<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 December 31, 1998
------------------------------------------------------
Commission File Number 1-7654
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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 February 3, 1999
- ----------------------- -------------------------------
Common Stock, Par Value 13,848,177
$.50 Per Share
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. Financial Information
---------------------
Management Representation............................................................. 3
Consolidated Balance Sheets
December 31, 1998 and September 30, 1998............................................ 4
Consolidated Income Statements
For the Three Months Ended
December 31, 1998 and 1997.......................................................... 5
Consolidated Statements of Cash Flows
For the Three Months Ended
December 31, 1998 and 1997.......................................................... 6
Consolidated Statements of Stockholders' Equity
For the Period September 30, 1997
Through December 31, 1998........................................................... 7
Notes to Consolidated Financial Statements............................................ 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................................... 12
Part II. Other Information
Item 5. Other Matters......................................................... 17
Item 6. Exhibits and Reports on Form 8-K...................................... 19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............ 20
Signatures ...................................................................... 21
Exhibit Index ...................................................................... 22
</TABLE>
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 consisting of only normal recurring adjustments necessary to present
fairly the results for the interim periods. 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>
December 31,
1998 September 30,
(unaudited) 1998 (1)
------------------ ------------------
<S> <C> <C>
Assets
- ------
Property and equipment $ 2,236 $ $ 2,200
Accumulated depreciation (772) (748)
------------------ ------------------
Net property and equipment 1,464 1,452
Lease contracts receivable 42 42
Trade receivables, net 66 64
Other assets 20 14
Cash - 3
------------------ ------------------
$ 1,592 $ 1,575
================== ==================
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Debt $ 801 $ 802
Deferred income taxes 298 287
Accounts payable and accrued expenses 63 78
------------------ ------------------
Total liabilities 1,162 1,167
------------------ ------------------
Commitments and contingencies:
Stockholders' equity:
Common stock, par value $.50 per share; authorized:
30,000,000 shares; issued and outstanding;
15,457,403 shares at December 31, 1998
and 15,372,903 shares at September 30, 1998 8 8
Capital in excess of par value 61 57
Retained earnings 372 354
Cumulative translation adjustment (11) (11)
------------------ ------------------
Total stockholders' equity 430 408
------------------ ------------------
$ 1,592 $ 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 INCOME STATEMENTS
------------------------------
(Millions of dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997
-------------- -------------
<S> <C> <C>
Revenues $ 123 $ 121
Operating expenses
Depreciation on rental equipment 38 38
Rental equipment operating expenses 29 27
Selling and administrative expense 11 11
-------------- -------------
78 76
-------------- -------------
Operating income 45 45
Interest expense 14 15
-------------- -------------
Income from operations before
provision for income taxes and unusual item 31 30
Unusual item: costs related to terminated merger 1 -
-------------- -------------
Pretax income 30 30
Provision for income taxes 12 12
-------------- -------------
Net income $ 18 $ 18
============== =============
Earnings per basic common share $ 1.18 $ 1.18
Basic shares outstanding (in millions) 15.4 15.3
Earnings per diluted common share $ 1.18 $ 1.17
Diluted shares outstanding (in millions) 15.4 15.4
Cash dividends declared per share $ - $ 0.20
</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>
Three Months Ended
December 31,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operations:
Net income $ 18 $ 18
Add non-cash income and expense items:
Depreciation and amortization, net 38 38
Deferred income taxes, net 11 10
Bad debt expense 1 1
Add other cash items:
Net change in receivables, other assets,
payable and accrued expenses (21) (18)
Cash receipts from lease contracts receivable 6 6
Recovery of property and equipment net book value 4 6
------------- -------------
Total cash provided from operations 57 61
------------- -------------
Cash used for investment activities:
Additions to property and equipment (59) (19)
------------- -------------
Total cash used for investing activities (59) (19)
------------- -------------
Cash flows from financing activities:
Payments of debt (1) (39)
Dividends paid - (3)
------------- -------------
Total cash used for financing activities (1) (42)
------------- -------------
Net decrease in cash (3) -
Cash at beginning of period 3 4
------------- -------------
Cash at end of period $ - $ 4
============= =============
Total interest paid $ 23 $ 25
Total net income taxes paid $ - $ 1
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
6
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Three months ended December 31, 1997 and 1998
---------------------------------------------
(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> <C>
Balance at September 30, 1997 $ 8 $ 52 $ 304 $ (4)
Net income - - 18 - $ 18
Foreign currency translation adjustment - - - (3) (3)
Common stock cash dividends
declared at $.64 per share - - (3) -
------------ -------------- ----------- ----------- --------------
Balance at December 31, 1997 8 $ 52 $ 319 $ (7) $ 15
============ ============== =========== =========== ==============
Balance at September 30, 1998 8 $ 57 $ 354 $ (11)
Net income - - 18 - $ 18
Foreign currency translation adjustment - - - - -
Shares granted under restricted stock plan,
forfeitures, options exercised, and
related tax benefits - 4 - -
------------ -------------- ----------- ----------- --------------
Balance at December 31, 1998 $ 8 $ 61 $ 372 $ (11) $ 18
============ ============== =========== =========== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
NOTES TO 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 three months ended December 31, 1998
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 $80 million
at December 31, 1998 and $72 million at September 30, 1998.
