i) the negligence or willful
misconduct of Manager or Manager's breach of this
* This confidential portion has been omitted and filed separately with the
Commission.
17
<PAGE>
Agreement, (ii) a Manager Default, or (iii) any material misrepresentation
by Manager. The indemnity described in this Clause 6.1 shall not include
indemnification for consequential damages including, but not limited to,
lost profits or similar claims arising under any legal theory whatsoever,
whether tort or contract, in law or in equity.
6.2. Manager may offset and deduct from any amount received or held by
Manager on behalf of XTRA International any amount referred to in this
Clause 6 which is incurred or paid by Manager.
6.3 The indemnification in favor of Manager provided for in this Clause
6 shall survive the termination of this Agreement pursuant to the
provisions hereof.
7. PAYMENTS TO/FROM XTRA INTERNATIONAL.
7.1 Subject to the provisions of Clauses 7.2, 7.3, 7.4, 7.5 and 7.6,
Manager shall, no later than seven (7) days after the last day of each
week, distribute from the Manager Trust Account and deposit into the XTRA
International Bank Account cash distributions ("Estimated XTRA
International Proceeds") in an amount equal to:
(a) the product of: (i) Gross Revenue for the TEM Fleet to the extent
collected by Manager during such week, multiplied by (ii) the CEU On-
-------------
hire Days Ratio calculated for the calendar month that is three (3)
calendar months prior thereto; plus
----
(b) the sum of (i) Sales Proceeds, (ii) Casualty Proceeds, and
(iii) Miscellaneous XTRA International Proceeds, in each case to the
extent collected by Manager during such week; minus
-----
(c) the product of: (i) Operating Expenses for the TEM Fleet paid by
Manager during such week multiplied by (ii) the CEU On-hire Days Ratio
-------------
calculated for the calendar month that is three (3) calendar months
prior thereto.
7.2 No cash distribution will be made to the XTRA International Bank
Account during the four (4) Business Days preceding the date Manager makes
its monthly depot cash disbursements, which is approximately the 25/th/ day
of each calendar month. After Manager makes such cash disbursements to the
depots, cash distributions shall continue as scheduled pursuant to
Clause 7.1.
7.3 The last distribution of Estimated XTRA International Proceeds for
each calendar month shall be adjusted by deducting and retaining from such
distribution an amount equal to the Total Manager Fee for the calendar
month immediately preceding such calendar month, as the estimated Total
Manager Fee for such calendar month. For example, the estimated Total
Manager Fee for the month of June, 1999 will be equal to
18
<PAGE>
the Total Manager Fee for the month of May, 1999 and will be used to adjust
the last distribution in the month of June, 1999.
7.4 After the close of Manager's accounting records for each calendar
month, Manager shall prepare and deliver to XTRA International no later
than thirty (30) days after the end of each calendar month a reconciliation
of Distributed Estimated XTRA International Proceeds for such month with
Net XTRA International Proceeds and Total Manager Fee for such month. If,
as a result of such reconciliation:
(a) the Distributed Estimated XTRA International Proceeds for such
month is less than (i) Net XTRA International Proceeds for such month
minus (ii) Total Manager Fee for such month, then Manager shall remit
-----
the difference to the XTRA International Bank Account within ten (10)
days after delivery of such reconciliation report; or
(b) the Distributed Estimated XTRA International Proceeds for such
month is greater than (i) Net XTRA International Proceeds for such
month minus (ii) Total Manager Fee for such month, then XTRA
-----
International shall remit the difference to Manager within ten (10)
days after demand by Manager.
7.5 Manager shall, within seven (7) days after receipt, deposit
Indemnification Proceeds to which XTRA International is entitled into the
XTRA International Bank Account. Notwithstanding the above, Manager shall
retain for its own account, and shall not be required to deposit into the
XTRA International Bank Account, Indemnification Proceeds to which Manager
is entitled, to the extent Manager has not been reimbursed therefor.
7.6 Manager may, at its option, offset and deduct from amounts received or
held by Manager for the credit of XTRA International any amount due from
XTRA International to Manager under this Agreement (including, without
limitation, the provisions of Clauses 6, 7.3 and 7.4(b)).
8. REPORTS/BOOKS AND RECORDS/INSPECTION.
8.1 Manager shall, no later than thirty (30) days after the end of each
calendar month during the term of this Agreement, deliver XTRA
International Reports for such month to XTRA International.
8.2 Manager shall, no later than the 30th of April of each year during the
term of this Agreement, deliver XTRA International Reports to XTRA
International for the year ended on the preceding 31st of December, and, if
requested by XTRA International, arrange for Manager's auditors, at the
expense of XTRA International, to certify to XTRA International that: (i)
such reports are in accordance with the books and records
19
<PAGE>
of Manager relating to the XTRA International Fleet and U. S. GAAP, and
(ii) that the Manager is in compliance with the terms of this Agreement.
8.3 During the Term of this Agreement, Manager shall, as soon as
practicable and in any event: (i) within sixty (60) days after the end of
each fiscal quarter ending on and after 31 March 1999, deliver to XTRA
International a copy of unaudited financial statements of Manager for such
quarter, and (ii) within one hundred twenty (120) days after the end of
each fiscal year of Manager, deliver to XTRA International a copy of the
annual audited financial statements of Manager prepared on a basis in
conformity with U.S. GAAP and certified by an independent certified public
accountant of recognized national standing.
8.4 Manager shall provide XTRA International with annual confirmation of
the renewal of insurance required by Clause 10.2 before 31 October each
year and shall forward copies of all certificates evidencing renewal to
XTRA International promptly after receipt.
8.5 Upon reasonable request by XTRA International, Manager shall provide
to XTRA International, in the form which Manager uses for its own
operations, (i) the List of Containers, and (ii) any other reports and
information available with respect to the Containers in the XTRA
International Fleet. In addition, quarterly (not later than April 30 for
the quarter ended March 31; July 31 for the quarter ended June 30; October
31 for the quarter ended September 30; and January 31 for the quarter ended
December 31) Manager shall provide XTRA International with a written
discussion of the operations of the XTRA International Fleet of the type
required by Item 303 of Regulation S-K under the Securities Act of 1933, as
amended, to be included in the filings of XTRA International (or XTRA
International's Affiliate) with the SEC, and upon the reasonable request of
XTRA International not more than two (2) times in any calendar year,
Manager shall make an in person presentation to the board of directors of
XTRA International (or XTRA International's Affiliate) with respect to
similar matters.
