SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1997
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Commission File Number 1-7654
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XTRA CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-0954158
------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 State Street, Boston, Massachusetts 02109
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(617) 367-5000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1997
- -------------------------- -----------------------------
Common Stock,Par Value 15,257,134
$.50 Per Share
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
INDEX
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Page No.
--------
Part I. Financial Information
---------------------
Management Representation................................ 3
Consolidated Balance Sheets
March 31, 1997 and September 30, 1996................... 4
Consolidated Income Statements
For the Three Months and Six Months Ended
March 31, 1997 and 1996................................. 5
Consolidated Statements of Cash Flows
For the Six Months Ended
March 31, 1997 and 1996................................. 6
Consolidated Statements of Stockholders' Equity
For the Period September 30, 1996
Through March 31, 1997.................................. 7
Notes to Consolidated Financial Statements............... 8 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 10 - 15
Part II. Other Information
-----------------
Item 5. Other Matters.................................. 16 - 18
Item 6. Exhibits and Reports on Form 8-K............... 19
Signatures............................................... 20
Exhibit Index............................................ 21
Exhibits................................................. 22 - 25
PART 1 - FINANCIAL INFORMATION
------------------------------
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
MANAGEMENT REPRESENTATION
-------------------------
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that the disclosures are adequate to
make the information presented not misleading.
The Board of Directors carries out its responsibility for the financial
statements included herein through its Audit Committee, composed of non-employee
Directors. During the year, the Committee meets periodically with both
management and the independent public accountants to ensure that each is
carrying out its responsibilities. The independent public accountants have full
and free access to the Audit Committee and meet with its members, with and
without management being present, to discuss auditing and financial reporting
matters.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's latest Annual Report
on Form 10-K.
This financial information reflects, in the opinion of management, all
adjustments consisting of only normal recurring adjustments necessary to present
fairly the results for the interim periods. The results of operations for such
interim periods are not necessarily indicative of the results to be expected for
the full year.
3
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-------------------------------------------
(MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
March 31,
1997 September 30,
(unaudited) 1996 (1)
----------- ------------
Assets
- ------
Property and equipment, at cost
Revenue equipment $ 1,948.5 $ 1,911.7
Land, buildings and other 66.4 65.1
----------- ------------
2,014.9 1,976.8
Less - Accumulated depreciation (615.5) (569.8)
----------- ------------
Net property and equipment 1,399.4 1,407.0
Cash 8.6 7.7
Trade receivables, net 53.4 52.3
Lease contracts receivable 43.7 41.7
Other assets 27.3 28.1
----------- ------------
$ 1,532.4 $ 1,536.8
=========== ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
Debt $ 873.4 $ 892.0
Deferred income taxes 240.1 226.9
Accounts payable and accrued expenses 76.6 76.4
----------- ------------
Total liabilities 1,190.1 1,195.3
----------- ------------
Commitments and Contingencies
Stockholders' equity
Common Stock, par value $.50 per share; authorized:
30,000,000 shares; issued and outstanding;
15,256,334 shares at March 31, 1997
and 15,550,499 at September 30, 1996 7.6 7.8
Capital in excess of par value 50.8 63.3
Retained earnings 288.1 273.3
Cumulative translation adjustment (4.2) (2.9)
----------- ------------
Total stockholders' equity 342.3 341.5
----------- ------------
$ 1,532.4 $ 1,536.8
=========== ============
(1) Derived from XTRA Corporation's audited September 30, 1996 financial
statements.
The accompanying notes are an integral part of these consolidated financial
statements.