(4) During the first quarter, the Company terminated its proposed merger
with Wheels MergerCo. As a result, XTRA recorded approximately $1
million in the first quarter of 1999 as an unusual item on the income
statement. These costs represent the balance of expenses related to the
terminated merger. XTRA incurred a total of $1.4 million of costs of
which approximately half were recorded during the fourth quarter of
fiscal 1998. Excluding the one-time unusual charge of $1 million
related to the terminated merger, net income and earnings per share
would have been $19 million and $1.20 respectively for the three months
ended December 31, 1998.
(5) 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.
(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.
8
<PAGE>
The condensed consolidated financial data for XTRA, Inc. included in the
consolidated financial information of the Company is summarized below:
Selected Income Statement Data:
- ------------------------------
(Millions of dollars)
<TABLE>
<CAPTION>
For the three months ended December 31, 1998 1997
-------------------- --------------------
<S> <C> <C>
Revenues $ 123 $ 121
Pretax income 31 30
Net income 19 18
Selected Balance Sheet Data:
- ---------------------------- December 31, September 30,
(Millions of dollars) 1998 1998
--------------------- ---------------------
Net property and equipment $ 1,464 $ 1,452
Receivables, net 108 106
Other assets 15 17
--------------------- ---------------------
Total assets $ 1,587 1,575
===================== =====================
Debt $ 801 $ 802
Deferred income taxes 298 287
Other liabilities 67 84
--------------------- ---------------------
Total liabilities 1,166 1,173
--------------------- ---------------------
Stockholders' equity 421 402
--------------------- ---------------------
Total liabilities and stockholders' equity $ 1,587 $ 1,575
===================== =====================
</TABLE>
9
<PAGE>
(7) The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997
---------------- -------------
<S> <C> <C>
Net income (numerator) $ 18 $ 18
================ =============
Computation of Basic Shares Outstanding (in
- --------------------------------------------
thousands, except per share amounts)
- -----------------------------------
Weighted average number of basic
shares outstanding (denominator) 15,373 15,283
================ =============
Basic earnings per common share $ 1.18 $ 1.18
================ =============
Computation of Diluted Shares Outstanding
- -----------------------------------------
(in thousands, except per share amounts)
- -----------------------------------------
Weighted average number of basic shares outstanding 15,373 15,283
Common stock equivalents for diluted shares outstanding: 7 84
---------------- -------------
Weighted average number of diluted
shares outstanding (denominator) 15,380 15,367
================ =============
Diluted earnings per common share $ 1.18 $ 1.17
================ =============
</TABLE>
(8) On January 25, 1999, XTRA announced that it had repurchased $65 million
of its common stock as part of a $90 million current year stock
repurchase plan. As of February 8, 1999, an additional $2 million of
common stock has been repurchased, leaving $23 million remaining of its
$90 million repurchase plan. The Company has repurchased 1.6 million
shares of its common stock for $67 million thus far in fiscal 1999,
representing approximately 10% of the total shares outstanding at the
beginning of the year.
(9) XTRA announced a plan to centralize Company-wide administrative
functions into a Shared Service Center located in St. Louis, Missouri.
The Company will consolidate its financial, accounting, human
resources, and information technology operations into one location to
achieve cost savings and gain efficiencies. These functions are
decentralized
10
<PAGE>
currently and are located in XTRA's divisional and corporate offices.
The new structure will also position the Company to support growth with
minimal incremental administrative costs. The Company anticipates that
the transition to the Shared Service Center will be completed by the
end of fiscal 1999. XTRA expects to record a one-time charge of
approximately $4 million, or $2 million after tax, in its second fiscal
quarter principally related to severance costs associated with the
restructuring.
