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, 1997
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Commission File Number 1-7654
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XTRA CORPORATION
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(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 July 31, 1997
- ----------------------- ----------------------------
Common Stock, Par Value 15,263,134
$.50 Per Share
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
INDEX
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Page No.
--------
Part I. Financial Information
---------------------
Management Representation......................... 3
Consolidated Balance Sheets
June 30, 1997 and September 30, 1996............. 4
Consolidated Income Statements
For the Three Months and Nine Months Ended
June 30, 1997 and 1996........................... 5
Consolidated Statements of Cash Flows
For the Nine Months Ended
June 30, 1997 and 1996.......................... 6
Consolidated Statements of Stockholders' Equity
For the Period September 30, 1996
Through June 30, 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
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)
June 30,
1997 September 30,
(unaudited) 1996 (1)
---------- ------------
Assets
- ------
Property and equipment, at cost
Revenue equipment $ 2,010 $ 1,912
Land, buildings and other 65 65
---------- ----------
2,075 1,977
Less - Accumulated depreciation (636) (570)
---------- ----------
Net property and equipment 1,439 1,407
Cash 7 8
Trade receivables, net 56 52
Lease contracts receivable 42 42
Other assets 27 28
---------- ----------
$ 1,571 $ 1,537
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
Debt $ 913 $ 892
Deferred income taxes 245 227
Accounts payable and accrued expenses 65 76
---------- ----------
Total liabilities 1,223 1,195
Commitments and Contingencies
Stockholders' equity
Common Stock, par value $.50 per share; authorized:
30,000,000 shares; issued and outstanding;
15,262,134 shares at June 30, 1997
and 15,550,499 at September 30, 1996 8 8
Capital in excess of par value 51 63
Retained earnings 294 274
Cumulative translation adjustment (5) (3)
---------- ----------
Total stockholders' equity 348 342
---------- ----------
$ 1,571 $ 1,537
========== ==========
(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 Nine Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
-------- ------- -------- -------
Revenues $ 105 $ 101 $ 318 $ 315
Operating expenses
Depreciation on rental equipment 37 36 110 109
Rental equipment operating expense 27 25 80 75
Selling and administrative expense 11 10 32 30
-------- ------- ------- -------
75 71 222 214
-------- ------- ------- -------
Operating income 30 30 96 101
Interest expense 16 17 47 50
-------- ------- ------- -------
Income from operations before
provision for income taxes 14 13 49 51
Provision for income taxes 5 5 20 21
-------- ------- ------- -------
Net income $ 9 $ 8 $ 29 $ 30
======== ======= ======= =======
Earnings per fully diluted common share $ 0.56 $ 0.49 $ 1.90 $ 1.85
Weighted average number of fully diluted
common shares outstanding (in millions) 15.3 16.0 15.3 16.2
Cash dividends declared per share $ 0.20 $ 0.18 $ 0.58 $ 0.52
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)
Nine Months Ended
June 30,
-----------------
1997 1996
------- ------
Cash flows from operations:
Net income $ 29 $ 30
Add non-cash income and expense items:
Depreciation and amortization, net 110 105
Deferred income taxes 18 20
Bad debt expense 4 2
Add other cash items:
Net change in receivables, other assets,
payables and accrued expenses (20) (8)
Cash receipts from lease contracts receivable 15 13
Recovery of property and equipment net book value 25 28
----- ------
Total cash provided from operations 181 190
----- ------
Cash used for investment activities:
Additions to property and equipment (182) (186)
Acquisition of certain net assets of Matson Leasing Co., Inc. - (4)
----- ------
Total cash used for investment activities (182) (190)
----- ------
Cash flows from financing activities:
Borrowings of long-term debt 72 274
Payments of long-term debt (51) (232)
Repurchase of common stock, net (12) (32)
Dividends paid (9) (8)
----- ------
Total cash provided by financing activities - 2
----- ------
Net increase (decrease) in cash (1) 2
Cash at beginning of period 8 6
----- ------
Cash at end of period $ 7 $ 8
===== ======
Total interest paid $ 55 $ 47
Total net income taxes paid - -
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 $ 108 $ 244 $ (1)
Net income - - 41 -
Common Stock cash dividends
declared at $.70 per share - - (11) -
Options exercised and related tax benefits - 1 - -
Common Stock repurchased - (46) -
Translation adjustment - - - (2)
--------- --------- --------- ---------
Balance at September 30, 1996 8 63 274 (3)
Net income - - 29 -
Common Stock cash dividends
declared at $.58 per share - - (9) -
Options exercised and related tax benefits - 1 - -
Common Stock repurchased - (13) - -
Translation adjustment - - - (2)
--------- --------- --------- ---------
Balance at June 30, 1997 $ 8 $ 51 $ 294 $ (5)
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 41%. For the three and nine months ended June 30, 1997, the
Company recorded a provision for income taxes using an estimated effective
income tax rate of 40%. The Company's effective income tax rate for fiscal
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 $75 million at
June 30, 1997 and $56 million at September 30, 1996.
