<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K*
ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
September 30, 1999
COMMISSION FILE NUMBER 1-7654
XTRA CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-0954158
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
60 STATE STREET (617) 367-5000
BOSTON, MASSACHUSETTS 02109-1826 (Registrant's telephone number)
(Address of principal executive offices)(Zip Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
Common Stock, Par Value $.50 per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: none
Shares Outstanding of the Registrant's Common Stock at November 9, 1999: 12,812,400
Aggregate market value of voting and non-voting common
Equity held by non-affiliates of the Registrant at November 9, 1999: $ 519,000,000
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K X.
-
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended September 30, 1999, of which this Form 10-K is a part, are incorporated by
reference in Parts I, II and IV. Portions of the Registrant's definitive Proxy
Statement for use at the 2000 Annual Meeting of Stockholders are incorporated by
reference in Part III.
* Exhibits to Form 10-K and Parent Company Financial Statements and Schedules
have been included only in copies of the Form 10-K filed with the Securities and
Exchange Commission.
A copy of this Form 10-K, including a list of exhibits and the Parent Company
Financial Statements and Schedules, is available free of charge to stockholders
upon written request to: Vice President and Chief Financial Officer, XTRA
Corporation, 60 State Street, Boston, Massachusetts 02109. In addition, upon
similar request, copies of individual exhibits will be furnished upon payment of
a reasonable fee.
1
<PAGE>
FORM 10-K TABLE OF CONTENTS
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
Part I
1. Business 3
2. Properties 8
3. Legal proceedings 8
4. Submission of matters to a vote of security holders 8
4A. Executive officers of the registrant 8
Part II
5. Market for the registrant's common equity and related shareholder matters 10
6. Selected financial data 10
7. Management's discussion and analysis of financial condition and results of operations 10
7A. Quantitative and qualitative disclosures about market risk 11
8. Financial statements and supplementary data 11
9. Changes in and disagreements with accountants on accounting and financial disclosure 11
Part III
10. Directors and executive officers of the registrant 12
11. Executive compensation 12
12. Security ownership of certain beneficial owners and management 12
13. Certain relationships and related transactions 12
Part IV
14. Exhibits, financial statement schedules, and reports on Form 8-K 13
Signatures 19
</TABLE>
2
<PAGE>
PART I.
ITEM 1. BUSINESS
The discussion below contains certain forward-looking statements including
estimates of economic and industry conditions. Actual results may vary from
those contained in such forward-looking statements. See "Cautionary Statements
for Purposes of the 'Safe Harbor' Provisions of the Private Securities
Litigation Reform Act of 1995" contained below.
XTRA Corporation (the "Company" or "XTRA") is a leading global transportation
equipment lessor with operations in the highway, domestic intermodal and marine
container markets. The Company manages a diverse fleet of approximately 287,000
units, constituting a net investment of approximately $1.5 billion, consisting
of over-the-road ("OTR") trailers; intermodal equipment, including intermodal
(or "piggyback") trailers, chassis and domestic containers; and marine
containers.
Transportation equipment customers lease equipment to cover cyclical, seasonal
and geographic needs and as a substitute for purchasing. In addition, capital
and capacity-constrained transportation providers often use leasing to maximize
their asset utilization and reduce capital expenditures. By maintaining a large
and diversified fleet, leasing companies are able to provide customers with a
broad selection of equipment and quick response times, which reduce equipment
shortfalls and lost opportunities.
Lease Types and Rates
Transportation equipment is generally leased through operating or finance
leases. XTRA primarily participates in the operating lease segment, generally
placing less emphasis on finance leases because it believes the value-added
component of such leases is low. Operating leases can be either daily ("per
diem") leases or term leases. Per diem leases are for a period of less than one
year, generally with the option to return the equipment without prior notice.
Term leases are for a period of one year or more, with most being for an
original term of three to five years. Term lease agreements may have early
termination penalties that apply in the event of early redelivery, although in
most cases equipment is not returned prior to the expiration of the lease.
Operating lessors generally offer certain customer services, which may include
roadside assistance, insurance, repair and maintenance and regulatory
compliance. Operating lessors will enter into term leases due to the greater
revenue stability associated with longer-term leases even though long-term lease
rates are typically lower than per diem lease rates. The percentage of equipment
on term leases versus per diem leases varies widely among leasing companies,
depending upon each company's desire to have predictable revenues and cash
flows. The Company's relatively high percentage of equipment on term leases
reflects a desire for fairly consistent cash flows.
Many of XTRA's OTR per diem and term leases provide for additional fees if the
equipment is returned to a location other than the originating location. XTRA's
marine container and intermodal trailer leases allow the customers to return
equipment to a different location. Returns of marine containers are subject to
quantity and location limitations and additional drop-off fees are built into
the lease terms. XTRA's marine container leases may also provide customers with
incentives to return marine containers to more desired locations.
Lease rates depend on several factors including the type of lease, length of
term, maintenance provided, type and age of the equipment and market conditions.
In addition, in the OTR trailer business, the Company charges its customers a
fee based on the number of miles the trailer has been moved or charges actual
tire and brake wear incurred. The Company offers additional value-added services
for which the Company charges specified fees. For example, in the OTR trailer
business, these services include roadside assistance, various insurance
alternatives and trailer repair and maintenance.
Over the last several years, healthy market demand has allowed XTRA to maintain
a strong overall term lease portfolio. At September 30, 1999 approximately 39%
of the total fleet was leased to customers under term lease.
3
<PAGE>
Utilization
An important indicator of the Company's performance is the portion of its fleet
that is on lease at any given time. This measure, called the utilization rate,
is defined as the number of units on lease divided by the total number of units
in the fleet. The Company leases equipment both on a term and a per diem basis
in order to effectively utilize the fleet and maintain a balance between the
greater stability of revenue associated with term leases and the increased
profitability potential of per diem lease pricing. The Company actively manages
the distribution of its units and keeps a large, diversified and well-maintained
fleet of mostly standardized equipment in order to operate at high utilization
rates.
Equipment Fleet
The Company's equipment fleet has increased over time through purchases of new
equipment and through fleet acquisitions of other leasing companies. The
Company's fleet size and net investment includes equipment owned by the Company,
equipment leased-in from third parties under operating and capital leases, and
equipment leased to third parties under finance leases. At September 30, 1999,
3% of the Company's net investment in equipment represented equipment leased-in
under operating leases.
The Company's fleet and net investment consisted of the following units and net
investment at the end of its last five fiscal years:
<TABLE>
<CAPTION>
Equipment Fleet Number of Units
---------------
At September 30,
(Units in thousands) 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Over-the-road trailers 85 79 78 75 76
Intermodal trailers 20 22 23 24 29
Chassis 26 24 23 24 21
Domestic containers 8 9 10 8 8
Marine containers 148 165 162 152 126
------------------------------------------------------------
Total 287 299 296 283 260
============================================================
<CAPTION>
Equipment Fleet Net Investment/(1)/
-------------------
At September 30,
(Millions of dollars) 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Over-the-road trailers $ 902 $ 770 $ 718 $ 632 $ 628
Intermodal trailers 126 153 168 197 237
Chassis 116 107 112 119 107
Domestic containers 23 31 41 36 42
Marine containers 313 388 414 419 373
------------------------------------------------------------
Total $1,480 $1,449 $1,453 $1,403 $1,387
============================================================
</TABLE>
/(1)/ For purposes of this presentation, the net investment in equipment leased
to the Company on an operating basis represents the present value of the
remaining lease payments. The net investment in revenue equipment leased to
customers under finance leases as well as equipment owned by the Company or
leased to the Company under capital leases represents the net carrying
value of this equipment.
For information regarding business information by operating segment and
geographic area, see Note 7 of the Notes to Consolidated Financial Statements.
For additional information, including financing and capital expenditures, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Such information is incorporated herein by reference.
Description of Operating Divisions
The Company conducts its leasing operations through three divisions: XTRA Lease,
XTRA Intermodal, and XTRA International.
4
<PAGE>
XTRA Lease: General
XTRA Lease, the Company's OTR trailer business operation, leases trailers to
contract and common motor carriers and to private-fleet owners throughout North
America. XTRA Lease's fleet includes approximately 85,000 trailers, comprised
mostly of dry cargo vans 48' and 53' long by 102" wide. For the fiscal year
ended September 30, 1999, the average equipment utilization rate for the OTR
business was 87%. Approximately 41% of the XTRA Lease units were leased on a
term basis as of September 30, 1999, with the balance of units available for
lease on a per diem basis.
XTRA Lease: Competitive Environment
XTRA estimates the leasing segment of the North American OTR trailer fleet
(fleet owned by leasing companies) to be about 340,000 units. XTRA enjoys a
strong competitive position in the OTR trailer segment and believes its fleet of
approximately 85,000 units, or 25% of the leased fleet, is exceeded by only one
competitor who has an estimated share of 30%. The remainder of the industry is
fragmented and primarily spread among many smaller, regional equipment
providers.
XTRA Lease: Market Trends
Management believes that the demand for leased OTR trailers will increase due to
a number of factors. One contributing factor is the increasing trend of private
fleet owners outsourcing transportation fleets as companies move towards a
variable cost approach to operating their businesses. In addition, as more
private owners seek to provide their services with fewer owned units to reduce
costs and capital commitments, they typically look to truckload carriers and
logistics companies to handle their transportation needs. Truckload carriers and
logistics companies represent a significant portion of XTRA Lease's customer
base.
A second factor, the continued move toward time definite inventory strategies,
such as just-in-time, as well as better driver time management and truck
utilization, should focus companies on leasing rather than owning trailers. An
increasing number of trailers are left empty at loading docks as drivers employ
a drop-off rather than a wait-and-unload strategy to improve efficiencies and
driver utilization. The result is an increasing ratio of trailers to trucks in
the freight transportation market. The Company believes that leasing companies
will increasingly be relied upon to handle these growing trailer needs.
Recently, some domestic freight has moved from the railroad to the trucking
industry. The Company believes this has occurred due to the increased
consolidation in the railroad industry, which has caused more rationalized track
and service availability and an increase in containerized trade from overseas,
which is placed on railroads at major ports, displacing domestic traffic. These
factors have increased the volume of the Company's truckload and less-than-
truckload customers, who in turn continue to use leasing companies such as XTRA
to satisfy increased demand.
Due to its national operating network and its strong reputation, XTRA believes
it is well positioned to capitalize on the trends which favor the use of leasing
companies.
XTRA Intermodal: General
XTRA's intermodal business is comprised of three rental products: intermodal
trailers, chassis and domestic containers. Intermodal traffic refers to the
shipment of goods in standardized equipment through two or more modes of
transportation, usually rail, truck or ship. On certain routings, shipping goods
over two or more modes of transportation is more cost efficient. For example,
over long distance, high density freight lanes, intermodal transportation can be
more cost efficient than trucking. Further, containerization is more efficient
and economical than "break bulk transportation," in which the goods are unpacked
and repacked at various intermediate points on route to their final destination.
Intermodal (piggyback) trailers are designed to be carried on rail flatcars,
pulled by tractor over the highway and, to a lesser extent, transported over
water by ships and barges. The Company's intermodal trailer fleet of 20,000
units consists primarily of units 48' and 45' long by 102" wide. Approximately
26% of the intermodal trailer fleet was leased on a term basis as of September
30, 1999, with the remainder of the fleet available for lease on a per diem
basis.
5
<PAGE>
Chassis are wheeled rectangular frames used to transport containers over the
highway. XTRA's chassis are used as transport vehicles for marine and domestic
containers, which are loaded or unloaded at shipyards, rail terminals or
consignee locations. Once loaded, the chassis and the container together are the
functional equivalent of a trailer. Loading the container on a chassis allows
the container to be delivered to or from the inland destination.
Marine chassis are generally 20' or 40' in length to accommodate marine
containers, while domestic chassis are generally 48' or 53' in length and handle
domestic containers. The Company's fleet of 26,000 units consists primarily of
marine chassis and is leased to steamship lines, railroads and motor carriers.
Approximately 52% of the chassis fleet was leased on a term basis as of
September 30, 1999 with the balance available for lease on a per diem basis.
Domestic containers are designed to transport freight over rail or on chassis
over highway within North America. These containers substitute for intermodal
and OTR trailers, particularly on long-haul, heavy volume routes.
XTRA's fleet of 8,000 units consists primarily of 48' long by 102" wide units
leased to North American railroads and other domestic freight carriers.
Approximately 82% of the Company's domestic containers were leased on a term
basis as of September 30, 1999, with the balance available for lease on a per
diem basis.
XTRA Intermodal: Competitive Environment
XTRA believes that it is the third largest intermodal trailer lessor in North
America, with approximately 23% of the total leasing market. XTRA believes that
its largest competitor owns in excess of 38% of the total market.
In the leased segment of the chassis market (chassis owned by leasing
companies), the Company believes that it is the fifth largest lessor in the
United States with approximately 8% of the market. The Company believes its
largest competitor owns approximately 32% of the leasing market.
In the leased segment of the domestic container market, the Company believes
that it is the third largest lessor in the United States with approximately 13%
of the market.
XTRA Intermodal: Market Trends
Over the last decade, there has been a gradual shift in intermodal traffic from
the use of intermodal trailers to domestic containers to transport goods over
rail. The shift has occurred primarily due to the railroads' promoting the
increased use of domestic containers because of the lower cost of transporting
them versus intermodal trailers.
The demand for leased chassis in North America has been growing significantly
due primarily to the growth in the use of international and domestic containers.
The use of containers, which are placed on chassis to transport the container to
the next destination, has increased due to the many benefits of shipping goods
by container versus alternative methods. As the use of containerized trade
continues to increase, the market for chassis, an essential part of moving the
container to the final destination, will similarly increase. In addition, the
railroads and shipping lines have focused on reducing their capital expenditures
on ancillary assets in favor of more core assets such as railcars or ships. To
take advantage of this trend, the Company has established neutral chassis pools
at key rail interchange locations and ports in the United States.
XTRA International: General
The Company's 148,000 marine containers are standard, dry cargo 20' and 40'
rectangular steel boxes leased primarily to steamship lines for transporting
freight on ships worldwide. Container usage has exceeded world gross domestic
product growth primarily as a result of the logistical advantages and
efficiencies resulting from containerization. Standardization of the
construction, maintenance and handling of containers allows containers to be
picked up, dropped off, stored and repaired throughout the world.
6
<PAGE>
For the 1999 fiscal year, the average utilization rate for the Company's marine
containers was 71%. Approximately 34% of XTRA's marine container fleet was
leased on a term basis at September 30, 1999, with the remainder of the fleet
available for lease on a per diem basis.
XTRA International: Competitive Environment
XTRA agreed to outsource the management of its international container leasing
business effective June 1, 1999 to Textainer Equipment Management Limited. The
Company believes that, with the addition of the XTRA fleet, Textainer owns or
manages a fleet of approximately 850,000 twenty foot equivalent units, making it
the world's third largest container fleet with a market share of 13% of the
leasing segment of the industry. The two largest competitors in this segment
each have approximately an 18% market share. Over the last several years, there
has been consolidation in the container leasing business resulting from several
acquisitions. The result of the consolidation has been fewer lessors, and a more
rationalized industry, but has not yet resulted in a more stabilized lease
pricing environment.
XTRA International: Market Trends
Demand for leased containers is influenced primarily by the volume of
international and domestic trade. In recent years, however, the rate of growth
in the supply of containers has exceeded world gross domestic product as a whole
due to several factors, including the existence of geographical trade
imbalances, the expansion of shipping lines, changes in manufacturing practices
and increased exports by certain technologically advanced countries of component
parts for assembly in other countries and the subsequent re-importation of
finished products. However, aggressive spending for newer, lower cost containers
over the last few years has caused supply growth to exceed demand growth
creating excess supplies and decreased utilization. Leasing companies currently
own approximately half of the world's container fleet with the balance owned
predominantly by the shipping lines.
Environmental Matters
Although the nature of the Company's operations at its owned and leased
facilities is such that it is not a heavily regulated entity pursuant to Federal
and state environmental laws and regulations, the Company is required to comply
with such laws and regulations, including laws and regulations related to the
generation, handling, storage, transportation, treatment and disposal of
hazardous and solid wastes. In addition, under various Federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may become liable for the costs of removal or
remediation of hazardous or toxic substances, typically without regard to fault.
The Illinois Environmental Protection Agency has notified the Company of alleged
environmental contamination of its Fairmont City, Illinois property that
resulted from the prior owners' zinc smelting operations. As a result, the
Company has taken certain actions to suppress dust that have significantly
reduced the level of airborne contaminants at the site. Based on the Company's
current understanding of the nature of the contamination at the site, the
Company does not believe that the ultimate resolution of this matter will have a
material adverse effect on the Company's results of operations, cash flows or
financial condition.
The Company believes that its facilities are in compliance in all material
respects with all applicable United States Federal, state and local
environmental laws, ordinances and regulations, as well as comparable laws and
regulations outside the United States. No assurances can be given, however, that
the current environmental condition of the Company's owned and leased facilities
is not other than as currently understood by the Company, or will not be
adversely affected by the condition of properties in the vicinity of the
Company's owned and leased properties or by the activities of third parties
unrelated to the Company, or that future laws, ordinances or regulations will
not impose any material environmental liability on the Company.
Regulation
The Company's over-the-road and intermodal equipment is subject to various
federal and state licensing and operating regulations as well as to various
industry standards. 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
7
<PAGE>
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 currently estimates that as of September 30, 1999 the cost of
complying with the regulation will amount to approximately $5 million. The cost
to install the reflective tape will be capitalized and depreciated over the
remaining life of the trailers impacted by this regulation.
Employees
The Company had 777 employees at September 30, 1999.
Corporate Organization
The Company was organized in 1957. XTRA's corporate management offices are
located at 60 State Street, Boston, Massachusetts 02109-1826 (telephone number
(617) 367-5000).
XTRA, Inc., a wholly-owned direct subsidiary of XTRA Corporation, owns
substantially all of the Company's transportation equipment and conducts the
Company's leasing business through certain of its subsidiaries pursuant to
management service agreements.
ITEM 2. PROPERTIES
The Company maintains 86 facilities for the storage and distribution of its OTR
and intermodal equipment throughout North America, occupying 670 acres, of which
376 acres are owned. These facilities generally occupy 2 to 16 acres. The
Company also maintains 7 chassis pools at various customer locations.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various claims and legal actions
arising out of the normal course of its business. Currently, there are no
pending claims or actions that management believes will have a material adverse
effect on the Company's financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to stockholders of the Company during the fourth quarter
of 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, the age of each, and the period during
which each has served in his present office are as follows:
Lewis Rubin (61) - President and Chief Executive Officer. Mr. Rubin was
President and Chief Executive Officer of Flexi-Van Corporation, a company
engaged in the leasing of intermodal transportation equipment, from 1981 to
1983. He served as President and Chief Executive Officer of Gelco CTI Container
Services, a subsidiary of Gelco Corporation, and as an Executive Vice President
of Gelco Corporation from 1984 to 1988. Mr. Rubin was elected President and
Chief Operating Officer of the Company in 1990. He was elected to his present
position in 1990.
Jordan L. Ayers (40) - Vice President, XTRA Intermodal. Mr. Ayers joined the
Company in 1994 as Vice President, Sales, XTRA Intermodal and was promoted to
Vice President, Sales and Marketing, XTRA Intermodal in 1997. He was elected
Divisional Executive Vice President, XTRA Intermodal in 1999. He was elected to
his present position in 1999. Mr. Ayers was previously employed by Transamerica
Leasing, a major intermodal equipment lessor.
8
<PAGE>
Jeffrey R. Blum (47) - Vice President, Planning and Development. Mr. Blum joined
the Company in 1995 as Vice President of Human Resources and became Vice
President, Administration and Human Resources in 1996. He was elected to his
current position in 1999. Prior to 1995, Mr. Blum served in similar capacities
at First Winthrop Corporation from 1993 to 1995 and Signal Capital Corporation
prior to 1993.
William H. Franz (48) - Vice President, XTRA Lease. Mr. Franz was previously
employed by two large over-the-road lessors, Transport International Pool and
Strick Lease. He joined the Company in 1992 and was elected Divisional Executive
Vice President, XTRA Lease in 1993. He was elected to his present position in
1993.
Thomas A. Giacchetto (34) - Vice President, General Counsel and Secretary. Mr.
Giacchetto joined the Company in 1995 as Senior Corporate Counsel. He became
Chief Counsel and Secretary in 1998 and was elected to his present position
later in 1998. Prior to joining the Company, Mr. Giacchetto was an associate
with Hutchins, Wheeler & Dittmar, a Boston law firm, from 1990 through 1995.
Christopher P. Joyce (38) - Vice President and Treasurer. Mr. Joyce joined the
Company in 1985. He was promoted to Assistant Treasurer in 1991 and was elected
Treasurer in 1993. Mr. Joyce was elected to his present position in 1996.
Gregory C. Kowert (52) - Vice President, Administration. Mr. Kowert joined the
Company as Vice President, Administration in March 1999. He was Chief Financial
Officer and Vice President of UP/Graphics, Inc., a printing company, since 1998.
From 1996 to 1998, he was Chief Financial Officer, Senior Vice President,
Finance and Secretary of Connectivity Technologies, Inc., a manufacturer and
distributor of wire, cable and networking products. Prior to that, he served as
Chief Financial Officer, Director, and Vice President, Finance of O'Sullivan
Industries Holdings, Inc., a furniture manufacturer.
Michael J. Soja (50) - Vice President and Chief Financial Officer. Mr. Soja
joined the Company as Assistant Controller in 1974, was elected Controller in
1978 and Vice President in 1979. He was elected Vice President, Finance and
Administration in 1981 and Vice President, Finance and Treasurer in 1990. Mr.
Soja was elected to his present position in 1990.
All terms of office expire as of the date of the Board of Directors' meeting
following the next Annual Meeting of Stockholders and until their respective
successors are elected and qualified.
