SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K* ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED September 30, 1999 COMMISSION FILE NUMBER 1-7654 XTRA CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-0954158 (State or other jurisdiction (I.R.S. employer identification number) of incorporation or organization) 60 STATE STREET (617) 367-5000 BOSTON, MASSACHUSETTS 02109-1826 (Registrant's telephone number) (Address of principal executive offices)(Zip Code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of exchange on which registered Common Stock, Par Value $.50 per Share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: none Shares Outstanding of the Registrant's Common Stock at November 9, 1999: 12,812,400 Aggregate market value of voting and non-voting common Equity held by non-affiliates of the Registrant at November 9, 1999: $ 519,000,000 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X. - Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended September 30, 1999, of which this Form 10-K is a part, are incorporated by reference in Parts I, II and IV. Portions of the Registrant's definitive Proxy Statement for use at the 2000 Annual Meeting of Stockholders are incorporated by reference in Part III. * Exhibits to Form 10-K and Parent Company Financial Statements and Schedules have been included only in copies of the Form 10-K filed with the Securities and Exchange Commission. A copy of this Form 10-K, including a list of exhibits and the Parent Company Financial Statements and Schedules, is available free of charge to stockholders upon written request to: Vice President and Chief Financial Officer, XTRA Corporation, 60 State Street, Boston, Massachusetts 02109. In addition, upon similar request, copies of individual exhibits will be furnished upon payment of a reasonable fee. 1 FORM 10-K TABLE OF CONTENTS XTRA Corporation and Subsidiaries ITEM PAGE Part I 1. Business 3 2. Properties 8 3. Legal proceedings 8 4. Submission of matters to a vote of security holders 8 4A. Executive officers of the registrant 8 Part II 5. Market for the registrant's common equity and related shareholder matters 10 6. Selected financial data 10 7. Management's discussion and analysis of financial condition and results of operations 10 7A. Quantitative and qualitative disclosures about market risk 11 8. Financial statements and supplementary data 11 9. Changes in and disagreements with accountants on accounting and financial disclosure 11 Part III 10. Directors and executive officers of the registrant 12 11. Executive compensation 12 12. Security ownership of certain beneficial owners and management 12 13. Certain relationships and related transactions 12 Part IV 14. Exhibits, financial statement schedules, and reports on Form 8-K 13 Signatures 19 2 PART I. ITEM 1. BUSINESS The discussion below contains certain forward-looking statements including estimates of economic and industry conditions. 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 Reform Act of 1995" contained below. XTRA Corporation (the "Company" or "XTRA") is a leading global transportation equipment lessor with operations in the highway, domestic intermodal and marine container markets. The Company manages a diverse fleet of approximately 287,000 units, constituting a net investment of approximately $1.5 billion, consisting of over-the-road ("OTR") trailers; intermodal equipment, including intermodal (or "piggyback") trailers, chassis and domestic containers; and marine containers. Transportation equipment customers lease equipment to cover cyclical, seasonal and geographic needs and as a substitute for purchasing. In addition, capital and capacity-constrained transportation providers often use leasing to maximize their asset utilization and reduce capital expenditures. By maintaining a large and diversified fleet, leasing companies are able to provide customers with a broad selection of equipment and quick response times, which reduce equipment shortfalls and lost opportunities. Lease Types and Rates Transportation equipment is generally leased through operating or finance leases. XTRA primarily participates in the operating lease segment, generally placing less emphasis on finance leases because it believes the value-added component of such leases is low. Operating leases can be either daily ("per diem") leases or term leases. Per diem leases are for a period of less than one year, generally with the option to return the equipment without prior notice. Term leases are for a period of one year or more, with most being for an original term of three to five years. Term lease agreements may have early termination penalties that apply in the event of early redelivery, although in most cases equipment is not returned prior to the expiration of the lease. Operating lessors generally offer certain customer services, which may include roadside assistance, insurance, repair and maintenance and regulatory compliance. Operating lessors will enter into term leases due to the greater revenue stability associated with longer-term leases even though long-term lease rates are typically lower than per diem lease rates. The percentage of equipment on term leases versus per diem leases varies widely among leasing companies, depending upon each company's desire to have predictable revenues and cash flows. The Company's relatively high percentage of equipment on term leases reflects a desire for fairly consistent cash flows. Many of XTRA's OTR per diem and term leases provide for additional fees if the equipment is returned to a location other than the originating location. XTRA's marine container and intermodal trailer leases allow the customers to return equipment to a different location. Returns of marine containers are subject to quantity and location limitations and additional drop-off fees are built into the lease terms. XTRA's marine container leases may also provide customers with incentives to return marine containers to more desired locations. Lease rates depend on several factors including the type of lease, length of term, maintenance provided, type and age of the equipment and market conditions. In addition, in the OTR trailer business, the Company charges its customers a fee based on the number of miles the trailer has been moved or charges actual tire and brake wear incurred. The Company offers additional value-added services for which the Company charges specified fees. For example, in the OTR trailer business, these services include roadside assistance, various insurance alternatives and trailer repair and maintenance. Over the last several years, healthy market demand has allowed XTRA to maintain a strong overall term lease portfolio. At September 30, 1999 approximately 39% of the total fleet was leased to customers under term lease. 3 Utilization An important indicator of the Company's performance is the portion of its fleet that is on lease at any given time. This measure, called the utilization rate, is defined as the number of units on lease divided by the total number of units in the fleet. The Company leases equipment both on a term and a per diem basis in order to effectively utilize the fleet and maintain a balance between the greater stability of revenue associated with term leases and the increased profitability potential of per diem lease pricing. The Company actively manages the distribution of its units and keeps a large, diversified and well-maintained fleet of mostly standardized equipment in order to operate at high utilization rates. Equipment Fleet The Company's equipment fleet has increased over time through purchases of new equipment and through fleet acquisitions of other leasing companies. The Company's fleet size and 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. At September 30, 1999, 3% of the Company's net investment in equipment represented equipment leased-in under operating leases. The Company's fleet and net investment consisted of the following units and net investment at the end of its last five fiscal years: Equipment Fleet Number of Units --------------- At September 30, (Units in thousands) 1999 1998 1997 1996 1995 ------------------------------------------------------------ Over-the-road trailers 85 79 78 75 76 Intermodal trailers 20 22 23 24 29 Chassis 26 24 23 24 21 Domestic containers 8 9 10 8 8 Marine containers 148 165 162 152 126 ------------------------------------------------------------ Total 287 299 296 283 260 ============================================================ Equipment Fleet Net Investment/(1)/ ------------------- At September 30, (Millions of dollars) 1999 1998 1997 1996 1995 ------------------------------------------------------------ Over-the-road trailers $ 902 $ 770 $ 718 $ 632 $ 628 Intermodal trailers 126 153 168 197 237 Chassis 116 107 112 119 107 Domestic containers 23 31 41 36 42 Marine containers 313 388 414 419 373 ------------------------------------------------------------ Total $1,480 $1,449 $1,453 $1,403 $1,387 ============================================================ /(1)/ For purposes of this presentation, the net investment in equipment leased to the Company on an operating basis represents the present value of the remaining lease payments. The net investment in revenue equipment leased to customers under finance leases as well as equipment owned by the Company or leased to the Company under capital leases represents the net carrying value of this equipment. For information regarding business information by operating segment and geographic area, see Note 7 of the Notes to Consolidated Financial Statements. For additional information, including financing and capital expenditures, see Management's Discussion and Analysis of Financial Condition and Results of Operations. Such information is incorporated herein by reference. Description of Operating Divisions The Company conducts its leasing operations through three divisions: XTRA Lease, XTRA Intermodal, and XTRA International. 4 XTRA Lease: General XTRA Lease, the Company's OTR trailer business operation, leases trailers to contract and common motor carriers and to private-fleet owners throughout North America. XTRA Lease's fleet includes approximately 85,000 trailers, comprised mostly of dry cargo vans 48' and 53' long by 102" wide. For the fiscal year ended September 30, 1999, the average equipment utilization rate for the OTR business was 87%. Approximately 41% of the XTRA Lease units were leased on a term basis as of September 30, 1999, with the balance of units available for lease on a per diem basis. XTRA Lease: Competitive Environment XTRA estimates the leasing segment of the North American OTR trailer fleet (fleet owned by leasing companies) to be about 340,000 units. XTRA enjoys a strong competitive position in the OTR trailer segment and believes its fleet of approximately 85,000 units, or 25% of the leased fleet, is exceeded by only one competitor who has an estimated share of 30%. The remainder of the industry is fragmented and primarily spread among many smaller, regional equipment providers. XTRA Lease: Market Trends Management believes that the demand for leased OTR trailers will increase due to a number of factors. One contributing factor is the increasing trend of private fleet owners outsourcing transportation fleets as companies move towards a variable cost approach to operating their businesses. In addition, as more private owners seek to provide their services with fewer owned units to reduce costs and capital commitments, they typically look to truckload carriers and logistics companies to handle their transportation needs. Truckload carriers and logistics companies represent a significant portion of XTRA Lease's customer base. A second factor, the continued move toward time definite inventory strategies, such as just-in-time, as well as better driver time management and truck utilization, should focus companies on leasing rather than owning trailers. An increasing number of trailers are left empty at loading docks as drivers employ a drop-off rather than a wait-and-unload strategy to improve efficiencies and driver utilization. The result is an increasing ratio of trailers to trucks in the freight transportation market. The Company believes that leasing companies will increasingly be relied upon to handle these growing trailer needs. Recently, some domestic freight has moved from the railroad to the trucking industry. The Company believes this has occurred due to the increased consolidation in the railroad industry, which has caused more rationalized track and service availability and an increase in containerized trade from overseas, which is placed on railroads at major ports, displacing domestic traffic. These factors have increased the volume of the Company's truckload and less-than- truckload customers, who in turn continue to use leasing companies such as XTRA to satisfy increased demand. Due to its national operating network and its strong reputation, XTRA believes it is well positioned to capitalize on the trends which favor the use of leasing companies. XTRA Intermodal: General XTRA's intermodal business is comprised of three rental products: intermodal trailers, chassis and domestic containers. Intermodal traffic refers to the shipment of goods in standardized equipment through two or more modes of transportation, usually rail, truck or ship. On certain routings, shipping goods over two or more modes of transportation is more cost efficient. For example, over long distance, high density freight lanes, intermodal transportation can be more cost efficient than trucking. Further, containerization is more efficient and economical than "break bulk transportation," in which the goods are unpacked and repacked at various intermediate points on route to their final destination. Intermodal (piggyback) trailers are designed to be carried on rail flatcars, pulled by tractor over the highway and, to a lesser extent, transported over water by ships and barges. The Company's intermodal trailer fleet of 20,000 units consists primarily of units 48' and 45' long by 102" wide. Approximately 26% of the intermodal trailer fleet was leased on a term basis as of September 30, 1999, with the remainder of the fleet available for lease on a per diem basis. 5 Chassis are wheeled rectangular frames used to transport containers over the highway. XTRA's chassis are used as transport vehicles for marine and domestic containers, which are loaded or unloaded at shipyards, rail terminals or consignee locations. Once loaded, the chassis and the container together are the functional equivalent of a trailer. Loading the container on a chassis allows the container to be delivered to or from the inland destination. Marine chassis are generally 20' or 40' in length to accommodate marine containers, while domestic chassis are generally 48' or 53' in length and handle domestic containers. The Company's fleet of 26,000 units consists primarily of marine chassis and is leased to steamship lines, railroads and motor carriers. Approximately 52% of the chassis fleet was leased on a term basis as of September 30, 1999 with the balance available for lease on a per diem basis. Domestic containers are designed to transport freight over rail or on chassis over highway within North America. These containers substitute for intermodal and OTR trailers, particularly on long-haul, heavy volume routes. XTRA's fleet of 8,000 units consists primarily of 48' long by 102" wide units leased to North American railroads and other domestic freight carriers. Approximately 82% of the Company's domestic containers were leased on a term basis as of September 30, 1999, with the balance available for lease on a per diem basis. XTRA Intermodal: Competitive Environment XTRA believes that it is the third largest intermodal trailer lessor in North America, with approximately 23% of the total leasing market. XTRA believes that its largest competitor owns in excess of 38% of the total market. In the leased segment of the chassis market (chassis owned by leasing companies), the Company believes that it is the fifth largest lessor in the United States with approximately 8% of the market. The Company believes its largest competitor owns approximately 32% of the leasing market. In the leased segment of the domestic container market, the Company believes that it is the third largest lessor in the United States with approximately 13% of the market. XTRA Intermodal: Market Trends Over the last decade, there has been a gradual shift in intermodal traffic from the use of intermodal trailers to domestic containers to transport goods over rail. The shift has occurred primarily due to the railroads' promoting the increased use of domestic containers because of the lower cost of transporting them versus intermodal trailers. The demand for leased chassis in North America has been growing significantly due primarily to the growth in the use of international and domestic containers. The use of containers, which are placed on chassis to transport the container to the next destination, has increased due to the many benefits of shipping goods by container versus alternative methods. As the use of containerized trade continues to increase, the market for chassis, an essential part of moving the container to the final destination, will similarly increase. In addition, the railroads and shipping lines have focused on reducing their capital expenditures on ancillary assets in favor of more core assets such as railcars or ships. To take advantage of this trend, the Company has established neutral chassis pools at key rail interchange locations and ports in the United States. XTRA International: General The Company's 148,000 marine containers are standard, dry cargo 20' and 40' rectangular steel boxes leased primarily to steamship lines for transporting freight on ships worldwide. Container usage has exceeded world gross domestic product growth primarily as a result of the logistical advantages and efficiencies resulting from containerization. Standardization of the construction, maintenance and handling of containers allows containers to be picked up, dropped off, stored and repaired throughout the world. 6 For the 1999 fiscal year, the average utilization rate for the Company's marine containers was 71%. Approximately 34% of XTRA's marine container fleet was leased on a term basis at September 30, 1999, with the remainder of the fleet available for lease on a per diem basis. XTRA International: Competitive Environment XTRA agreed to outsource the management of its international container leasing business effective June 1, 1999 to Textainer Equipment Management Limited. The Company believes that, with the addition of the XTRA fleet, Textainer owns or manages a fleet of approximately 850,000 twenty foot equivalent units, making it the world's third largest container fleet with a market share of 13% of the leasing segment of the industry. The two largest competitors in this segment each have approximately an 18% market share. Over the last several years, there has been consolidation in the container leasing business resulting from several acquisitions. The result of the consolidation has been fewer lessors, and a more rationalized industry, but has not yet resulted in a more stabilized lease pricing environment. XTRA International: Market Trends Demand for leased containers is influenced primarily by the volume of international and domestic trade. In recent years, however, the rate of growth in the supply of containers has exceeded world gross domestic product as a whole due to several factors, including the existence of geographical trade imbalances, the expansion of shipping lines, changes in manufacturing practices and increased exports by certain technologically advanced countries of component parts for assembly in other countries and the subsequent re-importation of finished products. However, aggressive spending for newer, lower cost containers over the last few years has caused supply growth to exceed demand growth creating excess supplies and decreased utilization. Leasing companies currently own approximately half of the world's container fleet with the balance owned predominantly by the shipping lines. Environmental Matters Although the nature of the Company's operations at its owned and leased facilities is such that it is not a heavily regulated entity pursuant to Federal and state environmental laws and regulations, the Company is required to comply with such laws and regulations, including laws and regulations related to the generation, handling, storage, transportation, treatment and disposal of hazardous and solid wastes. In addition, under various Federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may become liable for the costs of removal or remediation of hazardous or toxic substances, typically without regard to fault. The Illinois Environmental Protection Agency has notified the Company of alleged environmental contamination of its Fairmont City, Illinois property that resulted from the prior owners' zinc smelting operations. As a result, the Company has taken certain actions to suppress dust that have significantly reduced the level of airborne contaminants at the site. Based on the Company's current understanding of the nature of the contamination at the site, the Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the Company's results of operations, cash flows or financial condition. The Company believes that its facilities are in compliance in all material respects with all applicable United States Federal, state and local environmental laws, ordinances and regulations, as well as comparable laws and regulations outside the United States. No assurances can be given, however, that the current environmental condition of the Company's owned and leased facilities is not other than as currently understood by the Company, or will not be adversely affected by the condition of properties in the vicinity of the Company's owned and leased properties or by the activities of third parties unrelated to the Company, or that future laws, ordinances or regulations will not impose any material environmental liability on the Company. Regulation The Company's over-the-road and intermodal equipment is subject to various federal and state licensing and operating regulations as well as to various industry standards. The Federal Highway Administration (the "FHWA") published a rule, effective June 1, 1999 to amend the Federal Motor Carrier Safety Regulations. The rule requires that motor carriers engaged in interstate commerce install retroreflective tape or reflex reflectors on 7 the sides and rear of all trailers that (i) were manufactured prior to December 1, 1993, (ii) have an overall width of 80 inches or more and (iii) have a gross vehicle weight rating of 10,000 lbs. or more. The FHWA has mandated that motor carriers complete the installation within two years of the effective date of the rule. The Company currently estimates that as of September 30, 1999 the cost of complying with the regulation will amount to approximately $5 million. The cost to install the reflective tape will be capitalized and depreciated over the remaining life of the trailers impacted by this regulation. Employees The Company had 777 employees at September 30, 1999. Corporate Organization The Company was organized in 1957. XTRA's corporate management offices are located at 60 State Street, Boston, Massachusetts 02109-1826 (telephone number (617) 367-5000). XTRA, Inc., a wholly-owned direct subsidiary of XTRA Corporation, owns substantially all of the Company's transportation equipment and conducts the Company's leasing business through certain of its subsidiaries pursuant to management service agreements. ITEM 2. PROPERTIES The Company maintains 86 facilities for the storage and distribution of its OTR and intermodal equipment throughout North America, occupying 670 acres, of which 376 acres are owned. These facilities generally occupy 2 to 16 acres. The Company also maintains 7 chassis pools at various customer locations. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is involved in various claims and legal actions arising out of the normal course of its business. Currently, there are no pending claims or actions that management believes will have a material adverse effect on the Company's financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to stockholders of the Company during the fourth quarter of 1999. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, the age of each, and the period during which each has served in his present office are as follows: Lewis Rubin (61) - President and Chief Executive Officer. Mr. Rubin was President and Chief Executive Officer of Flexi-Van Corporation, a company engaged in the leasing of intermodal transportation equipment, from 1981 to 1983. He served as President and Chief Executive Officer of Gelco CTI Container Services, a subsidiary of Gelco Corporation, and as an Executive Vice President of Gelco Corporation from 1984 to 1988. Mr. Rubin was elected President and Chief Operating Officer of the Company in 1990. He was elected to his present position in 1990. Jordan L. Ayers (40) - Vice President, XTRA Intermodal. Mr. Ayers joined the Company in 1994 as Vice President, Sales, XTRA Intermodal and was promoted to Vice President, Sales and Marketing, XTRA Intermodal in 1997. He was elected Divisional Executive Vice President, XTRA Intermodal in 1999. He was elected to his present position in 1999. Mr. Ayers was previously employed by Transamerica Leasing, a major intermodal equipment lessor. 