(4) On October 1, 1996, XTRA Missouri, Inc., an intermediate holding company,
was merged into XTRA Corporation. As a result of the merger, XTRA, Inc.
became a wholly-owned direct subsidiary of XTRA Corporation. 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 nine months ended June 30, 1997 1996
------ ------
Revenues $ 318 $ 315
Income before provision for income taxes 49 51
Net income 29 30
For the three months ended June 30, 1997 1996
------ ------
Revenues $ 105 $ 101
Income before provision for income taxes 14 13
Net income 9 8
8
Selected Balance Sheet Data: June 30, September 30,
- ---------------------------- 1997 1996
(Millions of dollars) -------- -------------
Net property and equipment $1,439 $1,407
Receivables, net 98 94
Other assets 34 36
------ ------
Total assets $1,571 $1,537
====== ======
Debt $ 913 $ 892
Deferred income taxes 245 227
Other liabilities 65 77
------ ------
Total liabilities $1,223 $1,196
Stockholders' equity 348 341
------ ------
Total liabilities and stockholders' equity $1,571 $1,537
====== ======
(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. Had the Company adopted SFAS 128, there
would have been no change in earnings per share for the three and nine
months ended June 30, 1997 and June 30, 1996.
9
XTRA CORPORATION AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The discussion below contains certain forward-looking statements, including
estimates of economic and industry conditions, equipment utilization and capital
expenditures. Actual results may vary from those contained in such forward-
looking statements. See "Cautionary Statements for Purposes of the 'Safe
Harbor' Provisions of the Private Securities Litigation Act of 1995" contained
in Part II, Item 5.
The Three Months Ended June 30, 1997
- ------------------------------------
Versus the Three Months Ended June 30, 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 June 30, 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.
Three Months Ended
June 30,
--------------------------
1997 1996
---------- ----------
North America
- -------------
Utilization 83% 79%
Units 130,000 133,000
Net investment in equipment (in millions) $ 1,001 $ 1,013
International
- -------------
Utilization 79% 79%
Units 159,000 145,000
Net investment in equipment (in millions) $ 418 $ 412
Consolidated
- ------------
Utilization 83% 79%
Units 289,000 278,000
Net investment in equipment (in millions) $ 1,419 $ 1,425
10
Revenues increased by 4% or $4 million for the three months ended June 30,
1997 over the same period a year ago. The Company's average equipment
utilization improved by 4% in the third quarter of 1997, and average net
investment in equipment was consistent with the level of the same quarter of the
prior year. For the full 1997 fiscal year, average equipment utilization is
expected to be modestly higher than the 1996 average of 81%.
