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, 2001
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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.)
200 Nyala Farms Road, Westport, Connecticut 06880
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(Address of principal executive offices)
(203) 221-1005
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(Registrant's telephone number, including area code)
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(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, 2001
- ---------------------------------- ----------------------------
Common Stock, Par Value 10,506,639
$.50 Per Share
XTRA CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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Part I. Financial Information
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Item 1. Financial Statements
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Management Representation............................................................. 3
Consolidated Balance Sheets
June 30, 2001 and September 30, 2000................................................ 4
Consolidated Income Statements
For the Three Months and Nine Months Ended
June 30, 2001 and 2000.............................................................. 5
Consolidated Statements of Cash Flows
For the Nine Months Ended
June 30, 2001 and 2000.............................................................. 6
Consolidated Statements of Stockholders' Equity
For the Nine Months Ended
June 30, 2001 and 2000.............................................................. 7
Notes to Consolidated Financial Statements............................................ 8
Item 2. Management's Discussion and Analysis of
----------------------------------------
Financial Condition and Results of Operations......................................... 11
---------------------------------------------
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................ 19
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Part II. Other Information
-----------------
Item 5. Other Matters ...................................................................... 20
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Item 6. Exhibits and Reports on Form 8-K...................................................... 23
--------------------------------
Signatures ...................................................................... 24
Exhibit Index ...................................................................... 25
2
PART I - FINANCIAL INFORMATION
XTRA CORPORATION AND SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
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 in any material respect.
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 for the fiscal year ended September 30, 2000 on file
with the SEC.
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)
June 30,
2001 September 30,
(unaudited) 2000 /(1)/
------------------ ------------------
Assets
- ------
Property and equipment $ 2,289 $ 2,327
Accumulated depreciation (944) (895)
------------------ ------------------
Net property and equipment 1,345 1,432
Lease contracts receivable 27 32
Trade receivables, net 74 84
Other assets 17 16
Cash - 2
------------------ ------------------
Total assets $ 1,463 $ 1,566
================== ==================
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Debt $ 710 $ 788
Deferred income taxes 369 350
Accounts payable and accrued expenses 56 67
------------------ ------------------
Total liabilities 1,135 1,205
------------------ ------------------
Stockholders' equity:
Preferred stock, without par value; total authorized:
3,000,000 shares - -
Common stock, par value $.50 per share; authorized:
30,000,000 shares; issued and outstanding:
10,503,805 shares at June 30, 2001
and 11,880,172 shares at September 30, 2000 5 6
Capital in excess of par value 3 1
Retained earnings 329 365
Unearned compensation - restricted stock (1) (2)
Accumulated other comprehensive income (8) (9)
------------------ ------------------
Total stockholders' equity 328 361
------------------ ------------------
Total liabilities and stockholders' equity $ 1,463 $ 1,566
================== ==================
/(1)/ Derived from XTRA Corporation's audited September 30, 2000 financial
statements.
The accompanying notes are an integral part of these consolidated financial
statements.
4
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Millions of dollars, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
------------- -------------- -------------- -------------
Revenues $ 102 $ 116 $ 330 $ 358
Operating expenses
Depreciation on rental equipment 37 38 112 113
Rental equipment lease financing expense 2 2 7 6
Rental equipment operating expenses 29 26 83 81
Selling and administrative expense 12 12 37 35
------------- -------------- -------------- -------------
80 78 239 235
------------- -------------- -------------- -------------
Operating income 22 38 91 123
Interest expense 13 15 42 45
------------- -------------- -------------- -------------
Income from operations before provision
for income taxes and unusual item 9 23 49 78
Unusual item: income related to acquisition
break-up fee - - 2 -
------------- -------------- -------------- -------------
Pretax income 9 23 51 78
Provision for income taxes 3 9 19 31
------------- -------------- -------------- -------------
Net income $ 6 $ 14 $ 32 $ 47
============= ============== ============== =============
Basic earnings per common share $ 0.55 $1.15 $ 2.83 $3.90
Basic common shares outstanding (in millions) 10.5 12.0 11.2 12.2
Diluted earnings per common share $0.55 $1.15 $ 2.82 $3.89
Diluted common shares outstanding (in millions) 10.6 12.1 11.2 12.2
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,
2001 2000
------------- -------------
Cash flows from operations:
Net income $ 32 $ 47
Add non-cash income and expense items:
Depreciation and amortization, net 114 113
Deferred income taxes, net 18 30
Bad debt expense 2 4
Add other cash items:
Net change in receivables, other assets,
payables and accrued expenses (4) (18)
Cash receipts from lease contracts receivable 18 19
Recovery of property and equipment net book value 25 38
------------- -------------
Total cash provided from operations 205 233
------------- -------------
Cash used for investment activities:
Additions to property and equipment (61) (173)
------------- -------------
Total cash used for investing activities (61) (173)
------------- -------------
Cash flows from financing activities:
Borrowings of long-term debt - 70
Payments of long-term debt (78) (101)
Repurchase of common stock (71) (30)
Options exercised 3 1
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Total cash used for financing activities (146) (60)
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Net increase in cash (2) -
Cash at beginning of period 2 3
------------- -------------
Cash at end of period $ - $ 3
============= =============
Total interest paid $ 48 $ 50
Total net income taxes paid $ 2 $ 1
The accompanying notes are integral part of these consolidated financial
statements.