8.6 Manager shall maintain, at the office of its Affiliate, Textainer
Equipment Management (U.S.) Limited, located at 650 California Street,
16/th/ Floor, San Francisco, California, U.S.A., such books and records
(including computer records) with respect to the XTRA International Fleet
as it maintains for the TEM Fleet and the leasing thereof, including a
computer database including the Containers in the XTRA International Fleet
(containing sufficient information to generate the List of Containers and
the reports required to be delivered pursuant to this Agreement), any
Leases relating thereto and the Lessees (if on-hire) or location (if off-
hire). Manager shall notify XTRA International of any change in the
location of Manager's books and records.
8.7 Upon reasonable request by XTRA International, Manager shall make
available to XTRA International, for inspection and copying, its books,
records and reports relating
20
<PAGE>
to the XTRA International Fleet and copies of all Leases or other documents
relating thereto, all in the format which Manager uses for the TEM Fleet.
Such inspections shall be conducted during normal business hours and shall
not unreasonably disrupt Manager's business.
8.8 XTRA International shall have the right, upon reasonable request, to
inspect the Containers in the XTRA International Fleet at any time, upon
reasonable notice and to the extent Manager has access thereto, subject to
the Leases, and provided such inspection does not interfere with
utilization of the Containers in the XTRA International Fleet in the
ordinary course of business.
9. WARRANTIES.
9.1 MANAGER WARRANTS THAT IT WILL CARRY OUT ITS SERVICES IN ACCORDANCE
WITH THE STANDARDS SET FORTH IN CLAUSE 3 OF THIS AGREEMENT. THIS EXPRESS
WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED.
UNDER NO CIRCUMSTANCES SHALL MANAGER HAVE ANY LIABILITY TO XTRA
INTERNATIONAL FOR ANY SPECIAL INDIRECT OR CONSEQUENTIAL DAMAGES.
9.2 XTRA INTERNATIONAL REPRESENTS AND WARRANTS THAT THE WEIGHTED AVERAGE
AGE OF THE CONTAINERS IN THE XTRA INTERNATIONAL FLEET WILL BE LESS THAN 6
1/2 YEARS AS OF THE EFFECTIVE DATE. EXCEPT AS PROVIDED IN THE PREVIOUS
SENTENCE, THE CONTAINERS IN THE XTRA INTERNATIONAL FLEET ARE BEING
DELIVERED BY XTRA INTERNATIONAL TO MANAGER "AS IS" AND XTRA INTERNATIONAL
MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH
RESPECT TO THE CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE OF THE CONTAINERS IN THE XTRA INTERNATIONAL FLEET, OR ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED.
10. INSURANCE.
10.1 Manager shall require that all Lessees and container depots insure
(via third-party insurance, or self insurance when acceptable to Manager)
the XTRA International Fleet against all normally insurable risks
(including liability, loss, damage and recovery cost) while any Containers
in the XTRA International Fleet are under the control of such person.
10.2 If available on commercially reasonable terms, throughout the term of
this Agreement Manager shall use its best efforts to maintain a blanket
insurance policy in
21
<PAGE>
effect, in Manager's name and on an "occurrence basis", covering
(separately or jointly with the other Containers in the TEM Fleet) the
Containers in the XTRA International Fleet ("Manager Insurance"), under
which XTRA International (and XTRA International's lender(s), if
applicable) will be named as an additional insured and, with respect to the
Containers in the XTRA International Fleet, loss payee, and including
coverage that is (i) if provided separately, at least as broad in scope and
as great in amount as the coverage provided by Manager for other Containers
of the same type(s) in the TEM Fleet and (ii) generally comparable to
industry practices. Such Manager Insurance may insure against all or any
portion of the risks described in Clause 10.1, which may provide coverage
when: (i) recoveries are not effected under any policies in force pursuant
to Clause 10.1, and/or (ii) any Container in the XTRA International Fleet
is not returned to Manager by a defaulting Lessee (including costs of
recovering such Container), or (iii) the Lessee or container depot fails to
obtain insurance as provided under Clause 10.1. Attached hereto as
Schedule 10 is/are (a) certificates(s) of insurance that describe the
-----------
coverage that Manager has in effect on the TEM Fleet at the time of
execution of this Agreement which coverage will be extended to all
Containers in the XTRA International Fleet on the Effective Date. Manager
shall provide an executed original of such certificate to XTRA
International upon execution of this Agreement and, as provided in Clause
8.4 of this Agreement, shall continue to provide to XTRA International
(and, if notified in writing to do so by XTRA International, to XTRA
International's lender(s) if applicable) renewal certificate(s) evidencing
the coverages required herein prior to the expiration of the certificate(s)
in existence at the time of execution of this Agreement. All such
certificates shall provide that the insurer shall give XTRA International
at least thirty (30) days prior written notice of any cancellation or
material modification of the coverage under the Manager Insurance. Manager
shall have the right to change or eliminate its existing insurance coverage
on the Containers in the TEM Fleet, including the Containers in the XTRA
International Fleet, if in Manager's reasonable and good faith judgment
such change or elimination is required due to changing costs for insurance
or changing industry practices. Manager agrees to notify XTRA International
at least thirty (30) days in advance of any such contemplated changes in or
elimination of Manager Insurance.
10.3 XTRA International hereby irrevocably appoints Manager as the agent
of XTRA International for the purpose of receiving all monies payable under
such policy or policies of insurance as described in Clauses 10.1 and 10.2,
whether effected by Manager, depots or Lessees, and Manager may give a good
discharge therefor to the insurance company for all such monies.
10.4 Manager shall have no liability for any loss, damage, recovery cost
or other cost or expense whatsoever with respect to a lost or destroyed
Container in the XTRA International Fleet, whether or not covered by
insurance.