9
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange and trades
under the symbol "XTR". The approximate number of record holders as of November
9, 1999 was 637. The following table sets forth the range of high and low sale
prices of the Company's Common Stock on the New York Stock Exchange Composite
Tape and dividends declared during fiscal years ended September 30, 1998 and
1999.
<TABLE>
<CAPTION>
Dividends
High Low Declared
----------------------------------------------
<S> <C> <C> <C>
1998: First Quarter 60 50 .20
Second Quarter 66 /1/16/ 57 /3/4/ .22
Third Quarter 64 /13/16/ 45 /1/2/ .22
Fourth Quarter 62 /7/8/ 46 /5/16/ -
1999: First Quarter 49 /1/4/ 37 /1/2/ -
Second Quarter 43 /1/2/ 37 /1/2/ -
Third Quarter 46 /1/4/ 37 /3/4/ -
Fourth Quarter 47 /13/16/ 39 /3/4/ -
</TABLE>
The Company paid quarterly cash dividends on its Common Stock from January 1977
through the third quarter of 1998. The Company agreed under the terms of the
Recapitalization Merger Agreement not to pay dividends on the Company Common
Stock pending consummation of the Merger (see Note 14 of the Notes to
Consolidated Financial Statements). Since the termination of the Merger
Agreement, the Company has not paid dividends and has no current plans to do so.
Future dividends, if any, will be determined by the Board of Directors and will
be dependent upon the earnings, financial condition, and cash requirements of
the Company and other relevant factors existing at the time.
The Company's sources of funds for the payment of dividends on its capital stock
are advances and dividends from its direct and indirect wholly-owned
subsidiaries, including XTRA, Inc. The primary sources of funds for XTRA, Inc.
are cash flows from operations, advances from its subsidiaries, and external
financing. The Company's loan agreements contain covenants that restrict the
payment of dividends or repurchases of common stock by the Company and certain
loan agreements contain covenants that restrict advances to and payment of
dividends to the Company by its subsidiaries, including XTRA, Inc. Under the
most restrictive provisions of the Company's loan agreements, the combined
amount of repurchases of common stock and cash dividends which could be paid on
the Company's capital stock was limited to $96 million at September 30, 1999.
ITEM 6. SELECTED FINANCIAL DATA
This information is set forth in the table appearing on page 1 of the Company's
1999 Annual Report, which table is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item appears in the Company's 1999 Annual
Report beginning at page 28 and is incorporated herein by reference.
10
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has financed its operations with a combination of short-term
borrowings and longer term financing. The Company borrows on a short-term basis
by issuing commercial paper and using several uncommitted lines of credit, both
of which are back-stopped by the unused borrowing capacity under the Company's
$225 million Revolving Credit Agreement. The Company's short term borrowings,
back-stopped by the Revolving Credit Agreement, are classified as long term debt
and are principally at variable rates and constitute approximately 20% of on
balance sheet indebtedness. The balance of indebtedness represents long-term
fixed rate borrowings. At September 30, 1999, the fair value of the Company's
long-term debt was $855 million. A 10% change in interest rates (from 7% to
7.7%, for example) would result in a $19 million change in the fair value of the
long-term debt.
The Company's earnings are affected by fluctuations in the exchange rate of the
U.S. dollar as compared to the Mexican peso and Canadian dollar. These earnings
fluctuations are primarily a result of the Company investments in and financing
of these operations, as opposed to operating results. Overall, the Company's
exposure to fluctuations in foreign exchange rates is not significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the Financial Statements and Supplementary Data for XTRA Corporation and its
subsidiaries, see Index to Financial Statements on page 20 of the Company's 1999
Annual Report, which Financial Statements and Supplementary Data are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
11
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors - Information with respect to all directors may be found in the
Company's definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders (the "2000 Proxy Statement") under the caption "Information
with Respect to Director Nominees," which is to be filed with the Securities
and Exchange Commission. Such information is incorporated herein by
reference.
(b) Executive Officers - Information with respect to executive officers of the
registrant appears in Item 4A of this Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
This information is contained in the 2000 Proxy Statement under the captions
"Executive Compensation Tables" and "Compensation of Directors." Such
information is incorporated herein by reference.
ITEM 12. SECUR1TY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is contained in the 2000 Proxy Statement under the captions
"Stock Ownership by Directors and Executive Officers" and "Beneficial Ownership
of More than Five Percent of Voting Securities." Such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is contained in the 2000 Proxy Statement under the captions
"Information with Respect to Director Nominees" and "Certain Transactions." Such
information is incorporated herein by reference.
12
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Required exhibits are included only in the Form 10-K filed with the
Securities and Exchange Commission.
(b) The Company filed a Current Report on Form 8-K, dated November 15, 1999,
which disclosed certain financial information for the fiscal fourth quarter
ended September 30, 1999.
(c) For Financial Statements and Schedule, see Index to Financial Statements on
page 20 of the Company's 1999 Annual Report, which Financial Statements and
Schedule are incorporated herein by reference.
13
<PAGE>
XTRA CORPORATION SCHEDULE 1
(PARENT COMPANY ONLY)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
-----------------------------------------
(Millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
1999 1998
------ ------
Assets
- -----------------------
<S> <C> <C>
Investment in subsidiary $ 335 $ 402
Advances to subsidiaries 7 12
Property and equipment, net 4 -
------ ------
$ 346 $ 414
====== ======
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Accrued expenses $ 9 $ 6
------ ------
Total liabilities 9 6
Commitments and contingencies:
Stockholders' equity:
Preferred stock, without par value;
total authorized: 3,000,000 shares
Common stock, par value $.50 per share;
authorized:
30,000,000 shares; issued and outstanding;
12,812,400 shares at September 30, 1999
and 15,372,903 at September 30, 1998 6 8
Capital in excess of par value - 57
Retained earnings 341 354
Unearned compensation - restricted stock (3) -
Accumulated other comprehensive income (7) (11)
------ ------
Total stockholders' equity 337 408
------ ------
$ 346 $ 414
====== ======
</TABLE>
The accompanying Notes A, B, and C and the Notes to Consolidated Financial
Statements are an integral part of these consolidated financial statements.
14
<PAGE>
XTRA CORPORATION SCHEDULE 1
(PARENT COMPANY ONLY)
INCOME STATEMENTS
FOR THE THREE YEARS ENDED
SEPTEMBER 30, 1999
------------------
(Millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Equity in earnings of subsidiaries $ 38 $ 59 $ 43
Other income 11 8 -
------ ------ ------
49 67 43
Selling and administrative expenses 14 7 -
------ ------ ------
Net income $ 35 $ 60 $ 43
====== ====== ======
</TABLE>
The accompanying Notes A, B, and C and the Notes to Consolidated Financial
Statements are an integral part of these consolidated financial statements.
15
<PAGE>
SCHEDULE 1
XTRA CORPORATION
(PARENT COMPANY ONLY)
STATEMENT OF CASH FLOWS
FOR THE THREE YEARS ENDED
SEPTEMBER 30, 1999
(Millions of dollars)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operations:
Net income $ 35 $ 60 $ 43
Deduct non-cash income and expense items:
Equity in earnings of subsidiaries (38) (59) (43)
Add other cash items:
Dividends received from subsidiary 114 5 25
Net change in receivables, other
assets, accounts payable and accrued
expenses 4 (1) (1)
--------- --------- ---------
Total cash provided from operations 115 5 24
--------- --------- ---------
Cash used for investment activities:
Additions to property and equipment (4) - -
--------- --------- ---------
Total cash used for investment activities (4) - -
--------- --------- ---------
Cash flows from financing activities:
Options exercised, net of
related tax benefits - 5 1
Repurchase of common stock, net (111) - (13)
Dividends paid - (10) (12)
--------- --------- ---------
Total cash used for financing activities (111) (5) (24)
--------- --------- ---------
Net increase (decrease) in cash - - -
Cash at beginning of period - - -
--------- --------- ---------
Cash at end of period $ - $ - $ -
========= ========= =========
</TABLE>
16
<PAGE>
XTRA CORPORATION
NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS
(A) Summary of Significant Accounting Policies
------------------------------------------
Accounting for Investment in Subsidiary
XTRA Corporation, the Parent Company, recorded its investment in its
subsidiary, XTRA, Inc., at cost plus its equity in the undistributed
earnings of this subsidiary.
Other Income
Other income includes management fees received by the Parent Company from
the subsidiaries. Prior to 1998, these management fees were earned by a
subsidiary of the Parent Company.
Operating Expenses
All administrative and interest expenses incurred by the Parent Company are
charged to its direct and indirect wholly-owned subsidiaries. Prior to
1998, these expenses were incurred by a subsidiary of the Parent Company.
(B) Capital Stock
-------------
Dividends
XTRA Corporation declared cash dividends of $.64 and $.78 per share in the
years ended September 30, 1998 and 1997, respectively. XTRA Corporation
paid out cash dividends to stockholders totaling $10 million and $12
million during fiscal 1998 and 1997, respectively. The principal source of
dividends for the Parent Company are funds advanced from its direct and
indirect wholly-owned subsidiaries, including XTRA, Inc.
Repurchase of Common Stock
The Parent Company's Board of Directors had authorized the repurchase of up
to $200 million of its common stock in 1995 and 1996. As of November 5,
1999, the Parent Company had repurchased $189 million of common stock under
the $200 million authorization. In September, 1999, the Parent Company's
Board of Directors approved a new $100 million stock repurchase
authorization, which becomes effective upon completion of the $200 million
stock purchase authorization. The timing of the repurchases, which could
occur over an extended period of time, will depend upon price, market
conditions, and other factors.
(C) Debt and Transfers to Subsidiaries
----------------------------------
The Parent Company has guaranteed certain debt of its indirect wholly-owned
subsidiary, including the Revolving Credit Agreement, Series Notes and Term
Loans. (See Note 3 of the Parent Company's consolidated 1999 Annual
Report.)
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of XTRA Corporation:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in XTRA Corporation's Annual Report to
stockholders incorporated by reference in the Company's Annual Report on Form
10-K for the year ended September 30, 1999, and have issued our report thereon
dated November 5, 1999. Our audit was made for the purpose of forming an opinion
on those statements taken as a whole. The schedule listed in the index to
financial statements and incorporated by reference in the Company's Annual
Report on Form 10-K for the year ended September 30, 1999, is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
November 5, 1999
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
XTRA Corporation
(Registrant)
By /s/ Lewis Rubin
President and Chief Executive Officer
November 9, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
______________________________
/s/ Robert B. Goergen Chairman of the November 9, 1999
Board of Directors
______________________________
/s/ Lewis Rubin Rubin President, Chief Executive November 9, 1999
Officer and Director
______________________________
/s/ Michael J. Soja Vice President November 9, 1999
and Chief Financial Officer
______________________________
/s/ Thomas S. McHugh Controller November 9, 1999
______________________________
/s/ Michael D. Bills Director November 9, 1999
______________________________
/s/ H. William Brown Director November 9, 1999
______________________________
/s/ Michael N. Christodolou Director November 9, 1999
______________________________
/s/ Martin L. Solomon Director November 9, 1999
19
<PAGE>
EXHIBIT INDEX
XTRA Corporation Form 10-K
(for fiscal year ended 9/30/99)
Exhibit Item
3.1 Restated Certificate of Incorporation of the Registrant (filed with the
Securities and Exchange Commission as Exhibit 3.1 to Registrant's Annual
Report on Form 10-K for the year ended September 30, 1989, and
incorporated herein by reference).
3.1.1 Certificate of Elimination of Designation, Preference and Rights of
Series A Participating Preferred Stock (filed with the Securities and
Exchange Commission as Exhibit 3.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1991, and incorporated herein by
reference).
3.1.2 Certificate of Elimination of Designation, Preference and Rights of
$1.9375 Series B Cumulative Convertible Preferred Stock (filed with the
Securities and Exchange Commission on March 5, 1993 as Exhibit 4.5 to
Registrant's Registration Statement on Form S-3 (file No. 33-59132), and
incorporated herein by reference).
3.1.3 Certificate of Amendment of Restated Certificate of Incorporation (filed
with the Securities and Exchange Commission on March 5, 1993 as Exhibit
4.4 to Registrant's Registration Statement on Form S-3 (file No. 33-
59132), and incorporated herein by reference).
3.1.4 Certificate of Elimination of Designation, Preference and Rights of the
Series C Cumulative Redeemable Exchangeable Preferred Stock (filed with
the Securities and Exchange Commission on July 26, 1994 as Exhibit 4.5 to
Registrant's Registration Statement on Form S-3 (file No. 33-54747), and
incorporated herein by reference).
3.2 Amended and Restated By Laws of the Registrant, as amended through
January 24, 1996 (filed with the Securities and Exchange Commission as
Exhibit 3(b) to Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, and incorporated herein by reference).
4.1 Indenture, dated as of February 1, 1989, between XTRA, Inc., the
Registrant and Chemical Bank, and First Supplemental Indenture, dated as
of February 1, 1989, between XTRA, Inc., XTRA Corporation and Chemical
Bank (filed with the Securities and Exchange Commission as Exhibits 4.1
and 4.2, respectively, to Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1988, and incorporated herein by
reference).
4.1.1 Second Supplemental Indenture, dated as of December 10, 1991, to the
Indenture identified in Exhibit 4.1 above, between XTRA, Inc., the
Registrant and Chemical Bank (filed with the Securities and Exchange
Commission as Exhibit 4.4.1 to Registrant's Annual Report on Form 10-K
for the year ended September 30, 1991, and incorporated herein by
reference).
4.1.2 Third Supplemental Indenture, dated as of November 1, 1992, to the
Indenture identified in Exhibit 4.1 above, between XTRA, Inc., the
Registrant and Chemical Bank (filed with the Securities and Exchange
Commission as Exhibit 4.2 to Registrant's Quarterly Report on Form 10-Q
for the Quarter ended December 31, 1992, and incorporated herein by
reference).
4.1.3 Fourth Supplemental Indenture, dated as of September 30, 1994, to the
Indenture identified in Exhibit 4.1 above, between XTRA, Inc., the
Registrant and Chemical Bank (filed with the Securities and
20
<PAGE>
Exchange Commission as Exhibit 4.1.3 to Registrant's Annual Report on
Form 10-K for the year ended September 30, 1994, and incorporated herein
by reference).
4.2 Indenture, dated as of August 15, 1994, between XTRA, Inc., the
Registrant and the First National Bank of Boston (filed with the
Securities and Exchange Commission as Exhibits 4.1 to Registrant's
Current Report on Form 8-K dated August 15, 1994, and incorporated herein
by reference).
4.2.1 First Supplemental Indenture, dated as of September 30, 1994, to the
Indenture identified in Exhibit 4.2 above, between XTRA, Inc., the
Registrant and the First National Bank of Boston (filed with the
Securities and Exchange Commission as Exhibit 4.2.1 to Registrant's
Annual Report on Form 10-K for the year ended September 30, 1994, and
incorporated herein by reference).
4.2.2 Second Supplemental Indenture, dated as of May 16, 1997, to the Indenture
identified in Exhibit 4.2 above, between XTRA, Inc., the Registrant and
State Street Bank and Trust Company (filed with the Securities and
Exchange Commission as Exhibit 4.2.2 to Registrant's Annual Report on
Form 10-K for the year ended September 30, 1997, and incorporated herein
by reference).
4.2.3 Form of fixed-rate Series C Medium-Term Note (filed with the Securities
and Exchange Commission as Exhibit 4.9 to Registrant's Post-Effective
Amendment No. 1 to Registration Statement on Form S-3 (file No. 33-
65293), and incorporated herein by reference).
4.2.4 Form of floating-rate Series C Medium-Term Note (filed with the
Securities and Exchange Commission as Exhibit 4.10 to Registrant's Post-
Effective Amendment No. 1 to Registration Statement on Form S-3 (file No.
33-65293), and incorporated herein by reference).
Note: Registrant agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of any other instrument with respect to
long-term debt of the registrant and its subsidiaries. Such other
instruments are not filed herewith because no such instrument relates to
outstanding debt in amount greater than 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
4.3 Credit Agreement, dated as of June 30, 1995, among XTRA, Inc., Bank of
America Illinois and Each of the Other Financial Institutions From Time
To Time Parties Thereto, with Bank of America National Trust and Savings
Association as Administrative Agent and The First National Bank of Boston
as Documentation Agent (filed with the Securities and Exchange Commission
as Exhibit 2.2 to Registrant's Current Report on Form 8-K dated July 14,
1995, and incorporated herein by reference).
4.3.1 Guaranty, dated June 30, 1995 by the Registrant (filed with the
Securities and Exchange Commission as Exhibit 2.3 to Registrant's Current
Report on Form 8-K dated July 14, 1995, and incorporated herein by
reference).
4.3.2 First Amendment, dated as of June 28, 1996, to the Credit Agreement
identified in Exhibit 4.3 above, among Bank of America Illinois and Each
of the Other Financial Institutions From Time To Time Parties Thereto,
with Bank of America National Trust and Savings Association as
Administrative Agent and The First National Bank of Boston as
Documentation Agent (filed with the Securities and Exchange Commission as
Exhibit 4.3.2 to Registrant's Annual Report on Form 10-K for the year
ended September 30, 1996, and incorporated herein by reference).
4.3.3 Second Amendment, dated as of June 19, 1997, to the Credit Agreement
identified in Exhibit 4.3 above, among Bank of America Illinois and Each
of the Other Financial Institutions From Time to Time Parties Thereto,
with Bank of America National Trust and Savings Association as
Administrative Agent and BankBoston, N.A. as Documentation Agent (filed
with the Securities and Exchange Commission as
21
<PAGE>
Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, and incorporated herein by reference).
4.3.4 Amended and Restated Credit Agreement, dated as of June 30, 1999, to the
Credit Agreement identified in Exhibit 4.3 above, among XTRA, Inc. Bank
of America National Trust and Savings Association and Each of the Other
Financial Institutions From Time to Time Parties Hereto, as Banks with
Bank of America National Trust and Savings Association as Administrative
Agent and BankBoston, N.A., as Syndication Agent, and The First National
Bank of Chicago, as Documentation Agent (filed with the Securities and
Exchange Commission as Exhibit 4.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by
reference).
10.1 Agreement and Plan of Reorganization, dated as of July 26, 1992, among
Registrant, ST Trailer Corp., Distribution International Corporation
("DI"), Strick Corporation and certain individuals owning approximately
70% of the capital of stock of DI (filed with the Securities and Exchange
Commission as Exhibit 2.1 to Registrant's Current Report on Form 8-K
dated August 4, 1992, and incorporated herein by reference).
10.2 U.S. Fleet Finance Services Agreement dated as of October 1, 1994 between
XTRA, Inc., and XTRA Intermodal, Inc. (filed with the Securities and
Exchange Commission as Exhibit 10.2 to Registrant's Annual Report on Form
10-K for the year ended September 30, 1994, and incorporated herein by
reference).
10.3 U.S. Fleet Finance Services Agreement dated as of October 1, 1994 between
XTRA, Inc., and XTRA Lease Inc. (filed with the Securities and Exchange
Commission as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for
the year ended September 30, 1994, and incorporated herein by reference).
10.4 Fleet Finance Services Agreement dated as of July 1, 1995 between XTRA,
Inc., and XTRA International Ltd. (filed with the Securities and Exchange
Commission as Exhibit 10.4 to Registrant's Annual Report on Form 10-K for
the year ended September 30, 1994, and incorporated herein by reference).
10.5 Equipment Management Services Agreement, dated as of April 1, 1999
between XTRA International, Ltd. And Textainer Equipment Management
Limited (filed with the Securities and Exchange Commission as Exhibit 10
to Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, and incorporated herein by reference).
22
<PAGE>
EXECUTIVE COMPENSATION PLANS
10.6 1991 Stock Option Plan for Non-Employee Directors, as amended through
November 14, 1996 (filed with the Securities and Exchange Commission as
Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996, and incorporated herein by reference).
10.7 1987 Stock Incentive Plan, as amended through November 16, 1995 (filed
with the Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995, and incorporated herein by reference).
10.8 Deferred Director Fee Option Plan (filed with the Securities and Exchange
Commission as Exhibit 10.5 to Registrant's Annual Report on Form 10-K for
the year ended September 30, 1993, and incorporated herein by reference).
10.9 Deferred Compensation Plan for Non-Employee Directors, effective January
1, 1994 (filed with the Securities and Exchange Commission as Exhibit
10.6 to Registrant's Annual Report on Form 10-K for the year ended
September 30, 1993, and incorporated herein by reference).
10.10 Deferred Compensation Plan for Senior Executives, effective January 1,
1994 (filed with the Securities and Exchange Commission as Exhibit 10.7
to Registrant's Annual Report on Form 10-K for the year ended September
30, 1993, and incorporated herein by reference).
10.11 Form of Indemnification Agreement entered into between the Registrant and
certain former Directors and certain former and current officers of the
Registrant and its subsidiaries (filed with the Securities and Exchange
Commission on June 11, 1987 as Exhibit 10 to Registrant's Registration
Statement on Form S-3 (file No. 33-14996), and incorporated herein by
reference).
10.12 Individual Pension Agreement, dated as of July 1, 1994, between the
Registrant and Lewis Rubin (filed with the Securities and Exchange
Commission as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, and incorporated herein by
reference).
10.13 Economic Profit Incentive Plan (filed with the Securities and Exchange
Commission as Exhibit 10.13 to Registrant's Annual Report on Form 10-K
for the year ended September 30, 1997, and incorporated herein by
reference).
10.14 1997 Stock Incentive Plan (filed with the Securities and Exchange
Commission as Exhibit 10 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1997, and incorporated herein by
reference).
10.15 Amended and Restated Severance Agreement, dated as of June 18, 1999,
between the Registrant and Lewis Rubin, filed herewith.
