10-Q 1 d10q.txt FORM 10-Q 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 --------------------------------------------------- Commission File Number 1-7654 -------------------------------------------------------- XTRA CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06-0954158 ---------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 Nyala Farms Road, Westport, Connecticut 06880 ------------------------------------------------------------------------------- (Address of principal executive offices) (203) 221-1005 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 2001 ---------------------------------- ---------------------------- Common Stock, Par Value 10,506,639 $.50 Per Share XTRA CORPORATION AND SUBSIDIARIES INDEX

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)

/(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)

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)

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)

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:

(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:

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.

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.

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 --------------------------------------------------------------------------- significantly from period to period while our operating costs are primarily --------------------------------------------------------------------------- fixed. ----- 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, 20 . a portion of both rental equipment operating expenses, . and selling and administrative expenses. Competition in the market for leased transportation equipment could prevent us ------------------------------------------------------------------------------ from increasing revenue and sustaining profitability. ---------------------------------------------------- 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, ---------------------------------------------------------------------------- which may result in less demand for leased transportation equipment. -------------------------------------------------------------------- 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 ------------------------------------------------------------------------------- trailers and other equipment which could cause us to lose market share. ----------------------------------------------------------------------- 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. 21 We may not be able to secure sufficient capital on acceptable terms, which would -------------------------------------------------------------------------------- impact our ability to grow and maintain our fleet. -------------------------------------------------- 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. 22 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 K ----------------------------------------- (a) Exhibits --- -------- Exhibit No. Description ----------- ----------- 12.1 Statement of the calculation of earnings to fixed charges for the nine months ended June 30, 2001 and 2000 for XTRA Corporation (b) Report on Form 8-K --- ------------------ 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. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. XTRA CORPORATION ------------------------------- (Registrant) Date: August 14, 2001 /s/ Stephanie L. Johnson ---------------- ------------------------------- Stephanie L. Johnson Vice President and Treasurer Date: August 14, 2001 /s/ Thomas G. Schaefer ---------------- --------------------------------- Thomas G. Schaefer Vice President and Controller 24 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 12.1 Statement of the calculation of earnings to fixed charges for the nine months ended June 30, 2001 and 2000 for XTRA Corporation 25

XTRA CORP /DE/ 10-Q