<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 2000
----------------------------------------------------
Commission File Number 1-7654
---------------------------------------------------------
XTRA CORPORATION
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-0954158
---------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Nyala Farms Road, Westport, Connecticut 06880
-------------------------------------------------------------------------------
(Address of principal executive offices)
(203) 221-1005
-------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
_______________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 2000
----------------------- ----------------------------
Common Stock, Par Value 12,089,072
$.50 Per Share
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
---------------------
Item 1. Financial Statements
--------------------
Management Representation.............................................. 3
Consolidated Balance Sheets
June 30, 2000 and September 30, 1999................................. 4
Consolidated Statements of Operations
For the Three Months and Nine Months Ended
June 30, 2000 and 1999............................................... 5
Consolidated Statements of Cash Flows
For the Nine Months Ended
June 30, 2000 and 1999............................................... 6
Consolidated Statements of Stockholders' Equity
For the Nine Months Ended
June 30, 2000 and 1999............................................... 7
Notes to Consolidated Financial Statements............................. 8
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations.......................... 12
---------------------------------------------
Item 3. Quantitative and Qualitative Disclosures about Market Risk............. 20
----------------------------------------------------------
Part II. Other Information
-----------------
Item 5. Other Matters................................................. 21
Item 6. Exhibits and Reports on Form 8-K.............................. 23
Signatures ....................................................... 24
Exhibit Index ....................................................... 25
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
XTRA CORPORATION AND SUBSIDIARIES
ITEM 1 - MANAGEMENT REPRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that the disclosures are adequate to
make the information presented not misleading.
The Board of Directors is assisted in its review of financial statements by
its Audit Committee, composed of non-employee Directors. During the year, the
Committee meets periodically with both management and the independent public
accountants to oversee each in carrying out its responsibilities. The
independent public accountants have full and free access to the Audit Committee
and meet with its members, with and without management being present, to discuss
auditing and financial reporting matters.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's latest Annual Report
on Form 10-K.
This financial information reflects, in the opinion of management, all
adjustments consisting of only normal recurring adjustments necessary to present
fairly the results for the interim periods. The results of operations for such
interim periods are not necessarily indicative of the results to be expected for
the full year.
3
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of dollars)
<TABLE>
<CAPTION>
June 30,
2000 September 30,
(unaudited) 1999 (1)
------------- --------------
------------- --------------
<S> <C> <C>
Assets
Property and equipment $ 2,312 $ 2,266
Accumulated depreciation (862) (827)
------------- --------------
Net property and equipment 1,450 1,439
Lease contracts receivable 32 38
Trade receivables, net 79 79
Other assets 19 14
Cash 3 3
------------- --------------
$ 1,583 $ 1,573
============= ==============
Liabilities and Stockholder's Equity
------------------------------------
Liabilities:
Debt $ 822 $ 852
Deferred income taxes 339 309
Accounts payable and accrued expenses 68 75
------------- --------------
Total liabilities 1,229 1,236
------------- --------------
Commitments and contingencies:
Stockholders' equity:
Common stock, par value $.50 per share; authorized
30,000,000 shares; issued and outstanding;
12,089,072 shares at June 30, 2000
and 12,812,400 shares at September 30, 1999 6 6
Capital in excess of par value 1 -
Retained earnings 358 341
Unearned compensation - restricted stock (2) (3)
Accumulated other comprehensive income (9) (7)
------------- --------------
Total stockholders' equity 354 337
------------- --------------
$ 1,583 $ 1,573
============= ==============
</TABLE>
/(1)/ Derived from XTRA Corporation's audited September 30, 1999 financial
statements.