10.16 Amended and Restated Severance Agreement, dated as of June 18, 1999,
between the Registrant and William H. Franz, filed herewith.
10.17 Amended and Restated Severance Agreement, dated as of June 18, 1999,
between the Registrant and Michael J. Soja, filed herewith.
10.18 Amended and Restated Severance Agreement, dated as of June 19, 1999,
between Registrant and Jeffrey R. Blum, filed herewith.
12.1 Statement re: computation of ratios (XTRA Corporation).
23
<PAGE>
12.2 Statement re: computation of ratios (XTRA, Inc.).
13.1 Five Year Selected Financial Data.
13.2 Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Three Years Ended September 30, 1999 (not covered
by the Report of Independent Public Accountants).
13.3 XTRA Corporation and Subsidiaries Consolidated Financial Statements.
21 Subsidiaries of Registrant.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
24
<PAGE>
EXHIBIT 10.15
XTRA CORPORATION
Severance Agreement
-------------------
AGREEMENT, dated December 8, 1997, by and between Lewis Rubin ("Executive")
and XTRA Corporation (the "Company"), as amended and restated as of June 18,
1999.
WITNESSETH
Executive is a key executive of the Company or one of its subsidiaries,
responsible, in part, for the policy-making functions of the Company and the
overall viability of the Company's business; and
The Company recognizes that the possibility that certain significant
transactions involving the Company may result in the departure or distraction of
management to the detriment of the Company and its shareholders, and
The Company wishes to assure Executive of fair severance should his
employment terminate in specified circumstances following the consummation of
certain significant transactions involving the Company and to assure Executive
of certain other benefits in the event of such transactions.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. If, within the 24-month period (the "Post Significant Transaction Period")
beginning on the date of a Significant Transaction (as defined in Exhibit A
attached hereto and made a part hereof), (i) Executive's employment with
the company is terminated (i) by the Company for any reason other than for
"Cause" (as defined in paragraph 2 below), or (ii) Executive terminates
such employment for Good Reason (as defined in paragraph 4 below):
a. The Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to the
sum of (i) the Executive's annual base salary ("Annual Base Salary")
through the date of such termination of employment, and any earned
bonuses for any completed fiscal period, to the extent not theretofore
paid, (ii) a prorated portion (the "Prorated Bonus Amount") of the
award payable under the Company's Economic Profit Incentive Plan, or
any comparable or successor annual plan or plans in which the
Executive is then a participant (the "Cash Plan"), notwithstanding
anything to the contrary in the Cash Plan, determined by calculating
the product of (A) the bonus payable with respect to the award for the
fiscal period in which the
<PAGE>
date of termination occurs under the Cash Plan annualizing the
Company's performance under the plan up to the date of termination by
dividing the Company's performance to the date of termination by the
number of full months in the performance period through the date of
termination and multiplying the result by 12, times (B) a fraction,
the numerator of which is the number of full months in the current
fiscal year through the date of termination of employment, and the
denominator of which is 12, and (iii) any compensation, including
compensation for the fiscal year in which the date of termination
occurs, previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid (the sum of the amounts
described in the above subsections (i) through (iii) shall be
hereinafter referred to as the "Accrued Obligations"); and
b. any stock, stock option or cash awards granted to the Executive by the
Company, including any awards under the Company's 1987 and 1997 Stock
Incentive Plans (or any successor plan or plans), that would have
become vested and exercisable had the Executive continued to be
employed by the Company shall immediately vest and become exercisable
in full notwithstanding any provision to the contrary of such grant
and shall remain exercisable until the later of (i) the latest date on
which such grant could have been exercised had the Executive remained
employed by the Company, and (ii) the date upon which any period
during which the Executive has agreed not to sell the type of
securities that may be issuable to such Executive upon the exercise of
such grant shall expire; and
c. the Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to two
times the sum of: (A) the amount of the Executive's Annual Base Salary
at the rate in effect immediately prior to the date of termination,
and (B) the Average Annualized Bonus Amount which shall be calculated
by multiplying by 12 the quotient determined by dividing (i) the sum
of the actual cash bonus earned by the Executive during each of the
two fiscal years immediately preceding the date of termination, plus
the Prorated Bonus Amount, by (ii) 24 plus the number of full months
in the period for which the Prorated Bonus Payment is calculated; and
d. the Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to the
amount of the forfeitable portion of the Executive's accrued benefit
under the Company's qualified 401(k) or other qualified retirement
plans; and
e. Executive, together with his dependents, will continue following such
termination of employment to participate fully at the Company's
expense
-2-
<PAGE>
(subject to any required employee contributions at the rate in effect
immediately prior to the date of the Significant Transaction) in all
welfare benefit plans (other than disability insurance), programs,
practices and policies maintained or sponsored by the Company
immediately prior to the Significant Transaction, or receive
substantially the equivalent coverage (or the full value thereof in
cash) from the Company, until the second anniversary of such
termination or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, provided, however,
that if the Executive becomes re-employed with another employer and is
eligible to receive reasonably comparable medical or other welfare
benefits under another employer provided plan, the Company's
obligation to provide the medical and other welfare benefits described
herein shall cease; and provided further that if Executive's continued
participation is not possible under the terms of such Company plans
and programs, the Company shall instead either arrange to provide
Executive with substantially similar benefits upon comparable terms or
pay to the Executive (within five (5) business days of the date of
termination) an amount equal to the full value thereof in cash; and
f. to the extent not theretofore paid or provided for, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy, practice, contract or
agreement of the Company ("Other Benefits").
Notwithstanding anything herein to the contrary, to the extent that any
payment or benefit provided for herein is required to be paid or vested on
any earlier date under the terms of any plan, agreement or arrangements,
such plan, agreement or arrangement shall control. Further, notwithstanding
anything herein to the contrary, if a Significant Transaction occurs and if
the Executive's employment with the Company is terminated by the Company
for a reason other than Cause prior to the date upon which the Significant
Transaction occurs, and if it can be reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a
Significant Transaction or (ii) otherwise arose in connection with or in
anticipation of a Significant Transaction, then for all purposes of this
Agreement, Executive shall be entitled to the benefits provided in Sections
1(a)-(f) above.
2. Cause, Other Than For Good Reason; Disability.
---------------------------------------------
a. Cause; Other Than for Good Reason. If the Executive's employment shall
be terminated for Cause (as defined in Section 3 below), or if the
Executive voluntarily terminates employment, excluding a termination
for Good Reason, during the Post Significant Transaction Period, this
Agreement shall terminate
-3-
<PAGE>
without further obligations to the Executive other than the obligation
to pay the Executive (A) his Annual Base Salary through the date of
termination, (B) the amount of any compensation previously deferred by
the Executive, and (C) Other Benefits, in each case to the extent
theretofore unpaid.
b. Disability. If the Executive's employment is terminated during the
Post Significant Transaction Period by reason of the Executive's
Disability, this Agreement shall terminate without further obligations
to the Executive other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations
shall be paid to the Executive in a lump sum in cash within five (5)
business days of the date of termination of employment. For purposes
of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time
basis for 180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and
reasonably acceptable to the Executive or the Executive's legal
representative. If the Company determines in good faith that the
Disability of the Executive has occurred during the Post Significant
Transaction Period, it may give the Executive written notice of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive, provided
that, within the 30 days of such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties.
In the case of (a) or (b) above, all obligations shall be paid to the
Executive in a lump sum in cash within five (5) business days of date of
the termination of employment or such earlier time as may be required under
law.
3. "Cause" means only: (a) commission of a felony or gross neglect of duty by
the Executive which is intended to result in substantial personal
enrichment of the Executive at the expense of the Company, (b) conviction
of, or plea of nolo contendere to, a crime involving moral turpitude, or
(c) gross neglect by the Executive in the performance of his duties to the
Company which results in material injury to the Company, and continues for
more than 30 days after written notice given to the Executive pursuant to a
two-thirds vote of all of the members of the Board at a meeting called and
held for such purpose (after reasonable notice to Executive) and at which
meeting the Executive and his counsel were given an opportunity to be
heard, such vote to set forth in reasonable detail the nature of the
failure. For purposes of this definition of Cause, no act or omission shall
be considered to have been "willful" unless it was not in good faith and
the Executive had knowledge at the time that the act or omission was not in
the best interest of the Company. Any act, or failure to act, based on
authority given pursuant to a resolution duly adopted by the Board or upon
the instructions of the Chief Executive Officer or
-4-
<PAGE>
another senior officer of the Company or based on the advice of counsel of
the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interest of the
Company.
4. Executive shall be deemed to have voluntarily terminated his employment for
Good Reason if the Executive leaves the employ of the Company for any
reason following:
a. Any action by the Company which results in a material diminution in
Executive's position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive; provided, however, a
sale or transfer of some or all of the business of the Company or any
of its subsidiaries or other reduction in its business or that of its
subsidiaries, or the fact that the Company shall become a subsidiary
of another company or the securities of the Company shall no longer be
publicly traded, shall not constitute "Good Reason" hereunder;
b. Any reduction in the Executive's rate of Annual Base Salary for any
fiscal year to less than 100% of the rate of Annual Base Salary
payable for the completed fiscal year immediately preceding the
Significant Transaction; or
c. Failure of the Company to permit the Executive to participate in all
incentive, retirement, and savings policies and programs, and all
welfare benefit plans, practices and programs (including without
limitation, life, accidental death and travel accident insurance,
medical insurance, dental insurance or disability plans) to the extent
applicable generally at the time to other peer executives of the
Company and its affiliated companies, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive; or
d. The Company requires Executive to be based at any office or location
further than 50 miles from Boston, Massachusetts; or
e. Any failure by the Company to comply with and satisfy Section 7 of
this Agreement.
5. Certain tax-related payments.
----------------------------
a. If any "parachute payment" as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code"), whether
payable pursuant to this Agreement or otherwise, is made to or for the
benefit of Executive in connection with a Change in Control (the
"Subject Payment"), the Company will promptly pay to Executive an
additional amount in cash (the "Gross-Up
-5-
<PAGE>
Payment") which on an after-tax basis equals the excise tax under
Section 4999 of the Code and any related interest and penalties due
with respect to the "excess parachute payment" allocable to the
Subject Payment. All determinations as to whether a Gross-Up Payment
is required to be made under this Section 5, and if so the amount and
timing of such Gross-Up Payment, shall be made at the Company's
expense by Arthur Anderson LLP (Boston Office) or, if the Compensation
Committee of the Company's Board of Directors shall designate another
accounting firm, employment consulting firm, or law firm prior to a
Change in Control, such other accounting firm, employment consulting
firm, or law firm (the "Consultant"). Not later than thirty (30) days
following receipt by the Consultant of notice from Executive that a
payment believed by Executive to be a Subject Payment has been made or
at such earlier time as may be requested by the Company, the
Consultant shall deliver to Executive and the Company a preliminary
statement (each such statement, a "Preliminary Statement") containing
a computation of the Gross-Up Payment, if any, payable to Executive
with respect thereto, together with supporting work papers. If both
the Company and Executive agree with the Preliminary Statement, it
shall become final (the "Final Statement"). If either the Company or
Executive (the "objecting party") believes that a Preliminary
Statement is incorrect for any reason, the objecting party may, within
thirty (30) business days of receipt of the Preliminary Statement,
deliver to the Consultant and to the other party additional
information to be considered by the Consultant in making its
determination. Within ten (10) business days following receipt by the
Consultant of such additional information, it shall either confirm its
Preliminary Statement or issue another statement that shall constitute
the Final Statement. Subject to the correction of typographic mistakes
or similar manifest errors, and except as provided at (b) below, the
Final Statement shall be binding on both parties. With respect to each
Subject Payment, the Company will pay the Gross-Up Payment to
Executive not later than ten (10) business days after the Consultant
has rendered its related Final Statement.
b. If there is a determination by the Internal Revenue Service (the
"IRS") with respect to Executive that is inconsistent with a Final
Statement and that if sustained would result in an excise tax (or a
greater excise tax) under Section 4999 of the Code or in interest or
penalties (or increased interest or penalties) with respect to any
such excise tax, the Final Statement shall be deemed automatically
modified to conform to the IRS' determination and the Company, upon
receipt of written notice from Executive setting forth the IRS'
determination, shall promptly pay to Executive the additional Gross-Up
Payment required by such modification (the "Additional Gross-Up
Payment"). The Company may elect to contest at its expense any IRS
determination in respect of which the Company has made an Additional
Gross-Up Payment, in which case such Additional Gross-Up Payment shall
be considered an interest-free loan (the
-6-
<PAGE>
"Loan") to Executive until such time as the IRS' determination is
final and no longer subject to judicial review. At such time Executive
shall repay to the Company so much of the Loan, if any, as shall leave
him on an after-tax basis in the same position he would have been in
had the IRS' determination never been made, all as determined by the
Consultant on a preliminary and, after opportunity for comment, final
basis under rules substantially the same as those applicable under (a)
above. Executive shall cooperate reasonably with the Company in any
effort by the Company to contest an IRS determination under this
paragraph, including by the making of such filings and appeals as the
Company may reasonably require, but nothing herein shall be construed
as requiring Executive to bear any cost or expense of such a contest
or in connection therewith to compromise any tax item (including
without limitation any deduction or credit) other than the excise tax
under Section 4999 of the Code, and related interest and penalties if
any, that are the subject of the contested IRS determination.
6. The Company agrees (i) to promptly reimburse Executive for any and all
legal fees and related expenses (including, without limitation,
stenographer fees, printing costs, etc.) incurred by him to enforce the
provisions of this Agreement or in contesting or disputing that the
termination of his employment is for Cause or other than for Good Reason
(regardless of the outcome thereof), (ii) to pay the cost of such judicial
proceeding, and (iii) to pay interest to Executive on all amounts owed to
Executive under this Agreement during any period of time that such amounts
are withheld pending judicial proceedings (such interest will be at the
base rate as published from time to time in the eastern edition of the Wall
Street Journal); provided, however, that the Company shall not be required
to reimburse the Executive for such fees, costs and expenses, if a court of
competent jurisdiction shall issue a final order to the effect that the
Executive shall not prevail on any claim relating to this Agreement.
7. If the Company is at any time before, after or in connection with, a
Significant Transaction merged or consolidated into or with any other
corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets thereof are transferred to
another corporation or other entity, the provisions of this Agreement will
be binding upon and inure to the benefit of the corporation or other entity
resulting from such merger or consolidation or the acquirer of such assets
(the "Successor Entity"), and this paragraph 7 will apply in the event of
any subsequent merger or consolidation or transfer of assets. The Company
will require any such Successor Entity to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any Successor Entity
which assumes and agrees to perform this Agreement by operation of law or
otherwise.
-7-
<PAGE>
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise
limit Executive's right to or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group
insurance, hospitalization, or other incentive or benefit plan or
arrangement which may be or become applicable to executives of the entity
resulting from such merger or consolidation or the entity acquiring such
assets of the Company.
In the event of any merger, consolidation, or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
8. Any termination by the Company for Cause, or by the Executive for Good
Reason, shall be communicated by Notice of Termination to the other party
hereto given in accordance with the last paragraph of Section 13 of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such
notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
"Date of Termination" means (i) if the Executive's employment is terminated
by the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein,
as the case may be, and (ii) if the Executive's employment is terminated by
the Company other than for Cause, the Date of Termination shall be the date
on which the Company notifies the Executive of such termination.
9. All payments required to be made by the Company hereunder to, or on behalf
of, Executive or his dependents, beneficiaries, or estate will be subject
to the withholding of such amounts relating to tax and/or other payroll
deductions as may be required by law.
10. There shall be no requirement on the part of the Executive to seek other
employment or otherwise mitigate damages in order to be entitled to the
full amount of any payments and benefits to which Executive is entitled
under this Agreement, and the amount of such payments and benefits shall
not be reduced by any compensation or benefits received by
-8-
<PAGE>
Executive from other employment, other than with respect to certain welfare
benefits as provided in the proviso to Section 1(e).
11. Nothing contained in this Agreement shall be construed as a contract of
employment between the Company and the Executive, or as a right of the
Executive to continue in the employ of the Company, or as a limitation of
the right of the Company to discharge the Executive with or without Cause;
provided that the Executive shall have the right to receive upon
termination of his employment the payments and benefits provided in this
Agreement and shall not be deemed to have waived any rights he may have
either at law or in equity in respect of such discharge.
12. No amendment, change, or modification of this Agreement may be made except
in writing, signed by both parties.
13. This Agreement shall terminate on the third anniversary of the date hereof,
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (each such date
hereinafter referred to as a "Renewal Date"), unless previously terminated,
the term of this Agreement shall be automatically extended so as to
terminate three years from such Renewal Date, unless at least sixty days
prior to the Renewal Date the Company shall give notice to the Executive
that the term of this Agreement shall not be so extended. This Agreement
shall not apply to a Significant Transaction which takes place after the
termination of this Agreement.
Payments made by the Company pursuant to this Agreement shall be in lieu of
severance payments, if any, which might otherwise be available to Executive
under any severance plan, policy, program or arrangement generally
applicable to the employees of the Company. If for any reason Executive
receives severance payments (other than under this Agreement) upon the
termination of his employment with the Company, the amount of such payments
shall be deducted from the amount paid under this Agreement. The purpose of
this provision is solely to avert a duplication of benefits; neither this
provision nor the provisions of any other agreement shall be interpreted to
reduce the amount payable to Executive below the amount that would
otherwise have been payable under this Agreement.
The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal
representatives, and assigns, and the Company and its successors.
The validity, interpretation, and effect of this Agreement shall be
governed by the laws of The Commonwealth of Massachusetts.
-9-
<PAGE>
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
The Company shall have no right of set-off or counterclaims, in respect of
any claim, debt, or obligation, against any payments to Executive, his
dependents, beneficiaries, or estate provided for in this Agreement.
No right or interest to or in any payments shall be assignable by the
Executive. No right, benefit, or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt, or obligation, or
to execution, attachment, levy, or similar process, or assignment by
operation of law. Any attempt, voluntary or involuntary, to effect any
action specified in the immediately preceding sentence shall, to the full
extent permitted by law, be null, void, and of no effect.
All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Lewis Rubin
1 Devonshire Place
Apt. #3111
Boston, Massachusetts 02109
If to the Company: XTRA Corporation
60 State Street - 11th Floor
Boston, Massachusetts 02109
Attn: Chair, Compensation Committee, and
the General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective either on the date of delivery (in the case of delivery by hand),
or three business days after deposit into the mails (in the case of
delivery by mail).
-10-
<PAGE>
IN WITNESS WHEREOF, XTRA Corporation and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
XTRA CORPORATION
By: /s/ Martin L. Solomon
---------------------
Name: Martin L. Solomon
Title: Chair, Compensation Committee
/s/ Lewis Rubin
---------------------
Name: Lewis Rubin
-11-
<PAGE>
EXHIBIT A
Significant Transaction. For the purposes of this Agreement, a "Significant
Transaction" shall mean:
a. Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company in one or a series of transactions (but excluding any
reorganization, merger or consolidation or sale of assets with or to
the Company or any subsidiary of the Company, unless in connection
with such transaction there is also a Significant Transaction
involving the Company) (a "Business Combination"), in each case
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of common stock of the
Company (the "Company Common Stock") and the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities" immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
outstanding Company Voting Securities, as the case may be, (ii) no
individual, corporation, partnership, limited liability company, or
other entity, which term shall include a "group" (within the meaning
of section 13(d) of the Securities Exchange Act of 1934 (the "Act"),
excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination,
beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
b. Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
-12-
<PAGE>
EXHIBIT 10.16
XTRA CORPORATION
Severance Agreement
-------------------
AGREEMENT, dated December 12, 1997, by and between William H. Franz
("Executive") and XTRA Corporation (the "Company"), amended and restated as of
June 18, 1999.