4
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
---------------------------------------------------------------
(MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1997 1996 1997 1996
------- ------ ------ ------
Revenues $101.5 $101.1 $212.9 $213.2
Operating expenses
Depreciation on rental equipment 36.2 36.4 72.7 72.7
Rental equipment operating expense 27.4 24.5 53.8 49.9
Selling and administrative expense 10.2 10.0 21.0 20.0
------- ------ ------ ------
73.8 70.9 147.5 142.6
------- ------ ------ ------
Operating income 27.7 30.2 65.4 70.6
Interest expense 15.3 16.4 31.1 33.0
Foreign exchange loss 0.1 - 0.2 0.4
------- ------ ------ ------
Income from operations before
provision for income taxes 12.3 13.8 34.1 37.2
Provision for income taxes 4.8 5.6 13.6 15.1
------- ------ ------ ------
Net income $ 7.5 $ 8.2 $ 20.5 $ 22.1
======= ====== ====== ======
Earnings per fully diluted common share $ 0.49 $ 0.51 $ 1.34 $ 1.36
Weighted average number of fully diluted
common shares outstanding (in millions) 15.3 16.1 15.3 16.3
Cash dividends declared per share $ 0.20 $ 0.18 $ 0.38 $ 0.34
The accompanying notes are an integral part of these consolidated financial
statements.
5
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------
(MILLIONS OF DOLLARS)
(UNAUDITED)
Six Months Ended
March 31,
-------------------
1997 1996
------ ------
Cash flows from operations:
Net income $ 20.5 $ 22.1
Add non-cash income and expense items:
Depreciation and amortization, net 72.6 70.0
Deferred income taxes 13.2 14.5
Bad debt expense 2.4 1.9
Add other cash items:
Net change in receivables, other assets,
payables and accrued expenses (5.7) (0.3)
Cash receipts from lease contracts receivable 9.9 8.5
Recovery of property and equipment net book value 13.8 18.0
------ -------
Total cash provided from operations 126.7 134.7
------ -------
Cash used for investment activities:
Additions to property and equipment (88.8) (122.5)
Acquisition of certain net assets of Matson Leasing Co, Inc. - (4.4)
------ -------
Total cash used for investment activities (88.8) (126.9)
------ -------
Cash flows from financing activities:
Borrowings of long-term debt 9.0 242.6
Payments of long-term debt (27.6) (221.1)
Repurchase of common stock (12.7) (23.6)
Dividends paid (5.7) (5.4)
------ -------
Total cash provided by/(used for) financing activities (37.0) (7.5)
------ -------
Net increase in cash 0.9 0.3
Cash at beginning of period 7.7 6.3
------ -------
Cash at end of period $ 8.6 $ 6.6
====== =======
Total interest paid $ 35.1 $ 24.9
Total net income taxes refunded $ 0.2 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
6
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(MILLIONS OF DOLLARS)
(UNAUDITED)
Common
Stock Capital in Cumulative
$ .50 Excess of Retained Translation
Par Value Par Value Earnings Adjustment
--------- ---------- -------- -----------
Balance at September 30, 1995 $ 8.3 $107.6 $243.4 $(0.5)
Net income - - 41.1 -
Common Stock cash dividends
declared at $.70 per share - - (11.2) -
Options exercised and related tax benefits - 0.9 - -
Common Stock repurchased (0.5) (45.2) -
Translation adjustment - - - (2.4)
--------- ---------- -------- -----------
Balance at September 30, 1996 7.8 63.3 273.3 (2.9)
Net income - - 20.5 -
Common Stock cash dividends
declared at $.38 per share - - (5.7) -
Options exercised and related tax benefits - 0.3 - -
Common Stock repurchased (0.2) (12.8) - -
Translation adjustment - - - (1.3)
--------- ---------- -------- -----------
Balance at March 31, 1997 $ 7.6 $ 50.8 $288.1 $(4.2)
========= ========== ======== ============
The accompanying notes are an integral part of these consolidated financial
statements.
7
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) The consolidated financial statements include the accounts of XTRA
Corporation and its wholly-owned subsidiaries (the "Company"). All material
intercompany accounts and transactions have been eliminated. Certain
amounts in prior period financial statements have been reclassified to be
consistent with the current periods' 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 1996 was approximately 41%. For the six months ended March 31, 1997,
the Company has recorded a provision for income taxes using an estimated
effective income tax rate of approximately 40%. The Company's effective
income tax rate for fiscal 1996 and its estimated effective income tax rate
for fiscal 1997 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 $68 million at
March 31, 1997 and $56 million at September 30, 1996.