6
XTRA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine months ended June 30, 2001 and 2000
(Millions of dollars)
(Unaudited)
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
------------ ------------- ------------ ------------- ------------- -------------
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
Restricted stock amortization, 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
============ ============= ============ ============= ============= =============
Balance at September 30, 2000 $ 6 $ 1 $ 365 $ (2) $ (9) $ 361
Comprehensive Income:
Net income - - 32 - - 32
Foreign currency translation adjustment - - - - 1 1
--------------
Total comprehensive income 33
Restricted stock amortization, options
exercised, forfeitures, and related tax
benefits - 3 1 1 - 5
Common stock repurchased (1) (1) (69) - - (71)
------------ ------------- ------------ ------------- ------------- -------------
Balance at June 30, 2001 $ 5 $ 3 $ 329 $ (1) $ (8) $ 328
============ ============= ============ ============= ============= =============
The accompanying notes are an intergral part of these consolidated financial
statements
7
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 (collectively 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 2000 was 39.5%. For fiscal 2001, the Company is recording a
provision for income taxes using an estimated effective income tax rate
of 38.5%. The Company's effective income tax rate for fiscal 2000 and
its estimated effective income tax rate for fiscal 2001 are higher than
the statutory U.S. Federal income tax rate of 35% due primarily to
state income taxes.
(3) At June 30, 2001, the Company had $337 million remaining available
under its current shelf registration for future debt issuance. The
Company had $198 million of unused credit available under its $275
million Revolving Credit Facility at June 30, 2001.
(4) During the first quarter of fiscal 2001, the Company received an
acquisition break-up fee from a leasing acquisition target. As a
result, XTRA recorded income of $2 million (pretax) in the first
quarter of fiscal 2001 as an unusual item. Excluding the one-time
unusual item of $2 million (pretax) related to the break-up fee, net
income and diluted earnings per share would have been $31 million and
$2.72, respectively, for the nine months ended June 30, 2001.
(5) On July 30, 2001, the Company entered into a definitive Agreement and
Plan of Merger which calls for a cash tender offer of $55.00 per share
to holders of Company common stock by a wholly owned subsidiary of
Berkshire Hathaway, Inc., a Delaware corporation. Upon successful
completion of the tender offer, the Merger Agreement calls for a merger
pursuant to which the remaining stockholders will receive cash in the
same amount as paid in the tender offer.
The tender offer is expected to commence on August 14, 2001 and will be
for all of the Company's outstanding common stock. The value of the
transaction is approximately $590 million. Upon successful consummation
of the transaction, the Company will become a wholly owned subsidiary
of Berkshire Hathaway, Inc. and will continue to be headquartered in
Westport, Connecticut.
8
(6) The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations:
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
-------------- -------------- ----------------- -------------
Net income (numerator) (in millions) $ 6 $ 14 $ 32 $ 47
============== ============== ================= =============
Computation of Basic Shares Outstanding
- ----------------------------------------
(in thousands, except per share amounts)
- ----------------------------------------
Weighted average number of basic
shares outstanding (denominator) 10,529 12,031 11,169 12,215
============== ============== ================= =============
Basic earnings per common share $ 0.55 $ 1.15 $ 2.83 $ 3.90
============== ============== ================= =============
Computation of Diluted Shares Outstanding
- -----------------------------------------
(in thousands, except per share amounts)
- ----------------------------------------
Weighted average number of basic shares outstanding 10,529 12,031 11,169 12,215
Common stock equivalents for diluted shares outstanding 99 24 68 13
-------------- -------------- ----------------- -------------
Weighted average number of diluted
shares outstanding (denominator) 10,628 12,055 11,237 12,228
============== ============== ================= =============
Diluted earnings per common share $ 0.55 $ 1.15 $ 2.82 $ 3.89
============== ============== ================= =============
(7) Pursuant to the aggregation criteria of SFAS 131, an entity may
aggregate operating segments if they have similar characteristics and
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.