WITNESSETH
Executive is a key executive of the Company or one of its subsidiaries,
responsible, in part, for the policy-making functions of the Company and the
overall viability of the Company's business; and
The Company recognizes that the possibility that certain significant
transactions involving the Company may result in the departure or distraction of
management to the detriment of the Company and its shareholders, and
The Company wishes to assure Executive of fair severance should his
employment terminate in specified circumstances following the consummation of
certain significant transactions involving the Company and to assure Executive
of certain other benefits in the event of such transactions.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. If, within the 24-month period (the "Post Significant Transaction Period")
beginning on the date of a Significant Transaction (as defined in Exhibit A
attached hereto and made a part hereof), (i) Executive's employment with
the company is terminated (i) by the Company for any reason other than for
"Cause" (as defined in paragraph 2 below), or (ii) Executive terminates
such employment for Good Reason (as defined in paragraph 4 below):
a. The Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to the
sum of (i) the Executive's annual base salary ("Annual Base Salary")
through the date of such termination of employment, and any earned
bonuses for any completed fiscal period, to the extent not theretofore
paid, (ii) a prorated portion (the "Prorated Bonus Amount") of the
award payable under the Company's Economic Profit Incentive Plan, or
any comparable or successor annual plan or plans in which the
Executive is then a participant (the "Cash Plan"), notwithstanding
anything to the contrary in the Cash Plan, determined by calculating
the product of (A) the bonus payable with respect to the award for the
fiscal period in which the
<PAGE>
date of termination occurs under the Cash Plan annualizing the
Company's performance under the plan up to the date of termination by
dividing the Company's performance to the date of termination by the
number of full months in the performance period through the date of
termination and multiplying the result by 12, times (B) a fraction,
the numerator of which is the number of full months in the current
fiscal year through the date of termination of employment, and the
denominator of which is 12, and (iii) any compensation, including
compensation for the fiscal year in which the date of termination
occurs, previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid (the sum of the amounts
described in the above subsections (i) through (iii) shall be
hereinafter referred to as the "Accrued Obligations"); and
b. any stock, stock option or cash awards granted to the Executive by the
Company, including any awards under the Company's 1987 and 1997 Stock
Incentive Plans (or any successor plan or plans), that would have
become vested and exercisable had the Executive continued to be
employed by the Company shall immediately vest and become exercisable
in full notwithstanding any provision to the contrary of such grant
and shall remain exercisable until the later of (i) the latest date on
which such grant could have been exercised had the Executive remained
employed by the Company, and (ii) the date upon which any period
during which the Executive has agreed not to sell the type of
securities that may be issuable to such Executive upon the exercise of
such grant shall expire; and
c. the Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to two
times the sum of: (A) the amount of the Executive's Annual Base Salary
at the rate in effect immediately prior to the date of termination,
and (B) the Average Annualized Bonus Amount which shall be calculated
by multiplying by 12 the quotient determined by dividing (i) the sum
of the actual cash bonus earned by the Executive during each of the
two fiscal years immediately preceding the date of termination, plus
the Prorated Bonus Amount, by (ii) 24 plus the number of full months
in the period for which the Prorated Bonus Payment is calculated; and
d. the Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to the
amount of the forfeitable portion of the Executive's accrued benefit
under the Company's qualified 401(k) or other qualified retirement
plans; and
e. Executive, together with his dependents, will continue following such
termination of employment to participate fully at the Company's
expense
-2-
<PAGE>
(subject to any required employee contributions at the rate in effect
immediately prior to the date of the Significant Transaction) in all
welfare benefit plans (other than disability insurance), programs,
practices and policies maintained or sponsored by the Company
immediately prior to the Significant Transaction, or receive
substantially the equivalent coverage (or the full value thereof in
cash) from the Company, until the second anniversary of such
termination or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, provided, however,
that if the Executive becomes re-employed with another employer and is
eligible to receive reasonably comparable medical or other welfare
benefits under another employer provided plan, the Company's
obligation to provide the medical and other welfare benefits described
herein shall cease; and provided further that if Executive's continued
participation is not possible under the terms of such Company plans
and programs, the Company shall instead either arrange to provide
Executive with substantially similar benefits upon comparable terms or
pay to the Executive (within five (5) business days of the date of
termination) an amount equal to the full value thereof in cash; and
f. to the extent not theretofore paid or provided for, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy, practice, contract or
agreement of the Company ("Other Benefits").
Notwithstanding anything herein to the contrary, to the extent that any
payment or benefit provided for herein is required to be paid or vested on
any earlier date under the terms of any plan, agreement or arrangements,
such plan, agreement or arrangement shall control. Further, notwithstanding
anything herein to the contrary, if a Significant Transaction occurs and if
the Executive's employment with the Company is terminated by the Company
for a reason other than Cause prior to the date upon which the Significant
Transaction occurs, and if it can be reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a
Significant Transaction or (ii) otherwise arose in connection with or in
anticipation of a Significant Transaction, then for all purposes of this
Agreement, Executive shall be entitled to the benefits provided in Sections
1(a)-(f) above.
2. Cause, Other Than For Good Reason; Disability.
---------------------------------------------
a. Cause; Other Than for Good Reason. If the Executive's employment shall
be terminated for Cause (as defined in Section 3 below), or if the
Executive voluntarily terminates employment, excluding a termination
for Good Reason, during the Post Significant Transaction Period, this
Agreement shall terminate
-3-
<PAGE>
without further obligations to the Executive other than the obligation
to pay the Executive (A) his Annual Base Salary through the date of
termination, (B) the amount of any compensation previously deferred by
the Executive, and (C) Other Benefits, in each case to the extent
theretofore unpaid.
b. Disability. If the Executive's employment is terminated during the
Post Significant Transaction Period by reason of the Executive's
Disability, this Agreement shall terminate without further obligations
to the Executive other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations
shall be paid to the Executive in a lump sum in cash within five (5)
business days of the date of termination of employment. For purposes
of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time
basis for 180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and
reasonably acceptable to the Executive or the Executive's legal
representative. If the Company determines in good faith that the
Disability of the Executive has occurred during the Post Significant
Transaction Period, it may give the Executive written notice of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive, provided
that, within the 30 days of such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties.
In the case of (a) or (b) above, all obligations shall be paid to the
Executive in a lump sum in cash within five (5) business days of date of
the termination of employment or such earlier time as may be required under
law.
3. "Cause" means only: (a) commission of a felony or gross neglect of duty by
the Executive which is intended to result in substantial personal
enrichment of the Executive at the expense of the Company, (b) conviction
of, or plea of nolo contendere to, a crime involving moral turpitude, or
(c) gross neglect by the Executive in the performance of his duties to the
Company which results in material injury to the Company, and continues for
more than 30 days after written notice given to the Executive pursuant to a
two-thirds vote of all of the members of the Board at a meeting called and
held for such purpose (after reasonable notice to Executive) and at which
meeting the Executive and his counsel were given an opportunity to be
heard, such vote to set forth in reasonable detail the nature of the
failure. For purposes of this definition of Cause, no act or omission shall
be considered to have been "willful" unless it was not in good faith and
the Executive had knowledge at the time that the act or omission was not in
the best interest of the Company. Any act, or failure to act, based on
authority given pursuant to a resolution duly adopted by the Board or upon
the instructions of the Chief Executive Officer or
-4-
<PAGE>
another senior officer of the Company or based on the advice of counsel of
the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interest of the
Company.
4. Executive shall be deemed to have voluntarily terminated his employment for
Good Reason if the Executive leaves the employ of the Company for any
reason following:
a. Any action by the Company which results in a material diminution in
Executive's position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive; provided, however, a
sale or transfer of some or all of the business of the Company or any
of its subsidiaries or other reduction in its business or that of its
subsidiaries, or the fact that the Company shall become a subsidiary
of another company or the securities of the Company shall no longer be
publicly traded, shall not constitute "Good Reason" hereunder;
b. Any reduction in the Executive's rate of Annual Base Salary for any
fiscal year to less than 100% of the rate of Annual Base Salary
payable for the completed fiscal year immediately preceding the
Significant Transaction; or
c. Failure of the Company to permit the Executive to participate in all
incentive, retirement, and savings policies and programs, and all
welfare benefit plans, practices and programs (including without
limitation, life, accidental death and travel accident insurance,
medical insurance, dental insurance or disability plans) to the extent
applicable generally at the time to other peer executives of the
Company and its affiliated companies, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive; or
d. The Company requires Executive to be based at any office or location
further than 50 miles from St. Louis, Missouri; or
e. Any failure by the Company to comply with and satisfy Section 7 of
this Agreement.
5. Certain tax-related payments.
----------------------------
a. If any "parachute payment" as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code"), whether
payable pursuant to this Agreement or otherwise, is made to or for the
benefit of Executive in connection with a Change in Control (the
"Subject Payment"), the Company will promptly pay to Executive an
additional amount in cash (the "Gross-Up
-5-
<PAGE>
Payment") which on an after-tax basis equals the excise tax under
Section 4999 of the Code and any related interest and penalties due
with respect to the "excess parachute payment" allocable to the
Subject Payment. All determinations as to whether a Gross-Up Payment
is required to be made under this Section 5, and if so the amount and
timing of such Gross-Up Payment, shall be made at the Company's
expense by Arthur Anderson LLP (Boston Office) or, if the Compensation
Committee of the Company's Board of Directors shall designate another
accounting firm, employment consulting firm, or law firm prior to a
Change in Control, such other accounting firm, employment consulting
firm, or law firm (the "Consultant"). Not later than thirty (30) days
following receipt by the Consultant of notice from Executive that a
payment believed by Executive to be a Subject Payment has been made or
at such earlier time as may be requested by the Company, the
Consultant shall deliver to Executive and the Company a preliminary
statement (each such statement, a "Preliminary Statement") containing
a computation of the Gross-Up Payment, if any, payable to Executive
with respect thereto, together with supporting work papers. If both
the Company and Executive agree with the Preliminary Statement, it
shall become final (the "Final Statement"). If either the Company or
Executive (the "objecting party") believes that a Preliminary
Statement is incorrect for any reason, the objecting party may, within
thirty (30) business days of receipt of the Preliminary Statement,
deliver to the Consultant and to the other party additional
information to be considered by the Consultant in making its
determination. Within ten (10) business days following receipt by the
Consultant of such additional information, it shall either confirm its
Preliminary Statement or issue another statement that shall constitute
the Final Statement. Subject to the correction of typographic mistakes
or similar manifest errors, and except as provided at (b) below, the
Final Statement shall be binding on both parties. With respect to each
Subject Payment, the Company will pay the Gross-Up Payment to
Executive not later than ten (10) business days after the Consultant
has rendered its related Final Statement.
b. If there is a determination by the Internal Revenue Service (the
"IRS") with respect to Executive that is inconsistent with a Final
Statement and that if sustained would result in an excise tax (or a
greater excise tax) under Section 4999 of the Code or in interest or
penalties (or increased interest or penalties) with respect to any
such excise tax, the Final Statement shall be deemed automatically
modified to conform to the IRS' determination and the Company, upon
receipt of written notice from Executive setting forth the IRS'
determination, shall promptly pay to Executive the additional Gross-Up
Payment required by such modification (the "Additional Gross-Up
Payment"). The Company may elect to contest at its expense any IRS
determination in respect of which the Company has made an Additional
Gross-Up Payment, in which case such Additional Gross-Up Payment shall
be considered an interest-free loan (the
-6-
<PAGE>
"Loan") to Executive until such time as the IRS' determination is
final and no longer subject to judicial review. At such time Executive
shall repay to the Company so much of the Loan, if any, as shall leave
him on an after-tax basis in the same position he would have been in
had the IRS' determination never been made, all as determined by the
Consultant on a preliminary and, after opportunity for comment, final
basis under rules substantially the same as those applicable under (a)
above. Executive shall cooperate reasonably with the Company in any
effort by the Company to contest an IRS determination under this
paragraph, including by the making of such filings and appeals as the
Company may reasonably require, but nothing herein shall be construed
as requiring Executive to bear any cost or expense of such a contest
or in connection therewith to compromise any tax item (including
without limitation any deduction or credit) other than the excise tax
under Section 4999 of the Code, and related interest and penalties if
any, that are the subject of the contested IRS determination.
6. The Company agrees (i) to promptly reimburse Executive for any and all
legal fees and related expenses (including, without limitation,
stenographer fees, printing costs, etc.) incurred by him to enforce the
provisions of this Agreement or in contesting or disputing that the
termination of his employment is for Cause or other than for Good Reason
(regardless of the outcome thereof), (ii) to pay the cost of such judicial
proceeding, and (iii) to pay interest to Executive on all amounts owed to
Executive under this Agreement during any period of time that such amounts
are withheld pending judicial proceedings (such interest will be at the
base rate as published from time to time in the eastern edition of the Wall
Street Journal); provided, however, that the Company shall not be required
to reimburse the Executive for such fees, costs and expenses, if a court of
competent jurisdiction shall issue a final order to the effect that the
Executive shall not prevail on any claim relating to this Agreement.
7. If the Company is at any time before, after or in connection with, a
Significant Transaction merged or consolidated into or with any other
corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets thereof are transferred to
another corporation or other entity, the provisions of this Agreement will
be binding upon and inure to the benefit of the corporation or other entity
resulting from such merger or consolidation or the acquirer of such assets
(the "Successor Entity"), and this paragraph 7 will apply in the event of
any subsequent merger or consolidation or transfer of assets. The Company
will require any such Successor Entity to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any Successor Entity
which assumes and agrees to perform this Agreement by operation of law or
otherwise.
-7-
<PAGE>
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise
limit Executive's right to or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group
insurance, hospitalization, or other incentive or benefit plan or
arrangement which may be or become applicable to executives of the entity
resulting from such merger or consolidation or the entity acquiring such
assets of the Company.
In the event of any merger, consolidation, or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
8. Any termination by the Company for Cause, or by the Executive for Good
Reason, shall be communicated by Notice of Termination to the other party
hereto given in accordance with the last paragraph of Section 13 of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such
notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
"Date of Termination" means (i) if the Executive's employment is terminated
by the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein,
as the case may be, and (ii) if the Executive's employment is terminated by
the Company other than for Cause, the Date of Termination shall be the date
on which the Company notifies the Executive of such termination.
9. All payments required to be made by the Company hereunder to, or on behalf
of, Executive or his dependents, beneficiaries, or estate will be subject
to the withholding of such amounts relating to tax and/or other payroll
deductions as may be required by law.
10. There shall be no requirement on the part of the Executive to seek other
employment or otherwise mitigate damages in order to be entitled to the
full amount of any payments and benefits to which Executive is entitled
under this Agreement, and the amount of such payments and benefits shall
not be reduced by any compensation or benefits received by
-8-
<PAGE>
Executive from other employment, other than with respect to certain welfare
benefits as provided in the proviso to Section 1(e).
11. Nothing contained in this Agreement shall be construed as a contract of
employment between the Company and the Executive, or as a right of the
Executive to continue in the employ of the Company, or as a limitation of
the right of the Company to discharge the Executive with or without Cause;
provided that the Executive shall have the right to receive upon
termination of his employment the payments and benefits provided in this
Agreement and shall not be deemed to have waived any rights he may have
either at law or in equity in respect of such discharge.
12. No amendment, change, or modification of this Agreement may be made except
in writing, signed by both parties.
13. This Agreement shall terminate on the third anniversary of the date hereof,
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (each such date
hereinafter referred to as a "Renewal Date"), unless previously terminated,
the term of this Agreement shall be automatically extended so as to
terminate three years from such Renewal Date, unless at least sixty days
prior to the Renewal Date the Company shall give notice to the Executive
that the term of this Agreement shall not be so extended. This Agreement
shall not apply to a Significant Transaction which takes place after the
termination of this Agreement.
Payments made by the Company pursuant to this Agreement shall be in lieu of
severance payments, if any, which might otherwise be available to Executive
under any severance plan, policy, program or arrangement generally
applicable to the employees of the Company. If for any reason Executive
receives severance payments (other than under this Agreement) upon the
termination of his employment with the Company, the amount of such payments
shall be deducted from the amount paid under this Agreement. The purpose of
this provision is solely to avert a duplication of benefits; neither this
provision nor the provisions of any other agreement shall be interpreted to
reduce the amount payable to Executive below the amount that would
otherwise have been payable under this Agreement.
The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal
representatives, and assigns, and the Company and its successors.
The validity, interpretation, and effect of this Agreement shall be
governed by the laws of The Commonwealth of Massachusetts.
-9-
<PAGE>
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
The Company shall have no right of set-off or counterclaims, in respect of
any claim, debt, or obligation, against any payments to Executive, his
dependents, beneficiaries, or estate provided for in this Agreement.
No right or interest to or in any payments shall be assignable by the
Executive. No right, benefit, or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt, or obligation, or
to execution, attachment, levy, or similar process, or assignment by
operation of law. Any attempt, voluntary or involuntary, to effect any
action specified in the immediately preceding sentence shall, to the full
extent permitted by law, be null, void, and of no effect.
All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: William H. Franz
------------------- 16418 Wilson Farm Drive
Chesterfield, Missouri 63005
If to the Company: XTRA Corporation
----------------- 60 State Street - 11th Floor
Boston, Massachusetts 02109
Attn: Chair, Compensation Committee, and
the General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective either on the date of delivery (in the case of delivery by hand),
or three business days after deposit into the mails (in the case of
delivery by mail).
-10-
<PAGE>
IN WITNESS WHEREOF, XTRA Corporation and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
XTRA CORPORATION
By: /s/ Martin L. Solomon
------------------------------
Name: Martin L. Solomon
Title: Chair, Compensation Committee
/s/ William H. Franz
--------------------------------
William H. Franz
-11-
<PAGE>
EXHIBIT A
Significant Transaction. For the purposes of this Agreement, a
"Significant Transaction" shall mean:
a. Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company, or XTRA Lease, Inc., in one or a series of transactions (but
excluding any reorganization, merger or consolidation or sale of
assets with or to the Company or any subsidiary of the Company, unless
in connection with such transaction there is also a Significant
Transaction involving the Company) (a "Business Combination"), in each
case unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the then outstanding shares of
common stock of the Company (the "Company Common Stock") and the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities" immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Common
Stock and outstanding Company Voting Securities, as the case may be,
(ii) no individual, corporation, partnership, limited liability
company, or other entity, which term shall include a "group" (within
the meaning of section 13(d) of the Securities Exchange Act of 1934
(the "Act"), excluding any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination, beneficially owns, directly or indirectly, 30% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
b. Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company or XTRA Lease, Inc., other than a
liquidation or
-12-
<PAGE>
dissolution of XTRA Lease, Inc. into the Company or any subsidiary of the
Company.
-13-
<PAGE>
EXHIBIT 10.17
XTRA CORPORATION
Severance Agreement
-------------------
AGREEMENT, dated December 8, 1997, by and between Michael J. Soja
("Executive") and XTRA Corporation (the "Company") as amended and restated as of
June 18, 1999.
WITNESSETH
Executive is a key executive of the Company or one of its subsidiaries,
responsible, in part, for the policy-making functions of the Company and the
overall viability of the Company's business; and
The Company recognizes that the possibility that certain significant
transactions involving the Company may result in the departure or distraction of
management to the detriment of the Company and its shareholders, and
The Company wishes to assure Executive of fair severance should his
employment terminate in specified circumstances following the consummation of
certain significant transactions involving the Company and to assure Executive
of certain other benefits in the event of such transactions.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. If, within the 24-month period (the "Post Significant Transaction Period")
beginning on the date of a Significant Transaction (as defined in Exhibit A
attached hereto and made a part hereof), (i) Executive's employment with
the company is terminated (i) by the Company for any reason other than for
"Cause" (as defined in paragraph 2 below), or (ii) Executive terminates
such employment for Good Reason (as defined in paragraph 4 below):
a. The Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to the
sum of (i) the Executive's annual base salary ("Annual Base Salary")
through the date of such termination of employment, and any earned
bonuses for any completed fiscal period, to the extent not theretofore
paid, (ii) a prorated portion (the "Prorated Bonus Amount") of the
award payable under the Company's Economic Profit Incentive Plan, or
any comparable or successor annual plan or plans in which the
Executive is then a participant (the "Cash Plan"), notwithstanding
anything to the contrary in the Cash Plan, determined by calculating
the product of (A) the bonus payable with respect to the award for the
fiscal period in which the
<PAGE>
date of termination occurs under the Cash Plan annualizing the
Company's performance under the plan up to the date of termination by
dividing the Company's performance to the date of termination by the
number of full months in the performance period through the date of
termination and multiplying the result by 12, times (B) a fraction,
the numerator of which is the number of full months in the current
fiscal year through the date of termination of employment, and the
denominator of which is 12, and (iii) any compensation, including
compensation for the fiscal year in which the date of termination
occurs, previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid (the sum of the amounts
described in the above subsections (i) through (iii) shall be
hereinafter referred to as the "Accrued Obligations"); and
b. any stock, stock option or cash awards granted to the Executive by the
Company, including any awards under the Company's 1987 and 1997 Stock
Incentive Plans (or any successor plan or plans), that would have
become vested and exercisable had the Executive continued to be
employed by the Company shall immediately vest and become exercisable
in full notwithstanding any provision to the contrary of such grant
and shall remain exercisable until the later of (i) the latest date on
which such grant could have been exercised had the Executive remained
employed by the Company, and (ii) the date upon which any period
during which the Executive has agreed not to sell the type of
securities that may be issuable to such Executive upon the exercise of
such grant shall expire; and
c. the Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to two
times the sum of: (A) the amount of the Executive's Annual Base Salary
at the rate in effect immediately prior to the date of termination,
and (B) the Average Annualized Bonus Amount which shall be calculated
by multiplying by 12 the quotient determined by dividing (i) the sum
of the actual cash bonus earned by the Executive during each of the
two fiscal years immediately preceding the date of termination, plus
the Prorated Bonus Amount, by (ii) 24 plus the number of full months
in the period for which the Prorated Bonus Payment is calculated; and
d. the Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to the
amount of the forfeitable portion of the Executive's accrued benefit
under the Company's qualified 401(k) or other qualified retirement
plans; and
e. Executive, together with his dependents, will continue following such
termination of employment to participate fully at the Company's
expense
-2-
<PAGE>
(subject to any required employee contributions at the rate in effect
immediately prior to the date of the Significant Transaction) in all
welfare benefit plans (other than disability insurance), programs,
practices and policies maintained or sponsored by the Company
immediately prior to the Significant Transaction, or receive
substantially the equivalent coverage (or the full value thereof in
cash) from the Company, until the second anniversary of such
termination or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, provided, however,
that if the Executive becomes re-employed with another employer and is
eligible to receive reasonably comparable medical or other welfare
benefits under another employer provided plan, the Company's
obligation to provide the medical and other welfare benefits described
herein shall cease; and provided further that if Executive's continued
participation is not possible under the terms of such Company plans
and programs, the Company shall instead either arrange to provide
Executive with substantially similar benefits upon comparable terms or
pay to the Executive (within five (5) business days of the date of
termination) an amount equal to the full value thereof in cash; and
f. to the extent not theretofore paid or provided for, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy, practice, contract or
agreement of the Company ("Other Benefits").
Notwithstanding anything herein to the contrary, to the extent that any
payment or benefit provided for herein is required to be paid or vested on
any earlier date under the terms of any plan, agreement or arrangements,
such plan, agreement or arrangement shall control. Further, notwithstanding
anything herein to the contrary, if a Significant Transaction occurs and if
the Executive's employment with the Company is terminated by the Company
for a reason other than Cause prior to the date upon which the Significant
Transaction occurs, and if it can be reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a
Significant Transaction or (ii) otherwise arose in connection with or in
anticipation of a Significant Transaction, then for all purposes of this
Agreement, Executive shall be entitled to the benefits provided in Sections
1(a)-(f) above.