(4) On October 1, 1996, XTRA Missouri, Inc., an intermediate holding company,
was merged into the Company. As a result of the merger, XTRA, Inc. became
a wholly-owned direct subsidiary of the Company. XTRA Corporation's assets
consist substantially of the aggregate assets, liabilities, earnings and
equity of XTRA, Inc. In addition, XTRA Corporation generally guarantees
the debt of XTRA, Inc.
The condensed consolidated financial data for XTRA, Inc. included in the
consolidated financial information of the Company is summarized below:
Selected Income Statement Data:
------------------------------------------
(Millions of dollars)
For the six months ended March 31, 1997 1996
------ ------
Revenues $212.9 $213.2
Income before provision for income taxes 34.1 37.1
Net income 20.5 22.1
For the three months ended March 31, 1997 1996
------ ------
Revenues $101.5 $101.0
Income before provision for income taxes 12.3 13.7
Net income 7.5 8.2
8
Selected Balance Sheet Data: March September
- ---------------------------- 31, 30,
(Millions of dollars) 1997 1996
-------- --------
Net property and equipment $1,399.4 $1,406.8
Receivables, net 97.1 93.9
Other assets 35.9 35.7
-------- --------
Total assets $1,532.4 $1,536.4
======== ========
Debt $ 873.4 $ 892.0
Deferred income taxes 240.1 226.9
Other liabilities 76.8 76.8
-------- --------
Total liabilities 1,190.3 1,195.7
-------- --------
Stockholders' equity 342.1 340.7
-------- --------
Total liabilities and stockholders' equity $1,532.4 $1,536.4
======== ========
(5) In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128 (SFAS 128), "Earnings per Share", which is
effective for fiscal years beginning after December 15, 1997. SFAS 128
supersedes Accounting Principles Board Opinion No. 15 (APB 15) and
establishes new standards for the presentation of earnings per share.
Primary earnings per share will be replaced with "Basic Earnings Per Share"
and fully diluted earnings per share will be replaced with "Diluted
Earnings Per Share". Under SFAS 128, Basic Earnings Per Share excludes
dilution and is computed by dividing income available to common
stockholders by weighted average shares outstanding. Diluted Earnings Per
Share reflects the effect of all other outstanding common stock equivalents
under the treasury stock method and is computed similarly to fully diluted
earnings per share according to APB 15. Had the Company adopted SFAS 128,
there would have been no change in earnings per share.
9
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The discussion below may contain certain forward-looking statements, such
as 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.
The Three Months Ended March 31, 1997
- -------------------------------------
Versus the Three Months Ended March 31, 1996:
- ---------------------------------------------
Revenues and Changes in Business Conditions
- -------------------------------------------
Revenues are generated by leasing domestic and international transportation
equipment. The Company's over-the-road and intermodal equipment is used
throughout North America and marine containers are moved between countries in
international commerce. Revenues are primarily a function of lease rates and
working units; the latter depend on fleet size and equipment utilization.
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 months
ended March 31, 1997 and 1996. The Company's fleet size and average 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.
March 31, March 31,
---------- ----------
1997 1996
---------- ----------
North America:
- --------------
Utilization 82% 78%
Units 129,000 133,000
Net investment in equipment (in millions) $ 969 $ 1,006
International:
- --------------
Utilization 77% 80%
Units 156,000 140,000
Net investment in equipment (in millions) $ 419 $ 404
Consolidated:
- -------------
Utilization 81% 79%
Units 285,000 273,000
Net investment in equipment (in millions) $ 1,388 $ 1,410
10
Revenues increased by .4% or $.4 million for the three months ended March
31, 1997 over the same period a year ago. The Company's average equipment
utilization improved by 2% in the second quarter of 1997, while average net
investment in equipment remained relatively unchanged from the preceding year.