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10.5 If XTRA International wishes to obtain, or have Manager obtain on
XTRA International's behalf, insurance coverage on the Containers in the
XTRA International Fleet that is broader in scope and/or greater in
coverage than that provided through the Manager Insurance, then Manager
will cooperate with XTRA International in arranging such additional
coverage ("Additional XTRA International Insurance") and XTRA International
shall pay the incremental cost thereof either directly to the insurance
carrier or through reimbursement to Manager. If XTRA International chooses
to obtain Additional XTRA International Insurance, XTRA International shall
so notify Manager in writing no later than sixty (60) days prior to the
renewal date of the Manager Insurance policy. If requested to do so by
XTRA International, Manager shall use reasonable commercial efforts to
obtain such Additional XTRA International Insurance. For the purpose of
calculating Operating Expenses for the XTRA International Fleet, Manager
shall exclude the incremental cost of the Additional XTRA International
Insurance.
10.6 In lieu of the insurance provided by Manager on the Containers in the
XTRA International Fleet as described in Clause 10.2 hereto, XTRA
International may choose to obtain its own insurance coverage on such
Containers ("Substitute XTRA International Insurance").
(a) Substitute XTRA International Insurance shall: (i) provide
coverage that is at least as broad in scope and as great in amount as
the coverage provided by Manager for other Containers of the same
type(s) in the TEM Fleet and (ii) name Manager as an additional
insured. Should either of these conditions not be fulfilled, Manager
shall be under no obligation to accept the Substitute XTRA
International Insurance in lieu of Manager Insurance and shall
continue to provide Manager Insurance on the Containers in the XTRA
International Fleet at XTRA International's cost.
(b) If XTRA International wishes to obtain Substitute XTRA
International Insurance, XTRA International shall so notify Manager in
writing no later than sixty (60) days prior to the next renewal date
of the Manager Insurance policy. Upon receipt of such notice from XTRA
International and subject to Manager's agreement, in writing, that the
requirements described in Clause 10.6(a) hereto have been fulfilled:
(i) Manager shall exclude the Containers in the XTRA International
Fleet from the Manager Insurance as of the next annual renewal date
for such insurance which begins sixty (60) days or more after the date
of such notice (however, XTRA International shall be responsible for
reimbursing Manager for the cost of Manager Insurance for the
Containers in the XTRA International Fleet until such annual renewal
date), (ii) notwithstanding Clauses 3.1(h), 10.1, 10.2, 10.3, 10.4 and
10.5 hereto, Manager shall have no further obligation to provide any
insurance coverage for the Containers in the XTRA International Fleet
until notified in writing by XTRA International not less than sixty
(60) days in advance of the date XTRA International notifies Manager
that
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it will thereafter be so obligated, and (iii) the failure to obtain
such insurance on the Containers in the XTRA International Fleet shall
not constitute a Manager Default.
(c) XTRA International shall provide an executed original of an
insurance certificate for the Substitute XTRA International Insurance
to Manager on or before the initial effective date of the coverage
under such insurance and shall continue to provide renewal
certificate(s) to Manager evidencing (i) the coverage required herein,
and (ii) the fulfillment of the requirements described in Clause
10.6(a) hereto, upon each renewal date of such coverage. All such
certificates shall provide that the insurer shall give Manager at
least thirty (30) days prior written notice of any cancellation or
material modification of the coverage under the Substitute XTRA
International Insurance.
(d) XTRA International shall pay the insurer(s) directly for the cost
of Substitute XTRA International Insurance and such cost shall not be
included as an Operating Expense. Notwithstanding the above, for the
purpose of calculating the Base Management Fee, Manager shall include
in Operating Expenses, on a proforma basis, the cost of insuring the
Containers in the XTRA International Fleet at a per-CEU, per-day cost
equal to the per-CEU, per-day cost of insuring the remaining
Containers in the TEM Fleet.
11. TERM.
The Agreement shall take effect as of the Effective Date and, subject to the
provisions of Clauses 12 and 13, shall remain in effect with respect to each
Container in the XTRA International Fleet until the earlier of: (a) the
destruction or loss of such Container by Lessee or other third party, (b) the
sale or other disposition of such Container by Manager pursuant to the terms of
this Agreement, or (c) the date such Container becomes a Terminated Container.
12. TERMINATION.
12.1 This Agreement may be terminated as follows:
(a) Manager may terminate this Agreement by delivering a Termination
Notice to XTRA International in the event that XTRA International
commits a material breach of this Agreement and such breach has not
been remedied within thirty (30) days after written notice thereof;
provided, however, that if the nature of XTRA International's
-------- -------
noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then XTRA International shall not be deemed to
be in default thereof if XTRA International, in good faith, has
commenced such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion;
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<PAGE>
(b) XTRA International shall have the right to terminate this
Agreement by delivering a Termination Notice to Manager:
(i) upon the event of a Manager Default;
(ii) in the event XTRA International or an Affiliate of XTRA
International shall sell, directly or indirectly, whether by
asset or stock sale, all or substantially all of the Containers
in the XTRA International Fleet to any Person other than an
Affiliate of XTRA International;
(iii) in the event Manager fails to meet the Performance
Target, other than as a result of Force Majeure Circumstances; or
(iv) upon the occurrence of a Change of Control.
XTRA International may deliver a Termination Notice pursuant to
subsections (b)(i), (b)(ii) or (b)(iv) of this Clause 12.1 at any time
after the occurrence of the triggering event described in such
sections. XTRA International may deliver a Termination Notice pursuant
to subsection (b)(iii) of this Clause 12.1 within forty-five (45) days
after the end of any six-month period in which Manager has failed to
meet the Performance Target, provided, however, that XTRA
-------- -------
International may not deliver such Termination Notice prior to the
second anniversary of the Effective Date. In lieu of delivering a
Termination Notice pursuant to this subsection (b)(iii), XTRA
International may instead elect to deliver a performance improvement
notice ("Performance Improvement Notice") to Manager that will put
Manager on a performance improvement plan ("Performance Improvement
Plan"), effective the first day of the calendar month following the
month in which such Performance Improvement Notice is delivered, for
up to twelve (12) months, during which time the Base Management Fees
payable to Manager will be reduced by fifty percent (50%). At the end
of any month up to and including the twelfth month after delivery of
the Performance Improvement Notice, XTRA International will have the
option to deliver a Termination Notice pursuant to subsection
(b)(iii), causing the Performance Improvement Plan to cease as of the
first day of the next calendar month. If Manager's Performance Level
during the first six (6) months of the Performance Improvement Plan
meets the Performance Target that Manager failed to meet in the six-
month period preceding delivery of the Performance Improvement Notice,
the full Base Management Fees payable to Manager shall be reinstated
for the remainder of the Performance Improvement Plan. If XTRA
International has not delivered a Termination Notice by the one-year
anniversary of the commencement of the Performance Improvement Plan,
(i) if the Manager is still receiving reduced Base Management Fees,
the full Base
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Management Fees payable to Manager shall be reinstated; and (ii) XTRA
International shall have permanently waived its right to terminate the
Agreement pursuant to Clause 12.1(b)(iii).