2. Cause, Other Than For Good Reason; Disability.
---------------------------------------------
a. Cause; Other Than for Good Reason. If the Executive's employment shall
be terminated for Cause (as defined in Section 3 below), or if the
Executive voluntarily terminates employment, excluding a termination
for Good Reason, during the Post Significant Transaction Period, this
Agreement shall terminate
-3-
<PAGE>
without further obligations to the Executive other than the obligation
to pay the Executive (A) his Annual Base Salary through the date of
termination, (B) the amount of any compensation previously deferred by
the Executive, and (C) Other Benefits, in each case to the extent
theretofore unpaid.
b. Disability. If the Executive's employment is terminated during the
Post Significant Transaction Period by reason of the Executive's
Disability, this Agreement shall terminate without further obligations
to the Executive other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations
shall be paid to the Executive in a lump sum in cash within five (5)
business days of the date of termination of employment. For purposes
of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time
basis for 180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and
reasonably acceptable to the Executive or the Executive's legal
representative. If the Company determines in good faith that the
Disability of the Executive has occurred during the Post Significant
Transaction Period, it may give the Executive written notice of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive, provided
that, within the 30 days of such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties.
In the case of (a) or (b) above, all obligations shall be paid to the
Executive in a lump sum in cash within five (5) business days of date of
the termination of employment or such earlier time as may be required under
law.
3. "Cause" means only: (a) commission of a felony or gross neglect of duty by
the Executive which is intended to result in substantial personal
enrichment of the Executive at the expense of the Company, (b) conviction
of, or plea of nolo contendere to, a crime involving moral turpitude, or
(c) gross neglect by the Executive in the performance of his duties to the
Company which results in material injury to the Company, and continues for
more than 30 days after written notice given to the Executive pursuant to a
two-thirds vote of all of the members of the Board at a meeting called and
held for such purpose (after reasonable notice to Executive) and at which
meeting the Executive and his counsel were given an opportunity to be
heard, such vote to set forth in reasonable detail the nature of the
failure. For purposes of this definition of Cause, no act or omission shall
be considered to have been "willful" unless it was not in good faith and
the Executive had knowledge at the time that the act or omission was not in
the best interest of the Company. Any act, or failure to act, based on
authority given pursuant to a resolution duly adopted by the Board or upon
the instructions of the Chief Executive Officer or
-4-
<PAGE>
another senior officer of the Company or based on the advice of counsel of
the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interest of the
Company.
4. Executive shall be deemed to have voluntarily terminated his employment for
Good Reason if the Executive leaves the employ of the Company for any
reason following:
a. Any action by the Company which results in a material diminution in
Executive's position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive; provided, however, a
sale or transfer of some or all of the business of the Company or any
of its subsidiaries or other reduction in its business or that of its
subsidiaries, or the fact that the Company shall become a subsidiary
of another company or the securities of the Company shall no longer be
publicly traded, shall not constitute "Good Reason" hereunder;
b. Any reduction in the Executive's rate of Annual Base Salary for any
fiscal year to less than 100% of the rate of Annual Base Salary
payable for the completed fiscal year immediately preceding the
Significant Transaction; or
c. Failure of the Company to permit the Executive to participate in all
incentive, retirement, and savings policies and programs, and all
welfare benefit plans, practices and programs (including without
limitation, life, accidental death and travel accident insurance,
medical insurance, dental insurance or disability plans) to the extent
applicable generally at the time to other peer executives of the
Company and its affiliated companies, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive; or
d. The Company requires Executive to be based at any office or location
further than 50 miles from Boston, Massachusetts; or
e. Any failure by the Company to comply with and satisfy Section 7 of
this Agreement.
5. Certain tax-related payments.
----------------------------
a. If any "parachute payment" as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code"), whether
payable pursuant to this Agreement or otherwise, is made to or for the
benefit of Executive in connection with a Change in Control (the
"Subject Payment"), the Company will promptly pay to Executive an
additional amount in cash (the "Gross-Up
-5-
<PAGE>
Payment") which on an after-tax basis equals the excise tax under
Section 4999 of the Code and any related interest and penalties due
with respect to the "excess parachute payment" allocable to the
Subject Payment. All determinations as to whether a Gross-Up Payment
is required to be made under this Section 5, and if so the amount and
timing of such Gross-Up Payment, shall be made at the Company's
expense by Arthur Anderson LLP (Boston Office) or, if the Compensation
Committee of the Company's Board of Directors shall designate another
accounting firm, employment consulting firm, or law firm prior to a
Change in Control, such other accounting firm, employment consulting
firm, or law firm (the "Consultant"). Not later than thirty (30) days
following receipt by the Consultant of notice from Executive that a
payment believed by Executive to be a Subject Payment has been made or
at such earlier time as may be requested by the Company, the
Consultant shall deliver to Executive and the Company a preliminary
statement (each such statement, a "Preliminary Statement") containing
a computation of the Gross-Up Payment, if any, payable to Executive
with respect thereto, together with supporting work papers. If both
the Company and Executive agree with the Preliminary Statement, it
shall become final (the "Final Statement"). If either the Company or
Executive (the "objecting party") believes that a Preliminary
Statement is incorrect for any reason, the objecting party may, within
thirty (30) business days of receipt of the Preliminary Statement,
deliver to the Consultant and to the other party additional
information to be considered by the Consultant in making its
determination. Within ten (10) business days following receipt by the
Consultant of such additional information, it shall either confirm its
Preliminary Statement or issue another statement that shall constitute
the Final Statement. Subject to the correction of typographic mistakes
or similar manifest errors, and except as provided at (b) below, the
Final Statement shall be binding on both parties. With respect to each
Subject Payment, the Company will pay the Gross-Up Payment to
Executive not later than ten (10) business days after the Consultant
has rendered its related Final Statement.
b. If there is a determination by the Internal Revenue Service (the
"IRS") with respect to Executive that is inconsistent with a Final
Statement and that if sustained would result in an excise tax (or a
greater excise tax) under Section 4999 of the Code or in interest or
penalties (or increased interest or penalties) with respect to any
such excise tax, the Final Statement shall be deemed automatically
modified to conform to the IRS' determination and the Company, upon
receipt of written notice from Executive setting forth the IRS'
determination, shall promptly pay to Executive the additional Gross-Up
Payment required by such modification (the "Additional Gross-Up
Payment"). The Company may elect to contest at its expense any IRS
determination in respect of which the Company has made an Additional
Gross-Up Payment, in which case such Additional Gross-Up Payment shall
be considered an interest-free loan (the
-6-
<PAGE>
"Loan") to Executive until such time as the IRS' determination is
final and no longer subject to judicial review. At such time Executive
shall repay to the Company so much of the Loan, if any, as shall leave
him on an after-tax basis in the same position he would have been in
had the IRS' determination never been made, all as determined by the
Consultant on a preliminary and, after opportunity for comment, final
basis under rules substantially the same as those applicable under (a)
above. Executive shall cooperate reasonably with the Company in any
effort by the Company to contest an IRS determination under this
paragraph, including by the making of such filings and appeals as the
Company may reasonably require, but nothing herein shall be construed
as requiring Executive to bear any cost or expense of such a contest
or in connection therewith to compromise any tax item (including
without limitation any deduction or credit) other than the excise tax
under Section 4999 of the Code, and related interest and penalties if
any, that are the subject of the contested IRS determination.
6. The Company agrees (i) to promptly reimburse Executive for any and all
legal fees and related expenses (including, without limitation,
stenographer fees, printing costs, etc.) incurred by him to enforce the
provisions of this Agreement or in contesting or disputing that the
termination of his employment is for Cause or other than for Good Reason
(regardless of the outcome thereof), (ii) to pay the cost of such judicial
proceeding, and (iii) to pay interest to Executive on all amounts owed to
Executive under this Agreement during any period of time that such amounts
are withheld pending judicial proceedings (such interest will be at the
base rate as published from time to time in the eastern edition of the Wall
Street Journal); provided, however, that the Company shall not be required
to reimburse the Executive for such fees, costs and expenses, if a court of
competent jurisdiction shall issue a final order to the effect that the
Executive shall not prevail on any claim relating to this Agreement.
7. If the Company is at any time before, after or in connection with, a
Significant Transaction merged or consolidated into or with any other
corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets thereof are transferred to
another corporation or other entity, the provisions of this Agreement will
be binding upon and inure to the benefit of the corporation or other entity
resulting from such merger or consolidation or the acquirer of such assets
(the "Successor Entity"), and this paragraph 7 will apply in the event of
any subsequent merger or consolidation or transfer of assets. The Company
will require any such Successor Entity to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any Successor Entity
which assumes and agrees to perform this Agreement by operation of law or
otherwise.
-7-
<PAGE>
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise
limit Executive's right to or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group
insurance, hospitalization, or other incentive or benefit plan or
arrangement which may be or become applicable to executives of the entity
resulting from such merger or consolidation or the entity acquiring such
assets of the Company.
In the event of any merger, consolidation, or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
8. Any termination by the Company for Cause, or by the Executive for Good
Reason, shall be communicated by Notice of Termination to the other party
hereto given in accordance with the last paragraph of Section 13 of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such
notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
"Date of Termination" means (i) if the Executive's employment is terminated
by the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein,
as the case may be, and (ii) if the Executive's employment is terminated by
the Company other than for Cause, the Date of Termination shall be the date
on which the Company notifies the Executive of such termination.
9. All payments required to be made by the Company hereunder to, or on behalf
of, Executive or his dependents, beneficiaries, or estate will be subject
to the withholding of such amounts relating to tax and/or other payroll
deductions as may be required by law.
10. There shall be no requirement on the part of the Executive to seek other
employment or otherwise mitigate damages in order to be entitled to the
full amount of any payments and benefits to which Executive is entitled
under this Agreement, and the amount of such payments and benefits shall
not be reduced by any compensation or benefits received by
-8-
<PAGE>
Executive from other employment, other than with respect to certain welfare
benefits as provided in the proviso to Section 1(e).
11. Nothing contained in this Agreement shall be construed as a contract of
employment between the Company and the Executive, or as a right of the
Executive to continue in the employ of the Company, or as a limitation of
the right of the Company to discharge the Executive with or without Cause;
provided that the Executive shall have the right to receive upon
termination of his employment the payments and benefits provided in this
Agreement and shall not be deemed to have waived any rights he may have
either at law or in equity in respect of such discharge.
12. No amendment, change, or modification of this Agreement may be made except
in writing, signed by both parties.
13. This Agreement shall terminate on the third anniversary of the date hereof,
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (each such date
hereinafter referred to as a "Renewal Date"), unless previously terminated,
the term of this Agreement shall be automatically extended so as to
terminate three years from such Renewal Date, unless at least sixty days
prior to the Renewal Date the Company shall give notice to the Executive
that the term of this Agreement shall not be so extended. This Agreement
shall not apply to a Significant Transaction which takes place after the
termination of this Agreement.
Payments made by the Company pursuant to this Agreement shall be in lieu of
severance payments, if any, which might otherwise be available to Executive
under any severance plan, policy, program or arrangement generally
applicable to the employees of the Company. If for any reason Executive
receives severance payments (other than under this Agreement) upon the
termination of his employment with the Company, the amount of such payments
shall be deducted from the amount paid under this Agreement. The purpose of
this provision is solely to avert a duplication of benefits; neither this
provision nor the provisions of any other agreement shall be interpreted to
reduce the amount payable to Executive below the amount that would
otherwise have been payable under this Agreement.
The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal
representatives, and assigns, and the Company and its successors.
The validity, interpretation, and effect of this Agreement shall be
governed by the laws of The Commonwealth of Massachusetts.
-9-
<PAGE>
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
The Company shall have no right of set-off or counterclaims, in respect of
any claim, debt, or obligation, against any payments to Executive, his
dependents, beneficiaries, or estate provided for in this Agreement.
No right or interest to or in any payments shall be assignable by the
Executive. No right, benefit, or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt, or obligation, or
to execution, attachment, levy, or similar process, or assignment by
operation of law. Any attempt, voluntary or involuntary, to effect any
action specified in the immediately preceding sentence shall, to the full
extent permitted by law, be null, void, and of no effect.
All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Michael J. Soja
------------------- 34 Musket Lane
Sudbury, Massachusetts 01776
If to the Company: XTRA Corporation
----------------- 60 State Street - 11th Floor
Boston, Massachusetts 02109
Attn: Chair, Compensation Committee, and
the General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective either on the date of delivery (in the case of delivery by hand),
or three business days after deposit into the mails (in the case of
delivery by mail).
-10-
<PAGE>
IN WITNESS WHEREOF, XTRA Corporation and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
XTRA CORPORATION
By: /s/ Martin L. Solomon
-----------------------------------------
Name: Martin L. Solomon
Title: Chair, Compensation Committee
/s/ Michael J. Soja
-----------------------------------------
Michael J. Soja
-11-
<PAGE>
EXHIBIT A
Significant Transaction. For the purposes of this Agreement, a "Significant
Transaction" shall mean:
a. Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company in one or a series of transactions (but excluding any
reorganization, merger or consolidation or sale of assets with or to the
Company or any subsidiary of the Company, unless in connection with such
transaction there is also a Significant Transaction involving the
Company) (a "Business Combination"), in each case unless, following such
Business Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the then
outstanding shares of common stock of the Company (the "Company Common
Stock") and the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities" immediately prior to such
Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Company Common Stock and
outstanding Company Voting Securities, as the case may be, (ii) no
individual, corporation, partnership, limited liability company, or
other entity, which term shall include a "group" (within the meaning of
section 13(d) of the Securities Exchange Act of 1934 (the "Act"),
excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination, beneficially
owns, directly or indirectly, 30% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination and (iii)
at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business Combination;
or
b. Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
-12-
<PAGE>
EXHIBIT 10.18
XTRA CORPORATION
Severance Agreement
-------------------
AGREEMENT, dated December 8, 1997, by and between Jeffrey R. Blum
("Executive") and XTRA Corporation (the "Company") as amended and restated as of
June 18, 1999.
WITNESSETH
Executive is a key executive of the Company or one of its subsidiaries,
responsible, in part, for the policy-making functions of the Company and the
overall viability of the Company's business; and
The Company recognizes that the possibility that certain significant
transactions involving the Company may result in the departure or distraction of
management to the detriment of the Company and its shareholders, and
The Company wishes to assure Executive of fair severance should his
employment terminate in specified circumstances following the consummation of
certain significant transactions involving the Company and to assure Executive
of certain other benefits in the event of such transactions.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. If, within the 24-month period (the "Post Significant Transaction Period")
beginning on the date of a Significant Transaction (as defined in Exhibit A
attached hereto and made a part hereof), (i) Executive's employment with
the company is terminated (i) by the Company for any reason other than for
"Cause" (as defined in paragraph 2 below), or (ii) Executive terminates
such employment for Good Reason (as defined in paragraph 4 below):
a. The Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to the
sum of (i) the Executive's annual base salary ("Annual Base Salary")
through the date of such termination of employment, and any earned
bonuses for any completed fiscal period, to the extent not theretofore
paid, (ii) a prorated portion (the "Prorated Bonus Amount") of the
award payable under the Company's Economic Profit Incentive Plan, or
any comparable or successor annual plan or plans in which the
Executive is then a participant (the "Cash Plan"), notwithstanding
anything
<PAGE>
to the contrary in the Cash Plan, determined by calculating the
product of (A) the bonus payable with respect to the award for the
fiscal period in which the date of termination occurs under the Cash
Plan annualizing the Company's performance under the plan up to the
date of termination by dividing the Company's performance to the date
of termination by the number of full months in the performance period
through the date of termination and multiplying the result by 12,
times (B) a fraction, the numerator of which is the number of full
months in the current fiscal year through the date of termination of
employment, and the denominator of which is 12, and (iii) any
compensation, including compensation for the fiscal year in which the
date of termination occurs, previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in the above subsections (i) through
(iii) shall be hereinafter referred to as the "Accrued Obligations");
and
b. any stock, stock option or cash awards granted to the Executive by the
Company, including any awards under the Company's 1987 and 1997 Stock
Incentive Plans (or any successor plan or plans), that would have
become vested and exercisable had the Executive continued to be
employed by the Company shall immediately vest and become exercisable
in full notwithstanding any provision to the contrary of such grant
and shall remain exercisable until the later of (i) the latest date on
which such grant could have been exercised had the Executive remained
employed by the Company, and (ii) the date upon which any period
during which the Executive has agreed not to sell the type of
securities that may be issuable to such Executive upon the exercise of
such grant shall expire; and
c. the Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to two
times the sum of: (A) the amount of the Executive's Annual Base Salary
at the rate in effect immediately prior to the date of termination,
and (B) the Average Annualized Bonus Amount which shall be calculated
by multiplying by 12 the quotient determined by dividing (i) the sum
of the actual cash bonus earned by the Executive during each of the
two fiscal years immediately preceding the date of termination, plus
the Prorated Bonus Amount, by (ii) 24 plus the number of full months
in the period for which the Prorated Bonus Payment is calculated; and
d. the Company will pay to Executive within five (5) business days of
such termination of employment a lump-sum cash payment equal to the
amount of the forfeitable portion of the Executive's accrued benefit
under the Company's qualified 401(k) or other qualified retirement
plans; and
-2-
<PAGE>
e. Executive, together with his dependents, will continue following such
termination of employment to participate fully at the Company's
expense (subject to any required employee contributions at the rate in
effect immediately prior to the date of the Significant Transaction)
in all welfare benefit plans (other than disability insurance),
programs, practices and policies maintained or sponsored by the
Company immediately prior to the Significant Transaction, or receive
substantially the equivalent coverage (or the full value thereof in
cash) from the Company, until the second anniversary of such
termination or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, provided, however,
that if the Executive becomes re-employed with another employer and is
eligible to receive reasonably comparable medical or other welfare
benefits under another employer provided plan, the Company's
obligation to provide the medical and other welfare benefits described
herein shall cease; and provided further that if Executive's continued
participation is not possible under the terms of such Company plans
and programs, the Company shall instead either arrange to provide
Executive with substantially similar benefits upon comparable terms or
pay to the Executive (within five (5) business days of the date of
termination) an amount equal to the full value thereof in cash; and
f. to the extent not theretofore paid or provided for, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy, practice, contract or
agreement of the Company ("Other Benefits") .
Notwithstanding anything herein to the contrary, to the extent that any
payment or benefit provided for herein is required to be paid or vested on
any earlier date under the terms of any plan, agreement or arrangements,
such plan, agreement or arrangement shall control. Further, notwithstanding
anything herein to the contrary, if a Significant Transaction occurs and if
the Executive's employment with the Company is terminated by the Company
for a reason other than Cause prior to the date upon which the Significant
Transaction occurs, and if it can be reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a
Significant Transaction or (ii) otherwise arose in connection with or in
anticipation of a Significant Transaction, then for all purposes of this
Agreement, Executive shall be entitled to the benefits provided in Sections
1(a)-(f) above.
2. Cause, Other Than For Good Reason; Disability.
---------------------------------------------
a. Cause; Other Than for Good Reason. If the Executive's employment shall
be terminated for Cause (as defined in Section 3 below), or if the
Executive
-3-
<PAGE>
voluntarily terminates employment, excluding a termination for Good
Reason, during the Post Significant Transaction Period, this Agreement
shall terminate without further obligations to the Executive other
than the obligation to pay the Executive (A) his Annual Base Salary
through the date of termination, (B) the amount of any compensation
previously deferred by the Executive, and (C) Other Benefits, in each
case to the extent theretofore unpaid.
b. Disability. If the Executive's employment is terminated during the
Post Significant Transaction Period by reason of the Executive's
Disability, this Agreement shall terminate without further obligations
to the Executive other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations
shall be paid to the Executive in a lump sum in cash within five (5)
business days of the date of termination of employment. For purposes
of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time
basis for 180 consecutive business days as a result of incapacity due
to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and
reasonably acceptable to the Executive or the Executive's legal
representative. If the Company determines in good faith that the
Disability of the Executive has occurred during the Post Significant
Transaction Period, it may give the Executive written notice of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive, provided
that, within the 30 days of such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties.
In the case of (a) or (b) above, all obligations shall be paid to the
Executive in a lump sum in cash within five (5) business days of date of
the termination of employment or such earlier time as may be required under
law.
3. "Cause" means only: (a) commission of a felony or gross neglect of duty by
the Executive which is intended to result in substantial personal
enrichment of the Executive at the expense of the Company, (b) conviction
of, or plea of nolo contendere to, a crime involving moral turpitude, or
(c) gross neglect by the Executive in the performance of his duties to the
Company which results in material injury to the Company, and continues for
more than 30 days after written notice given to the Executive pursuant to a
two-thirds vote of all of the members of the Board at a meeting called and
held for such purpose (after reasonable notice to Executive) and at which
meeting the Executive and his counsel were given an opportunity to be
heard, such vote to set forth in reasonable detail the nature of the
failure. For purposes of this definition of Cause, no act or omission shall
be considered to have been "willful" unless it was not in good faith and
the Executive had knowledge at the time that the act or omission was not in
the best interest of the
-4-
<PAGE>
Company. Any act, or failure to act, based on authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or another senior officer of the Company or based on the
advice of counsel of the Company shall be conclusively presumed to be done,
or omitted to be done, by the Executive in good faith and in the best
interest of the Company.
4. Executive shall be deemed to have voluntarily terminated his employment for
Good Reason if the Executive leaves the employ of the Company for any
reason following:
a. Any action by the Company which results in a material diminution in
Executive's position, authority, duties or responsibilities
immediately prior to the Significant Transaction, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; provided, however, a sale or
transfer of some or all of the business of the Company or any of its
subsidiaries or other reduction in its business or that of its
subsidiaries, or the fact that the Company shall become a subsidiary
of another company or the securities of the Company shall no longer be
publicly traded, shall not constitute "Good Reason" hereunder;
b. Any reduction in the Executive's rate of Annual Base Salary for any
fiscal year to less than 100% of the rate of Annual Base Salary
payable for the completed fiscal year immediately preceding the
Significant Transaction; or
c. Failure of the Company to permit the Executive to participate in all
incentive, retirement, and savings policies and programs, and all
welfare benefit plans, practices and programs (including without
limitation, life, accidental death and travel accident insurance,
medical insurance, dental insurance or disability plans) to the extent
applicable generally at the time to other peer executives of the
Company and its affiliated companies, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive; or
d. The Company requires Executive to be based at any office or location
further than 50 miles from Boston, Massachusetts; or
e. Any failure by the Company to comply with and satisfy Section 7 of
this Agreement.