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Millions of dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
---------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues $ 116 $ 111 $ 358 $ 343
Operating expenses
Depreciation on rental equipment 38 38 113 114
Rental equipment lease financing expense 2 - 6 -
Rental equipment operating expenses 26 28 81 80
Selling and administrative expense 12 12 35 37
Revenue equipment writedown - - - 25
Restructuring costs - - - 13
---------- --------- --------- --------
78 78 235 269
---------- --------- --------- --------
Operating income 38 33 123 74
Interest expense 15 15 44 43
---------- --------- --------- --------
Income from operations before provision
for income taxes and unusual item 23 18 79 31
Unusual item: costs related to terminated merger - - - 1
---------- --------- --------- --------
Pretax income 23 18 79 30
Provision for income taxes 9 7 31 12
---------- --------- --------- --------
Net income $ 14 $ 11 $ 48 $ 18
========== ========= ========= ========
Basic earnings per common share $ 1.15 $ 0.85 $ 3.90 $ 1.26
Basic common shares outstanding (in millions) 12.0 13.2 12.2 14.2
Diluted earnings per common share $ 1.15 $ 0.85 $ 3.89 $ 1.26
Diluted common shares outstanding (in millions) 12.1 13.2 12.2 14.2
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
2000 1999
----------- ----------
<S> <C> <C>
Cash flows from operations:
Net income $ 48 $ 18
Add non-cash income and expense items:
Depreciation and amortization, net 113 112
Restructuring charges and revenue equipment writedown - 38
Deferred income taxes, net 30 12
Bad debt expense 4 3
Add other cash items:
Net change in receivables, other assets,
payables and accrued expenses (19) (21)
Cash receipts from lease contracts receivable 19 19
Recovery of property and equipment net book value 38 17
----------- -----------
Total cash provided from operations 233 198
----------- -----------
Cash used for investment activities:
Additions to property and equipment (173) (171)
----------- -----------
Total cash used for investing activities (173) (171)
----------- -----------
Cash flows from financing activities:
Borrowings of long-term debt 70 75
Payments of long-term debt (101) (11)
Repurchase of common stock (30) (90)
Options exercised and related tax benefits 1 -
----------- -----------
Total cash used for financing activities (60) (26)
----------- -----------
Net increase in cash - 1
Cash at beginning of period 3 3
----------- -----------
Cash at end of period $ 3 $ 4
=========== ===========
Total interest paid $ 50 $ 51
Total net income taxes paid $ 1 $ 2
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
6
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine months ended June 30, 2000 and 1999
(Millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Common Unearned Accumulated
Stock Capital in Compensation- Other Total
$ 0.50 Excess of Retained Restricted Comprehensive Stockholders'
Par Value Par Value Earnings Stock Income Equity
--------- ---------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 8 $ 57 $ 354 $ - $ (11) $ 408
Comprehensive Income:
Net income - - 18 - - 18
Foreign currency translation adjustment - - - - 3 3
Total comprehensive income - - - - - 21
Shares granted under restricted stock plan,
options exercised, forfeitures, and related
tax benefits - 3 - - - 3
Common stock repurchased (1) (60) (29) - - (90)
--------- ---------- -------- ------------- ------------- -------------
Balance at June 30, 1999 $ 7 $ - $ 343 $ - $ (8) $ 342
========= ========== ======== ============= ============= =============
Balance at September 30, 1999 $ 6 $ - $ 341 $ (3) $ (7) 337
Comprehensive Income:
Net income - - 48 - - 48
Foreign currency translation adjustment (2) (2)
Total comprehensive income - - - - - 46
Shares granted under restricted stock plan,
options exercised, forfeitures, and related
tax benefits - 1 (1) 1 - 1
Common stock repurchased - - (30) - - (30)
--------- ---------- -------- ------------- ------------- -------------
Balance at June 30, 2000 $ 6 $ 1 $ 358 $ (2) $ (9) $ 354
========= ========== ======== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
7
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The consolidated financial statements include the accounts of XTRA
Corporation and its wholly owned subsidiaries (the "Company"). All
material intercompany accounts and transactions have been eliminated.
Certain amounts in prior period financial statements have been
reclassified to be consistent with the current period's presentation.
(2) The effective income tax rates used in the interim financial statements
are estimates of the fiscal years' rates. The effective income tax rate
for fiscal 1999 was 40%. For fiscal 2000, the Company is recording a
provision for income taxes using an estimated effective income tax rate
of 39.5%. The Company's effective income tax rate for fiscal 1999 and its
estimated effective income tax rate for fiscal 2000 are higher than the
statutory U.S. Federal income tax rate due primarily to state income
taxes.
(3) The Company's long-term debt includes a current portion of $97 million at
June 30, 2000 and $94 million at September 30, 1999.
At June 30, 2000, the Company had $387 million remaining available under
its current shelf registration for future debt issuance. The Company had
$134 million of unused credit available under its $250 million Revolving
Credit Agreement at June 30, 2000.