12.2 Termination of this Agreement pursuant to Clause 12.1 shall have the
following effects:
(a) General. Termination of this Agreement shall be without prejudice
-------
to the rights and obligations of the parties that have accrued prior
to such termination; provided, however, that in the event of
-------- -------
termination of this Agreement pursuant to subsections (b)(ii),
(b)(iii) or (b)(iv) of Clause 12.1, the parties shall have no further
liability to each other with respect to any Container that has become
a Terminated Container. Termination of this Agreement pursuant to any
other subsection of Clause 12.1 shall be in addition to any other
rights and remedies the parties may have at law or in equity.
Notwithstanding the foregoing, under no circumstances shall either
party be liable to the other for consequential damages including, but
not limited to, lost profits or similar claims arising under any legal
theory whatsoever, whether tort or contract, in law or in equity.
(b) Lease Renewals.
--------------
(i) In the event of termination of this Agreement for any reason
except pursuant to Clause 12.1(b)(i) due to a Manager Payment Default
or Manager Dissolution Default, the Manager shall have no authority to
renew any Leases (except for renewal of Manager Master Leases in the
ordinary course of business consistent with past practice), with
respect to, or to re-lease, any Containers in the XTRA International
Fleet that do not become Terminated Containers on the Agreement
Termination Date. Lessees under XTRA International Master Leases,
XTRA International Term Leases or Manager Term Leases shall have the
option to either (A) transfer Containers in the XTRA International
Fleet under such Leases to a Manager Master Lease, such Containers to
remain under such Manager Master Lease until returned by the Lessee in
the ordinary course of business, or (B) return such Containers under
build-down provisions, provided, however, that Lessees under XTRA
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International Term Leases shall not have either of these options until
after the termination of such Term Leases. Notwithstanding the
foregoing, any Lessee under any such Lease shall retain (i) the right
of quiet enjoyment of the Containers leased under such Lease, so long
as such Lessee is not in default under the Lease therefor and the
Manager continues to receive all amounts payable under the Lease; and
(ii) the right to exercise any pre-existing terms under such Lease,
including renewal of such Lease.
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(ii) In the event of termination of this Agreement pursuant to
Clause 12.1(b)(i) due to a Manager Payment Default or Manager
Dissolution Default, immediately upon receipt of the Termination
Notice, the Containers in the XTRA International Fleet shall become
Terminated Containers and Manager shall (A) return responsibility for,
and any obligations under, any XTRA International Master Leases and
XTRA International Term Leases to XTRA International; (B) to the
extent any Containers in the XTRA International Fleet are leased
thereunder, assign such portion of any and all Manager Term Leases and
Manager Master Leases to XTRA International; and (C) direct any and
all Lessees thereunder to make payments directly to XTRA
International.
(c) Sales Commissions. In the event of termination of this Agreement
-----------------
for any reason, as of the date of the Termination Notice, Manager
shall no longer be authorized to sell any of the Containers in the
XTRA International Fleet and shall not be entitled to any Sales
Commissions accruing from sales made on or after the date of the
Termination Notice.
(d) Base Management Fees. In the event of termination of this
--------------------
Agreement for any reason except pursuant to Clause 12.1(b)(i) due to a
Manager Payment Default or Manager Dissolution Default, the Base
Management Fees accruing as of the first day of the calendar month
following the month in which the Termination Notice is delivered shall
no longer be calculated based upon actual NOI per-CEU, per-day, but
shall be based upon the average NOI per-CEU, per-day for the three (3)
full calendar months immediately preceding the Termination Notice. In
the event of termination of this agreement pursuant to Clause
12.1(b)(i) due to a Manager Payment Default or Manager Dissolution
Default, as of the date of the Termination Notice, Manager shall be
entitled to no Base Management Fees.
(e) Refund of Waived Fees. In the event of termination of this
---------------------
Agreement pursuant to Clause 12.1(a), Clause 12.1(b)(ii) or
Clause 12.1(b)(iv), where the Change of Control triggering such
termination is the result of a sale or transfer of all or
substantially all of Manager's assets to an entity that is of at least
equal credit-worthiness to Trencor, XTRA International shall pay to
Manager the unamortized portion of the Waived Fee, as determined under
Clause 5.2.
13. RETURN OF CONTAINERS.
13.1 XTRA International shall have no right to (i) recover possession or
control of, or (ii) except as provided in Clause 12.1(b)(ii), sell any
Container in the XTRA International Fleet prior to the date such Container
becomes a Terminated Container.
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<PAGE>
13.2 Promptly after a Container becomes a Terminated Container, if such
Container is not lost or unrecoverable Manager shall: (i) deliver to XTRA
International a report of the location of such Container, and (ii) deliver
to the Person holding such Container Manager's authorization to release
such Container to XTRA International or its assignee.
13.3 In the event of termination of this Agreement pursuant to
Clauses 12.1 for any reason, Manager shall cooperate with XTRA
International in transferring the Terminated Containers to XTRA
International or its assignee, including, but not limited to (i) making
available all books and records (including data contained in Manager's
computer systems) pertaining to the Terminated Containers, (ii) providing
access to, and cooperating in the transfer of, information pertaining to
the Terminated Containers from Manager's computer system to XTRA
International's or its assignee's computer system, and (iii) taking any
other action as may be reasonably requested by XTRA International or its
assignee, at XTRA International's or such assignee's sole expense, to
ensure the orderly transfer of the Terminated Containers, including
relocating the Terminated Containers, if such relocation is necessary.