11
<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 Corporation leases, primarily on an operating basis, freight
transportation equipment including over-the-road trailers, marine containers,
intermodal trailers, chassis, and domestic containers. XTRA's equipment
utilization, lease rates, and therefore, profitability, are impacted by the
supply of and demand for available equipment, the level of economic activity in
North America, world trade activity, the actions of its competitors, and other
factors in the freight transportation industry. Utilization and profitability
are usually seasonally lower in the second and third fiscal quarters than in the
first and fourth fiscal quarters. In general, the Company's receivable
collection experience has been good. However, industry downturns tend to
lengthen the collection period of certain receivables.
The Company's pretax profits have been cyclical, principally due to the
variability of the Company's revenues and the high percentage of fixed costs. To
moderate this cyclicality, the Company attempts to maintain a balance between
the amount of equipment leased on a per diem and term basis and maintains a mix
of various types of freight transportation equipment available for lease. The
Company has historically maintained a high proportion of its debt at fixed rates
to reduce the impact of fluctuations in interest rates.
XTRA's marine container leasing operation reduces XTRA's dependence on
the North American transportation industry. Although the marine container
business is international, substantially all transactions are denominated in
U.S. dollars.
The Three Months Ended December 31, 1998
- ----------------------------------------
Versus the Three Months Ended December 31, 1997:
- ------------------------------------------------
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.
12
<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 December 31, 1998 and 1997. The Company's average fleet size and 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>
Three Months Ended
December 31,
1998 1997
-------------- --------------
<S> <C> <C>
XTRA Lease
- ----------
Utilization 92% 95%
Units 82,000 79,000
Net investment in equipment (in millions) $ 794 $ 723
XTRA Intermodal:
- ----------------
Utilization 86% 85%
Units 53,000 53,000
Net investment in equipment (in millions) $ 277 $ 301
Total North America:
- --------------------
Utilization 90% 91%
Units 135,000 132,000
Net investment in equipment (in millions) $ 1,071 $ 1,024
International:
- -----------
Utilization 74% 84%
Units 165,000 163,000
Net investment in equipment (in millions) $ 384 $ 413
Consolidated:
- -------------
Utilization 86% 90%
Units 300,000 295,000
Net investment in equipment (in millions) $ 1,455 $ 1,437
</TABLE>
Revenues increased by 2% or $2 million for the three months ended
December 31, 1998 over the same period a year ago. The Company's average
equipment utilization declined from 90% in the first quarter of fiscal year
1998 to 86% in the first quarter of fiscal 1999. Average net investment in
equipment increased by $18 million from the same quarter 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 intermodal trailers
and marine containers.
13
<PAGE>
The Company's North American revenues increased $5 million from the
same quarter a year ago due to an improvement in lease rates, partially offset
by a slight decline in working units. The Company's North American utilization
averaged 90% in the first quarter of fiscal 1999, as compared to 91% in the
comparable prior year period. XTRA Lease's revenues increased $5 million from
the comparable prior year quarter due to an improvement in lease rates as well
as strong levels of domestic freight leading to more over-the-road trailer
working units. XTRA Lease's utilization averaged 92% on a larger total fleet
size in the current quarter, compared to 95% in the comparable prior quarter.
XTRA Intermodal's revenues remained unchanged from the first quarter of fiscal
1998 due to improved lease rates, offset by a slight decline in intermodal
trailer working units. XTRA Intermodal's utilization averaged 86% in the first
quarter of fiscal 1999, compared to 85% in the same period of fiscal 1998.
The Company's North American over-the-road trailer fleet averaged
80,000 units, or 54% of average net investment in equipment in the first quarter
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 quarter
of 1999, versus 23,000 units, or 12% of average net investment in equipment, in
the comparable prior year period.
International revenues decreased $3 million from the same quarter of
the prior year, primarily due to a decrease in working units. Although XTRA
International's lease rates remained stable as compared to the first quarter of
1998, they continue to be at low levels for the Company and the industry as a
whole. Equipment utilization declined to 74% from 84% in the comparable prior
year period. Excess capacity in the international container leasing industry
continues to adversely affect XTRA International's equipment utilization. The
Company's average international fleet size increased to 165,000 units in the
first quarter of fiscal 1999 from 163,000 units in the comparable prior year
period due primarily to capital spending in early fiscal year 1998. XTRA is
currently reviewing a number of specific strategic options with regard to the
International business.