8
<PAGE>
(4) XTRA Corporation's assets consist substantially of the aggregate assets,
liabilities, earnings and equity of XTRA, Inc., a wholly-owned direct
subsidiary. XTRA Corporation generally guarantees the debt of XTRA, Inc.
The condensed consolidated financial data for XTRA, Inc. included in the
consolidated financial information of the Company is summarized below:
(unaudited)
Selected Balance Sheet Data: June 30, September 30,
----------------------------
(Millions of dollars) 2000 1999
--------- ------------
Net property and equipment $ 1,441 $ 1,435
Receivables, net 111 115
Other assets 22 18
--------- ------------
Total assets $ 1,574 $ 1,568
========= ============
Debt $ 822 $ 852
Deferred income taxes 339 309
Other liabilities 63 72
--------- ------------
Total liabilities 1,224 1,233
--------- ------------
Stockholders' equity 350 335
--------- ------------
Total liabilities and stockholders' equity $ 1,574 $ 1,568
========= ============
Selected Income Statement Data:
-------------------------------
(Millions of dollars)
For the three months ended June 30,
2000 1999
----------- ----------
Revenues $ 116 $ 111
Pretax income 22 18
Net income 13 11
For the nine months ended June 30,
2000 1999
----------- ----------
Revenues $ 358 $ 343
Pretax income 77 34
Net income 46 22
9
<PAGE>
(5) The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) (numerator) $ 14 $ 11 $ 48 $ 18
================ ================= ================= =============
Computation of Basic Shares Outstanding
----------------------------------------
(in thousands, except per share amounts)
----------------------------------------
Weighted average number of basic
shares outstanding (denominator) 12,031 13,192 12,215 14,160
================ ================= ================= =============
Basic earnings per common share $ 1.15 $ 0.85 $ 3.90 $ 1.26
================ ================= ================= =============
Computation of Diluted Shares Outstanding
-----------------------------------------
(in thousands, except per share amounts)
----------------------------------------
Weighted average number of basic shares outstanding 12,031 13,192 12,215 14,160
Common stock equivalents for diluted shares outstanding 24 7 13 5
---------------- ----------------- ----------------- -------------
Weighted average number of diluted
shares outstanding (denominator) 12,055 13,199 12,228 14,165
================ ================= ================= =============
Diluted earnings per common share $ 1.15 $ 0.85 $ 3.89 $ 1.26
================ ================= ================= =============
</TABLE>
(6) Pursuant to the aggregation criteria of SFAS 131, an entity may aggregate
operating segments if it has similar characteristics and if they are
similar on the following five dimensions: (1) nature of products and
services, (2) nature of production process, (3) types of customers, (4)
distribution methods, and (5) nature of its regulatory environment. The
Company's operating divisions and related transportation equipment have
been aggregated into two reportable segments: North America and
International.
10
<PAGE>
The North American reporting segment consists of the Company's XTRA Lease and
Intermodal divisions, which lease over-the-road and intermodal equipment
predominantly within the United States. The International division leases marine
containers worldwide. The following tables provide information about the
Company's reportable segments:
<TABLE>
<CAPTION>
(unaudited)
Segment Information: Three months ended June 30, Nine months ended June 30,
------------------- -------------------------------------- --------------------------------------
North North
(Dollars in millions) America International Total America International Total
--------------------- ------- ------------- ----- ------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
2000:
Revenues 101 15 116 314 44 358
Operating income 35 3 38 115 8 123
1999:
Revenues 96 15 111 295 48 343
Operating income (loss) 34 (1) 33 107 (33) 74
Reconciliation of
----------------
combined operating Three months ended Nine months ended
------------------
profit: June 30, June 30,
------- -------------------------------------- --------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income for 38 33 123 74
reportable segment
Interest expense 15 15 44 43
Non-recurring charges 1
-------------------------------------- --------------------------------------
Pretax income 23 18 79 30
====================================== ======================================
</TABLE>
11
<PAGE>
XTRA CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion below contains certain forward-looking statements, including
estimates of economic and industry conditions, equipment utilization, and
capital expenditures. Actual results may vary from those contained in such
forward-looking statements. See "Cautionary Statements for Purposes of the `Safe
Harbor' Provisions of the Private Securities Litigation Act of 1995" contained
in Part II, Item 5.
