Fitch Upgr XTRA's CP To `F1+'; Affs `BBB+' Sr; Outlook Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 28, 2001

Fitch has raised XTRA Inc.'s (XTRA) commercial paper rating to 'F1+' from 'F2' and affirmed the company's senior debt rating at 'BBB+'. The 'F1+' rating applies to XTRA's 4(2) commercial paper program as the company's 3(a)3 program will be deactivated. Approximately $720 million of debt securities are impacted by Fitch's actions. XTRA's ratings are removed from Rating Watch Positive. The Rating Outlook is Stable.

The rating actions follow the acquisition of XTRA's parent, XTRA Corp., by Berkshire Hathaway Inc. (BH) on Sept. 17, 2001, for approximately $590 million. Following the announcement of this transaction, Fitch placed XTRA's ratings on Rating Watch Positive. With the completion of the acquisition, BH will unconditionally guarantee outstandings under XTRA's $300 million commercial paper program as well as the company's $165 million committed bank credit facility, which expires on Sept. 27, 2005. Because approximately 40% of XTRA's long term debt matures after Sept. 30, 2005, Fitch rates all unsecured term debt securities based on the company's standalone credit fundamentals. The halo effect arising from the BH guarantee is reflected in XTRA's Rating Outlook, which prior to July 31, 2001, was Negative.

As a wholly-owned subsidiary of BH, XTRA will no longer have its annual audited financial statements or publish forms 10-K and 10-Q. Instead, XTRA's financial data will be prepared in accordance with GAAP on a quarterly basis and certified by a company officer. While audited annual numbers would be favored; some comfort can be gained, as BH will continue to have its financials, including XTRA, audited on an annual basis.

XTRA reported approximately a 45% reduction in net income for the fiscal year ending Sept. 30, 2001, from fiscal year 2000's record net income of $63 million. The economic cyclicality inherent in XTRA's businesses arising from a decline in trade resulted in lower rental demand for the company's trailers, chassis, and containers in fiscal 2001 compared to 2000. In fiscal year 2001, total equipment utilization declined to roughly 80% from 86% in fiscal year 2000. The decline was exacerbated at XTRA Lease by the loss of a key customer and a generally downward trend in utilization at XTRA International. While the decline at XTRA Lease is concerning, the utilization rates in this business have generally been in the range of the high 70s and the high 80s, peaking at 90%, over the last 10 years.

Despite the decline in utilization, fiscal year 2001's results and profitability were within XTRA's six-year range. Profitability was helped by the company's lean operating structure. In spite of the decline in revenues in fiscal 2001, the efficiency ratio remained below 30%. As such, fixed charge coverage was solid at 2.11 times (x). If the interest expense from the operating leases were included, fixed charge coverage would have approximated 1.90x.

Capitalization has been a historic strength for XTRA. XTRA's capitalization and leverage have been driven by the company's cashflow from operations. Cashflow from operations can vary due to utilization and per diem rates. Nonetheless, EBITDA has exceeded $200 million per annum and was near the midpoint of the company's five-year range in fiscal 2001.

Management's leverage target has historically been in the 2.50x-3.00x range. With the decline in equipment CapEx in fiscal 2001, management used excess cash flow to reduce debt and repurchase stock. Equipment CapEx in fiscal 2001 was less than $70 million vs. $216 million in 2000. Net debt repayment in fiscal years 2001 and 2000 were $113 million and $64 million, respectively. Stock repurchases in fiscal years 2001 and 2000 were $71 million and $39 million.

The combination of reduced CapEx and debt repayment, in spite of the common stock repurchase activity, resulted in leverage, defined as total on-balance sheet debt plus off-balance sheet operating leases divided by common equity, declining to 2.29x at Sept. 30, 2001, from 2.37x at Sept. 30, 2000. Fitch's expectation is that leverage will not exceed 3.00x over the immediate term due to weak business conditions in the industry. Projected excess cash flow over the next 12 months may provide management with more flexibility to accelerate XTRA's exit from the marine container market.

Based in Westport, Conn., XTRA Inc. is the principal operating subsidiary of XTRA Corp., a transportation equipment holding company. XTRA leases a diverse fleet of approximately 269,000 units, constituting a net investment of approximately $1.4 billion, consisting of over-the-road trailers; intermodal equipment, including chassis, intermodal trailers and domestic containers; and marine containers.

Based in Omaha, Neb., Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. The most important of these is the property and casualty insurance business conducted on both a direct and reinsurance basis through a number of subsidiaries.