8 Jeffrey R. Blum (47) - Vice President, Planning and Development. Mr. Blum joined the Company in 1995 as Vice President of Human Resources and became Vice President, Administration and Human Resources in 1996. He was elected to his current position in 1999. Prior to 1995, Mr. Blum served in similar capacities at First Winthrop Corporation from 1993 to 1995 and Signal Capital Corporation prior to 1993. William H. Franz (48) - Vice President, XTRA Lease. Mr. Franz was previously employed by two large over-the-road lessors, Transport International Pool and Strick Lease. He joined the Company in 1992 and was elected Divisional Executive Vice President, XTRA Lease in 1993. He was elected to his present position in 1993. Thomas A. Giacchetto (34) - Vice President, General Counsel and Secretary. Mr. Giacchetto joined the Company in 1995 as Senior Corporate Counsel. He became Chief Counsel and Secretary in 1998 and was elected to his present position later in 1998. Prior to joining the Company, Mr. Giacchetto was an associate with Hutchins, Wheeler & Dittmar, a Boston law firm, from 1990 through 1995. Christopher P. Joyce (38) - Vice President and Treasurer. Mr. Joyce joined the Company in 1985. He was promoted to Assistant Treasurer in 1991 and was elected Treasurer in 1993. Mr. Joyce was elected to his present position in 1996. Gregory C. Kowert (52) - Vice President, Administration. Mr. Kowert joined the Company as Vice President, Administration in March 1999. He was Chief Financial Officer and Vice President of UP/Graphics, Inc., a printing company, since 1998. From 1996 to 1998, he was Chief Financial Officer, Senior Vice President, Finance and Secretary of Connectivity Technologies, Inc., a manufacturer and distributor of wire, cable and networking products. Prior to that, he served as Chief Financial Officer, Director, and Vice President, Finance of O'Sullivan Industries Holdings, Inc., a furniture manufacturer. Michael J. Soja (50) - Vice President and Chief Financial Officer. Mr. Soja joined the Company as Assistant Controller in 1974, was elected Controller in 1978 and Vice President in 1979. He was elected Vice President, Finance and Administration in 1981 and Vice President, Finance and Treasurer in 1990. Mr. Soja was elected to his present position in 1990. All terms of office expire as of the date of the Board of Directors' meeting following the next Annual Meeting of Stockholders and until their respective successors are elected and qualified. 9 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed on the New York Stock Exchange and trades under the symbol "XTR". The approximate number of record holders as of November 9, 1999 was 637. The following table sets forth the range of high and low sale prices of the Company's Common Stock on the New York Stock Exchange Composite Tape and dividends declared during fiscal years ended September 30, 1998 and 1999. Dividends High Low Declared ---------------------------------------------- 1998: First Quarter 60 50 .20 Second Quarter 66 /1/16/ 57 /3/4/ .22 Third Quarter 64 /13/16/ 45 /1/2/ .22 Fourth Quarter 62 /7/8/ 46 /5/16/ - 1999: First Quarter 49 /1/4/ 37 /1/2/ - Second Quarter 43 /1/2/ 37 /1/2/ - Third Quarter 46 /1/4/ 37 /3/4/ - Fourth Quarter 47 /13/16/ 39 /3/4/ - The Company paid quarterly cash dividends on its Common Stock from January 1977 through the third quarter of 1998. The Company agreed under the terms of the Recapitalization Merger Agreement not to pay dividends on the Company Common Stock pending consummation of the Merger (see Note 14 of the Notes to Consolidated Financial Statements). Since the termination of the Merger Agreement, the Company has not paid dividends and has no current plans to do so. Future dividends, if any, will be determined by the Board of Directors and will be dependent upon the earnings, financial condition, and cash requirements of the Company and other relevant factors existing at the time. The Company's sources of funds for the payment of dividends on its capital stock are advances and dividends from its direct and indirect wholly-owned subsidiaries, including XTRA, Inc. The primary sources of funds for XTRA, Inc. are cash flows from operations, advances from its subsidiaries, and external financing. The Company's loan agreements contain covenants that restrict the payment of dividends or repurchases of common stock by the Company and certain loan agreements contain covenants that restrict advances to and payment of dividends to the Company by its subsidiaries, including XTRA, Inc. Under the most restrictive provisions of the Company's loan agreements, the combined amount of repurchases of common stock and cash dividends which could be paid on the Company's capital stock was limited to $96 million at September 30, 1999. ITEM 6. SELECTED FINANCIAL DATA This information is set forth in the table appearing on page 1 of the Company's 1999 Annual Report, which table is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item appears in the Company's 1999 Annual Report beginning at page 28 and is incorporated herein by reference. 10 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has financed its operations with a combination of short-term borrowings and longer term financing. The Company borrows on a short-term basis by issuing commercial paper and using several uncommitted lines of credit, both of which are back-stopped by the unused borrowing capacity under the Company's $225 million Revolving Credit Agreement. The Company's short term borrowings, back-stopped by the Revolving Credit Agreement, are classified as long term debt and are principally at variable rates and constitute approximately 20% of on balance sheet indebtedness. The balance of indebtedness represents long-term fixed rate borrowings. At September 30, 1999, the fair value of the Company's long-term debt was $855 million. A 10% change in interest rates (from 7% to 7.7%, for example) would result in a $19 million change in the fair value of the long-term debt. The Company's earnings are affected by fluctuations in the exchange rate of the U.S. dollar as compared to the Mexican peso and Canadian dollar. These earnings fluctuations are primarily a result of the Company investments in and financing of these operations, as opposed to operating results. Overall, the Company's exposure to fluctuations in foreign exchange rates is not significant. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA For the Financial Statements and Supplementary Data for XTRA Corporation and its subsidiaries, see Index to Financial Statements on page 20 of the Company's 1999 Annual Report, which Financial Statements and Supplementary Data are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 11 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Directors - Information with respect to all directors may be found in the Company's definitive Proxy Statement for the 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement") under the caption "Information with Respect to Director Nominees," which is to be filed with the Securities and Exchange Commission. Such information is incorporated herein by reference. (b) Executive Officers - Information with respect to executive officers of the registrant appears in Item 4A of this Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION This information is contained in the 2000 Proxy Statement under the captions "Executive Compensation Tables" and "Compensation of Directors." Such information is incorporated herein by reference. ITEM 12. SECUR1TY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is contained in the 2000 Proxy Statement under the captions "Stock Ownership by Directors and Executive Officers" and "Beneficial Ownership of More than Five Percent of Voting Securities." Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is contained in the 2000 Proxy Statement under the captions "Information with Respect to Director Nominees" and "Certain Transactions." Such information is incorporated herein by reference. 12 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) Required exhibits are included only in the Form 10-K filed with the Securities and Exchange Commission. (b) The Company filed a Current Report on Form 8-K, dated November 15, 1999, which disclosed certain financial information for the fiscal fourth quarter ended September 30, 1999. (c) For Financial Statements and Schedule, see Index to Financial Statements on page 20 of the Company's 1999 Annual Report, which Financial Statements and Schedule are incorporated herein by reference. 13 XTRA CORPORATION SCHEDULE 1 (PARENT COMPANY ONLY) BALANCE SHEETS SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 ----------------------------------------- (Millions of dollars, except per share amounts) 1999 1998 ------ ------ Assets - ----------------------- Investment in subsidiary $ 335 $ 402 Advances to subsidiaries 7 12 Property and equipment, net 4 - ------ ------ $ 346 $ 414 ====== ====== Liabilities and Stockholders' Equity - ------------------------------------ Liabilities: Accrued expenses $ 9 $ 6 ------ ------ Total liabilities 9 6 Commitments and contingencies: 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; 12,812,400 shares at September 30, 1999 and 15,372,903 at September 30, 1998 6 8 Capital in excess of par value - 57 Retained earnings 341 354 Unearned compensation - restricted stock (3) - Accumulated other comprehensive income (7) (11) ------ ------ Total stockholders' equity 337 408 ------ ------ $ 346 $ 414 ====== ====== The accompanying Notes A, B, and C and the Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 14 XTRA CORPORATION SCHEDULE 1 (PARENT COMPANY ONLY) INCOME STATEMENTS FOR THE THREE YEARS ENDED SEPTEMBER 30, 1999 ------------------ (Millions of dollars, except per share amounts) 1999 1998 1997 ------ ------ ------ Equity in earnings of subsidiaries $ 38 $ 59 $ 43 Other income 11 8 - ------ ------ ------ 49 67 43 Selling and administrative expenses 14 7 - ------ ------ ------ Net income $ 35 $ 60 $ 43 ====== ====== ====== The accompanying Notes A, B, and C and the Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 15 SCHEDULE 1 XTRA CORPORATION (PARENT COMPANY ONLY) STATEMENT OF CASH FLOWS FOR THE THREE YEARS ENDED SEPTEMBER 30, 1999 (Millions of dollars) 1999 1998 1997 --------- --------- --------- Cash flows from operations: Net income $ 35 $ 60 $ 43 Deduct non-cash income and expense items: Equity in earnings of subsidiaries (38) (59) (43) Add other cash items: Dividends received from subsidiary 114 5 25 Net change in receivables, other assets, accounts payable and accrued expenses 4 (1) (1) --------- --------- --------- Total cash provided from operations 115 5 24 --------- --------- --------- Cash used for investment activities: Additions to property and equipment (4) - - --------- --------- --------- Total cash used for investment activities (4) - - --------- --------- --------- Cash flows from financing activities: Options exercised, net of related tax benefits - 5 1 Repurchase of common stock, net (111) - (13) Dividends paid - (10) (12) --------- --------- --------- Total cash used for financing activities (111) (5) (24) --------- --------- --------- Net increase (decrease) in cash - - - Cash at beginning of period - - - --------- --------- --------- Cash at end of period $ - $ - $ - ========= ========= ========= 16 XTRA CORPORATION NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS (A) Summary of Significant Accounting Policies ------------------------------------------ Accounting for Investment in Subsidiary XTRA Corporation, the Parent Company, recorded its investment in its subsidiary, XTRA, Inc., at cost plus its equity in the undistributed earnings of this subsidiary. Other Income Other income includes management fees received by the Parent Company from the subsidiaries. Prior to 1998, these management fees were earned by a subsidiary of the Parent Company. Operating Expenses All administrative and interest expenses incurred by the Parent Company are charged to its direct and indirect wholly-owned subsidiaries. Prior to 1998, these expenses were incurred by a subsidiary of the Parent Company. (B) Capital Stock ------------- Dividends XTRA Corporation declared cash dividends of $.64 and $.78 per share in the years ended September 30, 1998 and 1997, respectively. XTRA Corporation paid out cash dividends to stockholders totaling $10 million and $12 million during fiscal 1998 and 1997, respectively. The principal source of dividends for the Parent Company are funds advanced from its direct and indirect wholly-owned subsidiaries, including XTRA, Inc. Repurchase of Common Stock The Parent Company's Board of Directors had authorized the repurchase of up to $200 million of its common stock in 1995 and 1996. As of November 5, 1999, the Parent Company had repurchased $189 million of common stock under the $200 million authorization. In September, 1999, the Parent Company's Board of Directors approved a new $100 million stock repurchase authorization, which becomes effective upon completion of the $200 million stock purchase authorization. The timing of the repurchases, which could occur over an extended period of time, will depend upon price, market conditions, and other factors. (C) Debt and Transfers to Subsidiaries ---------------------------------- The Parent Company has guaranteed certain debt of its indirect wholly-owned subsidiary, including the Revolving Credit Agreement, Series Notes and Term Loans. (See Note 3 of the Parent Company's consolidated 1999 Annual Report.) 17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of XTRA Corporation: We have audited in accordance with generally accepted auditing standards, the financial statements included in XTRA Corporation's Annual Report to stockholders incorporated by reference in the Company's Annual Report on Form 10-K for the year ended September 30, 1999, and have issued our report thereon dated November 5, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index to financial statements and incorporated by reference in the Company's Annual Report on Form 10-K for the year ended September 30, 1999, is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP St. Louis, Missouri November 5, 1999 18 SIGNATURES Pursuant to the requirements of Section 13 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) By /s/ Lewis Rubin President and Chief Executive Officer November 9, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date - ---------- ----- ---- ______________________________ /s/ Robert B. Goergen Chairman of the November 9, 1999 Board of Directors ______________________________ /s/ Lewis Rubin Rubin President, Chief Executive November 9, 1999 Officer and Director ______________________________ /s/ Michael J. Soja Vice President November 9, 1999 and Chief Financial Officer ______________________________ /s/ Thomas S. McHugh Controller November 9, 1999 ______________________________ /s/ Michael D. Bills Director November 9, 1999 ______________________________ /s/ H. William Brown Director November 9, 1999 ______________________________ /s/ Michael N. Christodolou Director November 9, 1999 ______________________________ /s/ Martin L. Solomon Director November 9, 1999 19 EXHIBIT INDEX XTRA Corporation Form 10-K (for fiscal year ended 9/30/99) Exhibit Item 3.1 Restated Certificate of Incorporation of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1989, and incorporated herein by reference). 3.1.1 Certificate of Elimination of Designation, Preference and Rights of Series A Participating Preferred Stock (filed with the Securities and Exchange Commission as Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, and incorporated herein by reference). 3.1.2 Certificate of Elimination of Designation, Preference and Rights of $1.9375 Series B Cumulative Convertible Preferred Stock (filed with the Securities and Exchange Commission on March 5, 1993 as Exhibit 4.5 to Registrant's Registration Statement on Form S-3 (file No. 33-59132), and incorporated herein by reference). 3.1.3 Certificate of Amendment of Restated Certificate of Incorporation (filed with the Securities and Exchange Commission on March 5, 1993 as Exhibit 4.4 to Registrant's Registration Statement on Form S-3 (file No. 33- 59132), and incorporated herein by reference). 3.1.4 Certificate of Elimination of Designation, Preference and Rights of the Series C Cumulative Redeemable Exchangeable Preferred Stock (filed with the Securities and Exchange Commission on July 26, 1994 as Exhibit 4.5 to Registrant's Registration Statement on Form S-3 (file No. 33-54747), and incorporated herein by reference). 3.2 Amended and Restated By Laws of the Registrant, as amended through January 24, 1996 (filed with the Securities and Exchange Commission as Exhibit 3(b) to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995, and incorporated herein by reference). 4.1 Indenture, dated as of February 1, 1989, between XTRA, Inc., the Registrant and Chemical Bank, and First Supplemental Indenture, dated as of February 1, 1989, between XTRA, Inc., XTRA Corporation and Chemical Bank (filed with the Securities and Exchange Commission as Exhibits 4.1 and 4.2, respectively, to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1988, and incorporated herein by reference). 4.1.1 Second Supplemental Indenture, dated as of December 10, 1991, to the Indenture identified in Exhibit 4.1 above, between XTRA, Inc., the Registrant and Chemical Bank (filed with the Securities and Exchange Commission as Exhibit 4.4.1 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1991, and incorporated herein by reference). 4.1.2 Third Supplemental Indenture, dated as of November 1, 1992, to the Indenture identified in Exhibit 4.1 above, between XTRA, Inc., the Registrant and Chemical Bank (filed with the Securities and Exchange Commission as Exhibit 4.2 to Registrant's Quarterly Report on Form 10-Q for the Quarter ended December 31, 1992, and incorporated herein by reference). 4.1.3 Fourth Supplemental Indenture, dated as of September 30, 1994, to the Indenture identified in Exhibit 4.1 above, between XTRA, Inc., the Registrant and Chemical Bank (filed with the Securities and 20 Exchange Commission as Exhibit 4.1.3 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1994, and incorporated herein by reference). 4.2 Indenture, dated as of August 15, 1994, between XTRA, Inc., the Registrant and the First National Bank of Boston (filed with the Securities and Exchange Commission as Exhibits 4.1 to Registrant's Current Report on Form 8-K dated August 15, 1994, and incorporated herein by reference). 4.2.1 First Supplemental Indenture, dated as of September 30, 1994, to the Indenture identified in Exhibit 4.2 above, between XTRA, Inc., the Registrant and the First National Bank of Boston (filed with the Securities and Exchange Commission as Exhibit 4.2.1 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1994, and incorporated herein by reference). 4.2.2 Second Supplemental Indenture, dated as of May 16, 1997, to the Indenture identified in Exhibit 4.2 above, between XTRA, Inc., the Registrant and State Street Bank and Trust Company (filed with the Securities and Exchange Commission as Exhibit 4.2.2 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1997, and incorporated herein by reference). 4.2.3 Form of fixed-rate Series C Medium-Term Note (filed with the Securities and Exchange Commission as Exhibit 4.9 to Registrant's Post-Effective Amendment No. 1 to Registration Statement on Form S-3 (file No. 33- 65293), and incorporated herein by reference). 4.2.4 Form of floating-rate Series C Medium-Term Note (filed with the Securities and Exchange Commission as Exhibit 4.10 to Registrant's Post- Effective Amendment No. 1 to Registration Statement on Form S-3 (file No. 33-65293), and incorporated herein by reference). Note: Registrant agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any other instrument with respect to long-term debt of the registrant and its subsidiaries. Such other instruments are not filed herewith because no such instrument relates to outstanding debt in amount greater than 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. 4.3 Credit Agreement, dated as of June 30, 1995, among XTRA, Inc., 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 The First National Bank of Boston as Documentation Agent (filed with the Securities and Exchange Commission as Exhibit 2.2 to Registrant's Current Report on Form 8-K dated July 14, 1995, and incorporated herein by reference). 4.3.1 Guaranty, dated June 30, 1995 by the Registrant (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). 4.3.2 First Amendment, dated as of June 28, 1996, to the Credit Agreement identified in Exhibit 4.3 above, 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 The First National Bank of Boston as Documentation Agent (filed with the Securities and Exchange Commission as Exhibit 4.3.2 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1996, and incorporated herein by reference). 4.3.3 Second Amendment, dated as of June 19, 1997, to the Credit Agreement identified in Exhibit 4.3 above, 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 with the Securities and Exchange Commission as 21 Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference). 4.3.4 Amended and Restated Credit Agreement, dated as of June 30, 1999, to the Credit Agreement identified in Exhibit 4.3 above, among XTRA, Inc. Bank of America National Trust and Savings Association and Each of the Other Financial Institutions From Time to Time Parties Hereto, as Banks with Bank of America National Trust and Savings Association as Administrative Agent and BankBoston, N.A., as Syndication Agent, and The First National Bank of Chicago, as Documentation Agent (filed with the Securities and Exchange Commission as Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference). 10.1 Agreement and Plan of Reorganization, dated as of July 26, 1992, among Registrant, ST Trailer Corp., Distribution International Corporation ("DI"), Strick Corporation and certain individuals owning approximately 70% of the capital of stock of DI (filed with the Securities and Exchange Commission as Exhibit 2.1 to Registrant's Current Report on Form 8-K dated August 4, 1992, and incorporated herein by reference). 10.2 U.S. Fleet Finance Services Agreement dated as of October 1, 1994 between XTRA, Inc., and XTRA Intermodal, Inc. (filed with the Securities and Exchange Commission as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1994, and incorporated herein by reference). 10.3 U.S. Fleet Finance Services Agreement dated as of October 1, 1994 between XTRA, Inc., and XTRA Lease Inc. (filed with the Securities and Exchange Commission as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1994, and incorporated herein by reference). 10.4 Fleet Finance Services Agreement dated as of July 1, 1995 between XTRA, Inc., and XTRA International Ltd. (filed with the Securities and Exchange Commission as Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1994, and incorporated herein by reference). 10.5 Equipment Management Services Agreement, dated as of April 1, 1999 between XTRA International, Ltd. And Textainer Equipment Management Limited (filed with the Securities and Exchange Commission as Exhibit 10 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, and incorporated herein by reference). 22 EXECUTIVE COMPENSATION PLANS 10.6 1991 Stock Option Plan for Non-Employee Directors, as amended through November 14, 1996 (filed with the Securities and Exchange Commission as Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996, and incorporated herein by reference). 10.7 1987 Stock Incentive Plan, as amended through November 16, 1995 (filed with the Securities and Exchange Commission as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1995, and incorporated herein by reference). 10.8 Deferred Director Fee Option Plan (filed with the Securities and Exchange Commission as Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1993, and incorporated herein by reference). 10.9 Deferred Compensation Plan for Non-Employee Directors, effective January 1, 1994 (filed with the Securities and Exchange Commission as Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1993, and incorporated herein by reference). 10.10 Deferred Compensation Plan for Senior Executives, effective January 1, 1994 (filed with the Securities and Exchange Commission as Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1993, and incorporated herein by reference). 10.11 Form of Indemnification Agreement entered into between the Registrant and certain former Directors and certain former and current officers of the Registrant and its subsidiaries (filed with the Securities and Exchange Commission on June 11, 1987 as Exhibit 10 to Registrant's Registration Statement on Form S-3 (file No. 33-14996), and incorporated herein by reference). 10.12 Individual Pension Agreement, dated as of July 1, 1994, between the Registrant and Lewis Rubin (filed with the Securities and Exchange Commission as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, and incorporated herein by reference). 