XTRA Corporation leases, primarily on an operating basis, freight
transportation equipment including over-the-road trailers, intermodal trailers,
chassis, marine containers, and domestic containers. XTRA's equipment
utilization, lease rates, and therefore, profitability, are impacted by the
supply of and demand for available equipment, the level of economic activity in
North America, world trade activity, the actions of its competitors, and other
factors in the freight transportation industry. Utilization and profitability
are usually seasonally lower in the second and third fiscal quarters than in the
first and fourth fiscal quarters. In general, the Company's receivable
collection experience has been good. However, industry downturns tend to
lengthen the collection period of certain receivables.
The Company's pretax profits have been cyclical, principally due to the
variability of the Company's revenues and the high percentage of fixed costs. To
moderate this cyclicality, the Company attempts to maintain a balance between
the amount of equipment leased on a per diem and term basis and maintains a mix
of various types of freight transportation equipment available for lease. The
Company has historically maintained a high proportion of its debt at fixed rates
to reduce the impact of fluctuations in interest rates.
XTRA's marine container leasing operation reduces XTRA's dependence on the
North American transportation industry. Although the marine container business
is international, substantially all transactions are denominated in U.S.
dollars.
The Three Months Ended June 30, 2000
------------------------------------
Versus the Three Months Ended June 30, 1999:
--------------------------------------------
Revenues and Changes in Business Conditions
-------------------------------------------
Revenues are a function of lease rates and working units; the latter
depends on fleet size and equipment utilization. Utilization is calculated as
the ratio of revenue-earning units to the total fleet. The total fleet is
derived from billing information, usage reports and other information from
customers, assumptions based on historical experience, and equipment inventories
taken at Company depots, and is an approximation. Utilization is impacted by the
supply of, and demand for, available equipment, the level of economic activity
in North America, and world trade activity.
12
<PAGE>
The following table sets forth the Company's average equipment utilization
(dollar-weighted by net investment in equipment), average fleet size in units,
and average net investment in revenue equipment for the three months ended June
30, 2000 and 1999. The Company's average fleet size and average net investment
include equipment owned by the Company, equipment leased-in from third parties
under operating and capital leases, and equipment leased to third parties under
finance leases.
Three Months Ended
June 30,
2000 1999
---------- --------
XTRA Lease
----------
Utilization 83% 84%
Units 90,000 85,000
Net investment in equipment (in millions) $ 983 $ 861
XTRA Intermodal
---------------
Utilization 81% 74%
Units 50,000 54,000
Net investment in equipment (in millions) $ 227 $ 267
Total North America
-------------------
Utilization 83% 82%
Units 140,000 139,000
Net investment in equipment (in millions) $ 1,210 $ 1,128
International
-------------
Utilization 84% 69%
Units 138,000 160,000
Net investment in equipment (in millions) $ 285 $ 335
Consolidated
------------
Utilization 83% 78%
Units 278,000 299,000
Net investment in equipment (in millions) $ 1,495 $ 1,463
Consolidated revenues increased by 5% or $5 million for the three months
ended June 30, 2000 compared to the same period a year ago. The Company's
average equipment utilization increased from 78% in the third quarter of fiscal
year 1999 to 83% in the third quarter of fiscal 2000. Average net investment in
equipment increased by $32 million from the same quarter of the prior year
primarily due to an increase in net investment in over-the-road trailers, which
was partially offset by a decline in net investment in the marine container and
intermodal trailer fleets.
13
<PAGE>
The Company's North American revenues increased $5 million from the same
quarter a year ago due primarily to an increase in working units. The Company's
North American utilization averaged 83% in the third quarter of fiscal 2000, as
compared to 82% in the comparable prior year period. XTRA Lease's revenues
increased $5 million from the comparable prior year quarter due to strong levels
of domestic freight leading to more over-the-road trailer working units and
higher lease rates. XTRA Lease's utilization averaged 83%, which was 1% less
than the comparable prior year quarter, primarily due to a larger fleet than the
year earlier quarter. XTRA Intermodal's revenues were comparable to the same
quarter of fiscal 1999. A decline in lease rates and higher losses on sale, were
primarily offset by an increase in working units. XTRA Intermodal's utilization
averaged 81% in the third quarter of fiscal 2000, compared to 74% in the same
period of fiscal 1999.
The Company's North American over-the-road trailer fleet averaged 88,000
units, or 65% of average net investment in equipment in the third quarter of
fiscal year 2000, compared to 83,000 units, or 58% of average net investment in
equipment, in the comparable prior year period. Most of XTRA's capital
expenditures were for over-the-road equipment during the fiscal 2000 and the
same investment focus is anticipated for fiscal year 2001.