9
The North American reportable segment consists of the Company's XTRA
Lease and XTRA Intermodal divisions, which lease over-the-road and
intermodal equipment predominantly within the United States. The XTRA
International division leases marine containers worldwide. The
following tables provide information about the Company's reportable
segments:
(unaudited)
Segment Information: Three months ended June 30, Nine months ended June 30,
------------------- ------------------------------------ ------------------------------------
North North
(Dollars in millions) America International Total America International Total
--------------------- ------- ------------- ----- ------- ------------- -----
2001:
Revenues $ 92 $10 $102 $297 $33 $330
Operating income (loss) 23 (1) 22 93 (2) 91
2000:
Revenues $101 $15 $116 $314 $44 $358
Operating income 35 3 38 115 8 123
Reconciliation of pretax
income: Three months ended June 30, Nine months ended June 30,
------- ------------------------------------ ------------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Operating income for $22 $38 $91 $123
reportable segments
Interest expense 13 15 42 45
Unusual item - - 2 -
------------------------------------ ------------------------------------
Pretax income $ 9 $23 $51 $ 78
==================================== ====================================
10
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. In light of the current industry downturn,
we would expect utilization and profitability to be lower than the prior year,
the collection period of our receivables to lengthen, and a corresponding
increase in our bad debt reserve. XTRA's marine container leasing operation
modestly 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 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.
The Three Months Ended June 30, 2001
- ------------------------------------
Versus the Three Months Ended June 30, 2000:
- -------------------------------------------
Revenues and Changes in Business Conditions
- -------------------------------------------
Revenues are a function of lease rates and the number of 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, and is an
approximation derived from billing information, usage reports and other
information from customers, assumptions based on historical experience, and
equipment inventories taken at Company depots. Utilization is impacted by the
supply of, and demand for, available equipment, the level of economic activity
in North America, and world trade activity.
11
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, 2001 and 2000. 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,
2001 2000
----------------- --------------
XTRA Lease
- ----------
Utilization 77% 83%
Units 90,000 90,000
Net investment in equipment (in millions) $ 983 $ 983
XTRA Intermodal
- ---------------
Utilization 77% 81%
Units 47,000 50,000
Net investment in equipment (in millions) $ 193 $ 227
Total North America
- -------------------
Utilization 77% 83%
Units 137,000 140,000
Net investment in equipment (in millions) $ 1,176 $ 1,210
International
- -------------
Utilization 71% 84%
Units 128,000 138,000
Net investment in equipment (in millions) $ 235 $ 285
Consolidated
- ------------
Utilization 76% 83%
Units 265,000 278,000
Net investment in equipment (in millions) $ 1,411 $ 1,495
Consolidated revenues decreased by 12% or $14 million for the three
months ended June 30, 2001 compared to the same period a year ago. The Company's
average equipment utilization decreased from 83% in the third quarter of fiscal
2000 to 76% in the third quarter of fiscal 2001. Average net investment in
equipment decreased by $84 million from the same quarter of the prior year
primarily due to a reduction in net investment in the marine container and
intermodal trailer fleets.
12
The Company's North American revenues decreased $9 million from the
same quarter a year ago primarily due to a decrease in working units. The
Company's North American utilization averaged 77% in the third quarter of fiscal
2001, as compared to 83% in the comparable prior year period. XTRA Lease's
revenues decreased $6 million from the comparable prior year quarter primarily
due to a decrease in total working units. XTRA Lease's utilization declined to
77%, which was 6% lower than the comparable prior year quarter, primarily due to
declining levels of domestic freight. XTRA Intermodal's revenues decreased $3
million from the comparable quarter of fiscal 2000 due to a decrease in working
units. XTRA Intermodal's utilization averaged 77% in the third quarter of fiscal
2001, compared to 81% in the same period of fiscal 2000, primarily due to
reduced levels of intermodal freight.
The Company's North American over-the-road trailer fleet averaged
90,000 units, or 70% of average net investment in equipment in the third quarter
of fiscal year 2001, compared to 90,000 units, or 66% of average net investment
in equipment, in the comparable prior year period.