10.13 Economic Profit Incentive Plan (filed with the Securities and Exchange Commission as Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended September 30, 1997, and incorporated herein by reference). 10.14 1997 Stock Incentive Plan (filed with the Securities and Exchange Commission as Exhibit 10 to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997, and incorporated herein by reference). 10.15 Amended and Restated Severance Agreement, dated as of June 18, 1999, between the Registrant and Lewis Rubin, filed herewith. 10.16 Amended and Restated Severance Agreement, dated as of June 18, 1999, between the Registrant and William H. Franz, filed herewith. 10.17 Amended and Restated Severance Agreement, dated as of June 18, 1999, between the Registrant and Michael J. Soja, filed herewith. 10.18 Amended and Restated Severance Agreement, dated as of June 19, 1999, between Registrant and Jeffrey R. Blum, filed herewith. 12.1 Statement re: computation of ratios (XTRA Corporation). 23 12.2 Statement re: computation of ratios (XTRA, Inc.). 13.1 Five Year Selected Financial Data. 13.2 Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Years Ended September 30, 1999 (not covered by the Report of Independent Public Accountants). 13.3 XTRA Corporation and Subsidiaries Consolidated Financial Statements. 21 Subsidiaries of Registrant. 23 Consent of Independent Public Accountants. 27 Financial Data Schedule. 24 EXHIBIT 10.15 XTRA CORPORATION Severance Agreement ------------------- AGREEMENT, dated December 8, 1997, by and between Lewis Rubin ("Executive") and XTRA Corporation (the "Company"), as amended and restated as of June 18, 1999. WITNESSETH Executive is a key executive of the Company or one of its subsidiaries, responsible, in part, for the policy-making functions of the Company and the overall viability of the Company's business; and The Company recognizes that the possibility that certain significant transactions involving the Company may result in the departure or distraction of management to the detriment of the Company and its shareholders, and The Company wishes to assure Executive of fair severance should his employment terminate in specified circumstances following the consummation of certain significant transactions involving the Company and to assure Executive of certain other benefits in the event of such transactions. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. If, within the 24-month period (the "Post Significant Transaction Period") beginning on the date of a Significant Transaction (as defined in Exhibit A attached hereto and made a part hereof), (i) Executive's employment with the company is terminated (i) by the Company for any reason other than for "Cause" (as defined in paragraph 2 below), or (ii) Executive terminates such employment for Good Reason (as defined in paragraph 4 below): a. The Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to the sum of (i) the Executive's annual base salary ("Annual Base Salary") through the date of such termination of employment, and any earned bonuses for any completed fiscal period, to the extent not theretofore paid, (ii) a prorated portion (the "Prorated Bonus Amount") of the award payable under the Company's Economic Profit Incentive Plan, or any comparable or successor annual plan or plans in which the Executive is then a participant (the "Cash Plan"), notwithstanding anything to the contrary in the Cash Plan, determined by calculating the product of (A) the bonus payable with respect to the award for the fiscal period in which the date of termination occurs under the Cash Plan annualizing the Company's performance under the plan up to the date of termination by dividing the Company's performance to the date of termination by the number of full months in the performance period through the date of termination and multiplying the result by 12, times (B) a fraction, the numerator of which is the number of full months in the current fiscal year through the date of termination of employment, and the denominator of which is 12, and (iii) any compensation, including compensation for the fiscal year in which the date of termination occurs, previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in the above subsections (i) through (iii) shall be hereinafter referred to as the "Accrued Obligations"); and b. any stock, stock option or cash awards granted to the Executive by the Company, including any awards under the Company's 1987 and 1997 Stock Incentive Plans (or any successor plan or plans), that would have become vested and exercisable had the Executive continued to be employed by the Company shall immediately vest and become exercisable in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the later of (i) the latest date on which such grant could have been exercised had the Executive remained employed by the Company, and (ii) the date upon which any period during which the Executive has agreed not to sell the type of securities that may be issuable to such Executive upon the exercise of such grant shall expire; and c. the Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to two times the sum of: (A) the amount of the Executive's Annual Base Salary at the rate in effect immediately prior to the date of termination, and (B) the Average Annualized Bonus Amount which shall be calculated by multiplying by 12 the quotient determined by dividing (i) the sum of the actual cash bonus earned by the Executive during each of the two fiscal years immediately preceding the date of termination, plus the Prorated Bonus Amount, by (ii) 24 plus the number of full months in the period for which the Prorated Bonus Payment is calculated; and d. the Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to the amount of the forfeitable portion of the Executive's accrued benefit under the Company's qualified 401(k) or other qualified retirement plans; and e. Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company's expense -2- (subject to any required employee contributions at the rate in effect immediately prior to the date of the Significant Transaction) in all welfare benefit plans (other than disability insurance), programs, practices and policies maintained or sponsored by the Company immediately prior to the Significant Transaction, or receive substantially the equivalent coverage (or the full value thereof in cash) from the Company, until the second anniversary of such termination or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive reasonably comparable medical or other welfare benefits under another employer provided plan, the Company's obligation to provide the medical and other welfare benefits described herein shall cease; and provided further that if Executive's continued participation is not possible under the terms of such Company plans and programs, the Company shall instead either arrange to provide Executive with substantially similar benefits upon comparable terms or pay to the Executive (within five (5) business days of the date of termination) an amount equal to the full value thereof in cash; and f. to the extent not theretofore paid or provided for, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company ("Other Benefits"). Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested on any earlier date under the terms of any plan, agreement or arrangements, such plan, agreement or arrangement shall control. Further, notwithstanding anything herein to the contrary, if a Significant Transaction occurs and if the Executive's employment with the Company is terminated by the Company for a reason other than Cause prior to the date upon which the Significant Transaction occurs, and if it can be reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Significant Transaction or (ii) otherwise arose in connection with or in anticipation of a Significant Transaction, then for all purposes of this Agreement, Executive shall be entitled to the benefits provided in Sections 1(a)-(f) above. 2. Cause, Other Than For Good Reason; Disability. --------------------------------------------- a. Cause; Other Than for Good Reason. If the Executive's employment shall be terminated for Cause (as defined in Section 3 below), or if the Executive voluntarily terminates employment, excluding a termination for Good Reason, during the Post Significant Transaction Period, this Agreement shall terminate -3- without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. b. Disability. If the Executive's employment is terminated during the Post Significant Transaction Period by reason of the Executive's Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within five (5) business days of the date of termination of employment. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive's legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Significant Transaction Period, it may give the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. In the case of (a) or (b) above, all obligations shall be paid to the Executive in a lump sum in cash within five (5) business days of date of the termination of employment or such earlier time as may be required under law. 3. "Cause" means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of, or plea of nolo contendere to, a crime involving moral turpitude, or (c) gross neglect by the Executive in the performance of his duties to the Company which results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been "willful" unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or -4- another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company. 4. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following: a. Any action by the Company which results in a material diminution in Executive's position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; provided, however, a sale or transfer of some or all of the business of the Company or any of its subsidiaries or other reduction in its business or that of its subsidiaries, or the fact that the Company shall become a subsidiary of another company or the securities of the Company shall no longer be publicly traded, shall not constitute "Good Reason" hereunder; b. Any reduction in the Executive's rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary payable for the completed fiscal year immediately preceding the Significant Transaction; or c. Failure of the Company to permit the Executive to participate in all incentive, retirement, and savings policies and programs, and all welfare benefit plans, practices and programs (including without limitation, life, accidental death and travel accident insurance, medical insurance, dental insurance or disability plans) to the extent applicable generally at the time to other peer executives of the Company and its affiliated companies, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or d. The Company requires Executive to be based at any office or location further than 50 miles from Boston, Massachusetts; or e. Any failure by the Company to comply with and satisfy Section 7 of this Agreement. 5. Certain tax-related payments. ---------------------------- a. If any "parachute payment" as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), whether payable pursuant to this Agreement or otherwise, is made to or for the benefit of Executive in connection with a Change in Control (the "Subject Payment"), the Company will promptly pay to Executive an additional amount in cash (the "Gross-Up -5- Payment") which on an after-tax basis equals the excise tax under Section 4999 of the Code and any related interest and penalties due with respect to the "excess parachute payment" allocable to the Subject Payment. All determinations as to whether a Gross-Up Payment is required to be made under this Section 5, and if so the amount and timing of such Gross-Up Payment, shall be made at the Company's expense by Arthur Anderson LLP (Boston Office) or, if the Compensation Committee of the Company's Board of Directors shall designate another accounting firm, employment consulting firm, or law firm prior to a Change in Control, such other accounting firm, employment consulting firm, or law firm (the "Consultant"). Not later than thirty (30) days following receipt by the Consultant of notice from Executive that a payment believed by Executive to be a Subject Payment has been made or at such earlier time as may be requested by the Company, the Consultant shall deliver to Executive and the Company a preliminary statement (each such statement, a "Preliminary Statement") containing a computation of the Gross-Up Payment, if any, payable to Executive with respect thereto, together with supporting work papers. If both the Company and Executive agree with the Preliminary Statement, it shall become final (the "Final Statement"). If either the Company or Executive (the "objecting party") believes that a Preliminary Statement is incorrect for any reason, the objecting party may, within thirty (30) business days of receipt of the Preliminary Statement, deliver to the Consultant and to the other party additional information to be considered by the Consultant in making its determination. Within ten (10) business days following receipt by the Consultant of such additional information, it shall either confirm its Preliminary Statement or issue another statement that shall constitute the Final Statement. Subject to the correction of typographic mistakes or similar manifest errors, and except as provided at (b) below, the Final Statement shall be binding on both parties. With respect to each Subject Payment, the Company will pay the Gross-Up Payment to Executive not later than ten (10) business days after the Consultant has rendered its related Final Statement. b. If there is a determination by the Internal Revenue Service (the "IRS") with respect to Executive that is inconsistent with a Final Statement and that if sustained would result in an excise tax (or a greater excise tax) under Section 4999 of the Code or in interest or penalties (or increased interest or penalties) with respect to any such excise tax, the Final Statement shall be deemed automatically modified to conform to the IRS' determination and the Company, upon receipt of written notice from Executive setting forth the IRS' determination, shall promptly pay to Executive the additional Gross-Up Payment required by such modification (the "Additional Gross-Up Payment"). The Company may elect to contest at its expense any IRS determination in respect of which the Company has made an Additional Gross-Up Payment, in which case such Additional Gross-Up Payment shall be considered an interest-free loan (the -6- "Loan") to Executive until such time as the IRS' determination is final and no longer subject to judicial review. At such time Executive shall repay to the Company so much of the Loan, if any, as shall leave him on an after-tax basis in the same position he would have been in had the IRS' determination never been made, all as determined by the Consultant on a preliminary and, after opportunity for comment, final basis under rules substantially the same as those applicable under (a) above. Executive shall cooperate reasonably with the Company in any effort by the Company to contest an IRS determination under this paragraph, including by the making of such filings and appeals as the Company may reasonably require, but nothing herein shall be construed as requiring Executive to bear any cost or expense of such a contest or in connection therewith to compromise any tax item (including without limitation any deduction or credit) other than the excise tax under Section 4999 of the Code, and related interest and penalties if any, that are the subject of the contested IRS determination. 6. The Company agrees (i) to promptly reimburse Executive for any and all legal fees and related expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred by him to enforce the provisions of this Agreement or in contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof), (ii) to pay the cost of such judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending judicial proceedings (such interest will be at the base rate as published from time to time in the eastern edition of the Wall Street Journal); provided, however, that the Company shall not be required to reimburse the Executive for such fees, costs and expenses, if a court of competent jurisdiction shall issue a final order to the effect that the Executive shall not prevail on any claim relating to this Agreement. 7. If the Company is at any time before, after or in connection with, a Significant Transaction merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the "Successor Entity"), and this paragraph 7 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise. -7- In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive's right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the entity resulting from such merger or consolidation or the entity acquiring such assets of the Company. In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company. 8. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 13 of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, and (ii) if the Executive's employment is terminated by the Company other than for Cause, the Date of Termination shall be the date on which the Company notifies the Executive of such termination. 9. All payments required to be made by the Company hereunder to, or on behalf of, Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 10. There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by -8- Executive from other employment, other than with respect to certain welfare benefits as provided in the proviso to Section 1(e). 11. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge. 12. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties. 13. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a "Renewal Date"), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Significant Transaction which takes place after the termination of this Agreement. Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement. The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. The validity, interpretation, and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. -9- The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement. No right or interest to or in any payments shall be assignable by the Executive. No right, benefit, or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Lewis Rubin 1 Devonshire Place Apt. #3111 Boston, Massachusetts 02109 If to the Company: XTRA Corporation 60 State Street - 11th Floor Boston, Massachusetts 02109 Attn: Chair, Compensation Committee, and the General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective either on the date of delivery (in the case of delivery by hand), or three business days after deposit into the mails (in the case of delivery by mail). -10- IN WITNESS WHEREOF, XTRA Corporation and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above. XTRA CORPORATION By: /s/ Martin L. Solomon --------------------- Name: Martin L. Solomon Title: Chair, Compensation Committee /s/ Lewis Rubin --------------------- Name: Lewis Rubin -11- EXHIBIT A Significant Transaction. For the purposes of this Agreement, a "Significant Transaction" shall mean: a. Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (but excluding any reorganization, merger or consolidation or sale of assets with or to the Company or any subsidiary of the Company, unless in connection with such transaction there is also a Significant Transaction involving the Company) (a "Business Combination"), in each case unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Company (the "Company Common Stock") and the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities" immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and outstanding Company Voting Securities, as the case may be, (ii) no individual, corporation, partnership, limited liability company, or other entity, which term shall include a "group" (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the "Act"), excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination, beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or b. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. -12- EXHIBIT 10.16 XTRA CORPORATION Severance Agreement ------------------- AGREEMENT, dated December 12, 1997, by and between William H. Franz ("Executive") and XTRA Corporation (the "Company"), amended and restated as of June 18, 1999. WITNESSETH Executive is a key executive of the Company or one of its subsidiaries, responsible, in part, for the policy-making functions of the Company and the overall viability of the Company's business; and The Company recognizes that the possibility that certain significant transactions involving the Company may result in the departure or distraction of management to the detriment of the Company and its shareholders, and The Company wishes to assure Executive of fair severance should his employment terminate in specified circumstances following the consummation of certain significant transactions involving the Company and to assure Executive of certain other benefits in the event of such transactions. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. If, within the 24-month period (the "Post Significant Transaction Period") beginning on the date of a Significant Transaction (as defined in Exhibit A attached hereto and made a part hereof), (i) Executive's employment with the company is terminated (i) by the Company for any reason other than for "Cause" (as defined in paragraph 2 below), or (ii) Executive terminates such employment for Good Reason (as defined in paragraph 4 below): a. The Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to the sum of (i) the Executive's annual base salary ("Annual Base Salary") through the date of such termination of employment, and any earned bonuses for any completed fiscal period, to the extent not theretofore paid, (ii) a prorated portion (the "Prorated Bonus Amount") of the award payable under the Company's Economic Profit Incentive Plan, or any comparable or successor annual plan or plans in which the Executive is then a participant (the "Cash Plan"), notwithstanding anything to the contrary in the Cash Plan, determined by calculating the product of (A) the bonus payable with respect to the award for the fiscal period in which the date of termination occurs under the Cash Plan annualizing the Company's performance under the plan up to the date of termination by dividing the Company's performance to the date of termination by the number of full months in the performance period through the date of termination and multiplying the result by 12, times (B) a fraction, the numerator of which is the number of full months in the current fiscal year through the date of termination of employment, and the denominator of which is 12, and (iii) any compensation, including compensation for the fiscal year in which the date of termination occurs, previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in the above subsections (i) through (iii) shall be hereinafter referred to as the "Accrued Obligations"); and b. any stock, stock option or cash awards granted to the Executive by the Company, including any awards under the Company's 1987 and 1997 Stock Incentive Plans (or any successor plan or plans), that would have become vested and exercisable had the Executive continued to be employed by the Company shall immediately vest and become exercisable in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the later of (i) the latest date on which such grant could have been exercised had the Executive remained employed by the Company, and (ii) the date upon which any period during which the Executive has agreed not to sell the type of securities that may be issuable to such Executive upon the exercise of such grant shall expire; and c. the Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to two times the sum of: (A) the amount of the Executive's Annual Base Salary at the rate in effect immediately prior to the date of termination, and (B) the Average Annualized Bonus Amount which shall be calculated by multiplying by 12 the quotient determined by dividing (i) the sum of the actual cash bonus earned by the Executive during each of the two fiscal years immediately preceding the date of termination, plus the Prorated Bonus Amount, by (ii) 24 plus the number of full months in the period for which the Prorated Bonus Payment is calculated; and d. the Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to the amount of the forfeitable portion of the Executive's accrued benefit under the Company's qualified 401(k) or other qualified retirement plans; and e. Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company's expense -2- (subject to any required employee contributions at the rate in effect immediately prior to the date of the Significant Transaction) in all welfare benefit plans (other than disability insurance), programs, practices and policies maintained or sponsored by the Company immediately prior to the Significant Transaction, or receive substantially the equivalent coverage (or the full value thereof in cash) from the Company, until the second anniversary of such termination or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive reasonably comparable medical or other welfare benefits under another employer provided plan, the Company's obligation to provide the medical and other welfare benefits described herein shall cease; and provided further that if Executive's continued participation is not possible under the terms of such Company plans and programs, the Company shall instead either arrange to provide Executive with substantially similar benefits upon comparable terms or pay to the Executive (within five (5) business days of the date of termination) an amount equal to the full value thereof in cash; and f. to the extent not theretofore paid or provided for, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company ("Other Benefits"). Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested on any earlier date under the terms of any plan, agreement or arrangements, such plan, agreement or arrangement shall control. Further, notwithstanding anything herein to the contrary, if a Significant Transaction occurs and if the Executive's employment with the Company is terminated by the Company for a reason other than Cause prior to the date upon which the Significant Transaction occurs, and if it can be reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Significant Transaction or (ii) otherwise arose in connection with or in anticipation of a Significant Transaction, then for all purposes of this Agreement, Executive shall be entitled to the benefits provided in Sections 1(a)-(f) above. 2. Cause, Other Than For Good Reason; Disability. --------------------------------------------- a. Cause; Other Than for Good Reason. If the Executive's employment shall be terminated for Cause (as defined in Section 3 below), or if the Executive voluntarily terminates employment, excluding a termination for Good Reason, during the Post Significant Transaction Period, this Agreement shall terminate -3- without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. b. Disability. If the Executive's employment is terminated during the Post Significant Transaction Period by reason of the Executive's Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within five (5) business days of the date of termination of employment. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive's legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Significant Transaction Period, it may give the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. In the case of (a) or (b) above, all obligations shall be paid to the Executive in a lump sum in cash within five (5) business days of date of the termination of employment or such earlier time as may be required under law. 3. "Cause" means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of, or plea of nolo contendere to, a crime involving moral turpitude, or (c) gross neglect by the Executive in the performance of his duties to the Company which results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been "willful" unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or -4- another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company. 4. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following: a. Any action by the Company which results in a material diminution in Executive's position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; provided, however, a sale or transfer of some or all of the business of the Company or any of its subsidiaries or other reduction in its business or that of its subsidiaries, or the fact that the Company shall become a subsidiary of another company or the securities of the Company shall no longer be publicly traded, shall not constitute "Good Reason" hereunder; b. Any reduction in the Executive's rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary payable for the completed fiscal year immediately preceding the Significant Transaction; or c. Failure of the Company to permit the Executive to participate in all incentive, retirement, and savings policies and programs, and all welfare benefit plans, practices and programs (including without limitation, life, accidental death and travel accident insurance, medical insurance, dental insurance or disability plans) to the extent applicable generally at the time to other peer executives of the Company and its affiliated companies, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or d. The Company requires Executive to be based at any office or location further than 50 miles from St. Louis, Missouri; or e. Any failure by the Company to comply with and satisfy Section 7 of this Agreement. 5. Certain tax-related payments. ---------------------------- a. If any "parachute payment" as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), whether payable pursuant to this Agreement or otherwise, is made to or for the benefit of Executive in connection with a Change in Control (the "Subject Payment"), the Company will promptly pay to Executive an additional amount in cash (the "Gross-Up -5- Payment") which on an after-tax basis equals the excise tax under Section 4999 of the Code and any related interest and penalties due with respect to the "excess parachute payment" allocable to the Subject Payment. All determinations as to whether a Gross-Up Payment is required to be made under this Section 5, and if so the amount and timing of such Gross-Up Payment, shall be made at the Company's expense by Arthur Anderson LLP (Boston Office) or, if the Compensation Committee of the Company's Board of Directors shall designate another accounting firm, employment consulting firm, or law firm prior to a Change in Control, such other accounting firm, employment consulting firm, or law firm (the "Consultant"). Not later than thirty (30) days following receipt by the Consultant of notice from Executive that a payment believed by Executive to be a Subject Payment has been made or at such earlier time as may be requested by the Company, the Consultant shall deliver to Executive and the Company a preliminary statement (each such statement, a "Preliminary Statement") containing a computation of the Gross-Up Payment, if any, payable to Executive with respect thereto, together with supporting work papers. If both the Company and Executive agree with the Preliminary Statement, it shall become final (the "Final Statement"). If either the Company or Executive (the "objecting party") believes that a Preliminary Statement is incorrect for any reason, the objecting party may, within thirty (30) business days of receipt of the Preliminary Statement, deliver to the Consultant and to the other party additional information to be considered by the Consultant in making its determination. Within ten (10) business days following receipt by the Consultant of such additional information, it shall either confirm its Preliminary Statement or issue another statement that shall constitute the Final Statement. Subject to the correction of typographic mistakes or similar manifest errors, and except as provided at (b) below, the Final Statement shall be binding on both parties. With respect to each Subject Payment, the Company will pay the Gross-Up Payment to Executive not later than ten (10) business days after the Consultant has rendered its related Final Statement. b. If there is a determination by the Internal Revenue Service (the "IRS") with respect to Executive that is inconsistent with a Final Statement and that if sustained would result in an excise tax (or a greater excise tax) under Section 4999 of the Code or in interest or penalties (or increased interest or penalties) with respect to any such excise tax, the Final Statement shall be deemed automatically modified to conform to the IRS' determination and the Company, upon receipt of written notice from Executive setting forth the IRS' determination, shall promptly pay to Executive the additional Gross-Up Payment required by such modification (the "Additional Gross-Up Payment"). The Company may elect to contest at its expense any IRS determination in respect of which the Company has made an Additional Gross-Up Payment, in which case such Additional Gross-Up Payment shall be considered an interest-free loan (the -6- "Loan") to Executive until such time as the IRS' determination is final and no longer subject to judicial review. At such time Executive shall repay to the Company so much of the Loan, if any, as shall leave him on an after-tax basis in the same position he would have been in had the IRS' determination never been made, all as determined by the Consultant on a preliminary and, after opportunity for comment, final basis under rules substantially the same as those applicable under (a) above. Executive shall cooperate reasonably with the Company in any effort by the Company to contest an IRS determination under this paragraph, including by the making of such filings and appeals as the Company may reasonably require, but nothing herein shall be construed as requiring Executive to bear any cost or expense of such a contest or in connection therewith to compromise any tax item (including without limitation any deduction or credit) other than the excise tax under Section 4999 of the Code, and related interest and penalties if any, that are the subject of the contested IRS determination. 6. The Company agrees (i) to promptly reimburse Executive for any and all legal fees and related expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred by him to enforce the provisions of this Agreement or in contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof), (ii) to pay the cost of such judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending judicial proceedings (such interest will be at the base rate as published from time to time in the eastern edition of the Wall Street Journal); provided, however, that the Company shall not be required to reimburse the Executive for such fees, costs and expenses, if a court of competent jurisdiction shall issue a final order to the effect that the Executive shall not prevail on any claim relating to this Agreement. 7. If the Company is at any time before, after or in connection with, a Significant Transaction merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the "Successor Entity"), and this paragraph 7 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise. -7- In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive's right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the entity resulting from such merger or consolidation or the entity acquiring such assets of the Company. In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company. 8. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 13 of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, and (ii) if the Executive's employment is terminated by the Company other than for Cause, the Date of Termination shall be the date on which the Company notifies the Executive of such termination. 9. All payments required to be made by the Company hereunder to, or on behalf of, Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 10. There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by -8- Executive from other employment, other than with respect to certain welfare benefits as provided in the proviso to Section 1(e). 11. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge. 12. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties. 13. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a "Renewal Date"), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Significant Transaction which takes place after the termination of this Agreement. Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement. The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. The validity, interpretation, and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. -9- The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement. No right or interest to or in any payments shall be assignable by the Executive. No right, benefit, or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: William H. Franz ------------------- 16418 Wilson Farm Drive Chesterfield, Missouri 63005 If to the Company: XTRA Corporation ----------------- 60 State Street - 11th Floor Boston, Massachusetts 02109 Attn: Chair, Compensation Committee, and the General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective either on the date of delivery (in the case of delivery by hand), or three business days after deposit into the mails (in the case of delivery by mail). -10- IN WITNESS WHEREOF, XTRA Corporation and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above. XTRA CORPORATION By: /s/ Martin L. Solomon ------------------------------ Name: Martin L. Solomon Title: Chair, Compensation Committee /s/ William H. Franz -------------------------------- William H. Franz -11- EXHIBIT A Significant Transaction. For the purposes of this Agreement, a "Significant Transaction" shall mean: a. Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company, or XTRA Lease, Inc., in one or a series of transactions (but excluding any reorganization, merger or consolidation or sale of assets with or to the Company or any subsidiary of the Company, unless in connection with such transaction there is also a Significant Transaction involving the Company) (a "Business Combination"), in each case unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Company (the "Company Common Stock") and the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities" immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and outstanding Company Voting Securities, as the case may be, (ii) no individual, corporation, partnership, limited liability company, or other entity, which term shall include a "group" (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the "Act"), excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination, beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or b. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company or XTRA Lease, Inc., other than a liquidation or -12- dissolution of XTRA Lease, Inc. into the Company or any subsidiary of the Company. -13- EXHIBIT 10.17 XTRA CORPORATION Severance Agreement ------------------- AGREEMENT, dated December 8, 1997, by and between Michael J. Soja ("Executive") and XTRA Corporation (the "Company") as amended and restated as of June 18, 1999. WITNESSETH Executive is a key executive of the Company or one of its subsidiaries, responsible, in part, for the policy-making functions of the Company and the overall viability of the Company's business; and The Company recognizes that the possibility that certain significant transactions involving the Company may result in the departure or distraction of management to the detriment of the Company and its shareholders, and The Company wishes to assure Executive of fair severance should his employment terminate in specified circumstances following the consummation of certain significant transactions involving the Company and to assure Executive of certain other benefits in the event of such transactions. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. If, within the 24-month period (the "Post Significant Transaction Period") beginning on the date of a Significant Transaction (as defined in Exhibit A attached hereto and made a part hereof), (i) Executive's employment with the company is terminated (i) by the Company for any reason other than for "Cause" (as defined in paragraph 2 below), or (ii) Executive terminates such employment for Good Reason (as defined in paragraph 4 below): a. The Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to the sum of (i) the Executive's annual base salary ("Annual Base Salary") through the date of such termination of employment, and any earned bonuses for any completed fiscal period, to the extent not theretofore paid, (ii) a prorated portion (the "Prorated Bonus Amount") of the award payable under the Company's Economic Profit Incentive Plan, or any comparable or successor annual plan or plans in which the Executive is then a participant (the "Cash Plan"), notwithstanding anything to the contrary in the Cash Plan, determined by calculating the product of (A) the bonus payable with respect to the award for the fiscal period in which the date of termination occurs under the Cash Plan annualizing the Company's performance under the plan up to the date of termination by dividing the Company's performance to the date of termination by the number of full months in the performance period through the date of termination and multiplying the result by 12, times (B) a fraction, the numerator of which is the number of full months in the current fiscal year through the date of termination of employment, and the denominator of which is 12, and (iii) any compensation, including compensation for the fiscal year in which the date of termination occurs, previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in the above subsections (i) through (iii) shall be hereinafter referred to as the "Accrued Obligations"); and b. any stock, stock option or cash awards granted to the Executive by the Company, including any awards under the Company's 1987 and 1997 Stock Incentive Plans (or any successor plan or plans), that would have become vested and exercisable had the Executive continued to be employed by the Company shall immediately vest and become exercisable in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the later of (i) the latest date on which such grant could have been exercised had the Executive remained employed by the Company, and (ii) the date upon which any period during which the Executive has agreed not to sell the type of securities that may be issuable to such Executive upon the exercise of such grant shall expire; and c. the Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to two times the sum of: (A) the amount of the Executive's Annual Base Salary at the rate in effect immediately prior to the date of termination, and (B) the Average Annualized Bonus Amount which shall be calculated by multiplying by 12 the quotient determined by dividing (i) the sum of the actual cash bonus earned by the Executive during each of the two fiscal years immediately preceding the date of termination, plus the Prorated Bonus Amount, by (ii) 24 plus the number of full months in the period for which the Prorated Bonus Payment is calculated; and d. the Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to the amount of the forfeitable portion of the Executive's accrued benefit under the Company's qualified 401(k) or other qualified retirement plans; and e. Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company's expense -2- (subject to any required employee contributions at the rate in effect immediately prior to the date of the Significant Transaction) in all welfare benefit plans (other than disability insurance), programs, practices and policies maintained or sponsored by the Company immediately prior to the Significant Transaction, or receive substantially the equivalent coverage (or the full value thereof in cash) from the Company, until the second anniversary of such termination or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive reasonably comparable medical or other welfare benefits under another employer provided plan, the Company's obligation to provide the medical and other welfare benefits described herein shall cease; and provided further that if Executive's continued participation is not possible under the terms of such Company plans and programs, the Company shall instead either arrange to provide Executive with substantially similar benefits upon comparable terms or pay to the Executive (within five (5) business days of the date of termination) an amount equal to the full value thereof in cash; and f. to the extent not theretofore paid or provided for, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company ("Other Benefits"). Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested on any earlier date under the terms of any plan, agreement or arrangements, such plan, agreement or arrangement shall control. Further, notwithstanding anything herein to the contrary, if a Significant Transaction occurs and if the Executive's employment with the Company is terminated by the Company for a reason other than Cause prior to the date upon which the Significant Transaction occurs, and if it can be reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Significant Transaction or (ii) otherwise arose in connection with or in anticipation of a Significant Transaction, then for all purposes of this Agreement, Executive shall be entitled to the benefits provided in Sections 1(a)-(f) above. 2. Cause, Other Than For Good Reason; Disability. --------------------------------------------- a. Cause; Other Than for Good Reason. If the Executive's employment shall be terminated for Cause (as defined in Section 3 below), or if the Executive voluntarily terminates employment, excluding a termination for Good Reason, during the Post Significant Transaction Period, this Agreement shall terminate -3- without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. b. Disability. If the Executive's employment is terminated during the Post Significant Transaction Period by reason of the Executive's Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within five (5) business days of the date of termination of employment. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive's legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Significant Transaction Period, it may give the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. In the case of (a) or (b) above, all obligations shall be paid to the Executive in a lump sum in cash within five (5) business days of date of the termination of employment or such earlier time as may be required under law. 3. "Cause" means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of, or plea of nolo contendere to, a crime involving moral turpitude, or (c) gross neglect by the Executive in the performance of his duties to the Company which results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been "willful" unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or -4- another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company. 4. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following: a. Any action by the Company which results in a material diminution in Executive's position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; provided, however, a sale or transfer of some or all of the business of the Company or any of its subsidiaries or other reduction in its business or that of its subsidiaries, or the fact that the Company shall become a subsidiary of another company or the securities of the Company shall no longer be publicly traded, shall not constitute "Good Reason" hereunder; b. Any reduction in the Executive's rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary payable for the completed fiscal year immediately preceding the Significant Transaction; or c. Failure of the Company to permit the Executive to participate in all incentive, retirement, and savings policies and programs, and all welfare benefit plans, practices and programs (including without limitation, life, accidental death and travel accident insurance, medical insurance, dental insurance or disability plans) to the extent applicable generally at the time to other peer executives of the Company and its affiliated companies, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or d. The Company requires Executive to be based at any office or location further than 50 miles from Boston, Massachusetts; or e. Any failure by the Company to comply with and satisfy Section 7 of this Agreement. 