The Company's North American business revenue increased $.2 million from
the same quarter a year ago due to improved utilization partially offset by
lower average intermodal trailer lease rates. The Company's North American
utilization began to improve during the second half of fiscal 1996, averaging
82% in the second quarter of fiscal 1997 as compared to 78% in the comparable
prior year period. Lower industry-wide capital spending and increasing demand,
as seen in improving intermodal and railcar loadings and truck tonnage, have
positively impacted the supply/demand balance. As the railroads shift toward
more domestic container usage, the Company continues to downsize the intermodal
trailer fleet. XTRA's intermodal trailer fleet averaged 24,000 units, versus
28,000 units in the comparable prior year period.
International revenues increased $.2 million from the same quarter of the
prior year. An increase in the number of working units was partially offset by
a lower average effective lease rate. International utilization decreased to
77% from 80% in the comparable quarter. Growth in usage of marine containers on
a worldwide basis has declined due to lower growth in freight demand,
particularly in the Far East. Additionally, more balanced worldwide trade has
resulted in more efficient use of equipment by shippers and hence lower usage of
leased containers. In 1996, substantial industry-wide purchases increased the
supply of marine containers. While industry container purchases are down
considerably over the past year, significant improvement in utilization is not
expected in 1997. The industry over-capacity and sluggish demand for marine
containers continues to exert pressure on the Company's international lease
rates. The Company's average international fleet size increased to 156,000
units in the second quarter of fiscal 1997 from 140,000 units in the comparable
prior year period.
For the three months ended March 31, 1997, the Company's North American
utilization improved and international utilization declined from the same period
a year ago due to the economic and industry conditions discussed above.
Utilization remains relatively unchanged from second quarter levels in the early
portion of the third quarter of fiscal 1997. Historically, the Company's second
and third quarters reflect the seasonality of the transportation business and
represent a period of lower utilization and hence lower profitability. For the
full 1997 fiscal year, average equipment utilization is expected to be modestly
higher than the 1996 average of 81%.
Operating Expenses
- ------------------
Total operating expenses increased by 4% or $2.9 million from the same
period of fiscal 1996. Rental equipment operating expense increased by 12% or
$2.9 million due mainly to higher storage and repositioning costs associated
with more idle marine containers. Selling and administrative expenses increased
2% or $.2 million with no one factor contributing significantly to the increase.
11
Interest Expense
- ----------------
Interest expense decreased by 7% or $1.1 million for the three months ended
March 31, 1997, due primarily to a decrease in average net debt outstanding.
Income Before Provision for Income Taxes
- ----------------------------------------
Pretax earnings decreased 11% or $1.5 million for the three months ended
March 31, 1997 over the same period a year ago primarily due to lower marine
container utilization and the higher storage and repositioning costs associated
with more idle marine containers.
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
1996 was approximately 41%. For the three months ended March 31, 1997, the
Company has recorded a provision for income taxes using an estimated effective
income tax rate of approximately 40%. The Company's effective income tax rate
for fiscal 1996 and its estimated effective income tax rate for fiscal 1997 are
higher than the statutory U.S. Federal income tax rate due primarily to state
income taxes.
The Six Months Ended March 31, 1997
- -----------------------------------
Versus the Six Months Ended March 31, 1996:
- -------------------------------------------
Revenues and Changes in Business Conditions
- -------------------------------------------
Revenues are generated by leasing domestic and international transportation
equipment. The Company's over-the-road and intermodal equipment is used
throughout North America and marine containers are moved between countries in
international commerce. Revenues are primarily a function of lease rates and
working units; the latter depend on fleet size and equipment utilization.
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 six months ended
March 31, 1997 and 1996. The Company's fleet size and average 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.