XTRA's intermodal fleet averaged 47,000 units, or 14% of average net
investment in equipment, in the third quarter of 2001, versus 50,000 units, or
15% of average net investment in equipment, in the comparable prior year period.
The Company continues to downsize its North American intermodal trailer fleet as
the railroads shift toward more domestic container usage.
XTRA International's revenues decreased $5 million from the same
quarter of the prior year due to a decrease in working units and higher
provisions for losses on disposal of containers. XTRA International's
utilization declined to 71%, which was 13% lower than the comparable prior year
quarter. The Company's average international fleet size decreased to 128,000
units or 16% of average net investment in equipment in the third quarter of
fiscal 2001 from 138,000 units or 19% of average net investment in equipment in
the comparable prior year period. XTRA does not currently anticipate making any
further investment in the marine container business.
Operating Expenses
- ------------------
Total operating expenses increased by 3% or $2 million for the three
months ended June 30, 2001 compared to the same period a year ago. Depreciation
expense decreased by $1 million from the prior year period primarily due to the
declining size of the marine container fleet. Rental equipment operating
expenses increased by $3 million primarily due to higher storage costs because
of lower utilization and higher repair and maintenance expense from the
comparable prior quarter. Selling and administrative expenses were comparable to
the prior year quarter.
Interest Expense
- ----------------
Interest expense decreased by $2 million for the three months ended
June 30, 2001 from the same period of fiscal 2000 primarily due to lower debt.
13
Pretax Income
- -------------
Pretax income decreased 61% or $14 million for the three months ended
June 30, 2001 versus the same period a year ago primarily due to a decrease 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. For the three months ended June 30,
2001, the Company recorded a provision for income taxes using an estimated
effective income tax rate of 38.5%. The effective income tax rate for fiscal
2000 was 39.5%. The Company's effective income tax rate for fiscal 2000 and its
estimated effective income tax rate for fiscal 2001 are higher than the
statutory U.S. Federal income tax rate of 35% primarily due to state income
taxes.
14
The Nine Months Ended June 30, 2001
Versus the Nine Months Ended June 30, 2000:
- -------------------------------------------
Revenues and Changes in Business Conditions
- -------------------------------------------
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, 2001 and 2000. 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,
2001 2000
----------------- ----------------
XTRA Lease
- ----------
Utilization 81% 86%
Units 91,000 89,000
Net investment in equipment (in millions) $ 997 $ 956
XTRA Intermodal
- ---------------
Utilization 80% 83%
Units 48,000 51,000
Net investment in equipment (in millions) $ 201 $ 237
Total North America
- -------------------
Utilization 80% 86%
Units 139,000 140,000
Net investment in equipment (in millions) $ 1,198 $ 1,193
International
- -------------
Utilization 77% 81%
Units 131,000 142,000
Net investment in equipment (in millions) $ 246 $ 296
Consolidated
- ------------
Utilization 80% 85%
Units 270,000 282,000
Net investment in equipment (in millions) $ 1,444 $ 1,489
Consolidated revenues decreased by 8% or $28 million for the nine
months ended June 30, 2001 compared to the same period a year ago. The Company's
average equipment
15
utilization decreased from 85% in the first nine months of fiscal 2000 to 80% in
the first nine months of fiscal 2001. Average net investment in equipment
decreased by $45 million from the nine month period of the prior year primarily
due to a reduction in net investment in the marine container and intermodal
trailer fleets.
The Company's North American revenues decreased $17 million from the
same period a year ago primarily due to a decrease in working units. The
Company's North American utilization averaged 80% in the first nine months of
fiscal 2001, as compared to 86% in the comparable prior year period. XTRA
Lease's revenues decreased $8 million from the comparable prior year period
primarily due to a decline in working units. XTRA Lease's utilization declined
to 81%, which was 5% less than the comparable prior year period, primarily due
to declining levels of domestic freight. XTRA Intermodal's revenues decreased $9
million from the comparable period of fiscal 2000 due to a decrease in working
units. XTRA Intermodal's utilization averaged 80% in the first nine months of
fiscal 2001, compared to 83% in the same period of fiscal 2000, due to reduced
levels of intermodal freight.
The Company's North American over-the-road trailer fleet averaged
91,000 units, or 69% of average net investment in equipment in the first nine
months of fiscal year 2001, compared to 89,000 units, or 64% of average net
investment in equipment, in the comparable prior year period.
XTRA's intermodal fleet averaged 48,000 units, or 14% of average net
investment in equipment in the first nine months of fiscal year 2001, versus
51,000 units, or 16% of average net investment in equipment, in the comparable
prior year period. The Company continues to downsize its North American
intermodal trailer fleet as the railroads shift toward more domestic container
usage.