5. Certain tax-related payments.
----------------------------
a. If any "parachute payment" as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code"), whether
payable pursuant to
-5-
<PAGE>
this Agreement or otherwise, is made to or for the benefit of
Executive in connection with a Change in Control (the "Subject
Payment"), the Company will promptly pay to Executive an additional
amount in cash (the "Gross-Up Payment") which on an after-tax basis
equals the excise tax under Section 4999 of the Code and any related
interest and penalties due with respect to the "excess parachute
payment" allocable to the Subject Payment. All determinations as to
whether a Gross-Up Payment is required to be made under this Section
5, and if so the amount and timing of such Gross-Up Payment, shall be
made at the Company's expense by Arthur Anderson LLP (Boston Office)
or, if the Compensation Committee of the Company's Board of Directors
shall designate another accounting firm, employment consulting firm,
or law firm prior to a Change in Control, such other accounting firm,
employment consulting firm, or law firm (the "Consultant"). Not later
than thirty (30) days following receipt by the Consultant of notice
from Executive that a payment believed by Executive to be a Subject
Payment has been made or at such earlier time as may be requested by
the Company, the Consultant shall deliver to Executive and the Company
a preliminary statement (each such statement, a "Preliminary
Statement") containing a computation of the Gross-Up Payment, if any,
payable to Executive with respect thereto, together with supporting
work papers. If both the Company and Executive agree with the
Preliminary Statement, it shall become final (the "Final Statement").
If either the Company or Executive (the "objecting party") believes
that a Preliminary Statement is incorrect for any reason, the
objecting party may, within thirty (30) business days of receipt of
the Preliminary Statement, deliver to the Consultant and to the other
party additional information to be considered by the Consultant in
making its determination. Within ten (10) business days following
receipt by the Consultant of such additional information, it shall
either confirm its Preliminary Statement or issue another statement
that shall constitute the Final Statement. Subject to the correction
of typographic mistakes or similar manifest errors, and except as
provided at (b) below, the Final Statement shall be binding on both
parties. With respect to each Subject Payment, the Company will pay
the Gross-Up Payment to Executive not later than ten (10) business
days after the Consultant has rendered its related Final Statement.
b. If there is a determination by the Internal Revenue Service (the
"IRS") with respect to Executive that is inconsistent with a Final
Statement and that if sustained would result in an excise tax (or a
greater excise tax) under Section 4999 of the Code or in interest or
penalties (or increased interest or penalties) with respect to any
such excise tax, the Final Statement shall be deemed automatically
modified to conform to the IRS' determination and the Company, upon
receipt of written notice from Executive setting forth the IRS'
determination, shall promptly pay to Executive the additional Gross-Up
Payment required by such modification (the "Additional Gross-Up
Payment"). The
-6-
<PAGE>
Company may elect to contest at its expense any IRS determination in
respect of which the Company has made an Additional Gross-Up Payment,
in which case such Additional Gross-Up Payment shall be considered an
interest-free loan (the "Loan") to Executive until such time as the
IRS' determination is final and no longer subject to judicial review.
At such time Executive shall repay to the Company so much of the Loan,
if any, as shall leave him on an after-tax basis in the same position
he would have been in had the IRS' determination never been made, all
as determined by the Consultant on a preliminary and, after
opportunity for comment, final basis under rules substantially the
same as those applicable under (a) above. Executive shall cooperate
reasonably with the Company in any effort by the Company to contest an
IRS determination under this paragraph, including by the making of
such filings and appeals as the Company may reasonably require, but
nothing herein shall be construed as requiring Executive to bear any
cost or expense of such a contest or in connection therewith to
compromise any tax item (including without limitation any deduction or
credit) other than the excise tax under Section 4999 of the Code, and
related interest and penalties if any, that are the subject of the
contested IRS determination.
6. The Company agrees (i) to promptly reimburse Executive for any and all
legal fees and related expenses (including, without limitation,
stenographer fees, printing costs, etc.) incurred by him to enforce the
provisions of this Agreement or in contesting or disputing that the
termination of his employment is for Cause or other than for Good Reason
(regardless of the outcome thereof), (ii) to pay the cost of such judicial
proceeding, and (iii) to pay interest to Executive on all amounts owed to
Executive under this Agreement during any period of time that such amounts
are withheld pending judicial proceedings (such interest will be at the
base rate as published from time to time in the eastern edition of the Wall
Street Journal); provided, however, that the Company shall not be required
to reimburse the Executive for such fees, costs and expenses, if a court of
competent jurisdiction shall issue a final order to the effect that the
Executive shall not prevail on any claim relating to this Agreement.
7. If the Company is at any time before, after or in connection with, a
Significant Transaction merged or consolidated into or with any other
corporation or other entity (whether or not the Company is the surviving
entity), or if substantially all of the assets thereof are transferred to
another corporation or other entity, the provisions of this Agreement will
be binding upon and inure to the benefit of the corporation or other entity
resulting from such merger or consolidation or the acquirer of such assets
(the "Successor Entity"), and this paragraph 7 will apply in the event of
any subsequent merger or consolidation or transfer of assets. The Company
will require any such Successor Entity to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform. As used
-7-
<PAGE>
in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any Successor Entity which assumes and agrees to perform this Agreement
by operation of law or otherwise.
In the event of any merger, consolidation, or sale of assets described
above, nothing contained in this Agreement will detract from or otherwise
limit Executive's right to or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group
insurance, hospitalization, or other incentive or benefit plan or
arrangement which may be or become applicable to executives of the entity
resulting from such merger or consolidation or the entity acquiring such
assets of the Company.
In the event of any merger, consolidation, or sale of assets described
above, references to the Company in this Agreement shall unless the context
suggests otherwise be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
8. Any termination by the Company for Cause, or by the Executive for Good
Reason, shall be communicated by Notice of Termination to the other party
hereto given in accordance with the last paragraph of Section 13 of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such
notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
"Date of Termination" means (i) if the Executive's employment is terminated
by the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein,
as the case may be, and (ii) if the Executive's employment is terminated by
the Company other than for Cause, the Date of Termination shall be the date
on which the Company notifies the Executive of such termination.
9. All payments required to be made by the Company hereunder to, or on behalf
of, Executive or his dependents, beneficiaries, or estate will be subject
to the withholding of such amounts relating to tax and/or other payroll
deductions as may be required by law.
-8-
<PAGE>
10. There shall be no requirement on the part of the Executive to seek other
employment or otherwise mitigate damages in order to be entitled to the
full amount of any payments and benefits to which Executive is entitled
under this Agreement, and the amount of such payments and benefits shall
not be reduced by any compensation or benefits received by Executive from
other employment, other than with respect to certain welfare benefits as
provided in the proviso to Section 1(e).
11. Nothing contained in this Agreement shall be construed as a contract of
employment between the Company and the Executive, or as a right of the
Executive to continue in the employ of the Company, or as a limitation of
the right of the Company to discharge the Executive with or without Cause;
provided that the Executive shall have the right to receive upon
termination of his employment the payments and benefits provided in this
Agreement and shall not be deemed to have waived any rights he may have
either at law or in equity in respect of such discharge.
12. No amendment, change, or modification of this Agreement may be made except
in writing, signed by both parties.
13. This Agreement shall terminate on the third anniversary of the date hereof,
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (each such date
hereinafter referred to as a "Renewal Date"), unless previously terminated,
the term of this Agreement shall be automatically extended so as to
terminate three years from such Renewal Date, unless at least sixty days
prior to the Renewal Date the Company shall give notice to the Executive
that the term of this Agreement shall not be so extended. This Agreement
shall not apply to a Significant Transaction which takes place after the
termination of this Agreement.
Payments made by the Company pursuant to this Agreement shall be in lieu of
severance payments, if any, which might otherwise be available to Executive
under any severance plan, policy, program or arrangement generally
applicable to the employees of the Company. If for any reason Executive
receives severance payments (other than under this Agreement) upon the
termination of his employment with the Company, the amount of such payments
shall be deducted from the amount paid under this Agreement. The purpose of
this provision is solely to avert a duplication of benefits; neither this
provision nor the provisions of any other agreement shall be interpreted to
reduce the amount payable to Executive below the amount that would
otherwise have been payable under this Agreement.
The provisions of this Agreement shall be binding upon and shall inure to
the benefit of Executive, his executors, administrators, legal
representatives, and assigns, and the Company and its successors.
-9-
<PAGE>
The validity, interpretation, and effect of this Agreement shall be
governed by the laws of The Commonwealth of Massachusetts.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
The Company shall have no right of set-off or counterclaims, in respect of
any claim, debt, or obligation, against any payments to Executive, his
dependents, beneficiaries, or estate provided for in this Agreement.
No right or interest to or in any payments shall be assignable by the
Executive. No right, benefit, or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt, or obligation, or
to execution, attachment, levy, or similar process, or assignment by
operation of law. Any attempt, voluntary or involuntary, to effect any
action specified in the immediately preceding sentence shall, to the full
extent permitted by law, be null, void, and of no effect.
All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Jeffrey R. Blum
80 Wild Pasture Road
Kensington, New Hampshire 03827
If to the Company: XTRA Corporation
60 State Street - 11th Floor
Boston, Massachusetts 02109
Attn: Chair, Compensation Committee, and
the General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective either on the date of delivery (in the case of delivery by hand),
or three business days after deposit into the mails (in the case of
delivery by mail).
-10-
<PAGE>
IN WITNESS WHEREOF, XTRA Corporation and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
XTRA CORPORATION
By: /s/ Martin L. Solomon
----------------------
Name: Martin L. Solomon
Title: Chair, Compensation Committee
/s/ Jeffrey R. Blum
-----------------------
Jeffrey R. Blum
-11-
<PAGE>
EXHIBIT A
Significant Transaction. For the purposes of this Agreement, a "Significant
Transaction" shall mean:
a. Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company in one or a series of transactions (but excluding any
reorganization, merger or consolidation or sale of assets with or to
the Company or any subsidiary of the Company, unless in connection
with such transaction there is also a Significant Transaction
involving the Company) (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of common stock of the
Company (the "Company Common Stock") and the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities" immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
outstanding Company Voting Securities, as the case may be, (ii) no
individual, corporation, partnership, limited liability company, or
other entity, which term shall include a "group" (within the meaning
of section 13(d) of the Securities Exchange Act of 1934 (the "Act"),
excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination,
beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
b. Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
-12-
<PAGE>
EXHIBIT 12.1
XTRA CORPORATION
STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1999
(Millions of dollars)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
EARNINGS
Income from operations before provision for income taxes $ 58 $ 99 $ 71
Add: Fixed charges (below) 58 58 63
------ ------ ------
$ 116 $ 157 $ 134
====== ====== ======
FIXED CHARGES $ 58 $ 58 $ 63
====== ====== ======
Ratio of Earnings to Fixed Charges 2.0 2.7 2.1
====== ====== ======
</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 fiscal
1999, the ratio of earnings to fixed charges would have been 2.7.
74
<PAGE>
EXHIBIT 12.2
XTRA INC.
STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1999
(Millions of dollars)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
EARNINGS
Income from operations before provision for income taxes $ 61 $ 99 $ 71
Add: Fixed charges (below) 58 58 63
------ ------ ------
$ 119 $ 157 $ 134
====== ====== ======
FIXED CHARGES $ 58 $ 58 $ 63
====== ====== ======
Ratio of Earnings to Fixed Charges 2.1 2.7 2.1
====== ====== ======
</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 fiscal 1999,
the ratio of earnings to fixed charges would have been 2.7.
75
<PAGE>
EXHIBIT 13.1
Five Year Selected Financial Data
<TABLE>
<CAPTION>
Year ended September 30,
(Millions of dollars except per 1999 1998 1997 1996 1995
share amounts)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Revenues $ 464 $ 461 $ 435 $ 422 $ 378
Cash provided from operations 277 293 269 272 237
Capital expenditures/(1)/ 265 199 249 210 699
Pretax income 58/(2)/ 99/(3)/ 71 69 98
Net income 35/(2)/ 60/(3)/ 43 41 57
Per Share Information
Basic earnings per share $ 2.49/(2)/ $ 3.90/(3)/ $ 2.79 $ 2.56 $ 3.40
Diluted earnings per share $ 2.49/(2)/ $ 3.88/(3)/ $ 2.78 $ 2.56 $ 3.39
Dividends declared per share - $ 0.64 $ 0.78 $ 0.70 $ 0.62
Financial Position
Total assets $ 1,573 $ 1,575 $ 1,585 $ 1,537 $ 1,516
Total debt 852 802 892 892 898
Total stockholders' equity 337 408 360 342 359
</TABLE>
/(1)/ Includes equipment leased in under operating leases and capital
expenditures for acquisitions.
/(2)/ Includes one-time pretax charges of $13 million for restructuring, a $25
million equipment write-down, and a $1 million unusual item for expenses
related to the terminated merger. Without these one-time charges, fiscal
1999 Basic and Diluted earnings per share would have been $4.16.
/(3)/ Includes a $1 million pretax unusual item for expenses related to the
terminated merger. Without this unusual item, fiscal 1998 Basic and
Diluted earnings per share would have been $3.93 and $3.91, respectively.
76
<PAGE>
EXHIBIT 13.2
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Years Ended September 30, 1999
(Not covered by Report of Independent Public Accountants)
The discussion below contains certain forward-looking statements including
estimates of economic and industry conditions, equipment utilization, and
capital expenditures. Actual results may vary from those contained in such
forward-looking statements. See "Cautionary Statements for Purposes of the 'Safe
Harbor' Provisions of the Private Securities Litigation Reform Act of 1995"
contained below. Reference to years in the discussion below refers to XTRA
Corporation's fiscal years (the period from October 1 to September 30).
XTRA Corporation leases, primarily on an operating basis, freight transportation
equipment, including over-the-road trailers, marine containers, intermodal
trailers, chassis, and domestic containers. XTRA's equipment utilization, lease
rates, and therefore, profitability, are impacted by the supply of and demand
for available equipment, the level of economic activity in North America, world
trade activity, the actions of its competitors, and other factors in the freight
transportation industry. Utilization and profitability are usually seasonally
lower in the second and third fiscal quarters than in the first and fourth
fiscal quarters. In general, the Company's receivable collection experience has
been good. However, industry downturns tend to lengthen the collection period of
certain receivables.
The Company's pretax profits have been cyclical, principally due to the
variability of the Company's revenues and the high percentage of fixed costs. To
moderate this cyclicality, the Company attempts to maintain a balance between
the amount of equipment leased on a per diem and term basis and maintains a mix
of various types of freight transportation equipment available for lease. The
Company has historically maintained a high proportion of its debt at fixed rates
to reduce the impact of fluctuations in interest rates.
XTRA's marine container leasing operation reduces XTRA's dependence on the North
American transportation industry. Although the marine container business is
international, substantially all transactions are denominated in U.S. dollars.
Revenues
Revenues are a function of lease rates and working units; the latter depends on
fleet size and equipment utilization. Utilization, the ratio of revenue-earning
units to the total fleet, is derived from billing information, usage reports and
other information from customers, assumptions based on historical experience,
and equipment inventories taken at Company depots, and is an approximation.
Utilization is impacted by the supply of, and demand for, available equipment,
the level of economic activity in North America, and world trade activity.
77
<PAGE>
The following table sets forth the Company's average equipment utilization
(dollar weighted by investment in each type of equipment), average fleet size in
units, and average net investment in revenue equipment for the three years ended
September 30, 1999. The Company's average fleet size and net investment includes
equipment owned by the Company, equipment leased-in from third parties under
operating and capital leases, and equipment leased to third parties under
finance leases.
<TABLE>
<CAPTION>
For the year ended September 30,
(millions of dollars) 1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
North America
XTRA Lease
Utilization 87% 90% 88%
Units 85,000 79,000 77,000
Net investment (in millions) $ 832 $ 738 $ 674
XTRA Intermodal
Utilization 79% 81% 82%
Units 53,000 54,000 54,000
Net investment (in millions) $ 281 $ 290 $ 322
Total
Utilization 85% 87% 86%
Units 138,000 133,000 131,000
Net investment (in millions) $ 1,113 $ 1,028 $ 996
International
Utilization 71% 82% 79%
Units 160,000 164,000 157,000
Net investment (in millions) $ 350 $ 404 $ 418
Consolidated
Utilization 81% 86% 84%
Units 298,000 297,000 288,000
Net investment (in millions) $ 1,463 $ 1,432 $ 1,414
</TABLE>
Overall, 1998 revenues increased by 6% or $26 million in 1998, primarily due to
improvement in the North American businesses. In 1998, the Company's overall
equipment utilization increased by 2%. XTRA's North American revenues increased
6% or $22 million due to more working units, as well as an improvement in lease
rates. North American utilization averaged 87% in 1998, as compared to 86% in
1997.
XTRA's 1998 International revenues increased 5% or $4 million. An increase in
revenues attributable to more working units was partially offset by lower
average effective lease rates. XTRA's marine container utilization improved to
82% from 79% in 1997. The Company's average international fleet size increased
to 164,000 units in 1998 from 157,000 units in 1997 as a result of modest
capital spending.
Revenues increased by 1% or $3 million in 1999. The Company's average equipment
utilization declined from 86% in 1998 to 81% in 1999. Average net investment in
equipment increased by $31 million due primarily to an increase in the net
investment in over-the-road trailers, which was partially offset by a decline in
the net investment in the marine container and intermodal equipment fleets.
The Company's North American revenues increased 5% or $20 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 1999, as compared to 87% in 1998. XTRA
Lease's revenues increased $23 million from 1998 due to strong levels of
domestic freight leading to more working units, as well as an improvement in
lease rates. XTRA Lease's utilization averaged 87% in fiscal year 1999, as
compared to 90% in 1998. XTRA Intermodal's revenues decreased $3 million from
fiscal 1998 due primarily to
78
<PAGE>
a decrease in working units. XTRA Intermodal's utilization averaged 81% in
fiscal 1998, compared to 82% in 1997.
The Company's North American over-the-road fleet of 85,000 units, consisting
primarily of over-the-road trailers, represented 57% of average net investment
in equipment in 1999, compared to 79,000 units, or 51% of average net investment
in equipment in 1998. 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 in 1999, or 10% of
average net investment in equipment in 1999, versus 23,000 units, or 11% of
average net investment in equipment in 1998.
International revenues decreased 22% or $17 million in 1999, primarily due to
fewer working units and a decrease in lease rates. Equipment utilization
declined to 71% from 82% in the comparable prior year period. Marine container
lease rates in 1999 reflect a decline from 1998 and continue to be at low levels
for the Company and the industry as a whole. The Company's average marine
container fleet size declined to 160,000 units in 1999 from 164,000 units in
1998.
Operating Expenses
Total operating expenses were unchanged in 1998 and 1997 at $301 million. In
1999, operating expenses, excluding one time charges and an unusual item,
increased by 3%, or $9 million from 1998.
Depreciation expense increased 1% or $2 million in 1998 and 1% or $1 million in
1999 due to a larger fleet investment.
In 1998, rental equipment operating expenses decreased by 1% or $1 million, due
to lower repair and maintenance and storage and repositioning costs, which were
partially offset by higher facility costs. In 1999, rental equipment operating
expenses increased by 4% or $5 million due to higher storage and repositioning
costs at XTRA International, partially offset by a $1 million gain on the sale
of real estate. Selling and administrative expenses in 1998 decreased by $1
million 1997. In 1999, selling and administrative expenses increased 7% or $3
million due primarily to higher compensation and information technology
expenses.
One-Time Charges Included in Operating Expenses
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 has consolidated 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 transition to the
Shared Services Center was substantially complete at the end of fiscal 1999.
Approximately $2 million of the total charge of $4 million is related to
severance payments and the remainder is provided for the consolidation of
existing facilities. During fiscal 1999, approximately $3 million was charged to
this reserve for the consolidation of existing facilities and severance
payments.
XTRA 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 with a
significantly larger fleet and cost effective infrastructure. XTRA recorded a
restructuring charge of approximately $9 million related to the costs of closing
its XTRA International offices. Approximately half of the charge is for
severance payments and the remainder is primarily for the write-off of non-
revenue assets. During fiscal 1999, approximately $4 million was utilized for
the write off of capitalized software and hardware and $5 million for employee
severance costs was charged against the reserve.
Additionally, the Company identified a number of older, less desirable marine
containers that it intends to sell over the period ending March 31, 2000, and as
a result recorded a depreciation charge during the second quarter of fiscal 1999
of $25 million to write down the containers to their estimated net realizable
value. In fiscal 1999, approximately 13,000 containers of the approximate 20,000
that were identified as held for disposal have been
79
<PAGE>
sold. The Company does not currently anticipate making any further investment in
the international container business.
Unusual Item: Costs Related to Terminated Merger
During the fourth quarter of fiscal 1998 and the first quarter of fiscal 1999,
XTRA recorded approximately $1 million in each quarter as an unusual item on the
income statement. These expenses were related to the terminated merger with
Wheels MergerCo.
Normalized Operating Results
Excluding the unusual charge, fiscal 1998 net income was unchanged at $60
million and diluted earnings per share would have been $3.91. Excluding the
unusual charge in the first quarter of fiscal 1999 and the one-time charges
included in operating expenses recorded in the second quarter of fiscal 1999,
net income and diluted earnings per share would have been $58 million and $4.16
for fiscal 1999.
