RYDER SYSTEM INC
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
|
þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the fiscal year ended December 31, 2010 | ||
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OR
|
||
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the transition period from to | ||
Commission
File Number: 1-4364
RYDER SYSTEM, INC.
(Exact name of registrant as
specified in its charter)
|
Florida
(State or other jurisdiction of incorporation or organization) |
59-0739250
(I.R.S. Employer Identification No.) |
|
| 11690 N.W. 105 th Street, | ||
| Miami, Florida 33178 | (305) 500-3726 | |
| (Address of principal executive offices, including zip code) | (Telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of exchange on which registered | |
| Ryder System, Inc. Common Stock ($0.50 par value) | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
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
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
þ
No
o
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 the 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
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act.
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant computed by
reference to the price at which the common equity was sold at
June 30, 2010 was $2,106,482,262. The number of shares of
Ryder System, Inc. Common Stock ($0.50 par value per share)
outstanding at January 31, 2011 was 51,227,648.
| Documents Incorporated by Reference into this Report | Part of Form 10-K into which Document is Incorporated | |
|
Ryder System, Inc. 2011 Proxy Statement
|
Part III |
RYDER
SYSTEM, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
| Page No. | ||||||||
| PART I | ||||||||
| ITEM 1 | 1 | |||||||
| ITEM 1A | 12 | |||||||
| ITEM 1B | 16 | |||||||
| ITEM 2 | 16 | |||||||
| ITEM 3 | 16 | |||||||
| ITEM 4 | 16 | |||||||
| PART II | ||||||||
| ITEM 5 | 17 | |||||||
| ITEM 6 | 21 | |||||||
| ITEM 7 | 22 | |||||||
| ITEM 7A | 59 | |||||||
| ITEM 8 | 60 | |||||||
| ITEM 9 | 124 | |||||||
| ITEM 9A | 124 | |||||||
| ITEM 9B | 124 | |||||||
| PART III | ||||||||
| ITEM 10 | 124 | |||||||
| ITEM 11 | 125 | |||||||
| ITEM 12 | 125 | |||||||
| ITEM 13 | 125 | |||||||
| ITEM 14 | 125 | |||||||
| PART IV | ||||||||
| ITEM 15 | 126 | |||||||
| 127 | ||||||||
| SIGNATURES | 130 | |||||||
| EX-10.1.b | ||||||||
| EX-21.1 | ||||||||
| EX-23.1 | ||||||||
| EX-24.1 | ||||||||
| EX-31.1 | ||||||||
| EX-31.2 | ||||||||
| EX-32 | ||||||||
| EX-101 INSTANCE DOCUMENT | ||||||||
| EX-101 SCHEMA DOCUMENT | ||||||||
| EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
| EX-101 LABELS LINKBASE DOCUMENT | ||||||||
| EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
| EX-101 DEFINITION LINKBASE DOCUMENT | ||||||||
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Table of Contents
PART I
OVERVIEW
Ryder System, Inc. (Ryder), a Florida corporation founded in
1933, is a global leader in transportation and supply chain
management solutions. Our business is divided into three
business segments: Fleet Management Solutions (FMS), which
provides full service leasing, contract maintenance,
contract-related maintenance and commercial rental of trucks,
tractors and trailers to customers principally in the U.S.,
Canada and the U.K.; Supply Chain Solutions (SCS), which
provides comprehensive supply chain solutions including
distribution and transportation services throughout North
America and Asia; and Dedicated Contract Carriage (DCC), which
provides vehicles and drivers as part of a dedicated
transportation solution in the U.S. Our customers range
from small businesses to large international enterprises. These
customers operate in a wide variety of industries, the most
significant of which include automotive, electronics,
transportation, grocery, lumber and wood products, food service,
and home furnishings.
For financial information and other information relating to each
of our business segments see Item 7,
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and Item 8,
“Financial Statements and Supplementary Data,” of this
report.