The Company's North American revenues increased $4 million from the same
quarter a year ago due to more working units partially offset by lower gains on
equipment sales. The Company's North American utilization began to improve
during the second half of fiscal 1996, averaging 83% in the third quarter of
fiscal 1997, as compared to 79% in the comparable prior year period. Lower
industry-wide capital spending and increasing demand, as reflected in improving
intermodal loadings and truck tonnage, have positively impacted the
supply/demand balance during this period. As the railroads shift toward more
domestic container usage, the Company continues to downsize the intermodal
trailer fleet. XTRA's intermodal trailer fleet averaged 23,000 units, or 13% of
net investment in equipment, versus 26,000 units, or 15% of net investment in
equipment, in the comparable prior year period.
International revenues were unchanged from the same quarter of the prior
year. An increase in the number of working units and a consistent utilization
rate of 79% with a larger fleet size was offset by a lower average effective
lease rate. 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 the near future. The
industry over-capacity and sluggish demand for marine containers continues to
exert pressure on container lease rates. The Company's average international
fleet size increased to 159,000 units in the third quarter of fiscal 1997 from
145,000 units in the comparable prior year period.
Operating Expenses
- ------------------
Total operating expenses increased by 6% or $4 million for the three months
ended June 30, 1997 from the same period of fiscal 1996. Depreciation expense
increased by 3% or $1 million due to a larger fleet. Rental equipment operating
expense increased by 8% or $2 million due mainly to higher storage and
repositioning costs associated with more idle marine containers. Selling and
administrative expenses increased 10% or $1 million due primarily to an increase
in bad debt expense.
11
Interest Expense
- ----------------
Interest expense decreased by 6% or $1 million for the three months ended
June 30, 1997 from the same period of fiscal 1996, due primarily to a decrease
in average net debt outstanding.
Income Before Provision for Income Taxes
- ----------------------------------------
Pretax earnings increased 8% or $1 million for the three months ended June
30, 1997 over the same period a year ago primarily due to increased North
American revenues from higher equipment utilization, partially offset by both
lower lease rates and higher storage and repositioning costs associated with
more idle marine containers. In addition, interest expense was lower by
approximately $1 million.
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 41%. For the three months ended June 30, 1997, the Company has
recorded a provision for income taxes using an estimated effective income tax
rate of 40%. The Company's effective income tax rate for fiscal 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 Nine Months Ended June 30, 1997
- -----------------------------------
Versus the Nine Months Ended June 30, 1996:
- -------------------------------------------
Revenues and Changes in Business Conditions
- -------------------------------------------
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 nine months ended
June 30, 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
Nine Months Ended
June 30,
-------------------
1997 1996
-------- --------
North America:
- -------------
Utilization 85% 81%
Units 130,000 133,000
Net investment in equipment (in millions) $ 986 $ 1,010
International:
- -------------
Utilization 78% 81%
Units 156,000 139,000
Net investment in equipment (in millions) $ 418 $ 399
Consolidated:
- ------------
Utilization 83% 81%
Units 286,000 272,000
Net investment in equipment (in millions) $ 1,404 $ 1,409
Revenues increased by 1% or $3 million for the nine months ended June 30,
1997 over the same period a year ago. The Company's average equipment
utilization increased by 2% and average net investment in equipment was
unchanged from the preceding year. For the full 1997 fiscal year, average
equipment utilization is expected to be modestly higher than the 1996 average of
81%.
The Company's North American business revenue increased $3 million from the
same period a year ago primarily due to more working units offset by lower gains
on sale. The Company's North American utilization began to improve during the
second half of fiscal 1996, averaging 85% in the first nine months of fiscal
1997 as compared to 81% in the comparable prior year period. Lower industry-
wide capital spending and increasing demand, as reflected 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 23,000 units, versus 27,000 units in the comparable prior
year period.
International revenues were unchanged compared to the same period of the
prior year. An increase in the number of working units was offset by a lower
average effective lease rate. The Company's average international fleet size
increased in the first nine months of fiscal 1997 to 156,000 units from 139,000
units in the comparable prior year period. International utilization decreased
to 78% from 81% 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
13
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 the near future. The
overcapacity and sluggish demand for marine containers continues to exert
pressure on the Company's international lease rates.