To the extent not payable by a Lessee, XTRA International shall bear all
costs of transporting, relocating, redelivering and storing the Terminated
Containers. Manager shall also deliver or disclose to XTRA International or
its assignee certain information necessary for the immediate, orderly
transfer of the Containers in the XTRA International Fleet, including, but
not limited to, average Lease rates and utilization, and on-hire
percentages (on a CEU basis) by Lessee. Notwithstanding the foregoing, in
the event of termination of this Agreement for any reason other than
Manager Payment Default or Manager Dissolution Default, in no event shall
Manager be required to deliver or disclose to XTRA International or its
assignee the specific rates, terms and conditions of individual Leases.
In the event of termination of this Agreement pursuant to Clause 12.1(b)(i)
for Manager Payment Default or Manager Dissolution Default, Manager shall
deliver or disclose to XTRA International or its assignee any information,
data, document or agreement which is necessary for the immediate, orderly
transfer of the Containers in the XTRA International Fleet, including but
not limited to the terms and conditions of Leases.
14. DELEGATION OF DUTIES.
In no event shall Manager subcontract all or a substantial portion of its
management duties to any Person, other than an Affiliate, without the prior
written consent of XTRA International.
15. NO PARTNERSHIP.
Nothing in the Agreement shall be deemed to constitute a partnership between the
parties hereto.
16. CONFIDENTIALITY.
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<PAGE>
16.1 Except as required by law, XTRA International agrees: (a) to keep all
Confidential Information confidential and not to disclose or reveal any
Confidential Information to any person other than XTRA International's
employees, agents and representatives (provided that such employees, agents
and representatives are made aware of XTRA International's obligations
hereunder and use such information only in the discharge of their duties to
XTRA International or to Qualified Third Parties); and (b) not to use
Confidential Information for the purpose of competing with the Manager.
In discharging its obligations under this Clause 16.1, XTRA International
will use the same degree of care regarding its secrecy and confidentiality
as XTRA International's similar information is treated within XTRA
International's organization. XTRA International will be responsible for
any breach of the terms of this Clause 16.1 by XTRA International or XTRA
International's employees, agents, representatives or Qualified Third
Parties.
16.2 In the event that XTRA International or any of its Affiliates is
requested pursuant to, or advised by its counsel that XTRA International,
or any of its Affiliates, is required by, applicable law, regulation or
rule in connection with any filings with the SEC, financial audit or legal
process to disclose any Confidential Information, XTRA International agrees
that, to the extent practical, it will provide the Manager with prompt
notice of such request or requirement. XTRA International agrees that it
will consider recommendations by the Manager to narrow the scope of the
requested or required information and will furnish only that portion of the
Confidential Information which XTRA International is advised by counsel is
necessary to be disclosed in connection with such request or requirement.
The parties hereto acknowledge that this Agreement is expected to be filed
with the SEC as a material contract pursuant to its reporting obligations.
XTRA International will diligently seek and use reasonable best efforts to
obtain confidential treatment for the material economic terms of this
Agreement, provided that such request will not unreasonably delay the
--------
effectiveness of any registration statements or filings, audits, or legal
process, and XTRA International shall have no obligation to appeal any
determination by the SEC.
16.3 It is understood and agreed that money damages would not be
sufficient remedy for any breach of this Clause 16 by XTRA International or
any Affiliate of XTRA International, or any employee or representative of
XTRA International or such Affiliate, and that Manager and any Affiliate of
Manager shall be entitled to equitable relief, including injunction and
specific performance, without the necessity of proving damages, posting any
bond or other security, as a remedy for such breach. Such remedies shall
not be deemed to be the exclusive remedies for a breach of this Clause 16,
but shall be cumulative and in addition to all other remedies available at
law or in equity.
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<PAGE>
16.4 The provisions of this Clause 16 shall survive for a period of two
(2) years after the expiration or termination of this Agreement.
17. INTEREST/CURRENCY.
17.1 Each party shall (without prejudice to any other remedy available to
such party and whether before or after judgment) be entitled to charge
interest at a fluctuating rate per annum equal to two percent (2%) above
the prime rate from time to time being in force at Wells Fargo Bank, San
Francisco, California on any amount due to such party hereunder which is
not paid on or before the due date thereof.
17.2 All sums payable hereunder shall be paid in United States Dollars.
18. MANAGER DEFAULT.
Each of the following constitutes a Manager Default:
18.1 The failure by Manager to make any deposit to the XTRA International
Bank Account when due or to deliver an XTRA International Report when due
if such failure shall continue for a period of ten (10) days after delivery
of written notice of demand therefor from XTRA International to Manager (a
"Manager Payment Default");
18.2 The failure by Manager to observe or perform any of Manager's
material obligations under this Agreement, other than described in Clause
18.1 above, where such failure shall continue for a period of thirty (30)
days after delivery of written notice of demand therefor from XTRA
International to Manager; provided, however, that if the nature of
-------- -------
Manager's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Manager shall not be deemed to be in
default thereof if Manager, in good faith, has commenced such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure
to completion;
18.3 Any representation or warranty made by Manager in this Agreement, or
in any certificate, report or financial statement delivered by it pursuant
hereto proves to have been untrue in any material respect when made and
continues unremedied for a period of thirty (30) days after the earlier to
occur of (i) an officer of Manager having actual knowledge thereof, or
(ii) Manager receiving notice thereof, provided, that such
--------
misrepresentation has a Material Adverse Effect;
18.4 Manager shall cease to carry on the whole or substantially the whole
of its container management business (except for an amalgamation, merger,
reorganization or other similar arrangement not involving or arising out of
the insolvency of Manager) ("Manager Dissolution Default");
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<PAGE>
18.5 Manager shall suspend payment of its debts generally or shall be
unable to, or shall admit inability to, pay its debts as they fall due, or
shall commence an insolvency proceeding;
18.6 Manager shall (A) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee, conservator or
liquidator or the like of itself or of all or a substantial part of its
property; (B) make a general assignment for the benefit of its creditors;
(C) commence a voluntary case under the U.S. Bankruptcy Code (as now or
hereafter in effect) or under any similar law of any foreign jurisdiction;
(D) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
readjustment of debts; or (E) fail for a period of more than ninety (90)
days to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in any involuntary case under the
U.S. Bankruptcy Code or under any similar law of any foreign jurisdiction;
18.7 A proceeding or case shall be commenced against Manager without its
consent, in any court of competent jurisdiction (whether within or without
the United States of America), seeking: (A) its liquidation reorganization,
dissolution or winding-up, or the composition or readjustment of its debts;
(B) the appointment of a trustee, receiver, custodian, conservator,
liquidator or the like of Manager, or of all or any substantial part of
its assets; or (C) similar relief in respect of Manager under any law
(foreign or domestic) relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding or
case shall continue undismissed, or any order, judgment or decree approving
or ordering any of the foregoing shall be entered and continue unstayed and
in effect, in each case for a period of more than ninety (90) days; or
18.8 A receiver, administrator or other similar official shall be
appointed in relation to Manager or a distress, execution or other process
shall be levied or enforced upon or against, or any encumbrancer shall take
possession of, the whole or a substantial part of the assets of Manager,
and in any of the foregoing cases it shall not be discharged, dismissed,
vacated, stayed or bonded within sixty (60) days.