Operating Expenses
- ------------------
Total operating expenses increased by 3% or $2 million for the three
months ended December 31, 1998 from the same period of fiscal 1998. Depreciation
and selling and administrative expenses remained unchanged from the comparable
prior year period. Rental equipment operating expense increased by 7% or $2
million due to approximately $1 million in increased storage costs associated
with fewer working international containers, as well as approximately $1 million
in repair and maintenance costs.
Interest Expense
- ----------------
Interest expense decreased by 7% or $1 million for the three months
ended December 31, 1998 from the same period of fiscal 1998, due primarily to
lower average net debt outstanding.
14
<PAGE>
Unusual Item: Costs Related to Terminated Merger
- -------------------------------------------------
During the first quarter, the Company terminated its proposed merger
with Wheels MergerCo. As a result, XTRA recorded approximately $1 million in the
first quarter of 1999 as an unusual item on the income statement. These costs
represent the balance of expenses related to the terminated merger. XTRA
incurred a total of $1.4 million of costs of which the remainder were recorded
during the fourth quarter of fiscal 1998.
Pretax Income
- -------------
Pretax earnings, excluding the impact of the unusual item noted above,
increased 3% or $1 million for the three months ended December 31, 1998 over the
same period a year ago primarily due to a decline in interest expense.
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 December 31, 1998 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.
Share Repurchases
- -----------------
On January 25, 1999, XTRA announced that it had repurchased $65 million
of its common stock as part of a $90 million current year stock repurchase plan.
As of February 3, 1999, an additional $2 million of common stock has been
repurchased, leaving $23 million remaining of its $90 million purchase plan. The
Company has repurchased 1.6 million shares of its common stock for $67 million
thus far in fiscal 1999, representing approximately 10% of the total shares
outstanding at the beginning of the year. The repurchases to date will be
accretive to earnings and have increased the debt/equity ratio from
approximately 1.9:1.0 to 2.3:1.0, which remains below the Company's target
leverage range of 2.5 - 3.0:1.0.
Liquidity and Capital Resources
- -------------------------------
During the three months ended December 31, 1998, the Company generated
cash flows from operations of $57 million. During the same period, XTRA invested
$59 million in property and equipment. Net debt outstanding (debt less cash)
increased $2 million.
As of February 3, 1999, committed capital expenditures for revenue
equipment for fiscal 1999 amounted to approximately $214 million. This amount
could increase if business conditions warrant.
As of February 3, 1999, and after including the $67 million of common
stock repurchases in fiscal 1999, XTRA Inc. had $532 million available for
future issuance under its $604 million
15
<PAGE>
Shelf Registration. As of February 3, 1999, the Company had $109 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 amount to approximately $1 million.
The Company is in the process of completing an assessment of the
potential risks associated with business disruption as a result of year 2000
issues experienced by the Company's vendors, suppliers and customers. Upon
completion of this assessment, the Company will determine whether certain
contingency plans should be put in place and what the cost of those plans will
be. At this point, the Company has not identified any required contingency plans
which would require that material expenditures be made by the Company.
While the Company does not believe that the year 2000 matters discussed
above will have a material impact on its business, financial conditions, or
results of operations, no assurances can be given as to what extent the Company
may be affected by such matters.
Shared Service Plan
- -------------------
XTRA announced a plan to centralize Company-wide administrative
functions into a Shared Service Center located in St. Louis, Missouri. The
Company will consolidate its financial, accounting, human resources, and
information technology operations into one location to achieve cost savings and
gain efficiencies. These functions are decentralized currently and are located
in XTRA's divisional and corporate offices. The new structure will also position
the Company to support growth with minimal incremental administrative costs. The
Company anticipates that the transition to the Shared Service Center will be
completed by the end of fiscal 1999. XTRA expects to record a one-time charge of
approximately $4 million, or $2 million after tax, in its second fiscal quarter
principally related to severance costs associated with the restructuring.
16
<PAGE>
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.
VARIABLE REVENUES AND OPERATING RESULTS
- ---------------------------------------
The Company's revenues may vary significantly from period to period while a high
percentage of its operating costs are fixed. As a result of the variability of
the Company's revenues and the Company's limited ability to reduce its fixed
operating costs, the Company's profitability may be cyclical and subject to
significant fluctuation from period-to-period. The Company's revenues are a
function of lease rates and working units; the latter depends on fleet size and
equipment utilization (the ratio of revenue earning equipment to the total
fleet). Some of the factors which affect lease rates and working units are
competition, economic conditions and world trade activity, the supply and demand
for available equipment, aggressive purchasing of equipment by the Company's
customers and competitors leading to an excess supply of equipment and reduced
lease rates and utilization, shifting traffic trends in the industry, severe
adverse weather conditions, strikes by transportation unions and other factors
in the freight transportation industry. The Company's fixed costs include
depreciation, a portion of rental equipment operating expenses and selling and
administrative expenses.