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 19,000 units, or 7% of average net investment
in equipment in the third quarter of 2000, versus 21,000 units, or 9% of average
net investment in equipment, in the comparable prior year period.
International revenues are unchanged from the same quarter of the prior
year. Lower lease rates and higher losses on sale than the prior year quarter
were partially offset by an increase in working units. The combination of
increased working units and a significant reduction in fleet size resulted in an
improvement in utilization to 84% from 69% in the comparable prior year period.
The Company's average international fleet size decreased to 138,000 units or 19%
of average net investment in equipment in the third quarter of fiscal 2000 from
160,000 units or 23% of average net investment in equipment in the comparable
prior year period. During the third quarter of fiscal 2000, the Company
completed its marine container disposal program; bringing the total number of
disposals related to the completed program to approximately 24,000 marine
containers. XTRA does not currently anticipate making any further investment in
the marine container business.
Operating Expenses
------------------
Total operating expenses were unchanged from the prior year quarter.
Depreciation expense remained the same from the comparable prior year period.
Rental equipment lease financing expenses of $2 million were incurred in the
third quarter of fiscal 2000 versus no comparable expense in the third quarter
of fiscal 1999. Rental equipment operating expense decreased by $2 million
versus the comparable prior year period due primarily to lower storage and
repositioning costs at XTRA International. Selling and administrative expenses
remained unchanged from the prior year quarter. International selling and
administrative costs were lower by approximately $2 million due to the cost
savings realized through outsourcing the management of marine containers. This
decrease was offset primarily due to higher information technology and
compensation costs in North America.
14
<PAGE>
Interest Expense
----------------
Interest expense approximated the same from prior year quarter.
Pretax Income
-------------
Pretax income increased 28% or $5 million for the three months ended June
30, 2000 over the same period a year ago primarily due to an increase in working
units.
Provision for Income Taxes
--------------------------
The effective income tax rates used in the interim financial statements are
estimates of the fiscal years' rates. The effective income tax rate for fiscal
1999 was 40%. For the three months ended June 30, 2000 the Company recorded a
provision for income taxes using an estimated effective income tax rate of
39.5%. The Company's effective income tax rate for fiscal 1999 and its estimated
effective income tax rate for fiscal 2000 are higher than the statutory U.S.
Federal income tax rate due primarily to state income taxes.
15
<PAGE>
The Nine months Ended June 30, 2000
Versus the Nine months Ended June 30, 1999:
-------------------------------------------
The following table sets forth the Company's average equipment utilization
(dollar-weighted by net investment in equipment), average fleet size in units,
and average net investment in revenue equipment for the nine months ended June
30, 2000 and 1999. The Company's average fleet size and average net investment
include equipment owned by the Company, equipment leased-in from third parties
under operating and capital leases, and equipment leased to third parties under
finance leases.
Nine Months Ended
June 30,
2000 1999
-------- --------
XTRA Lease
----------
Utilization 86% 86%
Units 89,000 83,000
Net investment in equipment (in millions) $ 956 $ 828
XTRA Intermodal
---------------
Utilization 83% 79%
Units 51,000 54,000
Net investment in equipment (in millions) $ 237 $ 272
Total North America
-------------------
Utilization 85% 84%
Units 140,000 137,000
Net investment in equipment (in millions) $ 1,193 $ 1,100
International
-------------
Utilization 81% 71%
Units 142,000 162,000
Net investment in equipment (in millions) $ 296 $ 360
Consolidated
------------
Utilization 85% 81%
Units 282,000 299,000
Net investment in equipment (in millions) $ 1,489 $ 1,460
Revenues increased by 4% or $15 million for the nine months ended June 30,
2000 compared to the same period a year ago. The Company's average equipment
utilization increased from 81% in the first nine months of fiscal year 1999 to
85% in the first nine months of fiscal 2000. Average net investment in equipment
increased by $29 million from the same period of the prior year primarily due to
an increase in net investment in over-the-road trailers, which was partially
offset by a decline in the investment in the marine container and intermodal
trailer fleets.