5. Certain tax-related payments. ---------------------------- a. If any "parachute payment" as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), whether payable pursuant to this Agreement or otherwise, is made to or for the benefit of Executive in connection with a Change in Control (the "Subject Payment"), the Company will promptly pay to Executive an additional amount in cash (the "Gross-Up -5- Payment") which on an after-tax basis equals the excise tax under Section 4999 of the Code and any related interest and penalties due with respect to the "excess parachute payment" allocable to the Subject Payment. All determinations as to whether a Gross-Up Payment is required to be made under this Section 5, and if so the amount and timing of such Gross-Up Payment, shall be made at the Company's expense by Arthur Anderson LLP (Boston Office) or, if the Compensation Committee of the Company's Board of Directors shall designate another accounting firm, employment consulting firm, or law firm prior to a Change in Control, such other accounting firm, employment consulting firm, or law firm (the "Consultant"). Not later than thirty (30) days following receipt by the Consultant of notice from Executive that a payment believed by Executive to be a Subject Payment has been made or at such earlier time as may be requested by the Company, the Consultant shall deliver to Executive and the Company a preliminary statement (each such statement, a "Preliminary Statement") containing a computation of the Gross-Up Payment, if any, payable to Executive with respect thereto, together with supporting work papers. If both the Company and Executive agree with the Preliminary Statement, it shall become final (the "Final Statement"). If either the Company or Executive (the "objecting party") believes that a Preliminary Statement is incorrect for any reason, the objecting party may, within thirty (30) business days of receipt of the Preliminary Statement, deliver to the Consultant and to the other party additional information to be considered by the Consultant in making its determination. Within ten (10) business days following receipt by the Consultant of such additional information, it shall either confirm its Preliminary Statement or issue another statement that shall constitute the Final Statement. Subject to the correction of typographic mistakes or similar manifest errors, and except as provided at (b) below, the Final Statement shall be binding on both parties. With respect to each Subject Payment, the Company will pay the Gross-Up Payment to Executive not later than ten (10) business days after the Consultant has rendered its related Final Statement. b. If there is a determination by the Internal Revenue Service (the "IRS") with respect to Executive that is inconsistent with a Final Statement and that if sustained would result in an excise tax (or a greater excise tax) under Section 4999 of the Code or in interest or penalties (or increased interest or penalties) with respect to any such excise tax, the Final Statement shall be deemed automatically modified to conform to the IRS' determination and the Company, upon receipt of written notice from Executive setting forth the IRS' determination, shall promptly pay to Executive the additional Gross-Up Payment required by such modification (the "Additional Gross-Up Payment"). The Company may elect to contest at its expense any IRS determination in respect of which the Company has made an Additional Gross-Up Payment, in which case such Additional Gross-Up Payment shall be considered an interest-free loan (the -6- "Loan") to Executive until such time as the IRS' determination is final and no longer subject to judicial review. At such time Executive shall repay to the Company so much of the Loan, if any, as shall leave him on an after-tax basis in the same position he would have been in had the IRS' determination never been made, all as determined by the Consultant on a preliminary and, after opportunity for comment, final basis under rules substantially the same as those applicable under (a) above. Executive shall cooperate reasonably with the Company in any effort by the Company to contest an IRS determination under this paragraph, including by the making of such filings and appeals as the Company may reasonably require, but nothing herein shall be construed as requiring Executive to bear any cost or expense of such a contest or in connection therewith to compromise any tax item (including without limitation any deduction or credit) other than the excise tax under Section 4999 of the Code, and related interest and penalties if any, that are the subject of the contested IRS determination. 6. The Company agrees (i) to promptly reimburse Executive for any and all legal fees and related expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred by him to enforce the provisions of this Agreement or in contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof), (ii) to pay the cost of such judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending judicial proceedings (such interest will be at the base rate as published from time to time in the eastern edition of the Wall Street Journal); provided, however, that the Company shall not be required to reimburse the Executive for such fees, costs and expenses, if a court of competent jurisdiction shall issue a final order to the effect that the Executive shall not prevail on any claim relating to this Agreement. 7. If the Company is at any time before, after or in connection with, a Significant Transaction merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the "Successor Entity"), and this paragraph 7 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise. -7- In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive's right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the entity resulting from such merger or consolidation or the entity acquiring such assets of the Company. In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company. 8. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 13 of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, and (ii) if the Executive's employment is terminated by the Company other than for Cause, the Date of Termination shall be the date on which the Company notifies the Executive of such termination. 9. All payments required to be made by the Company hereunder to, or on behalf of, Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. 10. There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by -8- Executive from other employment, other than with respect to certain welfare benefits as provided in the proviso to Section 1(e). 11. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge. 12. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties. 13. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a "Renewal Date"), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Significant Transaction which takes place after the termination of this Agreement. Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement. The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. The validity, interpretation, and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. -9- The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement. No right or interest to or in any payments shall be assignable by the Executive. No right, benefit, or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Michael J. Soja ------------------- 34 Musket Lane Sudbury, Massachusetts 01776 If to the Company: XTRA Corporation ----------------- 60 State Street - 11th Floor Boston, Massachusetts 02109 Attn: Chair, Compensation Committee, and the General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective either on the date of delivery (in the case of delivery by hand), or three business days after deposit into the mails (in the case of delivery by mail). -10- IN WITNESS WHEREOF, XTRA Corporation and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above. XTRA CORPORATION By: /s/ Martin L. Solomon ----------------------------------------- Name: Martin L. Solomon Title: Chair, Compensation Committee /s/ Michael J. Soja ----------------------------------------- Michael J. Soja -11- EXHIBIT A Significant Transaction. For the purposes of this Agreement, a "Significant Transaction" shall mean: a. Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (but excluding any reorganization, merger or consolidation or sale of assets with or to the Company or any subsidiary of the Company, unless in connection with such transaction there is also a Significant Transaction involving the Company) (a "Business Combination"), in each case unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Company (the "Company Common Stock") and the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities" immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and outstanding Company Voting Securities, as the case may be, (ii) no individual, corporation, partnership, limited liability company, or other entity, which term shall include a "group" (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the "Act"), excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination, beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or b. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. -12- EXHIBIT 10.18 XTRA CORPORATION Severance Agreement ------------------- AGREEMENT, dated December 8, 1997, by and between Jeffrey R. Blum ("Executive") and XTRA Corporation (the "Company") as amended and restated as of June 18, 1999. WITNESSETH Executive is a key executive of the Company or one of its subsidiaries, responsible, in part, for the policy-making functions of the Company and the overall viability of the Company's business; and The Company recognizes that the possibility that certain significant transactions involving the Company may result in the departure or distraction of management to the detriment of the Company and its shareholders, and The Company wishes to assure Executive of fair severance should his employment terminate in specified circumstances following the consummation of certain significant transactions involving the Company and to assure Executive of certain other benefits in the event of such transactions. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. If, within the 24-month period (the "Post Significant Transaction Period") beginning on the date of a Significant Transaction (as defined in Exhibit A attached hereto and made a part hereof), (i) Executive's employment with the company is terminated (i) by the Company for any reason other than for "Cause" (as defined in paragraph 2 below), or (ii) Executive terminates such employment for Good Reason (as defined in paragraph 4 below): a. The Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to the sum of (i) the Executive's annual base salary ("Annual Base Salary") through the date of such termination of employment, and any earned bonuses for any completed fiscal period, to the extent not theretofore paid, (ii) a prorated portion (the "Prorated Bonus Amount") of the award payable under the Company's Economic Profit Incentive Plan, or any comparable or successor annual plan or plans in which the Executive is then a participant (the "Cash Plan"), notwithstanding anything to the contrary in the Cash Plan, determined by calculating the product of (A) the bonus payable with respect to the award for the fiscal period in which the date of termination occurs under the Cash Plan annualizing the Company's performance under the plan up to the date of termination by dividing the Company's performance to the date of termination by the number of full months in the performance period through the date of termination and multiplying the result by 12, times (B) a fraction, the numerator of which is the number of full months in the current fiscal year through the date of termination of employment, and the denominator of which is 12, and (iii) any compensation, including compensation for the fiscal year in which the date of termination occurs, previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in the above subsections (i) through (iii) shall be hereinafter referred to as the "Accrued Obligations"); and b. any stock, stock option or cash awards granted to the Executive by the Company, including any awards under the Company's 1987 and 1997 Stock Incentive Plans (or any successor plan or plans), that would have become vested and exercisable had the Executive continued to be employed by the Company shall immediately vest and become exercisable in full notwithstanding any provision to the contrary of such grant and shall remain exercisable until the later of (i) the latest date on which such grant could have been exercised had the Executive remained employed by the Company, and (ii) the date upon which any period during which the Executive has agreed not to sell the type of securities that may be issuable to such Executive upon the exercise of such grant shall expire; and c. the Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to two times the sum of: (A) the amount of the Executive's Annual Base Salary at the rate in effect immediately prior to the date of termination, and (B) the Average Annualized Bonus Amount which shall be calculated by multiplying by 12 the quotient determined by dividing (i) the sum of the actual cash bonus earned by the Executive during each of the two fiscal years immediately preceding the date of termination, plus the Prorated Bonus Amount, by (ii) 24 plus the number of full months in the period for which the Prorated Bonus Payment is calculated; and d. the Company will pay to Executive within five (5) business days of such termination of employment a lump-sum cash payment equal to the amount of the forfeitable portion of the Executive's accrued benefit under the Company's qualified 401(k) or other qualified retirement plans; and -2- e. Executive, together with his dependents, will continue following such termination of employment to participate fully at the Company's expense (subject to any required employee contributions at the rate in effect immediately prior to the date of the Significant Transaction) in all welfare benefit plans (other than disability insurance), programs, practices and policies maintained or sponsored by the Company immediately prior to the Significant Transaction, or receive substantially the equivalent coverage (or the full value thereof in cash) from the Company, until the second anniversary of such termination or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive reasonably comparable medical or other welfare benefits under another employer provided plan, the Company's obligation to provide the medical and other welfare benefits described herein shall cease; and provided further that if Executive's continued participation is not possible under the terms of such Company plans and programs, the Company shall instead either arrange to provide Executive with substantially similar benefits upon comparable terms or pay to the Executive (within five (5) business days of the date of termination) an amount equal to the full value thereof in cash; and f. to the extent not theretofore paid or provided for, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, practice, contract or agreement of the Company ("Other Benefits") . Notwithstanding anything herein to the contrary, to the extent that any payment or benefit provided for herein is required to be paid or vested on any earlier date under the terms of any plan, agreement or arrangements, such plan, agreement or arrangement shall control. Further, notwithstanding anything herein to the contrary, if a Significant Transaction occurs and if the Executive's employment with the Company is terminated by the Company for a reason other than Cause prior to the date upon which the Significant Transaction occurs, and if it can be reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Significant Transaction or (ii) otherwise arose in connection with or in anticipation of a Significant Transaction, then for all purposes of this Agreement, Executive shall be entitled to the benefits provided in Sections 1(a)-(f) above. 2. Cause, Other Than For Good Reason; Disability. --------------------------------------------- a. Cause; Other Than for Good Reason. If the Executive's employment shall be terminated for Cause (as defined in Section 3 below), or if the Executive -3- voluntarily terminates employment, excluding a termination for Good Reason, during the Post Significant Transaction Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay the Executive (A) his Annual Base Salary through the date of termination, (B) the amount of any compensation previously deferred by the Executive, and (C) Other Benefits, in each case to the extent theretofore unpaid. b. Disability. If the Executive's employment is terminated during the Post Significant Transaction Period by reason of the Executive's Disability, this Agreement shall terminate without further obligations to the Executive other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within five (5) business days of the date of termination of employment. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive's legal representative. If the Company determines in good faith that the Disability of the Executive has occurred during the Post Significant Transaction Period, it may give the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive, provided that, within the 30 days of such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. In the case of (a) or (b) above, all obligations shall be paid to the Executive in a lump sum in cash within five (5) business days of date of the termination of employment or such earlier time as may be required under law. 3. "Cause" means only: (a) commission of a felony or gross neglect of duty by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company, (b) conviction of, or plea of nolo contendere to, a crime involving moral turpitude, or (c) gross neglect by the Executive in the performance of his duties to the Company which results in material injury to the Company, and continues for more than 30 days after written notice given to the Executive pursuant to a two-thirds vote of all of the members of the Board at a meeting called and held for such purpose (after reasonable notice to Executive) and at which meeting the Executive and his counsel were given an opportunity to be heard, such vote to set forth in reasonable detail the nature of the failure. For purposes of this definition of Cause, no act or omission shall be considered to have been "willful" unless it was not in good faith and the Executive had knowledge at the time that the act or omission was not in the best interest of the -4- Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or another senior officer of the Company or based on the advice of counsel of the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interest of the Company. 4. Executive shall be deemed to have voluntarily terminated his employment for Good Reason if the Executive leaves the employ of the Company for any reason following: a. Any action by the Company which results in a material diminution in Executive's position, authority, duties or responsibilities immediately prior to the Significant Transaction, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; provided, however, a sale or transfer of some or all of the business of the Company or any of its subsidiaries or other reduction in its business or that of its subsidiaries, or the fact that the Company shall become a subsidiary of another company or the securities of the Company shall no longer be publicly traded, shall not constitute "Good Reason" hereunder; b. Any reduction in the Executive's rate of Annual Base Salary for any fiscal year to less than 100% of the rate of Annual Base Salary payable for the completed fiscal year immediately preceding the Significant Transaction; or c. Failure of the Company to permit the Executive to participate in all incentive, retirement, and savings policies and programs, and all welfare benefit plans, practices and programs (including without limitation, life, accidental death and travel accident insurance, medical insurance, dental insurance or disability plans) to the extent applicable generally at the time to other peer executives of the Company and its affiliated companies, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; or d. The Company requires Executive to be based at any office or location further than 50 miles from Boston, Massachusetts; or e. Any failure by the Company to comply with and satisfy Section 7 of this Agreement. 5. Certain tax-related payments. ---------------------------- a. If any "parachute payment" as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), whether payable pursuant to -5- this Agreement or otherwise, is made to or for the benefit of Executive in connection with a Change in Control (the "Subject Payment"), the Company will promptly pay to Executive an additional amount in cash (the "Gross-Up Payment") which on an after-tax basis equals the excise tax under Section 4999 of the Code and any related interest and penalties due with respect to the "excess parachute payment" allocable to the Subject Payment. All determinations as to whether a Gross-Up Payment is required to be made under this Section 5, and if so the amount and timing of such Gross-Up Payment, shall be made at the Company's expense by Arthur Anderson LLP (Boston Office) or, if the Compensation Committee of the Company's Board of Directors shall designate another accounting firm, employment consulting firm, or law firm prior to a Change in Control, such other accounting firm, employment consulting firm, or law firm (the "Consultant"). Not later than thirty (30) days following receipt by the Consultant of notice from Executive that a payment believed by Executive to be a Subject Payment has been made or at such earlier time as may be requested by the Company, the Consultant shall deliver to Executive and the Company a preliminary statement (each such statement, a "Preliminary Statement") containing a computation of the Gross-Up Payment, if any, payable to Executive with respect thereto, together with supporting work papers. If both the Company and Executive agree with the Preliminary Statement, it shall become final (the "Final Statement"). If either the Company or Executive (the "objecting party") believes that a Preliminary Statement is incorrect for any reason, the objecting party may, within thirty (30) business days of receipt of the Preliminary Statement, deliver to the Consultant and to the other party additional information to be considered by the Consultant in making its determination. Within ten (10) business days following receipt by the Consultant of such additional information, it shall either confirm its Preliminary Statement or issue another statement that shall constitute the Final Statement. Subject to the correction of typographic mistakes or similar manifest errors, and except as provided at (b) below, the Final Statement shall be binding on both parties. With respect to each Subject Payment, the Company will pay the Gross-Up Payment to Executive not later than ten (10) business days after the Consultant has rendered its related Final Statement. b. If there is a determination by the Internal Revenue Service (the "IRS") with respect to Executive that is inconsistent with a Final Statement and that if sustained would result in an excise tax (or a greater excise tax) under Section 4999 of the Code or in interest or penalties (or increased interest or penalties) with respect to any such excise tax, the Final Statement shall be deemed automatically modified to conform to the IRS' determination and the Company, upon receipt of written notice from Executive setting forth the IRS' determination, shall promptly pay to Executive the additional Gross-Up Payment required by such modification (the "Additional Gross-Up Payment"). The -6- Company may elect to contest at its expense any IRS determination in respect of which the Company has made an Additional Gross-Up Payment, in which case such Additional Gross-Up Payment shall be considered an interest-free loan (the "Loan") to Executive until such time as the IRS' determination is final and no longer subject to judicial review. At such time Executive shall repay to the Company so much of the Loan, if any, as shall leave him on an after-tax basis in the same position he would have been in had the IRS' determination never been made, all as determined by the Consultant on a preliminary and, after opportunity for comment, final basis under rules substantially the same as those applicable under (a) above. Executive shall cooperate reasonably with the Company in any effort by the Company to contest an IRS determination under this paragraph, including by the making of such filings and appeals as the Company may reasonably require, but nothing herein shall be construed as requiring Executive to bear any cost or expense of such a contest or in connection therewith to compromise any tax item (including without limitation any deduction or credit) other than the excise tax under Section 4999 of the Code, and related interest and penalties if any, that are the subject of the contested IRS determination. 6. The Company agrees (i) to promptly reimburse Executive for any and all legal fees and related expenses (including, without limitation, stenographer fees, printing costs, etc.) incurred by him to enforce the provisions of this Agreement or in contesting or disputing that the termination of his employment is for Cause or other than for Good Reason (regardless of the outcome thereof), (ii) to pay the cost of such judicial proceeding, and (iii) to pay interest to Executive on all amounts owed to Executive under this Agreement during any period of time that such amounts are withheld pending judicial proceedings (such interest will be at the base rate as published from time to time in the eastern edition of the Wall Street Journal); provided, however, that the Company shall not be required to reimburse the Executive for such fees, costs and expenses, if a court of competent jurisdiction shall issue a final order to the effect that the Executive shall not prevail on any claim relating to this Agreement. 7. If the Company is at any time before, after or in connection with, a Significant Transaction merged or consolidated into or with any other corporation or other entity (whether or not the Company is the surviving entity), or if substantially all of the assets thereof are transferred to another corporation or other entity, the provisions of this Agreement will be binding upon and inure to the benefit of the corporation or other entity resulting from such merger or consolidation or the acquirer of such assets (the "Successor Entity"), and this paragraph 7 will apply in the event of any subsequent merger or consolidation or transfer of assets. The Company will require any such Successor Entity to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform. As used -7- in this Agreement, "Company" shall mean the Company as hereinbefore defined and any Successor Entity which assumes and agrees to perform this Agreement by operation of law or otherwise. In the event of any merger, consolidation, or sale of assets described above, nothing contained in this Agreement will detract from or otherwise limit Executive's right to or privilege of participation in any stock option or purchase plan or any bonus, profit sharing, pension, group insurance, hospitalization, or other incentive or benefit plan or arrangement which may be or become applicable to executives of the entity resulting from such merger or consolidation or the entity acquiring such assets of the Company. In the event of any merger, consolidation, or sale of assets described above, references to the Company in this Agreement shall unless the context suggests otherwise be deemed to include the entity resulting from such merger or consolidation or the acquirer of such assets of the Company. 8. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the last paragraph of Section 13 of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, and (ii) if the Executive's employment is terminated by the Company other than for Cause, the Date of Termination shall be the date on which the Company notifies the Executive of such termination. 9. All payments required to be made by the Company hereunder to, or on behalf of, Executive or his dependents, beneficiaries, or estate will be subject to the withholding of such amounts relating to tax and/or other payroll deductions as may be required by law. -8- 10. There shall be no requirement on the part of the Executive to seek other employment or otherwise mitigate damages in order to be entitled to the full amount of any payments and benefits to which Executive is entitled under this Agreement, and the amount of such payments and benefits shall not be reduced by any compensation or benefits received by Executive from other employment, other than with respect to certain welfare benefits as provided in the proviso to Section 1(e). 11. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause; provided that the Executive shall have the right to receive upon termination of his employment the payments and benefits provided in this Agreement and shall not be deemed to have waived any rights he may have either at law or in equity in respect of such discharge. 12. No amendment, change, or modification of this Agreement may be made except in writing, signed by both parties. 13. This Agreement shall terminate on the third anniversary of the date hereof, provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (each such date hereinafter referred to as a "Renewal Date"), unless previously terminated, the term of this Agreement shall be automatically extended so as to terminate three years from such Renewal Date, unless at least sixty days prior to the Renewal Date the Company shall give notice to the Executive that the term of this Agreement shall not be so extended. This Agreement shall not apply to a Significant Transaction which takes place after the termination of this Agreement. Payments made by the Company pursuant to this Agreement shall be in lieu of severance payments, if any, which might otherwise be available to Executive under any severance plan, policy, program or arrangement generally applicable to the employees of the Company. If for any reason Executive receives severance payments (other than under this Agreement) upon the termination of his employment with the Company, the amount of such payments shall be deducted from the amount paid under this Agreement. The purpose of this provision is solely to avert a duplication of benefits; neither this provision nor the provisions of any other agreement shall be interpreted to reduce the amount payable to Executive below the amount that would otherwise have been payable under this Agreement. The provisions of this Agreement shall be binding upon and shall inure to the benefit of Executive, his executors, administrators, legal representatives, and assigns, and the Company and its successors. -9- The validity, interpretation, and effect of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. The Company shall have no right of set-off or counterclaims, in respect of any claim, debt, or obligation, against any payments to Executive, his dependents, beneficiaries, or estate provided for in this Agreement. No right or interest to or in any payments shall be assignable by the Executive. No right, benefit, or interest hereunder, shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in respect of any claim, debt, or obligation, or to execution, attachment, levy, or similar process, or assignment by operation of law. Any attempt, voluntary or involuntary, to effect any action specified in the immediately preceding sentence shall, to the full extent permitted by law, be null, void, and of no effect. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Jeffrey R. Blum 80 Wild Pasture Road Kensington, New Hampshire 03827 If to the Company: XTRA Corporation 60 State Street - 11th Floor Boston, Massachusetts 02109 Attn: Chair, Compensation Committee, and the General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective either on the date of delivery (in the case of delivery by hand), or three business days after deposit into the mails (in the case of delivery by mail). -10- IN WITNESS WHEREOF, XTRA Corporation and Executive have each caused this Agreement to be duly executed and delivered as of the date set forth above. XTRA CORPORATION By: /s/ Martin L. Solomon ---------------------- Name: Martin L. Solomon Title: Chair, Compensation Committee /s/ Jeffrey R. Blum ----------------------- Jeffrey R. Blum -11- EXHIBIT A Significant Transaction. For the purposes of this Agreement, a "Significant Transaction" shall mean: a. Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (but excluding any reorganization, merger or consolidation or sale of assets with or to the Company or any subsidiary of the Company, unless in connection with such transaction there is also a Significant Transaction involving the Company) (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Company (the "Company Common Stock") and the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities" immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and outstanding Company Voting Securities, as the case may be, (ii) no individual, corporation, partnership, limited liability company, or other entity, which term shall include a "group" (within the meaning of section 13(d) of the Securities Exchange Act of 1934 (the "Act"), excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination, beneficially owns, directly or indirectly, 30% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or b. Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. -12- EXHIBIT 12.1 XTRA CORPORATION STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES FOR THE THREE YEARS ENDED SEPTEMBER 30, 1999 (Millions of dollars) 1999 1998 1997 ------ ------ ------ EARNINGS Income from operations before provision for income taxes $ 58 $ 99 $ 71 Add: Fixed charges (below) 58 58 63 ------ ------ ------ $ 116 $ 157 $ 134 ====== ====== ====== FIXED CHARGES $ 58 $ 58 $ 63 ====== ====== ====== Ratio of Earnings to Fixed Charges 2.0 2.7 2.1 ====== ====== ====== Note: For purposes of computing the ratio of earnings to fixed charges, earnings represent income from operations before taxes plus fixed charges. Fixed charges for operations consist of interest on indebtedness and the portion of rental expense which represents interest. Exclusive of the $39 million of one-time charges recorded in fiscal 1999, the ratio of earnings to fixed charges would have been 2.7. 74 EXHIBIT 12.2 XTRA INC. STATEMENT OF THE CALCULATION OF EARNINGS TO FIXED CHARGES FOR THE THREE YEARS ENDED SEPTEMBER 30, 1999 (Millions of dollars) 1999 1998 1997 ------ ------ ------ EARNINGS Income from operations before provision for income taxes $ 61 $ 99 $ 71 Add: Fixed charges (below) 58 58 63 ------ ------ ------ $ 119 $ 157 $ 134 ====== ====== ====== FIXED CHARGES $ 58 $ 58 $ 63 ====== ====== ====== Ratio of Earnings to Fixed Charges 2.1 2.7 2.1 ====== ====== ====== Note: For purposes of computing the ratio of earnings to fixed charges, earnings represent income from operations before taxes plus fixed charges. Fixed charges for operations consist of interest on indebtedness and the portion of rental expense which represents interest. Exclusive of the $35 million of one-time charges recorded fiscal 1999, the ratio of earnings to fixed charges would have been 2.7. 75 EXHIBIT 13.1 Five Year Selected Financial Data Year ended September 30, (Millions of dollars except per 1999 1998 1997 1996 1995 share amounts) ------------------------------------------------------------ Operations Revenues $ 464 $ 461 $ 435 $ 422 $ 378 Cash provided from operations 277 293 269 272 237 Capital expenditures/(1)/ 265 199 249 210 699 Pretax income 58/(2)/ 99/(3)/ 71 69 98 Net income 35/(2)/ 60/(3)/ 43 41 57 Per Share Information Basic earnings per share $ 2.49/(2)/ $ 3.90/(3)/ $ 2.79 $ 2.56 $ 3.40 Diluted earnings per share $ 2.49/(2)/ $ 3.88/(3)/ $ 2.78 $ 2.56 $ 3.39 Dividends declared per share - $ 0.64 $ 0.78 $ 0.70 $ 0.62 Financial Position Total assets $ 1,573 $ 1,575 $ 1,585 $ 1,537 $ 1,516 Total debt 852 802 892 892 898 Total stockholders' equity 337 408 360 342 359 /(1)/ Includes equipment leased in under operating leases and capital expenditures for acquisitions. /(2)/ Includes one-time pretax charges of $13 million for restructuring, a $25 million equipment write-down, and a $1 million unusual item for expenses related to the terminated merger. Without these one-time charges, fiscal 1999 Basic and Diluted earnings per share would have been $4.16. /(3)/ Includes a $1 million pretax unusual item for expenses related to the terminated merger. Without this unusual item, fiscal 1998 Basic and Diluted earnings per share would have been $3.93 and $3.91, respectively. 76 EXHIBIT 13.2 Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Years Ended September 30, 1999 (Not covered by Report of Independent Public Accountants) 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 Reform Act of 1995" contained below. Reference to years in the discussion below refers to XTRA Corporation's fiscal years (the period from October 1 to September 30). XTRA Corporation leases, primarily on an operating basis, freight transportation equipment, including over-the-road trailers, marine containers, intermodal trailers, chassis, and domestic containers. XTRA's equipment utilization, lease rates, and therefore, profitability, are impacted by the supply of and demand for available equipment, the level of economic activity in North America, world trade activity, the actions of its competitors, and other factors in the freight transportation industry. Utilization and profitability are usually seasonally lower in the second and third fiscal quarters than in the first and fourth fiscal quarters. In general, the Company's receivable collection experience has been good. However, industry downturns tend to lengthen the collection period of certain receivables. The Company's pretax profits have been cyclical, principally due to the variability of the Company's revenues and the high percentage of fixed costs. To moderate this cyclicality, the Company attempts to maintain a balance between the amount of equipment leased on a per diem and term basis and maintains a mix of various types of freight transportation equipment available for lease. The Company has historically maintained a high proportion of its debt at fixed rates to reduce the impact of fluctuations in interest rates. XTRA's marine container leasing operation reduces XTRA's dependence on the North American transportation industry. Although the marine container business is international, substantially all transactions are denominated in U.S. dollars. Revenues Revenues are a function of lease rates and working units; the latter depends on fleet size and equipment utilization. Utilization, the ratio of revenue-earning units to the total fleet, is derived from billing information, usage reports and other information from customers, assumptions based on historical experience, and equipment inventories taken at Company depots, and is an approximation. Utilization is impacted by the supply of, and demand for, available equipment, the level of economic activity in North America, and world trade activity. 77 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 years ended September 30, 1999. The Company's average fleet size and 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. For the year ended September 30, (millions of dollars) 1999 1998 1997 ----------------------------------------- North America XTRA Lease Utilization 87% 90% 88% Units 85,000 79,000 77,000 Net investment (in millions) $ 832 $ 738 $ 674 XTRA Intermodal Utilization 79% 81% 82% Units 53,000 54,000 54,000 Net investment (in millions) $ 281 $ 290 $ 322 Total Utilization 85% 87% 86% Units 138,000 133,000 131,000 Net investment (in millions) $ 1,113 $ 1,028 $ 996 International Utilization 71% 82% 79% Units 160,000 164,000 157,000 Net investment (in millions) $ 350 $ 404 $ 418 Consolidated Utilization 81% 86% 84% Units 298,000 297,000 288,000 Net investment (in millions) $ 1,463 $ 1,432 $ 1,414 Overall, 1998 revenues increased by 6% or $26 million in 1998, primarily due to improvement in the North American businesses. In 1998, the Company's overall equipment utilization increased by 2%. XTRA's North American revenues increased 6% or $22 million due to more working units, as well as an improvement in lease rates. North American utilization averaged 87% in 1998, as compared to 86% in 1997. XTRA's 1998 International revenues increased 5% or $4 million. An increase in revenues attributable to more working units was partially offset by lower average effective lease rates. XTRA's marine container utilization improved to 82% from 79% in 1997. The Company's average international fleet size increased to 164,000 units in 1998 from 157,000 units in 1997 as a result of modest capital spending. Revenues increased by 1% or $3 million in 1999. The Company's average equipment utilization declined from 86% in 1998 to 81% in 1999. Average net investment in equipment increased by $31 million due primarily to an increase in the net investment in over-the-road trailers, which was partially offset by a decline in the net investment in the marine container and intermodal equipment fleets. The Company's North American revenues increased 5% or $20 million from the same period a year ago due to strong levels of domestic freight leading to more working units, as well as an improvement in lease rates. The Company's North American utilization averaged 85% in 1999, as compared to 87% in 1998. XTRA Lease's revenues increased $23 million from 1998 due to strong levels of domestic freight leading to more working units, as well as an improvement in lease rates. XTRA Lease's utilization averaged 87% in fiscal year 1999, as compared to 90% in 1998. XTRA Intermodal's revenues decreased $3 million from fiscal 1998 due primarily to 78 a decrease in working units. XTRA Intermodal's utilization averaged 81% in fiscal 1998, compared to 82% in 1997. The Company's North American over-the-road fleet of 85,000 units, consisting primarily of over-the-road trailers, represented 57% of average net investment in equipment in 1999, compared to 79,000 units, or 51% of average net investment in equipment in 1998. The Company continues to downsize its North American intermodal trailer fleet as the railroads shift toward more domestic container usage. XTRA's intermodal trailer fleet averaged 22,000 units in 1999, or 10% of average net investment in equipment in 1999, versus 23,000 units, or 11% of average net investment in equipment in 1998. International revenues decreased 22% or $17 million in 1999, primarily due to fewer working units and a decrease in lease rates. Equipment utilization declined to 71% from 82% in the comparable prior year period. Marine container lease rates in 1999 reflect a decline from 1998 and continue to be at low levels for the Company and the industry as a whole. The Company's average marine container fleet size declined to 160,000 units in 1999 from 164,000 units in 1998. Operating Expenses Total operating expenses were unchanged in 1998 and 1997 at $301 million. In 1999, operating expenses, excluding one time charges and an unusual item, increased by 3%, or $9 million from 1998. Depreciation expense increased 1% or $2 million in 1998 and 1% or $1 million in 1999 due to a larger fleet investment. In 1998, rental equipment operating expenses decreased by 1% or $1 million, due to lower repair and maintenance and storage and repositioning costs, which were partially offset by higher facility costs. In 1999, rental equipment operating expenses increased by 4% or $5 million due to higher storage and repositioning costs at XTRA International, partially offset by a $1 million gain on the sale of real estate. Selling and administrative expenses in 1998 decreased by $1 million 1997. In 1999, selling and administrative expenses increased 7% or $3 million due primarily to higher compensation and information technology expenses. One-Time Charges Included in Operating Expenses XTRA recorded one-time charges during the second quarter of fiscal 1999 for establishing a Shared Service Center, restructuring its marine container operations and recording additional depreciation to adjust a portion of its marine container fleet to realizable value. These charges were $4 million, $9 million and $25 million, respectively. The Company has consolidated its financial, accounting, human resources, and information technology operations into a Shared Service Center located in St. Louis, Missouri to achieve cost savings and efficiencies. The transition to the Shared Services Center was substantially complete at the end of fiscal 1999. Approximately $2 million of the total charge of $4 million is related to severance payments and the remainder is provided for the consolidation of existing facilities. During fiscal 1999, approximately $3 million was charged to this reserve for the consolidation of existing facilities and severance payments. XTRA agreed to outsource the management of its international container leasing business effective June 1, 1999 to Textainer Equipment Management Limited, a major equipment lessor. The agreement allows the Company to achieve economies of scale by having its fleet managed by a quality container lessor with a significantly larger fleet and cost effective infrastructure. XTRA recorded a restructuring charge of approximately $9 million related to the costs of closing its XTRA International offices. Approximately half of the charge is for severance payments and the remainder is primarily for the write-off of non- revenue assets. During fiscal 1999, approximately $4 million was utilized for the write off of capitalized software and hardware and $5 million for employee severance costs was charged against the reserve. Additionally, the Company identified a number of older, less desirable marine containers that it intends to sell over the period ending March 31, 2000, and as a result recorded a depreciation charge during the second quarter of fiscal 1999 of $25 million to write down the containers to their estimated net realizable value. In fiscal 1999, approximately 13,000 containers of the approximate 20,000 that were identified as held for disposal have been 79 sold. The Company does not currently anticipate making any further investment in the international container business. Unusual Item: Costs Related to Terminated Merger During the fourth quarter of fiscal 1998 and the first quarter of fiscal 1999, XTRA recorded approximately $1 million in each quarter as an unusual item on the income statement. These expenses were related to the terminated merger with Wheels MergerCo. Normalized Operating Results Excluding the unusual charge, fiscal 1998 net income was unchanged at $60 million and diluted earnings per share would have been $3.91. Excluding the unusual charge in the first quarter of fiscal 1999 and the one-time charges included in operating expenses recorded in the second quarter of fiscal 1999, net income and diluted earnings per share would have been $58 million and $4.16 for fiscal 1999. Interest Expense Interest expense is a function of the amount of average net debt outstanding (long-term debt less cash) and average interest rates. The following table sets forth total average net debt outstanding and interest expense as a percentage of total average net debt outstanding. For the year ended September 30, 1999 1998 1997 --------------------------------------- Average net debt outstanding (millions of dollars) $ 837 $ 829 $ 882 Interest expense as a percentage of average net debt outstanding 6.9% 7.0% 7.1% In 1998, interest expense declined 8% or $5 million due primarily to a decrease in average net debt outstanding as well as a lower average effective interest rate. Interest expense in 1999 was unchanged from 1998 as slightly higher average net debt outstanding was offset by a lower average effective interest rate. Foreign Exchange Gain (Loss) The $2 million foreign exchange loss in 1998 was due to a strengthening of the U.S. dollar against the Canadian and Mexican currencies. In 1999, the $1 million foreign exchange gain was due to the U.S. dollar declining versus the Canadian dollar. During 1999, the Company ceased accounting for its operations in Mexico as a highly inflationary economy. Pretax Income In 1998, pretax income increased 39% or $28 million due to higher equipment utilization, improved North American lease rates and lower expenses, including interest expense. In 1999, pretax income, before one-time charges and an unusual item declined 3% or $3 million primarily due to lower equipment utilization at XTRA International. Provision for Income Taxes The Company's effective income tax rate was approximately 40% in 1999, 1998, and 1997. For additional information regarding the provision for income taxes, see Notes 1 and 4 of the Notes to Consolidated Financial Statements. FINANCIAL LIQUIDITY AND CAPITAL RESOURCES Significant capital investment is required by the Company's leasing operations, not only for growth but also for replacement of units retired from service. However, during periods of slower economic growth or excess equipment supplies, capital expenditures may be curtailed until demand for transportation equipment increases. 80 The following table sets forth capital expenditures by equipment type, including units acquired by acquisition, units purchased, and units leased-in from third parties under operating leases and capital leases. The capital expenditures for fiscal 2000 represent XTRA's commitments for 1999 as of November 5, 1999. (Millions of dollars) 2000 1999 1998 1997 ------------------------------------------- Over-the-road trailers $ 87 235 $ 176 $ 193 Intermodal trailers - - - - Chassis - 16 6 2 Domestic containers - - - 18 Marine containers - - 10 30 Non-revenue equipment - 14 7 6 ------------------------------------------- Total $ 87 $ 265 $ 199 $ 249 =========================================== The Company recognizes that managing capital spending is essential to maintaining the quality of its fleet. The Company increases its fleet by purchasing new and used equipment and by acquiring equipment from other leasing companies. In 1998, capital expenditures declined slightly to $199 million, partially as a result of the then pending merger agreement. The vast majority of the 1998 capital expenditures was for over-the-road trailers. In 1999, due to strong conditions in its North American businesses, capital expenditures increased to $265 million, of which $235 million was for over-the-road trailers. Fiscal 1999 capital expenditures include $50 million leased-in under an operating lease. As of November 5, 1999, XTRA's committed capital expenditures for fiscal 2000 amounted to $87 million. The Company may increase capital spending in 2000 if conditions warrant. Actual capital expenditures for 2000 will depend on the Company's assessment of business conditions. During the three years ended September 30, 1999, the Company generated $839 million of cash flow from operations. During this same period, XTRA invested $713 million in property and equipment, paid dividends of $22 million, repurchased $118 million of common stock, net of stock options exercised, and reduced net debt (debt less cash) outstanding by $35 million. Capital expenditures of $50 million were made through an off balance sheet lease financing during fiscal 1999. See Note 5 of the Notes to Consolidated Financial Statements. During fiscal 1999, the Company repurchased approximately 2.7 million shares of its common stock for approximately $111 million. Total shares repurchased in 1999 represent 17% of the total shares outstanding at the beginning of fiscal 1999.The Company authorized in September, 1999 the repurchase of up to an additional $100 million of Company common stock. Although some level of future capital spending can be financed internally, the ability to fund expenditures above that level will depend upon the availability of external financing. The Company historically has had available to it a variety of external sources at favorable rates and terms to finance its acquisitions and the growth of its leasing equipment fleet. However, the availability of such capital depends heavily upon prevailing market conditions and the Company's capital structure and credit ratings. Currently, the Company's external financing options include a combination of medium-term and long-term borrowings in the public and private debt market, a revolving credit agreement, intermediate and long-term financing from banks and institutional investors, and lease financing. XTRA and XTRA, Inc. have registered with the Securities and Exchange Commission $604 million of securities consisting of Preferred Stock and Company Common Stock of XTRA as well as senior and subordinated debt securities of XTRA, Inc., fully and unconditionally guaranteed by XTRA Corporation (the "Shelf Registration") (see Note 3 of the Notes to Consolidated Financial Statements). As of November 5, 1999, XTRA, Inc. had $457 million available for issuance under this Shelf Registration. As of November 5, 1999, the Company had $77 million of unused committed credit available under its $225 million Revolving Credit Agreement. For additional information regarding debt, see Note 3 of the Notes to Consolidated Financial Statements. Year 2000 The Company has completed an assessment of year 2000 risks at each of its operating divisions. Detailed action plans were developed for critical operational systems, purchased software, hardware components, and critical third parties. 