INDUSTRY AND
OPERATIONS
Fleet Management Solutions
Value
Proposition
Through our FMS business, we provide our customers with flexible
fleet solutions that are designed to improve their competitive
position by allowing them to focus on their core business, lower
their costs and redirect their capital to other parts of their
business. Our FMS product offering is comprised primarily of
contractual-based full service leasing and contract maintenance
services. We also offer transactional fleet solutions including
commercial truck rental, maintenance services, and value-added
fleet support services such as insurance, vehicle administration
and fuel services. In addition, we provide our customers with
access to a large selection of used trucks, tractors and
trailers through our used vehicle sales program.
Market
Trends
Over the last several years, many key trends have been reshaping
the transportation industry, particularly the U.S. private
commercial fleet market which is estimated to include
approximately 3.8 million
vehicles
(1)
and the U.S. commercial fleet lease and rental market which
is estimated to include approximately 0.6 million
vehicles
(2)
.
The maintenance and operation of commercial vehicles has become
more complicated requiring companies to spend a significant
amount of time and money to keep up with new technology,
diagnostics, retooling and training. Because of increased demand
for efficiency and reliability, companies that own and manage
their own fleet of vehicles have put greater emphasis on the
quality of their preventive maintenance and safety programs.
More recently, fluctuating energy prices have made it difficult
for businesses to predict and manage fleet costs and the
tightened credit market has limited businesses’ access to
capital.
Operations
For the year ended December 31, 2010, our global FMS
business accounted for 66% of our consolidated revenue.
(1) U.S. private
fleet as of June 2010,
Class 3-8,
Source: RL Polk
(2) U.S. outsourced
fleet services as of June 2010,
Class 3-8,
Source: RL Polk
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U.S.
Our FMS customers in the U.S. range
from small businesses to large national enterprises. These
customers operate in a wide variety of industries, including
transportation, grocery, lumber and wood products, food service
and home furnishings. At December 31, 2010, we had 550
operating locations in 2010 exclude ancillary storage locations
in 49 states and Puerto Rico and operated 174 maintenance
facilities
on-site
at
customer properties. A location typically consists of a
maintenance facility or “shop,” offices for sales and
other personnel, and in many cases, a commercial rental counter.
Our maintenance facilities typically include a service island
for fueling, safety inspections and preliminary maintenance
checks as well as a shop for preventive maintenance and repairs.
Canada.
We have been operating in Canada for
over 50 years. The Canadian private commercial fleet market
is estimated to be approximately 0.4 million
vehicles
(3)
and the Canadian commercial fleet lease and rental market is
estimated to include approximately 0.02 million
vehicles
(4)
.
At December 31, 2010, we had 37 operating locations
throughout 9 Canadian provinces. We also have 8
on-site
maintenance facilities in Canada.
Europe.
We began operating in the U.K. in 1971
and since then have expanded into Germany. The U.K. commercial
rental fleet lease and rental market are estimated to include
approximately 0.2 million
vehicles
(5)
.
At December 31, 2010, we had 41 operating locations
throughout the U.K. and Germany. We also manage a network of 320
independent maintenance facilities in the U.K. to serve our
customers when it is more effective than providing the service
in a Ryder location. In addition to our typical FMS operations,
we also supply and manage vehicles, equipment and personnel for
military organizations in the U.K. and Germany.
FMS
Product Offerings
Full Service Leasing.
Under a typical full
service lease, we provide vehicle maintenance, supplies and
related equipment necessary for operation of the vehicles while
our customers furnish and supervise their own drivers and
dispatch and exercise control over the vehicles. Our full
service lease includes all the maintenance services that are
part of our contract maintenance service offering. We target
customers that would benefit from outsourcing their fleet
management function or upgrading their fleet without having to
dedicate a significant amount of their own capital. We will
assess a customer’s situation, and after considering the
size of the customer, residual risk and other factors, will
tailor a leasing program that best suits the customer’s
needs. Once we have signed an agreement, we acquire vehicles and
components that are custom engineered to the customer’s
requirements and lease the vehicles to the customer for periods
generally ranging from three to seven years for trucks and
tractors and up to ten years for trailers. Because we purchase a
large number of vehicles from a limited number of manufacturers,
we are able to leverage our buying power for the benefit of our
customers. In addition, given our continued focus on improving
the efficiency and effectiveness of our maintenance services, we
can provide our customers with a cost effective alternative to
maintaining their own fleet of vehicles. We also offer our
leasing customers the additional fleet support services
described below.