19. NON-EXCLUSIVITY.
During the term of this Agreement, Manager may provide container management,
sales, leasing and re-marketing services directly or indirectly to any other
Person or on behalf of any other Person.
20. LIENS.
Manager agrees not to create, incur, assume or grant, or suffer to exist,
directly or indirectly, any lien, security interest, pledge or hypothecation of
any kind (other than the Leases) on or
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concerning the Containers in the XTRA International Fleet, or title thereto or
any interest therein, to any Person other than XTRA International. Manager
shall promptly take or cause to be taken, at its own cost and expense, such
action as may be necessary to discharge any such lien.
21. REPRESENTATIONS AND WARRANTIES.
21.1 Manager represents and warrants to XTRA International that:
(a) The Manager is a company duly organized, validly existing and in
compliance under the laws of Bermuda.
(b) The Manager has the requisite power and authority to enter into
and perform its obligations under this Agreement, and all requisite
corporate authorizations have been given for it to enter into and
perform all obligations under this Agreement. Upon due execution and
delivery hereof, this Agreement will constitute the valid, legally
binding and enforceable obligation of Manager, subject to bankruptcy,
insolvency, moratorium, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles.
(c) The execution and delivery by Manager of this Agreement and
Manager's compliance with all of the provisions hereof are within the
powers of Manager, will not conflict with or result in a breach of any
presently existing law or governmental rule or regulation or any
presently existing order, writ, injunction, or decree of any court or
governmental authority against Manager or by which it or any of its
properties is bound and will not conflict with, result in any breach
of any of the provisions of, constitute a default under, or result in
the creation of any lien upon any property of Manager under the
provisions of, its Charter, Bye-Laws, or any other agreement to which
Manager is a party or by which it may be bound or to which any of its
property (whether owned or leased) may be subject;
(d) No authorization or approval from, consent of, or filing,
registration or qualification with, any governmental or public body or
authority, except as has been obtained or made or will be obtained or
made in the ordinary course of Manager's container leasing business,
is necessary for the execution or delivery by Manager of this
Agreement, the validity of this Agreement, or the holding under lease
or operation and leasing of the Containers in the XTRA International
Fleet by Manager;
(e) Manager (i) is not in violation of any material laws, ordinances
or governmental rules or regulations (domestic or foreign) to which it
is subject,
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and (ii) has not failed to obtain or apply for any licenses, permits,
franchises or other governmental authorizations necessary to the
ownership of its property or the conduct of its business, which
violation or failure to so obtain or apply would have a Material
Adverse Effect, except such as will be obtained or applied for in the
ordinary course of Manager's container leasing business;
(f) There are: (i) no proceedings or investigations pending, or, to
the knowledge of Manager, threatened, before any court, regulatory
body, administrative agency, or other tribunal or governmental
authority: (A) asserting the invalidity of this Agreement, (B) seeking
to prevent the consummation of the transaction contemplated by this
Agreement, or (C) seeking any determination or ruling that might
materially and adversely affect the performance by Manager of its
obligations under, or the validity or enforceability of, this
Agreement; and (ii) no injunctions, writs, restraining orders or other
orders in effect against Manager that would have a Material Adverse
Effect; and
(g) Neither this Agreement nor any other written statement furnished
to XTRA International by Manager in connection with the transactions
contemplated hereby contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under
which they were made, not misleading. All historical data and records
presented by Manager to XTRA International in evaluating the
transactions contemplated hereby have been carefully prepared and do
not misrepresent or omit any material fact reasonably necessary to
XTRA International to evaluate this transaction. XTRA International
recognizes that the information referred to in this Clause 21.1(g) is
historical information and not a projection of results to be
achieved under this Agreement.
(h) Since the date of its most recent audited financial statements
delivered to XTRA International, there has been no Material Adverse
Effect with respect to Manager.
(i) The fees and other charges contemplated by this Agreement are not
higher than the fees and charges for substantially similar Container
management services provided by Manager to other unaffiliated owners
of Containers as of the Effective Date.
21.2 XTRA International represents and warrants to Manager that:
(a) XTRA International is a company duly organized, validly existing
and in compliance under the laws of Delaware.
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(b) XTRA International has the requisite power and authority to enter
into and perform its obligations under this Agreement, and all
requisite corporate authorizations have been given for it to enter
into and perform all obligations under this Agreement. Upon due
execution and delivery hereof this Agreement will constitute the
valid, legally binding and enforceable obligation of XTRA
International, subject to bankruptcy, insolvency, moratorium,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(c) The execution and delivery by XTRA International of this
Agreement and XTRA International's compliance with all of the
provisions hereof are within the powers of XTRA International, will
not conflict with or result in a breach of any presently existing law
or governmental rule or regulation or any presently existing order,
writ, injunction, or decree of any court or governmental authority
against XTRA International or by which it or any of its properties is
bound and will not conflict with, result in any breach of any of the
provisions of, constitute a default under, or result in the creation
of any lien upon any property of XTRA International under the
provisions of, its Certificate of Incorporation, By-Laws, or any other
agreement to which XTRA International is a party or by which it may be
bound or to which any of its property (whether owned or leased) may be
subject.