The Company's North American revenues increased $19 million from the same
period
16
<PAGE>
a year ago primarily due to an increase in working units. The Company's North
American utilization averaged 85% in the first nine months of fiscal 2000, as
compared to 84% in the comparable prior year period. XTRA Lease's revenues
increased $22 million from the comparable prior year period due to strong levels
of domestic freight leading to more over-the-road trailer working units and an
increase in lease rates. XTRA Lease's utilization averaged 86%, unchanged from
the comparable prior period, primarily due to a larger fleet than the year
earlier period. XTRA Intermodal's revenues decreased $3 million from the same
period of fiscal 1999 primarily due to a decline in lease rates. XTRA
Intermodal's utilization averaged 83% in the first nine months of fiscal 2000,
compared to 79% in the same period of fiscal 1999.
The Company's North American over-the-road trailer fleet averaged 87,000
units, or 63% of average net investment in equipment in the first nine months of
fiscal year 2000, compared to 81,000 units, or 56% of average net investment in
equipment, in the comparable prior year period. Most of XTRA's capital
expenditures were for over-the-road equipment during the fiscal 2000 and the
same investment focus is anticipated for fiscal year 2001.
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 20,000 units, or 8% of average net investment
in equipment in the first half of 2000, versus 22,000 units, or 10% of average
net investment in equipment, in the comparable prior year period.
International revenues decreased $4 million from the same period of the
prior year, primarily due to lower lease rates and higher losses on sales from
than the prior year period, partially offset by an increase in working units.
Equipment utilization improved to 81% from 71% in the comparable prior year
period. The Company's average international fleet size decreased to 142,000
units, or 20% of average net investment, from 162,000 units, or 25% of average
net investment in the comparable prior year period. The Company completed its
marine container disposal program; bringing the total number of disposals
related to the completed program to 24,000 marine containers. XTRA does not
currently anticipate making any further investment in the marine container
business.
Operating Expenses
------------------
Total operating expenses increased by 2% or $4 million, excluding one-time
charges, for the nine months ended June 30, 2000 from the same period of fiscal
1999. Depreciation expense decreased by $1 million from the comparable prior
year period. Rental equipment lease financing expenses of $6 million were
incurred in the first nine months of fiscal 2000 versus no comparable expense in
the same period of fiscal 1999. Rental equipment operating expense increased by
$1 million due primarily to higher maintenance, tire and storage costs. Selling
and administrative expenses decreased by 5% or $2 million as a result of the
efficiencies of forming the Shared Service Center and the marine container
management outsourcing partially offset by higher information technology costs,
compensation costs, and bad debt expense.
In the prior year, the Company recorded one-time charges 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
17
<PAGE>
were $4 million, $9 million, and $25 million, respectively.
Interest Expense
----------------
Interest expense increased by $1 million or 2% for the nine months ended
June 30, 2000 from the same period of fiscal 1999, due to higher average
interest rates, partially offset by lower average debt.
Unusual Item: Costs Related to Terminated Merger
------------------------------------------------
During the first half of fiscal 1999, the Company terminated its proposed
merger with Wheels MergerCo. As a result, XTRA recorded $1 million in the second
quarter of 1999 as an unusual item on the income statement.
Pretax Income
-------------
Pretax income, excluding the impact of the unusual and one-time items noted
above, increased 14% or $10 million for the nine months ended June 30, 2000 over
the same period a year ago primarily due to an increase in utilization.
Provision for Income Taxes
--------------------------
The effective income tax rates used in the interim financial statements are
estimates of the fiscal years' rates. The effective income tax rate for fiscal
1999 was 40%. For the nine months ended June 30, 2000 the Company recorded a
provision for income taxes using an estimated effective income tax rate of
39.5%. The Company's effective income tax rate for fiscal 1999 and its estimated
effective income tax rate for fiscal 2000 are higher than the statutory U.S.
Federal income tax rate due primarily to state income taxes.
Share Repurchases
-----------------
On September 17, 1999, the Board of Directors approved a new $100 million
stock repurchase authorization, which became effective upon the completion of
the prior $200 million stock repurchase program. Combined repurchases for fiscal
1999 and the first nine months of fiscal 2000 aggregated $141 million or 3.4
million shares, which represents 22% of the total shares outstanding at the
beginning of fiscal 2000. As of June 30, 2000, the Company had $81 million of
authorization remaining under its current $100 million stock repurchase
authorization.