Interest Expense
Interest expense is a function of the amount of average net debt outstanding
(long-term debt less cash) and average interest rates. The following table sets
forth total average net debt outstanding and interest expense as a percentage of
total average net debt outstanding.
<TABLE>
<CAPTION>
For the year ended September 30, 1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
Average net debt outstanding (millions of dollars) $ 837 $ 829 $ 882
Interest expense as a percentage of average net debt outstanding 6.9% 7.0% 7.1%
</TABLE>
In 1998, interest expense declined 8% or $5 million due primarily to a decrease
in average net debt outstanding as well as a lower average effective interest
rate. Interest expense in 1999 was unchanged from 1998 as slightly higher
average net debt outstanding was offset by a lower average effective interest
rate.
Foreign Exchange Gain (Loss)
The $2 million foreign exchange loss in 1998 was due to a strengthening of the
U.S. dollar against the Canadian and Mexican currencies. In 1999, the $1 million
foreign exchange gain was due to the U.S. dollar declining versus the Canadian
dollar. During 1999, the Company ceased accounting for its operations in Mexico
as a highly inflationary economy.
Pretax Income
In 1998, pretax income increased 39% or $28 million due to higher equipment
utilization, improved North American lease rates and lower expenses, including
interest expense. In 1999, pretax income, before one-time charges and an unusual
item declined 3% or $3 million primarily due to lower equipment utilization at
XTRA International.
Provision for Income Taxes
The Company's effective income tax rate was approximately 40% in 1999, 1998, and
1997. For additional information regarding the provision for income taxes, see
Notes 1 and 4 of the Notes to Consolidated Financial Statements.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
Significant capital investment is required by the Company's leasing operations,
not only for growth but also for replacement of units retired from service.
However, during periods of slower economic growth or excess equipment supplies,
capital expenditures may be curtailed until demand for transportation equipment
increases.
80
<PAGE>
The following table sets forth capital expenditures by equipment type, including
units acquired by acquisition, units purchased, and units leased-in from third
parties under operating leases and capital leases. The capital expenditures for
fiscal 2000 represent XTRA's commitments for 1999 as of November 5, 1999.
<TABLE>
(Millions of dollars) 2000 1999 1998 1997
-------------------------------------------
<S> <C> <C> <C> <C>
Over-the-road trailers $ 87 235 $ 176 $ 193
Intermodal trailers - - - -
Chassis - 16 6 2
Domestic containers - - - 18
Marine containers - - 10 30
Non-revenue equipment - 14 7 6
-------------------------------------------
Total $ 87 $ 265 $ 199 $ 249
===========================================
</TABLE>
The Company recognizes that managing capital spending is essential to
maintaining the quality of its fleet. The Company increases its fleet by
purchasing new and used equipment and by acquiring equipment from other leasing
companies. In 1998, capital expenditures declined slightly to $199 million,
partially as a result of the then pending merger agreement. The vast majority of
the 1998 capital expenditures was for over-the-road trailers. In 1999, due to
strong conditions in its North American businesses, capital expenditures
increased to $265 million, of which $235 million was for over-the-road trailers.
Fiscal 1999 capital expenditures include $50 million leased-in under an
operating lease. As of November 5, 1999, XTRA's committed capital expenditures
for fiscal 2000 amounted to $87 million. The Company may increase capital
spending in 2000 if conditions warrant. Actual capital expenditures for 2000
will depend on the Company's assessment of business conditions.
During the three years ended September 30, 1999, the Company generated $839
million of cash flow from operations. During this same period, XTRA invested
$713 million in property and equipment, paid dividends of $22 million,
repurchased $118 million of common stock, net of stock options exercised, and
reduced net debt (debt less cash) outstanding by $35 million. Capital
expenditures of $50 million were made through an off balance sheet lease
financing during fiscal 1999. See Note 5 of the Notes to Consolidated Financial
Statements.
During fiscal 1999, the Company repurchased approximately 2.7 million shares of
its common stock for approximately $111 million. Total shares repurchased in
1999 represent 17% of the total shares outstanding at the beginning of fiscal
1999.The Company authorized in September, 1999 the repurchase of up to an
additional $100 million of Company common stock.
Although some level of future capital spending can be financed internally, the
ability to fund expenditures above that level will depend upon the availability
of external financing. The Company historically has had available to it a
variety of external sources at favorable rates and terms to finance its
acquisitions and the growth of its leasing equipment fleet. However, the
availability of such capital depends heavily upon prevailing market conditions
and the Company's capital structure and credit ratings.
Currently, the Company's external financing options include a combination of
medium-term and long-term borrowings in the public and private debt market, a
revolving credit agreement, intermediate and long-term financing from banks and
institutional investors, and lease financing. XTRA and XTRA, Inc. have
registered with the Securities and Exchange Commission $604 million of
securities consisting of Preferred Stock and Company Common Stock of XTRA as
well as senior and subordinated debt securities of XTRA, Inc., fully and
unconditionally guaranteed by XTRA Corporation (the "Shelf Registration") (see
Note 3 of the Notes to Consolidated Financial Statements). As of November 5,
1999, XTRA, Inc. had $457 million available for issuance under this Shelf
Registration. As of November 5, 1999, the Company had $77 million of unused
committed credit available under its $225 million Revolving Credit Agreement.
For additional information regarding debt, see Note 3 of the Notes to
Consolidated Financial Statements.
Year 2000
The Company has completed an assessment of year 2000 risks at each of its
operating divisions. Detailed action plans were developed for critical
operational systems, purchased software, hardware components, and critical third
parties.
81
<PAGE>
Critical operational systems that were custom designed for their specific
business functions have been modified and tested for year 2000 compliance. These
modified systems have been installed and are currently being used in the day to
day business operations of the Company. Packaged software has been upgraded to a
year 2000 compliant version. Operating system upgrades have been made for
certain hardware components, while other hardware components were replaced.
The plans for critical operating systems, purchased software and hardware
components were completed in October 1999. A final comprehensive simulation was
then conducted to ensure that all integration of components in the information
systems infrastructure is year 2000 compliant and fully operational.
The Company has contacted critical vendors, suppliers, and customers with whom
the Company does business for a statement regarding their year 2000 readiness.
This communication process was completed during the fourth quarter of fiscal
1999. Based on the responses received, the Company is not aware of any third
party's year 2000 problems that would have a material adverse impact on the
Company. The Company has contingency plans in place for continuing its
operations in the event of any unforeseen interruptions. At this point, the
Company has not identified any required contingency plans that would require
material expenditures to be made.
In total, the Company has spent $1 million for its year 2000 efforts, which
encompasses assessing, modifying, and testing its internal information systems.
While the Company does not believe that the year 2000 matters discussed above
will have a material impact on its business, financial condition, or results of
operations, no assurances can be given as to what extent the Company may be
affected by such matters. The unavailability of the Company's internal
information systems for a sustained period of time or disruptions in the economy
generally resulting from year 2000 issues could have a materially adverse effect
on the Company.
New Accounting Pronouncements
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.
Also in fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No.131, "Disclosures about Segments of an Enterprise and Related
Information", which requires companies to present segment information based upon
the way that management organizes the segments within a company. Adoption of
this standard did not impact the Company's consolidated financial position,
result of operations, or cash flows; its effect was limited to the form and
content of the Company's disclosures.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed for or Obtained for Internal-Use". The provisions of the SOP
must be applied in financial statements for fiscal years beginning after
December 15, 1998 (Fiscal year 2000 for the Company). The SOP will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The Company
currently expenses such costs as incurred. The Company does not believe that the
adoption of the SOP will have a significant impact on the Company's future
earnings or financial position.
Cautionary Statements for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing Part I, Item 1. Business; Management's Discussion and Analysis of
Financial Condition and Results of Operations; and letter to our shareholders
contain certain forward-looking statements, including estimates of economic and
industry conditions, equipment utilization, and capital expenditures. In
addition, the Company may occasionally make forward-looking statements and
estimates such as forecasts and projections of the Company's future performance
or statements of management's plans and objectives. These forward-looking
82
<PAGE>
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 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, rental equipment lease financing expense, 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 or reduce fleet size in response to lower levels of
demand.
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.
83
<PAGE>
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, 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.
84
<PAGE>
Index to Financial Statements
EXHIBIT 13.3
XTRA Corporation and Subsidiaries
(Information required by Part II, Items 7 and 8 and Part IV. Item 14 of
Form 10-K)
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated balance sheets - September 30, 1999 and 1998 86
Consolidated income statements for the three years ended September 30, 1999 87
Consolidated statements of cash flows for the three years ended September 30, 1999 88
Management's discussion and analysis of financial condition and results of operations
for the three years ended September 30, 1999 77
Cautionary statements for purposes of the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995 82
Unaudited quarterly condensed consolidated statements of operations for the years ended
September 30, 1999 and 1998 89
Consolidated statements of stockholders' equity for the three years ended September 30, 1999 90
Notes to consolidated financial statements 91
Report of independent public accountants 104
Parent and subsidiaries 105
</TABLE>
85
<PAGE>
Consolidated Balance Sheets
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
September 30,
(Millions of dollars except
per share and share amounts) 1999 1998
----------------------------------------------------
<S> <C> <C>
Assets
Property and equipment $ 2,266 $ 2,200
Accumulated depreciation (827) (748)
---------------------
Net property and equipment 1,439 1,452
---------------------
Lease contracts receivable 38 42
Trade receivables, net 78 64
Other assets 14 14
Cash 4 3
---------------------
Total Assets $ 1,573 $ 1,575
=====================
Liabilities and Stockholders' Equity
Liabilities
Debt $ 852 $ 802
Deferred income taxes 309 287
Accounts payable and accrued expenses 75 78
---------------------
Total Liabilities 1,236 1,167
---------------------
Commitments and Contingencies (Note 5)
Stockholders' Equity
Preferred Stock, without par value; total authorized: 3,000,000 shares
Common Stock, par value $.50 per share; authorized: 30,000,000 shares
issued and outstanding: 12,812,400 shares at September 30, 1999;
15,372,903 shares at September 30, 1998 6 8
Capital in excess of par value - 57
Retained earnings 341 354
Unearned compensation - restricted stock (3) -
Accumulated other comprehensive income (7) (11)
---------------------
Total Stockholders' Equity 337 408
---------------------
Total Liabilities and Stockholders' Equity $1,573 $1,575
=====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
86
<PAGE>
Consolidated Income Statements
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the year ended September 30,
(Millions of dollars except
per share and share amounts) 1999 1998 1997
---------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 464 $ 461 $ 435
Operating Expenses
Depreciation on rental equipment 152 151 149
Rental equipment operating expense 113 108 109
Selling and administrative expense 45 42 43
Revenue equipment writedown 25 - -
Restructuring costs 13 - -
---------------------------------
Total Operating Expenses 348 301 301
---------------------------------
Operating Income 116 160 134
Interest expense 58 58 63
Foreign exchange (gain) loss (1) 2 -
---------------------------------
Income before provision for income
taxes and unusual item 59 100 71
Unusual item: costs related to terminated merger 1 1 -
---------------------------------
Pretax income 58 99 71
Provision for income taxes 23 39 28
---------------------------------
Net Income $ 35 $ 60 $ 43
=================================
Basic earnings per common share $2.49 $3.90 $2.79
Basic shares outstanding (in millions) 13.9 15.3 15.3
Diluted earnings per common share $2.49 $3.88 $2.78
Diluted shares outstanding (in millions) 13.9 15.4 15.3
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
87
<PAGE>
Consolidated Statements of Cash Flows
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the year ended September 30
(Millions of dollars) 1999 1998 1997
------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operations
Net Income $ 35 $ 60 $ 43
Add non-cash income and expense items:
Depreciation and amortization, net 151 150 148
Revenue equipment writedown 25 - -
Deferred income taxes, net 22 35 26
Bad debt expense 4 5 5
Add other cash items:
Net change in receivables, other assets, payables, and
accrued expenses (24) (7) (7)
Cash receipts on lease contracts receivable 25 24 21
Recovery of property and equipment net book value 39 26 33
-------------------------------------------
Total Cash Provided from Operations 277 293 269
-------------------------------------------
Cash Used for Investment Activities
Additions to property and equipment (215) (199) (249)
-------------------------------------------
Total Cash Used for Investment Activities (215) (199) (249)
-------------------------------------------
Cash Flows from Financing Activities
Borrowings of debt 75 - 72
Payments of debt (25) (90) (72)
Net proceeds from exercise of stock options - 5 1
Repurchase of common stock (111) - (13)
Dividends paid - (10) (12)
-------------------------------------------
Total Cash Used for Financing Activities (61) (95) (24)
-------------------------------------------
Net increase (decrease) in cash 1 (1) (4)
Cash at beginning of year 3 4 8
-------------------------------------------
Cash at end of year $ 4 $ 3 $ 4
===========================================
Total interest paid $ 58 $ 58 $ 59
Total income taxes paid (refunded) $ 2 $ 3 ($5)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
88
<PAGE>
Unaudited Quarterly Condensed Consolidated Statements of Operations
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the four quarters ended
September 30, 1999 and 1998
(Millions of dollars except First Second Third Fourth
per share amounts) Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------
<S> <C> <C>
1999
Revenues $ 123 $ 110 $ 111 $ 120
Expenses/(1)/ 93/(2)/ 129/(3)/ 93 91
--------------------------------------------------
Pretax income (loss) 30 (19) 18 29
Provision (benefit) for income taxes 12 (8) 7 12
--------------------------------------------------
Net income (loss) $ 18 ($11) $ 11 $ 17
==================================================
Basic earnings (loss) per common share $1.18 ($0.82) $0.85 $1.28
Basic shares outstanding (in millions) 15.4 13.9 13.2 13.0
Diluted earnings (loss) per common share $1.18 ($0.82) $0.85 $1.28
Diluted shares outstanding (in millions) 15.4 13.9 13.2 13.0
1998
Revenues $ 121 $ 109 $ 112 $ 119
Expenses/(1)/ 91 91 92 88/(4)/
--------------------------------------------------
Pretax income 30 18 20 31
Provision for income taxes 12 7 8 12
--------------------------------------------------
Net income $ 18 $ 11 $ 12 $ 19
==================================================
Basic earnings per common share $1.18 $ 0.71 $0.80 $1.20
Basic shares outstanding (in millions) 15.3 15.3 15.3 15.4
Diluted earnings per common share $1.17 $ 0.71 $0.80 $1.20
Diluted shares outstanding (in millions) 15.4 15.4 15.4 15.4
</TABLE>
(1) Includes operating and interest expenses.
(2) Includes a $1 million unusual charge related to the terminated merger.
(3) Includes $13 million of restructuring charges and a $25 million equipment
write-down charge.
(4) Includes a $1 million unusual charge related to the terminated merger.
89
<PAGE>
Consolidated Statements of Stockholders' Equity
XTRA Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the three years Common Capital in Unearned Accumulated
ended Stock Excess Compensation Other Total
September 30, 1999 $.50 Par of Par Retained On Restricted Comprehensive Stockholders'
(Millions of dollars) Value Value Earnings Stock Income/(1)/ Equity
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $ 8 $ 64 $273 $ - ($3) $ 342
Comprehensive income:
Net income - - 43 - - 43
Translation adjustment - - - - (1) (1)
-----
Total comprehensive income - - - - - 42
Common stock cash dividends declared
at $0.78 per share - - (12) - - (12)
Options exercised and related tax benefits - 1 - - - 1
Repurchase of common stock - (13) - - - (13)
-------------------------------------------------------------------------------
Balance at September 30, 1997 8 52 304 - (4) 360
Comprehensive Income:
Net income - - 60 - - 60
Translation adjustment - - - - (7) (7)
-----
Total comprehensive income - - - - - 53
Common stock cash dividends declared
at $0.64 per share - - (10) - - (10)
Options exercised and related tax benefits - 5 - - - 5
Repurchase of common stock - - - - - -
-------------------------------------------------------------------------------
Balance at September 30, 1998 8 57 354 (11) 408
Comprehensive income:
Net income - - 35 - - 35
Translation adjustment - - - 4 4
-----
Total comprehensive income - - - - - 39
Shares granted under restricted stock
plan, options exercised, and related
tax benefits, net - 4 - (4) - -
Amortization of unearned restricted stock - - 1 - 1
Repurchase of common stock (2) (61) (48) - - (111)
-------------------------------------------------------------------------------
Balance at September 30, 1999 $ 6 $ - $341 $(3) $ (7) $ 337
===============================================================================
</TABLE>
/(1)/ Other comprehensive income, for the Company, consists of the change in
cumulative translation adjustments during the period.
The accompanying notes are an integral part of these consolidated financial
statements.
90
<PAGE>
Notes to Consolidated Financial Statements
XTRA Corporation and Subsidiaries
1
- -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
XTRA Corporation leases, primarily on an operating basis, freight transportation
equipment including over-the-road trailers, intermodal trailers, chassis, and
domestic containers, and marine containers. XTRA leases over-the-road and
intermodal equipment throughout North America, predominantly within the United
States, to contract and common motor carriers, private fleet owners, and
railroads. In addition, the Company leases marine containers worldwide to
steamship lines.
Principles of Consolidation
The consolidated financial statements include the accounts of XTRA Corporation
and its wholly-owned subsidiaries (the "Company"). All material intercompany
accounts and transactions have been eliminated. Certain amounts in the prior
year financial statements have been reclassified to be consistent with the
current year's presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Income Taxes
Provisions for income taxes recognize the tax effect of all revenue and expense
transactions as well as any change during the period in deferred tax assets and
liabilities. The effects of changes in tax rates and laws on deferred tax assets
and liabilities are reflected in net income in the period in which such changes
are enacted.
Leases
The Company records the majority of its leases using the operating method of
accounting. Full-payout or near full-payout leases, where the present value of
the of the minimum lease payments at the beginning of the lease term equals or
exceeds 90% of the fair value of the leased property, are accounted for under
the finance method.
Depreciation
The Company provides for depreciation by using the straight-line method to
amortize the cost of property and equipment to its estimated residual value over
its estimated useful life. Revenue equipment is depreciated using estimated
useful lives of 10 to 20 years. In addition, the Company reviews the condition
and types of its revenue equipment to determine if any impairment has occurred.
When equipment is sold or retired, its cost and accumulated depreciation are
removed from the balance sheet and any gain or loss is included in revenues.
Revenue equipment with an original cost of approximately $141 million, which has
reached the end of its estimated useful life, remains in service and is included
in Revenue Equipment at September 30, 1999.
Equipment and Real Estate Disposals
For purposes of the statements of cash flows, the total proceeds from the
continuous disposal of fleet assets is reflected in cash flow from operations
and the gain or loss is included in revenues in the income statement. Gain or
loss from the sales of real estate are included in the income statement in
rental equipment operating expense. Gains on the sale of real estate were $1
million in fiscal 1999.
91
<PAGE>
Repair and Maintenance
Repair and maintenance expenses are charged to operating expenses when incurred
and amounted to $29 million, $28 million, and $29 million in 1999, 1998, and
1997, respectively.
Earnings per Share
Basic earnings per is computed by dividing income available to common
stockholders by weighted average shares outstanding. Diluted earnings per share
reflects the effect of all other outstanding common stock equivalents using the
treasury stock method.
Foreign Currency Translation
The Company translates the assets and liabilities of its foreign operations at
the exchange rates in effect at year-end. Revenues and expenses are translated
using average exchange rates in effect during the year. Gains and losses from
foreign currency translation for the Company's Canadian operations are credited
or charged to cumulative translation adjustment included in stockholders' equity
in the accompanying Consolidated Balance Sheets. The gains and losses from
remeasurement of certain intercompany liabilities of the Company's Canadian
businesses are included in foreign exchange gain or loss. The Company's
operations in Mexico were accounted for as a highly inflationary economy in
fiscal 1997 and 1998 and, accordingly, all translation gains and losses were
charged to foreign exchange loss. In fiscal 1999, the Company's operations in
Mexico ceased being accounted for as a highly inflationary economy and,
accordingly, all translation gains and losses are credited or charged to
cumulative translation adjustment, and included in stockholder's equity.
2
- -
EQUIPMENT LEASES
The Company uses the operating method of accounting for the majority of its
equipment leases. Under this method, revenue is recognized in the month earned
based on the terms of the lease contract, and the equipment is depreciated to
its estimated residual value over its estimated useful life.
The finance method of accounting is used for revenue equipment leased to
customers on a full-payout or near full-payout basis at lease inception. Under
this method, finance lease income, the difference between the total lease
receivable and the net book value less the residual value of the related
equipment, is deferred and amortized as revenue over the lease term using the
interest method, which provides a level rate of return on the net investment in
the lease.
The following schedule summarizes the future minimum rental receipts on
operating and finance leases by year as of September 30, 1999:
<TABLE>
<CAPTION>
Operating Finance
(Millions of dollars) Leases Leases
-------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $114 $21
2001 54 13
2002 38 6
2003 23 2
2004 12 1
2005 and thereafter 4 2
---------------------------
Total $245 $45
===========================
</TABLE>
92
<PAGE>
The components of the net investment in finance leases as of September 30, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C>
Minimum lease payments receivable $ 45 $ 51
Add: estimated residual values 7 7
------------------------------
52 58
Less: deferred finance lease income (14) (16)
Lease contracts receivable, net $ 38 $ 42
==============================
</TABLE>
3
- -
DEBT
Debt as of September 30, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998
------------------------------------------------------------------------------------------
Unsecured financing
<S> <C> <C>
Medium-term Notes $ 673 $ 656
Revolving Credit Agreement 169 128
----------------------------
Total unsecured financing 842 784
Secured financing 10 18
Total debt 852 802
Less: current portion (94) (72)
----------------------------
Long-term debt $ 758 $ 730
============================
</TABLE>
The $673 million of Medium-term Notes have a weighted average interest rate of
7.0% and maturities from fiscal years 2000 to 2019. At September 30, 1999, $457
million remained available under the shelf registration for future debt
issuance. The weighted average interest rate incurred was 7.0% during 1999,
1998, and 1997.