81 Critical operational systems that were custom designed for their specific business functions have been modified and tested for year 2000 compliance. These modified systems have been installed and are currently being used in the day to day business operations of the Company. Packaged software has been upgraded to a year 2000 compliant version. Operating system upgrades have been made for certain hardware components, while other hardware components were replaced. The plans for critical operating systems, purchased software and hardware components were completed in October 1999. A final comprehensive simulation was then conducted to ensure that all integration of components in the information systems infrastructure is year 2000 compliant and fully operational. The Company has contacted critical vendors, suppliers, and customers with whom the Company does business for a statement regarding their year 2000 readiness. This communication process was completed during the fourth quarter of fiscal 1999. Based on the responses received, the Company is not aware of any third party's year 2000 problems that would have a material adverse impact on the Company. The Company has contingency plans in place for continuing its operations in the event of any unforeseen interruptions. At this point, the Company has not identified any required contingency plans that would require material expenditures to be made. In total, the Company has spent $1 million for its year 2000 efforts, which encompasses assessing, modifying, and testing its internal information systems. While the Company does not believe that the year 2000 matters discussed above will have a material impact on its business, financial condition, or results of operations, no assurances can be given as to what extent the Company may be affected by such matters. The unavailability of the Company's internal information systems for a sustained period of time or disruptions in the economy generally resulting from year 2000 issues could have a materially adverse effect on the Company. New Accounting Pronouncements In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No.130, "Reporting Comprehensive Income", (SFAS 130), which requires companies to report all non-owner changes in equity during a period in a financial statement for the period in which they are recognized. The Company has chosen to disclose Comprehensive Income, which encompasses net income and foreign currency translation adjustments, in the Consolidated Statements of Stockholders' Equity. Also in fiscal 1999, the Company adopted Statement of Financial Accounting Standards No.131, "Disclosures about Segments of an Enterprise and Related Information", which requires companies to present segment information based upon the way that management organizes the segments within a company. Adoption of this standard did not impact the Company's consolidated financial position, result of operations, or cash flows; its effect was limited to the form and content of the Company's disclosures. In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer Software Developed for or Obtained for Internal-Use". The provisions of the SOP must be applied in financial statements for fiscal years beginning after December 15, 1998 (Fiscal year 2000 for the Company). The SOP will require the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal use. The Company currently expenses such costs as incurred. The Company does not believe that the adoption of the SOP will have a significant impact on the Company's future earnings or financial position. Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The foregoing Part I, Item 1. Business; Management's Discussion and Analysis of Financial Condition and Results of Operations; and letter to our shareholders contain certain forward-looking statements, including estimates of economic and industry conditions, equipment utilization, and capital expenditures. In addition, the Company may occasionally make forward-looking statements and estimates such as forecasts and projections of the Company's future performance or statements of management's plans and objectives. These forward-looking 82 statements may be contained in, among other things, SEC filings and press releases made by the Company and in oral statements made by the officers of the Company. Actual results could differ materially from those contained in such forward-looking statements. Therefore, no assurances can be given that the results in such forward-looking statements will be achieved. Important factors that could cause the Company's actual results to differ from those contained in such forward-looking statements include, among others, the factors mentioned below. An additional risk factor is the Company's ability to address the "Year 2000" problem in a timely and efficient manner. VARIABLE REVENUES AND OPERATING RESULTS The Company's revenues may vary significantly from period to period while a high percentage of its operating costs are fixed. As a result of the variability of the Company's revenues and the Company's limited ability to reduce its fixed operating costs, the Company's profitability may be cyclical and subject to significant fluctuation from period-to-period. The Company's revenues are a function of lease rates and working units; the latter depends on fleet size and equipment utilization (the ratio of revenue earning equipment to the total fleet). Some of the factors which affect lease rates and working units are competition, economic conditions and world trade activity, the supply of and demand for available equipment, aggressive purchasing of equipment by the Company's customers and competitors leading to an excess supply of equipment and reduced lease rates and utilization, shifting traffic trends in the industry, severe adverse weather conditions, strikes by transportation unions and other factors in the freight transportation industry. The Company's fixed costs include depreciation, rental equipment lease financing expense, a portion of rental equipment operating expenses and selling and administrative expenses. AVAILABILITY OF NEW EQUIPMENT New equipment is built to the Company's specifications and reflects industry standards and customer needs. The Company obtains new equipment from a number of manufacturers. Certain of these manufacturers have consolidated and, in the process, eliminated manufacturing facilities. These manufacturers are, in turn dependent on the prompt delivery and supply of the components required to assemble the trailers, chassis and containers. Historically, delivery times have varied from three to fifteen months from when the order is placed, and there can be no assurance that equipment will be available at the times or of the types needed by the Company. 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 because of its inability to quickly increase fleet size to take advantage of unexpectedly strong demand due to extended back orders or reduce fleet size in response to lower levels of demand. COMPETITION Leasing transportation equipment is a highly competitive business and is affected by factors related to the transportation market. Lease terms and lease rates, as well as availability, condition and size of equipment and customer service are all-important factors to the lessee. The Company has many competitors, some of which have leasing fleets that are larger in size than the Company's leasing fleet and some of which have greater resources. Various types of transportation equipment compete for freight movement. Over-the-road trailers, intermodal trailers, marine and domestic containers and railroad rolling stock are all potential vehicles for the movement of freight. CUSTOMER CONSOLIDATION Certain industries in which the Company competes, including trucking and shipping, are in the process of consolidation. As a result of this consolidation, the Company's customers may be better able to manage their equipment requirements and may seek increased efficiencies through direct ownership of equipment. In such event, the ratio of leased equipment to owned equipment may decrease, which could reduce the overall market for the Company's services. 83 AVAILABILITY OF CAPITAL The acquisition of new equipment, both for growth as well as replacement of older equipment, requires significant capital. In addition, over the past several years, the Company has grown its fleet through acquisitions of other companies, requiring additional capital. The Company plans to continue to pursue acquisition opportunities. Historically, the Company generally has had available a variety of sources to finance such expenditures and acquisitions at favorable rates and terms. However, the availability of such capital depends heavily upon prevailing market conditions, the Company's capital structure, and its credit ratings. No assurances can be given that the Company will be able to obtain sufficient financing on terms that are acceptable to it to fund its operations and capital expenditures or to enable the Company to take advantage of favorable acquisition opportunities. 84 Index to Financial Statements EXHIBIT 13.3 XTRA Corporation and Subsidiaries (Information required by Part II, Items 7 and 8 and Part IV. Item 14 of Form 10-K) FINANCIAL STATEMENTS PAGE Consolidated balance sheets - September 30, 1999 and 1998 86 Consolidated income statements for the three years ended September 30, 1999 87 Consolidated statements of cash flows for the three years ended September 30, 1999 88 Management's discussion and analysis of financial condition and results of operations for the three years ended September 30, 1999 77 Cautionary statements for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995 82 Unaudited quarterly condensed consolidated statements of operations for the years ended September 30, 1999 and 1998 89 Consolidated statements of stockholders' equity for the three years ended September 30, 1999 90 Notes to consolidated financial statements 91 Report of independent public accountants 104 Parent and subsidiaries 105 85 Consolidated Balance Sheets XTRA Corporation and Subsidiaries September 30, (Millions of dollars except per share and share amounts) 1999 1998 ---------------------------------------------------- Assets Property and equipment $ 2,266 $ 2,200 Accumulated depreciation (827) (748) --------------------- Net property and equipment 1,439 1,452 --------------------- Lease contracts receivable 38 42 Trade receivables, net 78 64 Other assets 14 14 Cash 4 3 --------------------- Total Assets $ 1,573 $ 1,575 ===================== Liabilities and Stockholders' Equity Liabilities Debt $ 852 $ 802 Deferred income taxes 309 287 Accounts payable and accrued expenses 75 78 --------------------- Total Liabilities 1,236 1,167 --------------------- Commitments and Contingencies (Note 5) 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: 12,812,400 shares at September 30, 1999; 15,372,903 shares at September 30, 1998 6 8 Capital in excess of par value - 57 Retained earnings 341 354 Unearned compensation - restricted stock (3) - Accumulated other comprehensive income (7) (11) --------------------- Total Stockholders' Equity 337 408 --------------------- Total Liabilities and Stockholders' Equity $1,573 $1,575 ===================== The accompanying notes are an integral part of these consolidated financial statements. 86 Consolidated Income Statements XTRA Corporation and Subsidiaries For the year ended September 30, (Millions of dollars except per share and share amounts) 1999 1998 1997 --------------------------------------------------------------------- Revenues $ 464 $ 461 $ 435 Operating Expenses Depreciation on rental equipment 152 151 149 Rental equipment operating expense 113 108 109 Selling and administrative expense 45 42 43 Revenue equipment writedown 25 - - Restructuring costs 13 - - --------------------------------- Total Operating Expenses 348 301 301 --------------------------------- Operating Income 116 160 134 Interest expense 58 58 63 Foreign exchange (gain) loss (1) 2 - --------------------------------- Income before provision for income taxes and unusual item 59 100 71 Unusual item: costs related to terminated merger 1 1 - --------------------------------- Pretax income 58 99 71 Provision for income taxes 23 39 28 --------------------------------- Net Income $ 35 $ 60 $ 43 ================================= Basic earnings per common share $2.49 $3.90 $2.79 Basic shares outstanding (in millions) 13.9 15.3 15.3 Diluted earnings per common share $2.49 $3.88 $2.78 Diluted shares outstanding (in millions) 13.9 15.4 15.3 The accompanying notes are an integral part of these consolidated financial statements. 87 Consolidated Statements of Cash Flows XTRA Corporation and Subsidiaries For the year ended September 30 (Millions of dollars) 1999 1998 1997 ------------------------------------------------------------------------ Cash Flows from Operations Net Income $ 35 $ 60 $ 43 Add non-cash income and expense items: Depreciation and amortization, net 151 150 148 Revenue equipment writedown 25 - - Deferred income taxes, net 22 35 26 Bad debt expense 4 5 5 Add other cash items: Net change in receivables, other assets, payables, and accrued expenses (24) (7) (7) Cash receipts on lease contracts receivable 25 24 21 Recovery of property and equipment net book value 39 26 33 ------------------------------------------- Total Cash Provided from Operations 277 293 269 ------------------------------------------- Cash Used for Investment Activities Additions to property and equipment (215) (199) (249) ------------------------------------------- Total Cash Used for Investment Activities (215) (199) (249) ------------------------------------------- Cash Flows from Financing Activities Borrowings of debt 75 - 72 Payments of debt (25) (90) (72) Net proceeds from exercise of stock options - 5 1 Repurchase of common stock (111) - (13) Dividends paid - (10) (12) ------------------------------------------- Total Cash Used for Financing Activities (61) (95) (24) ------------------------------------------- Net increase (decrease) in cash 1 (1) (4) Cash at beginning of year 3 4 8 ------------------------------------------- Cash at end of year $ 4 $ 3 $ 4 =========================================== Total interest paid $ 58 $ 58 $ 59 Total income taxes paid (refunded) $ 2 $ 3 ($5) The accompanying notes are an integral part of these consolidated financial statements. 88 Unaudited Quarterly Condensed Consolidated Statements of Operations XTRA Corporation and Subsidiaries For the four quarters ended September 30, 1999 and 1998 (Millions of dollars except First Second Third Fourth per share amounts) Quarter Quarter Quarter Quarter -------------------------------------------------------------------------------- 1999 Revenues $ 123 $ 110 $ 111 $ 120 Expenses/(1)/ 93/(2)/ 129/(3)/ 93 91 -------------------------------------------------- Pretax income (loss) 30 (19) 18 29 Provision (benefit) for income taxes 12 (8) 7 12 -------------------------------------------------- Net income (loss) $ 18 ($11) $ 11 $ 17 ================================================== Basic earnings (loss) per common share $1.18 ($0.82) $0.85 $1.28 Basic shares outstanding (in millions) 15.4 13.9 13.2 13.0 Diluted earnings (loss) per common share $1.18 ($0.82) $0.85 $1.28 Diluted shares outstanding (in millions) 15.4 13.9 13.2 13.0 1998 Revenues $ 121 $ 109 $ 112 $ 119 Expenses/(1)/ 91 91 92 88/(4)/ -------------------------------------------------- Pretax income 30 18 20 31 Provision for income taxes 12 7 8 12 -------------------------------------------------- Net income $ 18 $ 11 $ 12 $ 19 ================================================== Basic earnings per common share $1.18 $ 0.71 $0.80 $1.20 Basic shares outstanding (in millions) 15.3 15.3 15.3 15.4 Diluted earnings per common share $1.17 $ 0.71 $0.80 $1.20 Diluted shares outstanding (in millions) 15.4 15.4 15.4 15.4 (1) Includes operating and interest expenses. (2) Includes a $1 million unusual charge related to the terminated merger. (3) Includes $13 million of restructuring charges and a $25 million equipment write-down charge. (4) Includes a $1 million unusual charge related to the terminated merger. 89 Consolidated Statements of Stockholders' Equity XTRA Corporation and Subsidiaries For the three years Common Capital in Unearned Accumulated ended Stock Excess Compensation Other Total September 30, 1999 $.50 Par of Par Retained On Restricted Comprehensive Stockholders' (Millions of dollars) Value Value Earnings Stock Income/(1)/ Equity --------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1996 $ 8 $ 64 $273 $ - ($3) $ 342 Comprehensive income: Net income - - 43 - - 43 Translation adjustment - - - - (1) (1) ----- Total comprehensive income - - - - - 42 Common stock cash dividends declared at $0.78 per share - - (12) - - (12) Options exercised and related tax benefits - 1 - - - 1 Repurchase of common stock - (13) - - - (13) ------------------------------------------------------------------------------- Balance at September 30, 1997 8 52 304 - (4) 360 Comprehensive Income: Net income - - 60 - - 60 Translation adjustment - - - - (7) (7) ----- Total comprehensive income - - - - - 53 Common stock cash dividends declared at $0.64 per share - - (10) - - (10) Options exercised and related tax benefits - 5 - - - 5 Repurchase of common stock - - - - - - ------------------------------------------------------------------------------- Balance at September 30, 1998 8 57 354 (11) 408 Comprehensive income: Net income - - 35 - - 35 Translation adjustment - - - 4 4 ----- Total comprehensive income - - - - - 39 Shares granted under restricted stock plan, options exercised, and related tax benefits, net - 4 - (4) - - Amortization of unearned restricted stock - - 1 - 1 Repurchase of common stock (2) (61) (48) - - (111) ------------------------------------------------------------------------------- Balance at September 30, 1999 $ 6 $ - $341 $(3) $ (7) $ 337 =============================================================================== /(1)/ Other comprehensive income, for the Company, consists of the change in cumulative translation adjustments during the period. The accompanying notes are an integral part of these consolidated financial statements. 90 Notes to Consolidated Financial Statements XTRA Corporation and Subsidiaries 1 - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations XTRA Corporation leases, primarily on an operating basis, freight transportation equipment including over-the-road trailers, intermodal trailers, chassis, and domestic containers, and marine containers. XTRA leases over-the-road and intermodal equipment throughout North America, predominantly within the United States, to contract and common motor carriers, private fleet owners, and railroads. In addition, the Company leases marine containers worldwide to steamship lines. Principles of Consolidation 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 the prior year financial statements have been reclassified to be consistent with the current year's presentation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes Provisions for income taxes recognize the tax effect of all revenue and expense transactions as well as any change during the period in deferred tax assets and liabilities. The effects of changes in tax rates and laws on deferred tax assets and liabilities are reflected in net income in the period in which such changes are enacted. Leases The Company records the majority of its leases using the operating method of accounting. Full-payout or near full-payout leases, where the present value of the of the minimum lease payments at the beginning of the lease term equals or exceeds 90% of the fair value of the leased property, are accounted for under the finance method. Depreciation The Company provides for depreciation by using the straight-line method to amortize the cost of property and equipment to its estimated residual value over its estimated useful life. Revenue equipment is depreciated using estimated useful lives of 10 to 20 years. In addition, the Company reviews the condition and types of its revenue equipment to determine if any impairment has occurred. When equipment is sold or retired, its cost and accumulated depreciation are removed from the balance sheet and any gain or loss is included in revenues. Revenue equipment with an original cost of approximately $141 million, which has reached the end of its estimated useful life, remains in service and is included in Revenue Equipment at September 30, 1999. Equipment and Real Estate Disposals For purposes of the statements of cash flows, the total proceeds from the continuous disposal of fleet assets is reflected in cash flow from operations and the gain or loss is included in revenues in the income statement. Gain or loss from the sales of real estate are included in the income statement in rental equipment operating expense. Gains on the sale of real estate were $1 million in fiscal 1999. 91 Repair and Maintenance Repair and maintenance expenses are charged to operating expenses when incurred and amounted to $29 million, $28 million, and $29 million in 1999, 1998, and 1997, respectively. Earnings per Share Basic earnings per 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 using the treasury stock method. Foreign Currency Translation The Company translates the assets and liabilities of its foreign operations at the exchange rates in effect at year-end. Revenues and expenses are translated using average exchange rates in effect during the year. Gains and losses from foreign currency translation for the Company's Canadian operations are credited or charged to cumulative translation adjustment included in stockholders' equity in the accompanying Consolidated Balance Sheets. The gains and losses from remeasurement of certain intercompany liabilities of the Company's Canadian businesses are included in foreign exchange gain or loss. The Company's operations in Mexico were accounted for as a highly inflationary economy in fiscal 1997 and 1998 and, accordingly, all translation gains and losses were charged to foreign exchange loss. In fiscal 1999, the Company's operations in Mexico ceased being accounted for as a highly inflationary economy and, accordingly, all translation gains and losses are credited or charged to cumulative translation adjustment, and included in stockholder's equity. 