Liquidity and Capital Resources
-------------------------------
During the nine months ended June 30, 2000, the Company generated cash
flows from operations of $233 million. During the same period, the Company
acquired $197 million of property and equipment, including $173 million
purchased and $24 million of equipment that was obtained through an operating
lease. Net debt outstanding (debt less cash) decreased $31 million.
Cash flows from operations, for nine months ended June 30, 2000, include
$10 million of
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sale proceeds from equipment purchased in the prior fiscal year and refinanced
as part of a $34 million, 10-year operating lease agreement entered into during
the first quarter of fiscal 2000. The $10 million is included on the statement
of cash flows in the recovery of property and equipment net book value line
item.
As of August 4, 2000, committed capital expenditures for revenue equipment
for fiscal year 2000 amounted to $232 million. Any additional expenditures for
the remainder of fiscal year 2000 will likely be modest.
On August 4, 2000, the Company issued an additional $25 million of Medium-
Term Notes with a weighted average interest rate of 8.4% and a weighted average
life of 3 years. The Company has issued $95 million of Medium Term Notes with a
weighted average interest rate of 7.7% and a weighted average life of 3 years.
As of August 4, 2000, after the most recent $25 million Medium Term Note
issuance, XTRA Inc. had $362 available for future issuance under its current
shelf registration.
During the first quarter of fiscal 2000, the Company increased its bank
commitments under the Revolving Credit Agreement to $250 million. As of August
4, 2000, the Company had $153 million of unused credit available under its $250
million Revolving Credit Agreement.
19
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ITEM 3 - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
At June 30, 2000, there were no material changes in the market risks
reported in the Company's Form 10-K for the fiscal year ended September 30,
1999.
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Item 5 - Other Matters
----------------------
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
-------------------------------------------------------------------------
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
------------------------------------------------
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain forward-looking statements, including
estimates of economic and industry conditions, equipment utilization, and
capital expenditures. In addition, the Company may occasionally make forward-
looking statements and estimates such as forecasts and projections of the
Company's future performance or statements of management's plans and objectives.
These forward-looking statements may be contained in, among other things, SEC
filings and press releases made by the Company and in oral statements made by
the officers of the Company. Actual results could differ materially from those
contained in such forward-looking statements. Therefore, no assurances can be
given that the results in such forward-looking statements will be achieved.
Important factors that could cause the Company's actual results to differ from
those contained in such forward-looking statements include, among others, the
factors mentioned below.
VARIABLE REVENUES AND OPERATING RESULTS
---------------------------------------
The Company's revenues may vary significantly from period to period, whereas 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, a portion of both 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 purchases 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 trailers, chassis and containers. Historically, delivery times have
varied from three to fifteen months from when the Company places an order. There
can be no assurance that the appropriate equipment will be available when needed
by the Company. In
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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 by its inability to quickly increase fleet
size, due to extended back orders, in response to unexpectedly strong 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
----------------------
Industries in which the Company competes, including trucking, railroads 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 might decrease, which could reduce the overall market for the
Company's services.
AVAILABILITY OF CAPITAL
-----------------------
The acquisition of new equipment, both for growth as well as replacement of
older equipment, requires significant capital. In addition, over the past
several years the Company has grown its fleet through acquisitions of other
companies, 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.
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Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
--- --------
Exhibit No. Description
----------- -----------
12.1 Statement of the calculation of earnings to fixed charges for
the nine months ended June 30, 2000 and 1999 for XTRA
Corporation
12.2 Statement of the calculation of earnings to fixed charges for
the nine months ended June 30, 2000 and 1999 for XTRA, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
--- -------------------
On August 8, 2000, a Current Report on Form 8-K was filed by the Company to
disclose certain financial information for the fiscal third quarter ended June
30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XTRA CORPORATION
-------------------------------------------
(Registrant)
Date: August 14, 2000 /s/ Lewis Rubin
----------------- -------------------------------------------
Lewis Rubin
President and Chief Executive Officer
Date: August 14, 2000 /s/ Michael J. Soja
----------------- -------------------------------------------
Michael J. Soja
Vice President and Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
12.1 Statement of the calculation of earnings to fixed charges
for the nine months ended June 30, 2000 and 1999 for XTRA
Corporation
12.2 Statement of the calculation of earnings to fixed charges
for the nine months ended June 30, 2000 and 1999 for XTRA,
Inc.
27 Financial Data Schedule
25