(d) No authorization or approval from, consent of, or filing,
registration or qualification with, any governmental or public body or
authority, except as has been obtained or made or will be obtained or
made in the ordinary course of XTRA International's container leasing
business, is necessary for the execution or delivery by XTRA
International of this Agreement, the validity of this Agreement, or
the holding under lease or operation and leasing of the XTRA
International Fleet.
(e) XTRA International is not in violation of any material laws,
ordinances or governmental rules or regulations (domestic or foreign)
to which it is subject, and has not failed to obtain or apply for any
licenses, permits, franchises or other governmental authorizations
necessary to the ownership of its property or the conduct of its
business, which violation or failure to so obtain or apply would
materially and adversely affect the business prospects or financial
condition of XTRA International or the ability of XTRA International
to perform its obligations under this Agreement.
(f) There are: (i) no proceedings or investigations pending, or, to
the knowledge of XTRA International, threatened, before any court,
regulatory body, administrative agency, or other tribunal or
governmental authority: (A) asserting the invalidity of this
Agreement, (B) seeking to prevent the consummation of the
34
<PAGE>
transaction contemplated by this Agreement, or (C) seeking any
determination or ruling that might materially and adversely affect the
performance by XTRA International of its obligations under, or the
validity or enforceability of, this Agreement; and (ii) no
injunctions, writs, restraining orders or other orders in effect
against XTRA International that would adversely affect its ability to
perform under this Agreement.
(g) XTRA International is not insolvent and will not be rendered
insolvent by the transaction contemplated by the Agreement; XTRA
International is paying its debts as they become due and has adequate
capital to conduct its business.
(h) As of the Effective Date, XTRA International or its Affiliate,
XTRA, Inc., has good and marketable title to, or a valid right to
possess and operate, the Containers in the XTRA International Fleet,
free and clear of all liens except for those described on Schedule 9
----------
hereto.
(i) The transfer of the Transferred Containers to Manager under the
terms of this Agreement will not violate the terms or provisions of
any agreement to which XTRA International is a party or by which it is
bound, except as set forth on Schedule 15 hereto.
-----------
(j) Schedule 12 attached hereto contains a true, complete and correct
-----------
list of each XTRA International Master Lease or XTRA International
Term Lease agreement to which the Containers in the XTRA
International Fleet are subject as of the Effective Date, and the
transactions contemplated hereby will not violate the terms or
provisions of such Leases. Except as disclosed in Schedule 12, (i)
-----------
all of such Lease agreements are in full force and effect, and (ii)
neither XTRA International or the owner/lessor thereunder nor, to the
best of XTRA International's knowledge, any other party thereto, is in
default in respect of its obligations thereunder. Correct and
complete copies of all such Lease agreements have been delivered to
Manager. The execution and delivery of this Agreement by XTRA
International and the consummation of the transactions contemplated
hereby will not require the consent of any party to any such Lease
agreement which has not been obtained, or result in the modification,
lapse or termination of any material term of any of such Lease
agreement.
(k) The transaction contemplated by this Agreement is being
consummated by XTRA International in good faith and in furtherance of
XTRA International's ordinary business purposes and constitutes a
practical and reasonable course of action by XTRA International
designed to improve the financial position of XTRA International, with
no contemplation of insolvency and with no intent to hinder, delay or
defraud any if its present or future creditors.
35
<PAGE>
(l) Neither this Agreement nor any other written statement furnished
by XTRA International to Manager in connection with the transactions
contemplated hereby contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the
statements contained therein, in the light of the circumstances under
which they were made, not misleading. All historical data and records
presented by XTRA International to Manager in evaluating the
transactions contemplated hereby have been carefully prepared and do
not misrepresent or omit any material fact reasonably necessary to
Manager to evaluate this transaction.
22. TAX MATTERS.
22.1 Manager shall provide XTRA International with Form W-8 ECI,
Certificate of Foreign Person's Claim for Exemption From Withholding on
Income Effectively Connected with the Conduct of a Trade or Business in the
United States, or its equivalent, upon execution of this Agreement and
every three (3) years thereafter upon each anniversary of this Agreement.
22.2 Manager agrees that all Leases between Manager, as agent for XTRA
International, and any Lessee for the use of Containers in the XTRA
International Fleet (not including leases of XTRA International existing on
the Effective Date) shall provide that any payments made by such Lessee
under such Leases shall be paid without reduction for any withholding taxes
charged or imposed on such payments.
22.3 To the extent available to Manager, Manager shall provide information
necessary for XTRA International to accurately prepare all of its required
tax filings, including, but not limited to, apportionment of United States
or foreign source nature of rental income under the methodology utilized by
Manager to apportion income to other owners of Containers managed by
Manager.
22.4 Manager shall take all reasonable steps to avoid subjecting XTRA
International to any foreign taxes.
23. GENERAL.
23.1 Notices. All notices, demands or other communications given
--------
hereunder shall be in writing and shall be sufficiently given if delivered
by overnight delivery service or sent by U.S. mail, first class, postage
prepaid, or by telegram, telecopy or similar written means of
communication, addressed to each party at the address specified for such
party in Clause 23.14 or such other address such party designates by notice
given in accordance with this Clause 23.1. Any such notice, demand or
communication shall be deemed to have been given (i) if so mailed, as of
the close of the third business day
36
<PAGE>
following the date so mailed, and (ii) if personally delivered or otherwise
sent as provided above, on the next business day after the date sent in all
other cases.
23.2 Attorney Fees. In the event of commencement of either arbitration or
---------------
suit by either party to enforce the provisions of this Agreement or because
of an alleged breach of this Agreement or any other dispute with respect to
the provisions of this Agreement, the prevailing party shall be entitled to
receive such attorneys' fees and costs as may be adjudged reasonable in
addition to any other relief granted..
23.3 Arbitration. Any controversy or claim arising out of or relating to
------------
this Agreement, any of its Exhibits or Schedules, or the breach thereof
shall be settled by arbitration in San Francisco, California, by one (1)
arbitrator (unless the parties mutually agree to accept multiple
arbitrators) in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof.