XTRA International's revenues decreased $11 million from the same nine
month period of the prior year due to a decrease in working units and higher
provisions for losses on disposal of containers. XTRA International's
utilization declined to 77%, which was 4% lower than the comparable prior year
period. The Company's average international fleet size decreased to 131,000
units or 17% of average net investment in equipment in the first nine months of
fiscal 2001 from 142,000 units or 20% of average net investment in equipment in
the comparable prior year period. XTRA does not currently anticipate making any
further investment in the marine container business.
Operating Expenses
- ------------------
Total operating expenses increased $4 million from the comparable prior
year period. Depreciation expense decreased by $1 million from the comparable
prior year period primarily due to a reduction in the marine container fleet.
Rental equipment lease financing expense increased $1 million from the same
prior year period due to a $34 million off-balance sheet lease executed in the
first quarter of fiscal 2000. Rental equipment operating expense increased $2
million primarily due to higher storage costs because of lower utilization and
higher repair and maintenance expense, partially offset by gains on sale of real
estate. Selling and administrative
16
expenses increased $2 million from the prior year period primarily due to higher
professional fees associated with e-commerce initiatives and information systems
and higher depreciation on information systems equipment.
Interest Expense
- ----------------
Interest expense decreased by $3 million for the nine months ended June
30, 2001 from the same period of fiscal 2000 due to lower debt levels, partially
offset by higher interest rates.
Pretax Income
- -------------
Pretax income decreased 35% or $27 million, after an unusual income
item, for the nine months ended June 30, 2001 versus the same period a year ago
primarily due to a decrease in utilization rates.
Provision for Income Taxes
- --------------------------
The effective income tax rates used in the interim financial statements
are estimates of the fiscal years' rates. For the nine months ended June 30,
2001, the Company recorded a provision for income taxes using an estimated
effective income tax rate of 38.5%. The effective income tax rate for fiscal
2000 was 39.5%. The Company's effective income tax rate for fiscal 2000 and its
estimated effective income tax rate for fiscal 2001 are higher than the
statutory U.S. Federal income tax rate of 35% primarily due to state income
taxes.
Unusual Item: Income Related to Transaction Break-up Fee
- --------------------------------------------------------
During the first quarter of fiscal 2001, the Company received a
transaction break-up fee from a leasing acquisition target. As a result, XTRA
recorded income of $2 million (pretax) in the first quarter of fiscal 2001 as an
unusual item.
Share Repurchases
- -----------------
During the first nine months of fiscal 2001, the Company repurchased
approximately 1.5 million shares totaling $71 million.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended June 30, 2001, the Company generated cash
flows from operations of $205 million. During the same period, the Company
acquired $61 million of property and equipment. Net debt outstanding (debt less
cash) decreased $76 million.
As of August 3, 2001, committed capital expenditures for revenue
equipment for fiscal year 2001 amounted to $63 million. For the full year, the
Company expects its total capital spending to be less than $75 million.
17
As of August 3, 2001, XTRA Inc. had $337 million available for future
issuance under its current shelf registration and unused credit available of
$169 million under its $275 million Revolving Credit Facility.
Tender Offer
- ------------
On July 30, 2001, the Company entered into a definitive Agreement and
Plan of Merger which calls for a cash tender offer of $55.00 per share to
holders of Company common stock by a wholly owned subsidiary of Berkshire
Hathaway, Inc., a Delaware corporation. Upon successful completion of the tender
offer, the Merger Agreement calls for a merger pursuant to which the remaining
stockholders will receive cash in the same amount as paid in the tender offer.
The tender offer is expected to commence on August 14, 2001 and will be
for all of the Company's outstanding common stock. The value of the transaction
is approximately $590 million. Upon successful consummation of the transaction,
the Company will become a wholly owned subsidiary of Berkshire Hathaway, Inc.
and will continue to be headquartered in Westport, Connecticut.
18
ITEM 3 - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
At June 30, 2001, there were no material changes in the market risks
reported in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2000.
19
Part II - OTHER INFORMATION
---------------------------
ITEM 5 - OTHER MATTERS
----------------------
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In the foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations we made several forward-looking statements,
including estimates of economic and industry conditions, equipment utilization,
and capital expenditures. We may also occasionally make forward-looking
statements and estimates such as forecasts and projections of our future
performance or statements of management's plans and objectives. We may make
these forward-looking statements in SEC filings, press releases, other written
material and oral statements. Our estimates, forecasts and projections may
differ materially from actual results. Therefore, we cannot assure you that
these forward-looking statements will be accurate. Important factors that could
cause our actual results to differ from those contained in our forward-looking
statements include the factors mentioned below.