AVAILABILITY OF NEW EQUIPMENT
- -----------------------------
New equipment is built to the Company's specifications and reflects industry
standards and customer needs. The Company obtains new equipment from a number of
manufacturers. Certain of these manufacturers have consolidated and, in the
process, eliminated manufacturing facilities. These manufacturers are, in turn
dependent on the prompt delivery and supply of the components required to
assemble the trailers, chassis and containers. Historically, delivery times have
varied from three to fifteen months from when the order is placed, and there can
be no assurance that equipment will be available at the times or of the types
needed by the Company. In addition, it is
17
<PAGE>
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.
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.
18
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
- --- --------
Exhibit No. Description
- ----------- -----------
12.1 Statement of the calculation of earnings to fixed
charges for the three months ended December 31, 1998
and 1997 for XTRA Corporation
12.2 Statement of the calculation of earnings to fixed
charges for the three months ended December 31, 1998
and 1997 for XTRA, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
On February 11, 1999, a Current Report on Form 8-K was filed by the
Company to disclose certain financial information for the fiscal first quarter
ended December 31, 1998.
19
<PAGE>
Item 7A - Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
The Company has financed its operations with a combination of
short-term borrowings and longer term financing. The Company borrows on a
short-term basis by issuing commercial paper and using several uncommitted lines
of credit. The Company's short-term borrowings are principally at variable
rates. Short-term borrowings are back-stopped by the unused borrowing capacity
under the Revolving Credit Agreement. They have therefore been classified as
Revolving Credit Agreement borrowings. At December 31, 1998, 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.
The Company's earnings are affected by fluctuations in the exchange
rate of the U.S. dollar as compared to the Mexican Peso and Canadian dollar.
These earnings fluctuations are primarily a result of the Company investments in
and financing of these operations, as opposed to operating results.
20
<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: February 11, 1999 /s/ Michael J. Soja
----------------- -------------------------------------------
Michael J. Soja
Vice President and Chief Financial Officer
Date: February 11, 1999 /s/ Robert B. Blakeley
----------------- -------------------------------------------
Robert B. Blakeley
Vice President and Controller
21
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
12.1 Statement of the calculation of earnings to fixed charges
for the three months ended December 31, 1998 and 1997 for
XTRA Corporation 23
12.2 Statement of the calculation of earnings to fixed charges for the three months
ended December 31, 1998 and 1997 for XTRA, Inc. 24
27 Financial Data Schedule 25
</TABLE>
<PAGE>
EXHIBIT 12.1
XTRA CORPORATION
STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES
For the three months ended December 31, 1998 and 1997
(Millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
EARNINGS
Pretax income $ 30 $ 30
Add: Fixed charges (below) 14 15
------------ -----------
$ 44 $ 45
============ ===========
FIXED CHARGES $ 14 $ 15
============ ===========
Ratio of Earnings to Fixed Charges 3.2 2.9
============ ===========
</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.
<PAGE>
EXHIBIT 12.2
XTRA, INC.
STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES
For the three months ended December 31, 1998 and 1997
(Millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
EARNINGS
Pretax income $ 31 $ 30
Add: Fixed charges (below) 14 15
------------- -------------
$ 45 $ 45
============= =============
FIXED CHARGES $ 14 $ 15
============= =============
Ratio of Earnings to Fixed Charges 3.2 2.9
============= =============
</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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed financial statements of XTRA Corporation for the
period ended December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 82,000,000
<ALLOWANCES> 16,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,236,000,000
<DEPRECIATION> 772,000,000
<TOTAL-ASSETS> 1,592,000,000
<CURRENT-LIABILITIES> 0
<BONDS> 801,000,000
0
0
<COMMON> 8,000,000
<OTHER-SE> 422,000,000
<TOTAL-LIABILITY-AND-EQUITY> 1,592,000,000
<SALES> 0
<TOTAL-REVENUES> 123,000,000
<CGS> 0
<TOTAL-COSTS> 78,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,000,000
<INCOME-PRETAX> 30,000,000
<INCOME-TAX> 12,000,000
<INCOME-CONTINUING> 18,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,000,000
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