The cost of any such arbitration shall be borne equally by the parties
involved unless the arbitrator(s) deem such division of costs to be
inequitable, in which event the arbitrator(s) may allocate the costs of
arbitration among the parties thereto as they deem just and equitable under
the circumstances. The parties hereto specifically agree that the
provisions of Section 1283.05 of the Code of Civil Procedure of the State
of California are incorporated into, made a part of, and made applicable to
any arbitration pursuant to this Section 23.3 where the aggregate amount in
controversy exceeds Ten Thousand Dollars ($10,000), exclusive of costs,
expenses and fees.
23.4 Further Assurances. XTRA International and Manager shall each
-------------------
perform such further acts and execute such further documents as may be
necessary to implement the intent of, and consummate the transactions
contemplated by, this Agreement.
23.5 Severability. If any provision or provisions of this Agreement shall
-------------
be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including, without limitation, each portion of any
section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable) shall not in any way be affected or impaired
thereby; and (b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
23.6 Assignability and Successors. This Agreement shall be binding upon
----------------------------
and inure to the benefit of, and be enforceable by, XTRA International and
Manager and their respective successors in interest or permitted assigns;
provided, however, that: (a) this Agreement and the rights and duties of
-------- -------
Manager hereunder may not be assigned by
37
<PAGE>
Manager to any other Person without the prior written consent of XTRA
International, provided that in the case of assignment to an Affiliate,
such consent shall not be unreasonably withheld and (b) XTRA International
may charge, assign, pledge or hypothecate its rights and obligations under
this Agreement. XTRA International shall give Manager prior notice of any
assignment effected pursuant to this Clause 23.6.
23.7 Waiver. Waiver of any term or condition contained in this Agreement
-------
by either party to this Agreement (including any extension of time required
for performance) shall be effective only if in writing and shall not be
construed as a waiver of a subsequent breach or failure of the same term or
condition or as a waiver of any other term or condition contained in this
Agreement. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver hereof.
23.8 Headings. The headings contained in this Agreement are for reference
----------
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
23.9 Entire Agreement; Amendment. This Agreement embodies the entire
----------------------------
agreement and understanding between XTRA International and Manager with
respect to the subject matter hereof, supersedes all prior agreements and
understandings relating to the subject matter hereof, and may not be
amended or modified except by an instrument in writing signed by the
parties hereto. The terms of this Agreement may not be contradicted by
evidence of any prior or contemporaneous agreement. All schedules attached
hereto or referred to herein are incorporated herein by this reference.
23.10 Counterparts. This Agreement may be signed in counterparts each of
--------------
which shall constitute an original instrument, but all of which together
shall constitute but one and the same instrument.
23.11 Signatures. Any signature required with respect to this Agreement
-----------
may be provided via facsimile, provided that original of such signatures
are supplied by each party to the other party promptly thereafter.
23.12 Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of California, U.S.A.
23.13 Service of Process. The parties hereby irrevocably authorize and
-------------------
appoint the persons specified below (or such other persons resident in
California, as it may by notice to the other party hereto substitute) to
accept service of all legal process arising out of or connected with this
Agreement and service on such person (or such substitute) shall be deemed
to be service on the party concerned:
Textainer Equipment Management Limited
c/o Textainer Group
38
<PAGE>
650 California Street, 16th floor
San Francisco, CA 94108
ATTN: President
XTRA International Ltd.
c/o XTRA Corporation
60 State Street - 11th Floor
Boston, MA 02109
ATTN: General Counsel
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TEXTAINER EQUIPMENT XTRA INTERNATIONAL LTD.
MANAGEMENT LIMITED
By: /s/John A. Maccarone By: /s/Fredrick M. Gutterson
-------------------- ------------------------
Title: President Title: President
-------------------- ------------------------
Date: 3/25/99 Date: March 25, 1999
-------------------- ------------------------
CONSENTED AND AGREED TO:
XTRA, INC.
By: /s/Thomas A. Giacchetto
-------------------------------
Vice President, General Counsel
Title: and Secretary
-------------------------------
Date: 3/25/99
-------
40
<PAGE>
Exhibit 12.1
XTRA CORPORATION
STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES
For the six months ended March 31, 1999 and 1998
(Millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
EARNINGS
Income from operations before provision for income taxes $ 11 $ 48
Add: Fixed charges (below) 28 30
-------- --------
$ 39 $ 78
======== ========
FIXED CHARGES $ 28 $ 30
======== ========
Ratio of Earnings to Fixed Charges 1.4 2.6
======== ========
</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.
Exclusive of the $39 million of one-time charges recorded in the six
months ended March 31, 1999, the ratio of earnings to fixed charges would
have been 2.8.
<PAGE>
Exhibit 12.2
XTRA, INC.
STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES
For the six months ended March 31, 1999 and 1998
(Millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
EARNINGS
Income from operations before provision for income taxes $ 15 $ 48
Add: Fixed charges (below) 28 30
-------- --------
$ 43 $ 78
======== ========
FIXED CHARGES $ 28 $ 30
======== ========
Ratio of Earnings to Fixed Charges 1.5 2.6
======== ========
</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.
Exclusive of the $35 million of one-time charges recorded in the six
months ended March 31, 1999, the ratio of earnings to fixed charges would
have been 2.8.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF XTRA CORPORATION FOR THE PERIOD ENDED MARCH
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,000,000
<SECURITIES> 0
<RECEIVABLES> 77,000,000
<ALLOWANCES> 16,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,280,000,000
<DEPRECIATION> 818,000,000
<TOTAL-ASSETS> 1,586,000,000
<CURRENT-LIABILITIES> 0
<BONDS> 881,000,000
0
0
<COMMON> 7,000,000
<OTHER-SE> 331,000,000
<TOTAL-LIABILITY-AND-EQUITY> 1,586,000,000
<SALES> 0
<TOTAL-REVENUES> 232,000,000
<CGS> 0
<TOTAL-COSTS> 192,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,000,000
<INCOME-PRETAX> 11,000,000
<INCOME-TAX> 4,000,000
<INCOME-CONTINUING> 7,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,000,000
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