2 - - EQUIPMENT LEASES The Company uses the operating method of accounting for the majority of its equipment leases. Under this method, revenue is recognized in the month earned based on the terms of the lease contract, and the equipment is depreciated to its estimated residual value over its estimated useful life. The finance method of accounting is used for revenue equipment leased to customers on a full-payout or near full-payout basis at lease inception. Under this method, finance lease income, the difference between the total lease receivable and the net book value less the residual value of the related equipment, is deferred and amortized as revenue over the lease term using the interest method, which provides a level rate of return on the net investment in the lease. The following schedule summarizes the future minimum rental receipts on operating and finance leases by year as of September 30, 1999: Operating Finance (Millions of dollars) Leases Leases ------------------------------------------------------------------------------------------- 2000 $114 $21 2001 54 13 2002 38 6 2003 23 2 2004 12 1 2005 and thereafter 4 2 --------------------------- Total $245 $45 =========================== 92 The components of the net investment in finance leases as of September 30, 1999 and 1998 were as follows: (Millions of dollars) 1999 1998 ---------------------------------------------------------------------------------------------- Minimum lease payments receivable $ 45 $ 51 Add: estimated residual values 7 7 ------------------------------ 52 58 Less: deferred finance lease income (14) (16) Lease contracts receivable, net $ 38 $ 42 ============================== 3 - - DEBT Debt as of September 30, 1999 and 1998 consisted of the following: (Millions of dollars) 1999 1998 ------------------------------------------------------------------------------------------ Unsecured financing Medium-term Notes $ 673 $ 656 Revolving Credit Agreement 169 128 ---------------------------- Total unsecured financing 842 784 Secured financing 10 18 Total debt 852 802 Less: current portion (94) (72) ---------------------------- Long-term debt $ 758 $ 730 ============================ The $673 million of Medium-term Notes have a weighted average interest rate of 7.0% and maturities from fiscal years 2000 to 2019. At September 30, 1999, $457 million remained available under the shelf registration for future debt issuance. The weighted average interest rate incurred was 7.0% during 1999, 1998, and 1997. The Company's Revolving Credit Agreement has bank commitments of $225 million at September 30, 1999 and a revolving period maturity date of June 30, 2001. Pricing on the Revolving Credit Agreement is dependent on the Company's credit ratings and is based on a fixed spread over the London Interbank Offered Rate (LIBOR). The Company pays a facility fee on any unused commitment in the facility. Unless the Company requests and the banks approve a renewal or extension of the agreement, borrowings outstanding on the revolving period maturity date will be converted to a five year term loan payable in equal quarterly installments with a final term maturity in June 30, 2006. The Company borrows on a short-term basis by issuing commercial paper and using uncommitted lines of credit. Short-term borrowings are back-stopped by the unused borrowing capacity under the Revolving Credit Agreement. They have therefore been classified as Revolving Credit Agreement borrowings. At September 30, 1999 and September 30, 1998, such borrowings amounted to $169 million and $128 million, respectively. At September 30, 1999, the $169 million of Revolving Credit Agreement borrowings had a weighted average interest rate of 5.6%. The weighted average interest rates incurred under the Revolving Credit Agreement, consisting primarily of short-term borrowings, were 5.2%, 5.8%, and 5.7% during 1999, 1998, and 1997, respectively. At September 30, 1999, $56 million of unused commitment was available under the Revolving Credit Agreement. The secured financing at September 30, 1999, consisting of capital lease obligations, had a weighted average interest rate of 8.9% and is payable in installments through 2001. The weighted average interest rates incurred under the secured financing were 8.5%, 9.1%, and 10.0% during 1999, 1998, and 1997, respectively. 93 Revenue equipment recorded on the consolidated balance sheets related to secured financing was as follows at September 30, 1999 and 1998: (Millions of dollars) 1999 1998 - ----------------------------------------------------------------------------------------------------------- Revenue equipment $ 29 $ 41 Accumulated depreciation (17) (22) ---------------------------------- Net secured equipment $ 12 $ 19 ================================== Assuming the Company were to convert the Revolving Credit Agreement to a term loan on its revolving period maturity date, the amount of minimum maturities of all debt during each of the next five fiscal years and thereafter would be as follows: Minimum Debt (Millions of dollars) Maturities - ------------------------------------------------------------------------------------------------------- 2000 $ 94 2001 102 2002 116 2003 103 2004 58 2005 and thereafter 379 --------------- Total payments and maturities $852 =============== The Company's loan agreements contain minimum debt service tests and restrictive covenants including restrictions on the amount of debt in relation to revenue equipment and stockholders' equity and limitations on secured borrowings. The Company's loan agreements contain covenants that restrict the payment of dividends or repurchases of common stock by the Company. In addition, certain loan agreements contain covenants that restrict advances to and the payment of dividends to the Company by its subsidiaries, including XTRA, Inc. Under the most restrictive provisions of the Company's loan agreements, the combined amount of repurchase of common stock and cash dividends which could be paid on the Company's capital stock was limited to $96 million at September 30, 1999. Since the termination of the merger agreement, the Company has not paid dividends and has no current plans to do so. 94 4 - - INCOME TAXES The components of the provision for income taxes for 1999, 1998, and 1997 are as follows: (Millions of dollars) 1999 1998 1997 - ---------------------------------------------------------------------------- Current tax provision Federal $ - $ 2 $ 1 State 1 2 1 ---------------------- Current tax provision 1 4 2 ---------------------- Deferred tax provision Federal 19 30 22 State 3 5 4 ---------------------- Deferred tax provision 22 35 26 ---------------------- Provision for income taxes $ 23 $ 39 $ 28 ====================== The provision differs from income taxes currently payable because certain items of income and expense are recognized in different periods for financial statement purposes than for tax return purposes. The reasons for the difference between the statutory U.S. Federal income tax rates and the Company's effective income tax rates for 1999, 1998, and 1997 are as follows: (Millions of dollars) 1999 1998 1997 - ---------------------------------------------------------------------- Federal statutory rate 35% 35% 35% Increase in taxes resulting from: State taxes and other 5 5 5 --------------------------- Effective income tax rate 40% 40% 40% =========================== The components of the net deferred tax liability as of September 30, 1999 and 1998 are as follows: (Millions of dollars) 1999 1998 - ------------------------------------------------------------------ Assets Capital lease obligations $ 3 $ 7 Investment tax credits 1 1 Alternative minimum tax credits 21 22 Other 19 16 ---------------- Total deferred tax assets $ 44 $ 46 ================ Liabilities Revenue equipment $ 330 $ 312 Other 23 21 ---------------- Total deferred tax liabilities 353 333 ---------------- Net deferred tax liability $ 309 $ 287 ================ The Company estimates that after filing its fiscal 1999 tax return, it will have $1 million of investment tax credit carryforwards available to reduce future federal income tax liabilities. The investment tax credit carryforwards in 2001. The Company also estimates that after filing its fiscal 1999 tax return, it will have $21 million of alternative minimum tax credit carry forwards available to reduce future federal income tax liabilities. The benefit of both tax credit carry forwards has been recorded in the Company's financial statements. The Company has not recognized a valuation allowance for deferred tax assets. 95 5 - - COMMITMENTS AND CONTINGENCIES The Company's offices and certain facilities are occupied under leases expiring at various dates. In addition, the Company has leased certain revenue equipment with an original cost of $50 million under a ten year operating lease expiring in 2009. At September 30, 1999, the Company's lease commitments under the non-cancelable portion of these leases for the next five years and in total thereafter were as follows: Revenue Office Total Lease (Millions of dollars) Equipment Facilities Commitments - ------------------------------------------------------------------------------------------ 2000 $ 7 $ 5 $ 12 2001 5 5 10 2002 5 4 9 2003 5 4 9 2004 6 3 9 2005 and thereafter 31 5 36 ----------------------------------------- Total $ 59 $ 26 $ 85 ========================================= Rental equipment lease financing expense amounted to $1 million in 1999 and 1997, respectively, which is included in the income statement under the caption "Depreciation on rental equipment." Other rental expense amounted to $6 million, in 1999, 1998, and 1997, respectively. As of November 5 1999, the Company had committed capital expenditures of $87 million, principally for over-the-road trailers, in fisca1 2000. The Illinois Environmental Protection Agency has notified the Company of alleged environmental contamination of its Fairmont City, Illinois property that resulted from the prior owners' zinc smelting operations. As a result, the Company has taken certain actions to suppress dust that have significantly reduced the level of airborne contaminants at the site. Based on the Company's current understanding of the nature of the contamination at the site, the Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the Company's results of operations, cash flows or financial condition. 6 - - RETIREMENT PLANS The Company provides retirement benefits to substantially all of its employees through a qualified and funded defined contribution retirement plan. The Company's yearly profit sharing contributions are discretionary and include an employee-matching contribution to a 401(k) plan and a profit sharing contribution and are based on a specified percentage of employee qualified compensation. The retirement trust fund's assets are administered by a trustee. Participants are entitled to their vested portion of the retirement assets upon termination of employment. The Company recorded expenses of $2 million each year in 1999, 1998, and 1997 in connection with the defined contribution retirement plan. 96 7 - - SEGMENT AND GEOGRAPHIC INFORMATION In 1999, the Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of a Business Enterprise and Related Information," which establishes standards for reporting information about reportable operating segments. The Company's operating divisions and related transportation equipment, in applying the aggregation criteria of SFAS 131, have been aggregated into two reportable segments; North America and International. The North America reporting segment consists of the Company's XTRA Lease and Intermodal divisions that lease over-the-road and intermodal equipment predominantly within the United States. The International division leases marine containers worldwide. Information about the Company's reportable segments and geographic segments is presented in the tables below. Segment Information: - ------------------- North (Dollars in millions) America International Total 1999: Revenues $ 401 $ 63 $ 464 Depreciation expense 122 30 152 Interest expense 44 14 58 Non-recurring charges 5 34 39 Pretax income (loss) 105 (47) 58 Capital expenditures (including $50 million leased-in under an 265 - 265 operating lease) Total segment assets at September 30, 1999 1,238 335 1,573 1998: Revenues $ 381 $ 80 $ 461 Depreciation expense 118 33 151 Interest expense 42 16 58 Non-recurring charges 1 - 1 Pretax income 97 2 99 Capital expenditures 189 10 199 Total segment assets at September 30,1998 1,165 410 1,575 1997: Revenues $ 359 $ 76 $ 435 Depreciation expense 117 32 149 Interest expense 45 18 63 Pretax income (loss) 76 (5) 71 Capital expenditures 219 30 249 Total segment assets at September 30, 1997 1,150 435 1,585 Geographic information: 1999 1998 1997 - ---------------------- ------------------------------------ Revenues United States $ 371 $ 352 $ 331 Other countries 93 109 104 ------------------------------------ Total revenues $ 464 $ 461 $ 435 ==================================== Assets United States $1,119 $1,064 $1,060 Other countries 454 511 525 ------------------------------------ Total assets $1,573 $1,575 $1,585 ==================================== 97 8 - - COMMON STOCK Repurchase of Common Stock The Company had authorized the repurchase of up to $200 million of its common stock in 1995 and 1996. As of November 5, 1999, the Company had repurchased $189 million of common stock under the $200 million authorization. In September, 1999, the Company approved a new $100 million stock repurchase authorization, which becomes effective upon the completion of the $200 million stock purchase authorization. The timing of the repurchases, which could occur over an extended period of time, will depend on price, market conditions, and other factors. 1998 General Stock Incentive Plan The 1998 General Stock Incentive Plan authorizes the issuance of 150,000 shares of common stock under the Plan. The Plan allows the Company to grant awards to non-executive employees including stock options, stock appreciation rights, and restricted stock awards, subject primarily to the requirement of continuing employment. The awards under this plan are available for grant over a period of ten years from the date on which the plan was adopted, but the grants may vest beyond the ten-year period. Stock options issued by the Company are exercisable at a future time as specified by the Company and generally expire from five to ten years from the date of grant. The exercise price of stock options may not be less than the fair market value of the common stock at the date of grant. 1997 Stock Incentive Plan The 1997 Stock Incentive Plan authorizes the issuance of 500,000 shares of common stock under the Plan. The Plan allows the Company to grant awards to key employees including restricted stock awards, stock options, and stock appreciation rights, subject primarily to the requirement of continuing employment. The awards under this plan are available for grant over a period of ten years from the date on which the plan was adopted, but the grants may vest beyond the ten-year period. Stock options issued by the Company are exercisable at a future time as specified by the Company and generally expire from five to ten years from the date of grant. The exercise price of stock options may not be less than the fair market value of the common stock at the date of grant. 1991 Stock Option Plan for Non-Employee Directors The 1991 Stock Option Plan for Non-Employee Directors authorizes the granting of options for a maximum of 100,000 shares. The option price per share is equal to the fair market value of the common stock on the date of grant. The term of each option is five years and options become exercisable one year after the date of grant. The XTRA Corporation Deferred Director Fee Option Plan The Deferred Director Fee Option Plan allows a non-employee director to elect to receive, in lieu of his annual retainer fee and/or board and committee meeting fees, a non-qualified stock option. The option exercise price is 50% of the fair market value of the shares at the time the options are awarded and the amount of shares is determined by dividing the director's fees by the exercise price. 1987 Stock Incentive Plan The 1987 Stock Incentive Plan, which expired November 1997, authorized the issuance of 1,150,000 shares of common stock under the plan. The Plan allowed the Company to grant awards to key employees including restricted stock awards, stock options, and stock appreciation rights, subject primarily to the requirement of continuing employment. The awards under this plan were available for grant over a period of ten years from the date on which the plan was adopted, but grants were allowed to vest beyond the ten year period. Stock options issued by the Company are exercisable at a future time as specified by the Company and generally expire from five to ten years from the date of grant. The exercise price of stock options may not be less than the fair market value of the common stock at the date of grant. Under the Stock Incentive Plans, the Company is authorized to grant shares of restricted stock to employees. No monetary consideration is paid by employees who receive restricted stock. Restricted stock can be granted with or without performance restrictions. In 1999, the Company granted 87,750 shares of restricted stock under the 1997 Stock Incentive Plan at an average market value of $46.34 per share and recorded the total market value of 98 the shares granted as unearned compensation in the Statement of Stockholders' Equity. The unearned compensation is being amortized to expense over the three year vesting period. Restricted stock compensation charged to expense in 1999 was $1 million. Accounting for Stock-Based Compensation In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 123 (SFAS 123), "Accounting for Stock- Based Compensation," which sets forth a fair value based method of recognizing stock-based compensation expense. As permitted by SFAS 123, the Company has elected to continue to apply APB No.25, "Accounting for Stock Issued to Employees", to account for its stock-based compensation plans. Had the compensation cost for these plans been determined according to SFAS 123, the Company's net income and earnings per share would have been the following pro forma amounts: (Millions of dollars, except per share amounts) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- Net Income As reported $ 35 $ 60 $ 43 Pro forma 33 59 41 Basic EPS As reported $2.49 $3.90 $2.79 Pro forma 2.40 3.87 2.72 Diluted EPS As reported 2.49 3.88 2.78 Pro forma 2.40 3.86 2.71 Because SFAS 123 does not require a fair value based method of accounting to be applied to options granted prior to October 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. For purposes of the pro forma disclosure, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------- Assumptions: Volatility 26.0% 20.1% 20.1% Risk-free interest rate 5.7% 4.4% 5.8% Dividend yield - 1.8% 1.8% Expected life of options (years) 3 3 3 Weighted average grant date fair value of options granted under the: 1998 general stock option plan $11.85 1997 stock incentive plan 11.78 $8.59 Deferred director fee option plan 7.56 4.92 $4.02 1991 stock option plan for non-employee directors 10.04 9.86 8.29 1987 stock incentive plan 9.32 99 The following table summarizes the stock option transactions pursuant to the Company's stock incentive and stock option plans for the three-year period ended September 30, 1999: Weighted Average Shares Exercise Price (000s) Per Share ($) Options outstanding at September 30, 1996 640 $48.27 Granted 262 50.05 Exercised (30) 34.95 Forfeited (64) 50.04 ------------------------------------------- Options outstanding at September 30, 1997 808 49.10 Granted 95 52.52 Exercised (96) 45.03 Forfeited (14) 47.17 ------------------------------------------- Options outstanding at September 30, 1998 793 49.95 Granted 424 46.00 Exercised (5) 39.28 Forfeited (149) 45.68 ------------------------------------------- Options outstanding at September 30, 1999 1,063 48.28 Exercisable options at September 30, 1999 822 49.01 Shares available for grant at September 30, 1999 316 =============================================================================================================== The following table summarizes information about stock options outstanding at September 30, 1999: Options Outstanding Options Exercisable ------------------------------------------ -------------------------- Weighted Number Average Weighted Number Weighted Outstanding Remaining Average Exercisable Average at 9/30/99 Contractual Exercise at 9/30/99 Exercise (000s) Life (Years) Price (000s) Price ------------------------------------------ -------------------------- Range of exercise price $19.75 to $29.88 11 1.8 $22.41 11 $22.41 $39.00 to $60.44 1052 1.4 48.54 811 49.38 ------------------------------------------ -------------------------- Total 1063 1.4 48.28 822 49.01 ========================================== ========================== 100 9 - - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash and Short-term Investments The carrying amount approximates fair value because of the short maturity of those instruments. Debt The fair value of the Company's fixed rate debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The fair value of the Company's floating rate debt is its carrying amount. The carrying amounts and estimated fair values of the Company's financial instruments are as follows: As of September 30, Carrying Fair (Millions of dollars) Amount Value - ---------------------------------------------------------------------------------------- 1999 Cash and short-term investments $ 4 $ 4 Debt 852 855 1998 Cash and short-term investments $ 3 $ 3 Debt 802 866 10 - -- 1999 ONE TIME CHARGES XTRA recorded a one-time charge of $13 million during the second quarter of fiscal 1999 for establishing a Shared Service Center and restructuring its marine container operations. During fiscal 1999, approximately $12 million was charged against the reserve leaving a reserve balance at September 30, 1999 of $1 million. Included in the amounts charged to the restructuring reserve were $6 million of severance payments, $4 million of equipment write-downs and $2 million related to facility shutdowns. The Company recorded a $25 million charge during the second quarter to write down 20,000 marine containers that are targeted for disposal to their estimated realizable value. Through September 30, 1999, approximately 13,000 units have been sold with a resulting loss of $16 million that has been charged against this reserve. 11 - -- ALLOWANCE FOR DOUBTFUL ACCOUNTS The allowance for doubtful accounts as of September 30, 1999, 1998, and 1997 consists of the following: For the three years ended September 30, (Millions of dollars) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------ Balance at beginning of year $ 16 $ 14 $ 13 Additions charged to operating expenses 4 5 5 Deductions /(1)/ (6) (3) (4) ---------------------------- Balance at end of year $ 14 $ 16 $ 14 ============================ /(1)/ Amounts charged against reserves, net of recoveries. 101 12 - -- SELECTED FINANCIAL DATA OF SIGNIFICANT SUBSIDIARY The condensed consolidated data for XTRA, Inc., a wholly-owned subsidiary of XTRA Corporation, included in the consolidated financial information of the Company, is summarized below: For the three years ended September 30, (Millions of dollars) 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Income Statement Data Revenues $ 464 $ 461 $ 435 Pretax income 61 99 71 Net income 38 59 43 Selected Balance Sheet Data Receivables, net $ 115 $ 106 $ 108 Net property and equipment 1,435 1,452 1,454 Other assets 18 17 23 ------------------------- Total assets $1,568 $1,575 $1,585 ========================= Debt $ 852 $ 802 $ 892 Deferred income taxes 309 287 252 Other liabilities 72 84 86 ------------------------- Total liabilities 1,233 1,173 1,230 Stockholders' equity 335 402 355 ------------------------- Total liabilities and stockholders' equity $1,568 $1,575 $1,585 ========================= 13 - -- BASIC AND DILUTED EARNINGS PER SHARE The following tables provide a reconciliation of the numerators and denominators of basic and diluted earnings per share computations: Year ended September 30, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Net income (in millions) (numerator) $ 35 $ 60 $ 43 Computation of Basic Shares Outstanding (in thousands, except per share amounts) Weighted average number of basic shares outstanding (denominator) 13,865 15,319 15,268 Basic earnings per common share $ 2.49 $ 3.90 $ 2.79 Computation of Diluted Shares Outstanding (in thousands, except per share amounts) Weighted average number of basic shares outstanding 13,865 15,319 15,268 Common Stock equivalents for diluted shares outstanding 7 72 18 Weighted average number of diluted shares outstanding (denominator) 13,872 15,391 15,286 Diluted earnings per common share $ 2.49 $ 3.88 $ 2.78 - -------------------------------------------------------------------------------------------------------- 102 14 - -- TERMINATION OF RECAPITALIZATION MERGER XTRA entered into an Agreement and Plan of Merger and Recapitalization dated as of June 18, 1998, as amended and restated as of July 31, 1998, with Wheels MergerCo LLC ("MergerCo"). MergerCo was a newly organized Delaware limited liability company formed by Apollo Management IV, L.P. and Atlas Capital Partners LLC, an affiliate of Interpool, Inc. On November 25, 1998, the Company and MergerCo mutually agreed to terminate their existing merger agreement. Previously, MergerCo had indicated that due to market conditions it did not believe it would be able to obtain the financing necessary to complete the transaction. 103 Report of Independent Public Accountants To the Stockholders of XTRA Corporation: We have audited the accompanying consolidated balance sheets of XTRA Corporation (a Delaware corporation) and subsidiaries as of September 30, 1999, and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XTRA Corporation and subsidiaries as of September 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP St. Louis, Missouri November 5, 1999 104 EXHIBIT 21 PARENT AND SUBSIDIARIES* Name State or Province of Incorporation - -------------------------------------------------------------------------------- XTRA Corporation Delaware Subsidiary of XTRA Corporation XTRA, Inc. Maine Subsidiaries of XTRA, Inc. XTRA Intermodal, Inc. Delaware XTRA International Ltd. Delaware XTRA Mexicana, S.A. de C.V. Mexico Distribution International Corporation Delaware Subsidiaries of Distribution Internationa1 Corporation Strick Canada Limited Ontario XTRA Lease, Inc. Delaware *Certain inactive subsidiaries have been omitted. 105 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (No. 33-41360, No. 33- 57609, No. 33-57607, No. 33-45564, No. 333-27783 and No 333-92175) and on Form S-3 (No. 33-54747 and No. 33-65293). /s/ ARTHUR ANDERSEN LLP St. Louis, Missouri December 13, 1999 106 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF XTRA CORPORATION FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.