12
March 31, March 31,
1997 1996
---------- ----------
North America:
- --------------
Utilization 85% 81%
Units 129,000 133,000
Net investment in equipment (in millions) $ 982 $ 1,011
International:
- --------------
Utilization 77% 83%
Units 155,000 136,000
Net investment in equipment (in millions) $ 419 $ 391
Consolidated:
- -------------
Utilization 83% 82%
Units 284,000 269,000
Net investment in equipment (in millions) $ 1,401 $ 1,402
Revenues decreased by .1% or $.3 million for the six months ended March 31,
1997 over the same period a year ago. The Company's average equipment
utilization increased by 1% and average net investment in equipment remained
relatively unchanged from the preceding year.
The Company's North American business revenue declined $.4 million from the
same period a year ago despite higher utilization due mainly to lower gains on
sales resulting from a decline in the disposal of intermodal trailers, as well
as a lower average effective lease rate for intermodal trailers. The Company's
North American utilization began to improve during the second half of fiscal
1996, averaging 85% in the first half of fiscal 1997 as compared to 81% in the
comparable prior year period. Lower industry-wide capital spending and
increasing demand, as seen in improving intermodal and railcar loadings and
truck tonnage, have positively impacted the supply/demand balance. As the
railroads shift toward more container usage, the Company continues to downsize
the intermodal trailer fleet. XTRA's intermodal trailer fleet averaged 24,000
units, versus 28,000 units in the comparable prior year period.
International revenues increased slightly by $.1 million from the same
period of the prior year. An increase in the number of working units was
partially offset by a lower average effective lease rate. International
utilization decreased to 77% from 83% in the comparable prior year period.
Growth in usage of marine containers on a worldwide basis has declined due to
lower growth in freight demand, particularly in the Far East. Additionally,
improved worldwide trade balance has resulted in more efficient use of equipment
by shippers and hence lower usage of leased containers. In 1996, increases in
the supply of marine containers resulting from substantial industry-wide
purchases reduced demand for leased containers. While industry container
purchases are down considerably over the past year, significant improvement in
utilization is not expected in 1997. The overcapacity and sluggish demand for
marine containers
13
continues to exert pressure on the Company's international lease rates. The
Company's average international fleet size increased in the first half of fiscal
1997 to 155,000 units from 136,000 units in the comparable prior year period.
For the six months ended March 31, 1997, the Company's North American
utilization improved and international utilization declined from the same period
a year ago due to the economic and industry conditions discussed above.
Utilization remains relatively unchanged from second quarter levels in the early
portion of the third quarter of fiscal 1997. Historically, the Company's second
and third quarters reflect the seasonality of the transportation business and
represent a period of lower utilization and hence lower profitability. For the
full 1997 fiscal year, average equipment utilization is expected to be modestly
higher than the 1996 average of 81%.
Operating Expenses
- ------------------
Total operating expenses increased by 3% or $4.9 million from the same
period of fiscal 1996. Rental equipment operating expense increased by 8% or
$3.9 million due to higher storage and repositioning costs associated with a
greater number of idle marine containers. Selling and administrative expenses
increased 5% or $1 million with no one factor contributing significantly to the
increase.
Interest Expense
- ----------------
Interest expense decreased by 6% or $2 million for the six months ended
March 31, 1997, due primarily to a decrease in average net debt outstanding, as
well as a decrease in the average effective interest rate.
Foreign Exchange Loss
- ---------------------
In the first half of fiscal 1997, the Company recorded a foreign exchange
loss of $.2 million compared to $.4 million in the first half of fiscal 1996,
which was attributable to the translation of certain liabilities of the
Company's Canadian business. These losses were a result of the decreasing value
of the Canadian dollar versus the U.S. dollar during the period.
Income Before Provision for Income Taxes
- ----------------------------------------
Pretax earnings decreased 8% or $3.1 million for the six months ended March
31, 1997 over the same period a year ago primarily due to lower marine container
utilization and the higher storage and repositioning costs associated with more
idle marine containers.