Operating Expenses
- ------------------
Total operating expenses increased by 4% or $8 million from the same period
of fiscal 1996. Depreciation expense increased by 1% or $1 million due to a
larger fleet. Rental equipment operating expense increased by 7% or $5 million
due mainly to higher storage and repositioning costs associated with more idle
marine containers, as well as slightly higher repair and maintenance expenses.
Selling and administrative expenses increased 7% or $2 million due primarily to
an increase in bad debt expense.
Interest Expense
- ----------------
Interest expense decreased by 6% or $3 million for the nine months ended
June 30, 1997 from the same period of fiscal 1996, due primarily to a decrease
in average net debt outstanding, as well as a decrease in the average effective
interest rate.
Income Before Provision for Income Taxes
- ----------------------------------------
Despite improved utilization, pretax earnings decreased 4% or $2 million
for the nine months ended June 30, 1997 over the same period a year ago
primarily due to lower marine container lease rates 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 41%. For the nine months ended June 30, 1997, the Company has recorded
a provision for income taxes using an estimated effective income tax rate of
40%. The Company's effective income tax rate for fiscal 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.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended June 30, 1997, the Company generated cash
flows from operations of $181 million. During the same period, XTRA invested
$182 million in property and equipment, paid dividends of $9 million and
repurchased common stock of $12 million net of stock options exercised. Net
debt outstanding (debt less cash) increased $22 million.
As of July 31, 1997, committed capital expenditures for fiscal 1997
amounted to approximately $254 million, of which $193 million is for over-the-
road trailers. The Company
14
accelerated the purchase of approximately 4,000 over-the-road trailers from
fiscal 1998 to fiscal 1997 due to anticipated strong future market demand. The
additional over-the-road trailers will be added to the fleet during the fourth
quarter of fiscal 1997. While this new equipment will have little impact on
fiscal 1997 results, it will be fully in place to take advantage of the strong
over-the-road leasing market the Company expects in fiscal 1998. It is
anticipated that capital spending for new equipment will be lower in fiscal year
1998 due to the equipment additions, particularly during the second half of
fiscal year 1997.
On August 5, 1997, XTRA's Board of Directors declared a quarterly cash
dividend of $.20 per share, payable on August 29, 1997, to stockholders of
record on August 15, 1997.
From October 1, 1996 to July 31, 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 July 31, 1997, XTRA Inc. had $532 million available for future
issuance under its $742 million Shelf Registration. As of July 31, 1997, the
Company had $172 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 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 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 relatively 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
- ---------- -----------
4 Second Amendment, dated as of June 19, 1997, to the Credit Agreement
(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), 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 herewith
11 Statement of the calculation of earnings per share for the three and nine
months ended June 30, 1997 and 1996
12.1 Statement of the calculation of earnings to fixed charges for the nine
months ended June 30, 1997 and 1996 for XTRA Corporation
12.2 Statement of the calculation of earnings to fixed charges for the nine
months ended June 30, 1997 and 1996 for XTRA, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
- -- -------------------
On August 7, 1997, 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, 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: August 8, 1997 /s/ Michael J. Soja
-------------- ------------------------------------------
Michael J. Soja
Vice President and Chief Financial Officer
Date: August 8, 1997 /s/ Robert B. Blakeley
-------------- ------------------------------------------
Robert B. Blakeley
Vice President and Controller
20
EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ----------- ----------- --------
4 Second Amendment, dated as of June 19, 1997, to the Credit
Agreement (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), 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 herewith 22
11 Statement of the calculation of earnings per share for the three
and nine months ended June 30, 1997 and 1996 30
12.1 Statement of the calculation of earnings to fixed charges for the
nine months ended June 30, 1997 and 1996 for XTRA Corporation 31
12.2 Statement of the calculation of earnings to fixed charges for the
nine months ended June 30, 1997 and 1996 for XTRA, Inc. 32
27 Financial Data Schedule 33
21