Our operating results may fluctuate significantly because our revenues vary
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significantly from period to period while our operating costs are primarily
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fixed.
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Because our revenues vary and it is difficult for us to reduce our
operating costs, our profitability may be cyclical and fluctuate significantly
from period to period. Our revenues are a function of lease rates and working
units. Working units in turn depend on fleet size and utilization, or the
percentage of our fleet that is earning revenue. Some of the factors that affect
lease rates, utilization, and on-going operating results are:
. competition;
. economic conditions and world trade activity;
. the supply of and demand for available equipment;
. aggressive purchasing of equipment by our customers and competitors
leading to an excess supply of equipment;
. shifting traffic trends in the industry;
. severe adverse weather conditions;
. strikes by transportation unions; and
. other factors in the freight transportation industry.
Our fixed costs include:
. depreciation,
. rental equipment lease financing,
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. a portion of both rental equipment operating expenses,
. and selling and administrative expenses.
Competition in the market for leased transportation equipment could prevent us
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from increasing revenue and sustaining profitability.
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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. We have many
competitors, some of which have leasing fleets that are larger in size than our
leasing fleet and some of which have greater resources. In addition to other
lessors of trailers, we face competition from companies moving freight by means
of marine and domestic containers, railroad rolling stock and other vehicles.
Our revenues may decrease as a result of the consolidation of our customers,
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which may result in less demand for leased transportation equipment.
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Industries in which we compete, including trucking, railroads and
shipping, are in the process of consolidation. As a result of this
consolidation, our customers may be better able to manage their equipment
requirements and may seek increased efficiencies through direct ownership of
equipment. If our customers decide to own their equipment rather than lease
their equipment, the ratio of leased equipment to owned equipment might
decrease, which could reduce the overall market for our services.
We may be unable to meet customer demand because of the long delivery times for
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trailers and other equipment which could cause us to lose market share.
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Our performance in a given period may be adversely affected by our
inability to quickly increase fleet size, due to extended back orders, in
response to unexpectedly strong demand. New equipment is built to our
specifications and reflects industry standards and customer needs. We purchase
new equipment from a number of manufacturers. 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 we place an order. Because of this
substantial delivery time, appropriate equipment may not be available when we
need it. This situation may worsen as some manufacturers of our equipment have
consolidated and eliminated manufacturing facilities. In addition, it is
difficult to accurately predict demand for our equipment in future periods,
making it difficult for us to order equipment in advance of customer demand.
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We may not be able to secure sufficient capital on acceptable terms, which would
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impact our ability to grow and maintain our fleet.
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To grow and maintain our fleet, we acquire new equipment, both for
growth as well as replacement of older equipment. In addition, we have acquired,
and plan to continue to acquire, other companies to grow our fleet. These
activities require a substantial amount of capital. Historically, we generally
have had available a variety of sources to finance these expenditures and
acquisitions at favorable rates and terms. However, the availability of this
capital depends heavily upon prevailing market conditions, our capital
structure, and our credit ratings. We may not be able to obtain sufficient
financing on terms that are acceptable to us to fund our operations and capital
expenditures or to enable us to take advantage of favorable acquisition
opportunities.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 K
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(a) Exhibits
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Exhibit No. Description
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12.1 Statement of the calculation of earnings to fixed charges for
the nine months ended June 30, 2001 and 2000 for XTRA
Corporation
(b) Report on Form 8-K
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On July 31, 2001, a Current Report on Form 8-K was filed by the Company
to disclose the execution on July 30, 2001 of an Agreement and Plan of Merger
among the Company, Berkshire Hathaway, Inc. and BX Merger Sub, Inc., a wholly
owned subsidiary of Berkshire Hathaway, Inc.
On August 3, 2001, 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, 2001.
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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
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(Registrant)
Date: August 14, 2001 /s/ Stephanie L. Johnson
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Stephanie L. Johnson
Vice President and Treasurer
Date: August 14, 2001 /s/ Thomas G. Schaefer
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Thomas G. Schaefer
Vice President and Controller
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EXHIBIT INDEX
Exhibit No. Description
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12.1 Statement of the calculation of earnings to fixed charges
for the nine months ended June 30, 2001 and 2000 for XTRA
Corporation
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