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
1996 was approximately 41%. For the six months ended March 31, 1997, the
Company has recorded a provision for income taxes using an estimated effective
income tax rate of approximately 40%. The Company's effective income tax rate
for fiscal 1996 and its estimated effective income tax rate for fiscal 1997 are
higher than the statutory U.S. Federal income tax rate due primarily to state
income taxes.
14
Liquidity and Capital Resources
- -------------------------------
During the six months ended March 31, 1997, the Company generated cash
flows from operations of $126.7 million. During the same period, XTRA invested
$88.8 million in property and equipment, paid dividends of $5.7 million and
repurchased common stock of $12.7 million. Net debt outstanding (debt less cash)
decreased $19.5 million.
As of May 1, 1997, committed capital expenditures for fiscal 1997 amounted
to approximately $240 million, of which $190 million is for over-the-road
trailers. The Company accelerated the purchase of approximately 4,000 units
from fiscal 1998 to fiscal 1997 due to anticipated strong future market demand.
The additional over-the-road trailers will be placed in service during the
fourth quarter of fiscal 1997. While this new equipment will have little impact
on fiscal 1997 results, it will be in place to take advantage of the strong
over-the-road leasing market the Company expects in fiscal 1998.
On May 1, 1997, XTRA's Board of Directors declared a quarterly cash
dividend of $.20 per share, payable on May 29, 1997, to stockholders of record
on May 15, 1997.
From October 1, 1996 to April 30, 1997, the Company had repurchased $13
million of its common stock pursuant to its $200 million common stock repurchase
program. Since the implementation of the program in fiscal 1995, the Company
has repurchased $79 million of its common stock.
As of April 30, 1997, XTRA Inc. had $604 million available for future
issuance under its $742 million Shelf Registration. As of April 30, 1997, the
Company had $122 million of unused credit available under its $300 million
Revolving Credit Agreement.
15
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 may contain certain forward-looking statements,
including estimates of economic and industry conditions, equipment utilization
and capital expenditures. In addition, the Company may occasionally make
forward-looking statements and estimates such as forecasts and projections of
the Company's future performance or statements of management's plans and
objectives. These forward-looking statements may be contained in, among other
things, SEC filings and press releases made by the Company and in oral
statements made by the officers of the Company. Actual results could differ
materially from those 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 FIXED OPERATING EXPENSES:
- ----------------------------------------------
The Company's revenues, which are based on lease rates, utilization, supply of
and demand for equipment, are variable due to their dependence on the level of
domestic and international economic activity, as well as changing industry
levels of equipment supply. In addition, the Company has a high percentage of
fixed operating expenses, including depreciation, a portion of rental equipment
operating expense and selling and administrative expenses. As a result, the
Company's pretax profits are cyclical. If domestic or global economic activity
remains slow or if an oversupply of industry equipment exists, operating margins
may be adversely affected. See below for further discussion.
Lease Rates:
- -----------
Lease rates depend on the type of lease, length of term, maintenance provided
and the type and age of the equipment. Future lease rates may increase or
decrease depending on competition, economic conditions and other factors.
Utilization:
- ------------
Utilization is the ratio of revenue earning units to the total fleet.
Utilization is directly impacted by the level of economic activity in North
America, world trade activity, the supply of and demand for available equipment,
the actions of competitors and other factors in the freight transportation
industry.
Supply of Equipment:
- --------------------
New equipment, supplied by a number of manufacturers, is built to the Company's
specifications and reflects industry standards and customer needs. There is
often a considerable amount of time between when an order is placed and when the
equipment is delivered. 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 either because
of its inability to quickly increase fleet size (because of extended back
orders) to take advantage of unexpectedly strong demand, or to quickly reduce
fleet size in order to react to reduced demand.
16
Demand:
- -------
Demand for equipment is affected by economic factors, equipment supply and
shifting traffic trends in the industry. A softening domestic or international
economy may result in lower levels of freight shipments. Shifting traffic
trends in the industry, such as truckers competing more aggressively, may divert
some intermodal freight to over-the-road. Other items affecting demand which may
impact leasing needs can include severe adverse weather conditions such as
floods or snow storms or strikes by transportation unions.