The Company's Revolving Credit Agreement has bank commitments of $225 million at
September 30, 1999 and a revolving period maturity date of June 30, 2001.
Pricing on the Revolving Credit Agreement is dependent on the Company's credit
ratings and is based on a fixed spread over the London Interbank Offered Rate
(LIBOR). The Company pays a facility fee on any unused commitment in the
facility.
Unless the Company requests and the banks approve a renewal or extension of the
agreement, borrowings outstanding on the revolving period maturity date will be
converted to a five year term loan payable in equal quarterly installments with
a final term maturity in June 30, 2006.
The Company borrows on a short-term basis by issuing commercial paper and using
uncommitted lines of credit. Short-term borrowings are back-stopped by the
unused borrowing capacity under the Revolving Credit Agreement. They have
therefore been classified as Revolving Credit Agreement borrowings. At September
30, 1999 and September 30, 1998, such borrowings amounted to $169 million and
$128 million, respectively. At September 30, 1999, the $169 million of Revolving
Credit Agreement borrowings had a weighted average interest rate of 5.6%. The
weighted average interest rates incurred under the Revolving Credit Agreement,
consisting primarily of short-term borrowings, were 5.2%, 5.8%, and 5.7% during
1999, 1998, and 1997, respectively. At September 30, 1999, $56 million of unused
commitment was available under the Revolving Credit Agreement.
The secured financing at September 30, 1999, consisting of capital lease
obligations, had a weighted average interest rate of 8.9% and is payable in
installments through 2001. The weighted average interest rates incurred under
the secured financing were 8.5%, 9.1%, and 10.0% during 1999, 1998, and 1997,
respectively.
93
<PAGE>
Revenue equipment recorded on the consolidated balance sheets related to secured
financing was as follows at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue equipment $ 29 $ 41
Accumulated depreciation (17) (22)
----------------------------------
Net secured equipment $ 12 $ 19
==================================
</TABLE>
Assuming the Company were to convert the Revolving Credit Agreement to a term
loan on its revolving period maturity date, the amount of minimum maturities of
all debt during each of the next five fiscal years and thereafter would be as
follows:
<TABLE>
<CAPTION>
Minimum
Debt
(Millions of dollars) Maturities
- -------------------------------------------------------------------------------------------------------
<S> <C>
2000 $ 94
2001 102
2002 116
2003 103
2004 58
2005 and thereafter 379
---------------
Total payments and maturities $852
===============
</TABLE>
The Company's loan agreements contain minimum debt service tests and restrictive
covenants including restrictions on the amount of debt in relation to revenue
equipment and stockholders' equity and limitations on secured borrowings. The
Company's loan agreements contain covenants that restrict the payment of
dividends or repurchases of common stock by the Company. In addition, certain
loan agreements contain covenants that restrict advances to and the payment of
dividends to the Company by its subsidiaries, including XTRA, Inc. Under the
most restrictive provisions of the Company's loan agreements, the combined
amount of repurchase of common stock and cash dividends which could be paid on
the Company's capital stock was limited to $96 million at September 30, 1999.
Since the termination of the merger agreement, the Company has not paid
dividends and has no current plans to do so.
94
<PAGE>
4
- -
INCOME TAXES
The components of the provision for income taxes for 1999, 1998, and 1997 are as
follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision
Federal $ - $ 2 $ 1
State 1 2 1
----------------------
Current tax provision 1 4 2
----------------------
Deferred tax provision
Federal 19 30 22
State 3 5 4
----------------------
Deferred tax provision 22 35 26
----------------------
Provision for income taxes $ 23 $ 39 $ 28
======================
</TABLE>
The provision differs from income taxes currently payable because certain items
of income and expense are recognized in different periods for financial
statement purposes than for tax return purposes.
The reasons for the difference between the statutory U.S. Federal income tax
rates and the Company's effective income tax rates for 1999, 1998, and 1997 are
as follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 35% 35%
Increase in taxes resulting from:
State taxes and other 5 5 5
---------------------------
Effective income tax rate 40% 40% 40%
===========================
</TABLE>
The components of the net deferred tax liability as of September 30, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Assets
Capital lease obligations $ 3 $ 7
Investment tax credits 1 1
Alternative minimum tax credits 21 22
Other 19 16
----------------
Total deferred tax assets $ 44 $ 46
================
Liabilities
Revenue equipment $ 330 $ 312
Other 23 21
----------------
Total deferred tax liabilities 353 333
----------------
Net deferred tax liability $ 309 $ 287
================
</TABLE>
The Company estimates that after filing its fiscal 1999 tax return, it will have
$1 million of investment tax credit carryforwards available to reduce future
federal income tax liabilities. The investment tax credit carryforwards in 2001.
The Company also estimates that after filing its fiscal 1999 tax return, it will
have $21 million of alternative minimum tax credit carry forwards available to
reduce future federal income tax liabilities. The benefit of both tax credit
carry forwards has been recorded in the Company's financial statements. The
Company has not recognized a valuation allowance for deferred tax assets.
95
<PAGE>
5
- -
COMMITMENTS AND CONTINGENCIES
The Company's offices and certain facilities are occupied under leases expiring
at various dates. In addition, the Company has leased certain revenue equipment
with an original cost of $50 million under a ten year operating lease expiring
in 2009.
At September 30, 1999, the Company's lease commitments under the non-cancelable
portion of these leases for the next five years and in total thereafter were as
follows:
<TABLE>
<CAPTION>
Revenue Office Total Lease
(Millions of dollars) Equipment Facilities Commitments
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 7 $ 5 $ 12
2001 5 5 10
2002 5 4 9
2003 5 4 9
2004 6 3 9
2005 and thereafter 31 5 36
-----------------------------------------
Total $ 59 $ 26 $ 85
=========================================
</TABLE>
Rental equipment lease financing expense amounted to $1 million in 1999 and
1997, respectively, which is included in the income statement under the caption
"Depreciation on rental equipment." Other rental expense amounted to $6 million,
in 1999, 1998, and 1997, respectively.
As of November 5 1999, the Company had committed capital expenditures of $87
million, principally for over-the-road trailers, in fisca1 2000.
The Illinois Environmental Protection Agency has notified the Company of alleged
environmental contamination of its Fairmont City, Illinois property that
resulted from the prior owners' zinc smelting operations. As a result, the
Company has taken certain actions to suppress dust that have significantly
reduced the level of airborne contaminants at the site. Based on the Company's
current understanding of the nature of the contamination at the site, the
Company does not believe that the ultimate resolution of this matter will have a
material adverse effect on the Company's results of operations, cash flows or
financial condition.
6
- -
RETIREMENT PLANS
The Company provides retirement benefits to substantially all of its employees
through a qualified and funded defined contribution retirement plan. The
Company's yearly profit sharing contributions are discretionary and include an
employee-matching contribution to a 401(k) plan and a profit sharing
contribution and are based on a specified percentage of employee qualified
compensation. The retirement trust fund's assets are administered by a trustee.
Participants are entitled to their vested portion of the retirement assets upon
termination of employment. The Company recorded expenses of $2 million each year
in 1999, 1998, and 1997 in connection with the defined contribution retirement
plan.
96
<PAGE>
7
- -
SEGMENT AND GEOGRAPHIC INFORMATION
In 1999, the Company adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of a Business Enterprise and Related
Information," which establishes standards for reporting information about
reportable operating segments. The Company's operating divisions and related
transportation equipment, in applying the aggregation criteria of SFAS 131, have
been aggregated into two reportable segments; North America and International.
The North America reporting segment consists of the Company's XTRA Lease and
Intermodal divisions that lease over-the-road and intermodal equipment
predominantly within the United States. The International division leases marine
containers worldwide. Information about the Company's reportable segments and
geographic segments is presented in the tables below.
<TABLE>
<CAPTION>
Segment Information:
- -------------------
North
(Dollars in millions) America International Total
<S> <C> <C> <C>
1999:
Revenues $ 401 $ 63 $ 464
Depreciation expense 122 30 152
Interest expense 44 14 58
Non-recurring charges 5 34 39
Pretax income (loss) 105 (47) 58
Capital expenditures (including $50 million leased-in under an 265 - 265
operating lease)
Total segment assets at September 30, 1999 1,238 335 1,573
1998:
Revenues $ 381 $ 80 $ 461
Depreciation expense 118 33 151
Interest expense 42 16 58
Non-recurring charges 1 - 1
Pretax income 97 2 99
Capital expenditures 189 10 199
Total segment assets at September 30,1998 1,165 410 1,575
1997:
Revenues $ 359 $ 76 $ 435
Depreciation expense 117 32 149
Interest expense 45 18 63
Pretax income (loss) 76 (5) 71
Capital expenditures 219 30 249
Total segment assets at September 30, 1997 1,150 435 1,585
Geographic information: 1999 1998 1997
- ---------------------- ------------------------------------
Revenues United States $ 371 $ 352 $ 331
Other countries 93 109 104
------------------------------------
Total revenues $ 464 $ 461 $ 435
====================================
Assets United States $1,119 $1,064 $1,060
Other countries 454 511 525
------------------------------------
Total assets $1,573 $1,575 $1,585
====================================
</TABLE>
97
<PAGE>
8
- -
COMMON STOCK
Repurchase of Common Stock
The Company had authorized the repurchase of up to $200 million of its common
stock in 1995 and 1996. As of November 5, 1999, the Company had repurchased $189
million of common stock under the $200 million authorization. In September,
1999, the Company approved a new $100 million stock repurchase authorization,
which becomes effective upon the completion of the $200 million stock purchase
authorization. The timing of the repurchases, which could occur over an extended
period of time, will depend on price, market conditions, and other factors.
1998 General Stock Incentive Plan
The 1998 General Stock Incentive Plan authorizes the issuance of 150,000 shares
of common stock under the Plan. The Plan allows the Company to grant awards to
non-executive employees including stock options, stock appreciation rights, and
restricted stock awards, subject primarily to the requirement of continuing
employment. The awards under this plan are available for grant over a period of
ten years from the date on which the plan was adopted, but the grants may vest
beyond the ten-year period. Stock options issued by the Company are exercisable
at a future time as specified by the Company and generally expire from five to
ten years from the date of grant. The exercise price of stock options may not be
less than the fair market value of the common stock at the date of grant.
1997 Stock Incentive Plan
The 1997 Stock Incentive Plan authorizes the issuance of 500,000 shares of
common stock under the Plan. The Plan allows the Company to grant awards to key
employees including restricted stock awards, stock options, and stock
appreciation rights, subject primarily to the requirement of continuing
employment. The awards under this plan are available for grant over a period of
ten years from the date on which the plan was adopted, but the grants may vest
beyond the ten-year period. Stock options issued by the Company are exercisable
at a future time as specified by the Company and generally expire from five to
ten years from the date of grant. The exercise price of stock options may not be
less than the fair market value of the common stock at the date of grant.
1991 Stock Option Plan for Non-Employee Directors
The 1991 Stock Option Plan for Non-Employee Directors authorizes the granting of
options for a maximum of 100,000 shares. The option price per share is equal to
the fair market value of the common stock on the date of grant. The term of each
option is five years and options become exercisable one year after the date of
grant.
The XTRA Corporation Deferred Director Fee Option Plan
The Deferred Director Fee Option Plan allows a non-employee director to elect to
receive, in lieu of his annual retainer fee and/or board and committee meeting
fees, a non-qualified stock option. The option exercise price is 50% of the fair
market value of the shares at the time the options are awarded and the amount of
shares is determined by dividing the director's fees by the exercise price.
1987 Stock Incentive Plan
The 1987 Stock Incentive Plan, which expired November 1997, authorized the
issuance of 1,150,000 shares of common stock under the plan. The Plan allowed
the Company to grant awards to key employees including restricted stock awards,
stock options, and stock appreciation rights, subject primarily to the
requirement of continuing employment. The awards under this plan were available
for grant over a period of ten years from the date on which the plan was
adopted, but grants were allowed to vest beyond the ten year period. Stock
options issued by the Company are exercisable at a future time as specified by
the Company and generally expire from five to ten years from the date of grant.
The exercise price of stock options may not be less than the fair market value
of the common stock at the date of grant.
Under the Stock Incentive Plans, the Company is authorized to grant shares of
restricted stock to employees. No monetary consideration is paid by employees
who receive restricted stock. Restricted stock can be granted with or without
performance restrictions. In 1999, the Company granted 87,750 shares of
restricted stock under the 1997 Stock Incentive Plan at an average market value
of $46.34 per share and recorded the total market value of
98
<PAGE>
the shares granted as unearned compensation in the Statement of Stockholders'
Equity. The unearned compensation is being amortized to expense over the three
year vesting period. Restricted stock compensation charged to expense in 1999
was $1 million.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 123 (SFAS 123), "Accounting for Stock-
Based Compensation," which sets forth a fair value based method of recognizing
stock-based compensation expense. As permitted by SFAS 123, the Company has
elected to continue to apply APB No.25, "Accounting for Stock Issued to
Employees", to account for its stock-based compensation plans.
Had the compensation cost for these plans been determined according to SFAS 123,
the Company's net income and earnings per share would have been the following
pro forma amounts:
<TABLE>
<CAPTION>
(Millions of dollars, except
per share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income
As reported $ 35 $ 60 $ 43
Pro forma 33 59 41
Basic EPS
As reported $2.49 $3.90 $2.79
Pro forma 2.40 3.87 2.72
Diluted EPS
As reported 2.49 3.88 2.78
Pro forma 2.40 3.86 2.71
</TABLE>
Because SFAS 123 does not require a fair value based method of accounting to be
applied to options granted prior to October 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
For purposes of the pro forma disclosure, the fair value of each option is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumptions:
Volatility 26.0% 20.1% 20.1%
Risk-free interest rate 5.7% 4.4% 5.8%
Dividend yield - 1.8% 1.8%
Expected life of options (years) 3 3 3
Weighted average grant date fair value of options granted under the:
1998 general stock option plan $11.85
1997 stock incentive plan 11.78 $8.59
Deferred director fee option plan 7.56 4.92 $4.02
1991 stock option plan for non-employee directors 10.04 9.86 8.29
1987 stock incentive plan 9.32
</TABLE>
99
<PAGE>
The following table summarizes the stock option transactions pursuant to the
Company's stock incentive and stock option plans for the three-year period ended
September 30, 1999:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
(000s) Per Share ($)
<S> <C> <C>
Options outstanding at September 30, 1996 640 $48.27
Granted 262 50.05
Exercised (30) 34.95
Forfeited (64) 50.04
-------------------------------------------
Options outstanding at September 30, 1997 808 49.10
Granted 95 52.52
Exercised (96) 45.03
Forfeited (14) 47.17
-------------------------------------------
Options outstanding at September 30, 1998 793 49.95
Granted 424 46.00
Exercised (5) 39.28
Forfeited (149) 45.68
-------------------------------------------
Options outstanding at September 30, 1999 1,063 48.28
Exercisable options at September 30, 1999 822 49.01
Shares available for grant at September 30, 1999 316
===============================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ --------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
at 9/30/99 Contractual Exercise at 9/30/99 Exercise
(000s) Life (Years) Price (000s) Price
------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C>
Range of exercise price
$19.75 to $29.88 11 1.8 $22.41 11 $22.41
$39.00 to $60.44 1052 1.4 48.54 811 49.38
------------------------------------------ --------------------------
Total 1063 1.4 48.28 822 49.01
========================================== ==========================
</TABLE>
100
<PAGE>
9
- -
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Short-term Investments
The carrying amount approximates fair value because of the short maturity of
those instruments.
Debt
The fair value of the Company's fixed rate debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The fair value of the
Company's floating rate debt is its carrying amount.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
As of September 30, Carrying Fair
(Millions of dollars) Amount Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Cash and short-term investments $ 4 $ 4
Debt 852 855
1998
Cash and short-term investments $ 3 $ 3
Debt 802 866
</TABLE>
10
- --
1999 ONE TIME CHARGES
XTRA recorded a one-time charge of $13 million during the second quarter of
fiscal 1999 for establishing a Shared Service Center and restructuring its
marine container operations. During fiscal 1999, approximately $12 million was
charged against the reserve leaving a reserve balance at September 30, 1999 of
$1 million. Included in the amounts charged to the restructuring reserve were $6
million of severance payments, $4 million of equipment write-downs and $2
million related to facility shutdowns.
The Company recorded a $25 million charge during the second quarter to write
down 20,000 marine containers that are targeted for disposal to their estimated
realizable value. Through September 30, 1999, approximately 13,000 units have
been sold with a resulting loss of $16 million that has been charged against
this reserve.
11
- --
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts as of September 30, 1999, 1998, and 1997
consists of the following:
<TABLE>
<CAPTION>
For the three years ended September 30,
(Millions of dollars) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 16 $ 14 $ 13
Additions charged to operating expenses 4 5 5
Deductions /(1)/ (6) (3) (4)
----------------------------
Balance at end of year $ 14 $ 16 $ 14
============================
</TABLE>
/(1)/ Amounts charged against reserves, net of recoveries.
101
<PAGE>
12
- --
SELECTED FINANCIAL DATA OF SIGNIFICANT SUBSIDIARY
The condensed consolidated data for XTRA, Inc., a wholly-owned subsidiary of
XTRA Corporation, included in the consolidated financial information of the
Company, is summarized below:
<TABLE>
<CAPTION>
For the three years ended September 30,
(Millions of dollars) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Data
Revenues $ 464 $ 461 $ 435
Pretax income 61 99 71
Net income 38 59 43
Selected Balance Sheet Data
Receivables, net $ 115 $ 106 $ 108
Net property and equipment 1,435 1,452 1,454
Other assets 18 17 23
-------------------------
Total assets $1,568 $1,575 $1,585
=========================
Debt $ 852 $ 802 $ 892
Deferred income taxes 309 287 252
Other liabilities 72 84 86
-------------------------
Total liabilities 1,233 1,173 1,230
Stockholders' equity 335 402 355
-------------------------
Total liabilities and stockholders' equity $1,568 $1,575 $1,585
=========================
</TABLE>
13
- --
BASIC AND DILUTED EARNINGS PER SHARE
The following tables provide a reconciliation of the numerators and denominators
of basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
Year ended September 30, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (in millions) (numerator) $ 35 $ 60 $ 43
Computation of Basic Shares Outstanding
(in thousands, except per share amounts)
Weighted average number of basic shares
outstanding (denominator) 13,865 15,319 15,268
Basic earnings per common share $ 2.49 $ 3.90 $ 2.79
Computation of Diluted Shares Outstanding
(in thousands, except per share amounts)
Weighted average number of basic shares outstanding 13,865 15,319 15,268
Common Stock equivalents for diluted
shares outstanding 7 72 18
Weighted average number of diluted shares
outstanding (denominator) 13,872 15,391 15,286
Diluted earnings per common share $ 2.49 $ 3.88 $ 2.78
- --------------------------------------------------------------------------------------------------------
</TABLE>
102
<PAGE>
14
- --
TERMINATION OF RECAPITALIZATION MERGER
XTRA entered into an Agreement and Plan of Merger and Recapitalization dated as
of June 18, 1998, as amended and restated as of July 31, 1998, with Wheels
MergerCo LLC ("MergerCo"). MergerCo was a newly organized Delaware limited
liability company formed by Apollo Management IV, L.P. and Atlas Capital
Partners LLC, an affiliate of Interpool, Inc. On November 25, 1998, the Company
and MergerCo mutually agreed to terminate their existing merger agreement.
Previously, MergerCo had indicated that due to market conditions it did not
believe it would be able to obtain the financing necessary to complete the
transaction.
103
<PAGE>
Report of Independent Public Accountants
To the Stockholders of XTRA Corporation:
We have audited the accompanying consolidated balance sheets of XTRA Corporation
(a Delaware corporation) and subsidiaries as of September 30, 1999, and 1998,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of XTRA Corporation and
subsidiaries as of September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
November 5, 1999
104
<PAGE>
EXHIBIT 21
PARENT AND SUBSIDIARIES*
Name State or Province of Incorporation
- --------------------------------------------------------------------------------
XTRA Corporation Delaware
Subsidiary of XTRA Corporation
XTRA, Inc. Maine
Subsidiaries of XTRA, Inc.
XTRA Intermodal, Inc. Delaware
XTRA International Ltd. Delaware
XTRA Mexicana, S.A. de C.V. Mexico
Distribution International Corporation Delaware
Subsidiaries of Distribution Internationa1 Corporation
Strick Canada Limited Ontario
XTRA Lease, Inc. Delaware
*Certain inactive subsidiaries have been omitted.
105
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (No. 33-41360, No. 33-
57609, No. 33-57607, No. 33-45564, No. 333-27783 and No 333-92175) and on Form
S-3 (No. 33-54747 and No. 33-65293).
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 13, 1999
106
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF XTRA CORPORATION FOR THE PERIOD
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1999
<CASH> 4,000,000
<SECURITIES> 0
<RECEIVABLES> 130,000,000
<ALLOWANCES> 14,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,266,000,000
<DEPRECIATION> 827,000,000
<TOTAL-ASSETS> 1,573,000,000
<CURRENT-LIABILITIES> 0
<BONDS> 852,000,000
0
0
<COMMON> 6,000,000
<OTHER-SE> 331,000,000
<TOTAL-LIABILITY-AND-EQUITY> 1,573,000,000
<SALES> 0
<TOTAL-REVENUES> 464,000,000
<CGS> 0
<TOTAL-COSTS> 348,000,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,000,000
<INCOME-PRETAX> 58,000,000
<INCOME-TAX> 23,000,000
<INCOME-CONTINUING> 35,000,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,000,000
<EPS-BASIC> 2.49
<EPS-DILUTED> 2.49
</TABLE>