Operating Expenses:
- -------------------
The Company's operating expenses consist of a high percentage of fixed costs and
thus profitability can change as revenues fluctuate due to increases and
decreases in utilization and/or lease rates. The fixed costs include
depreciation, a portion of rental equipment operating expense and selling and
administrative expenses. As a result, income from operations can be cyclical. If
revenues decline in any period, operating margins may change from those reported
in prior periods due to the fixed nature of a significant portion of the
Company's expenses.
CAPITAL NEEDS:
- --------------
The acquisition of new equipment, both for growth as well as replacement of
older equipment, requires significant capital. In addition, over the past
several years, the Company has grown its fleet through acquisitions of other
companies such as Strick Lease and Matson Leasing Company, Inc., requiring
additional capital. While the Company generally has had available a variety of
sources to finance such expenditures and acquisitions at favorable rates or
terms, 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 financing will continue to be available at
attractive rates or with covenants that are not more restrictive than the
Company's current debt covenants.
INTEREST RATES:
- ---------------
Over the past several years, interest rates have remained at historically low
levels. Because of the Company's heavy dependence upon external financing to
fund its capital needs and acquisitions, the level of interest rates directly
affects the Company's profitability. The Company attempts to moderate the
effect of changing interest rates by maintaining a high percentage of its debt
with fixed rates. An increase in interest rates or a downgrade in the Company's
debt ratings would adversely impact the cost of new borrowings, thereby
adversely affecting its profitability.
FOREIGN EXCHANGE RATES:
- -----------------------
A portion of the Company's North American over-the-road and intermodal business
is transacted in local currencies. As a result, the Company's financial results
are subject to foreign exchange rate fluctuations.
ACQUISITIONS:
- ------------
Over the past years, the Company has used acquisitions of fleets operated by
other companies to help grow its business. In order for the Company to take
advantage of favorable acquisition opportunities as they are presented, it may
be necessary for the Company to significantly increase its debt leverage ratio
which could adversely affect its credit ratings. Also, the ability of the
Company to take advantage of acquisition opportunities will depend on the
availability of capital. See financial liquidity and capital resources above
for discussion.
17
CONSOLIDATIONS OF THE COMPANY'S CUSTOMER BASE:
- ----------------------------------------------
Consolidations through mergers or acquisitions of the Company's customer base,
including railroad or steamship lines, may result in reduced demand for leased
equipment.
18
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
- --- --------
Exhibit No. Description
- ----------- -----------
11 Statement of the calculation of earnings per share for the
three and six months ended March 31, 1997 and 1996
12.1 Statement of the calculation of earnings to fixed charges
for the six months ended March 31, 1997 and 1996 for XTRA
Corporation
12.2 Statement of the calculation of earnings to fixed charges
for the six months ended March 31, 1997 and 1996 for XTRA,
Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
- --- -------------------
On May 5, 1997, a Current Report on Form 8-K was filed by the Company to
disclose certain financial information for the fiscal second quarter ended March
31, 1997.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XTRA CORPORATION
-----------------------------
(Registrant)
Date: May 15, 1997 /s/ Michael J. Soja
--------------------- -------------------------------
Michael J. Soja
Vice President and
Chief Financial Officer
Date: May 15, 1997 /s/ Robert B. Blakeley
--------------------- -------------------------------
Robert B. Blakeley
Vice President and
Controller
20
EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ----------- ----------- --------
11 Statement of the calculation of earnings per share for the three
and six months ended March 31, 1997 and 1996 22
12.1 Statement of the calculation of earnings to fixed charges for the
six months ended March 31, 1997 and 1996 for XTRA
Corporation 23
12.2 Statement of the calculation of earnings to fixed charges for the
six months ended March 31, 1997 and 1996 for XTRA, Inc. 24
27 Financial Data Schedule 25