Contract Maintenance.
Our contract maintenance
customers include non-Ryder owned vehicles that want to utilize
our extensive network of maintenance facilities and trained
technicians to maintain the vehicles they own or lease from
third parties. The contract maintenance service offering is
designed to reduce vehicle downtime through preventive
maintenance based on vehicle type and time or mileage intervals.
The service also provides vehicle repairs including parts and
labor,
24-hour
emergency roadside service and replacement vehicles for vehicles
that are temporarily out of service. Vehicles covered under this
offering are typically serviced at our own facilities. However,
based on the size and complexity of a customer’s fleet, we
may operate an
on-site
maintenance facility at the customer’s location.
Commercial Rental.
We target rental customers
that have a need to supplement their private fleet of vehicles
on a short-term basis (typically from less than one month up to
one year in length) either because of
(3) Canada private
fleet as of November 2010,
Class 3-8,
Source: RL Polk
(4) Canada outsourced
fleet market as of November 2010,
Class 3-8,
Source: RL Polk
(5) U.K. Lease and
Rental HGV Market, Projection for December 2010, Source: The
Society of Motor Manufacturers & Traders (SMMT)
2009
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seasonal increases in their business or discrete projects that
require additional transportation resources. Our commercial
rental fleet also provides additional vehicles to our full
service lease customers to handle their peak or seasonal
business needs. In addition to one-off commercial rental
transactions, we build national relationships with large
national customers to become their preferred source of
commercial vehicle rentals. Our rental representatives assist in
selecting a vehicle that satisfies the customer’s needs and
supervise the rental process, which includes execution of a
rental agreement and a vehicle inspection. In addition to
vehicle rental, we extend to our rental customers liability
insurance coverage under our existing policies and the benefits
of our comprehensive fuel services program.
The following table provides information regarding the number of
vehicles and customers by FMS product offering at
December 31, 2010:
| U.S. | Foreign | Total | ||||||||||||||||||||||
| Vehicles | Customers | Vehicles | Customers | Vehicles | Customers | |||||||||||||||||||
|
Full service leasing
|
93,200 | 10,400 | 17,900 | 2,200 | 111,100 | 12,600 | ||||||||||||||||||
|
Contract
maintenance
(6)
|
29,100 | 1,200 | 4,300 | 200 | 33,400 | 1,400 | ||||||||||||||||||
|
Commercial rental
|
24,600 | 8,200 | 5,100 | 5,800 | 29,700 | 14,000 | ||||||||||||||||||
Contract-Related Maintenance.
Our full service
lease and contract maintenance customers periodically require
additional maintenance services that are not included in their
contracts. We obtain contract-related maintenance work because
of our contractual relationship with the customers; however, the
service provided is in addition to that included in their
contractual agreements. For example, additional maintenance
services may arise when a customer’s driver damages the
vehicle and these services are performed or managed by Ryder.
Some customers also periodically require maintenance work on
vehicles that are not covered by a long-term lease or
maintenance contract. Ryder may provide service on these
vehicles and charge the customer on an hourly basis for work
performed.
Fleet Support Services.
We have developed a
variety of fleet support services tailored to the needs of our
large base of lease customers. Customers may elect to include
these services as part of their full service lease or contract
maintenance agreements. Currently, we offer the following fleet
support services:
| Service | Description | |
|
Fuel
|
Full service diesel fuel dispensing at competitive prices; fuel planning; fuel tax reporting; centralized billing; and fuel cards | |
|
Insurance
|
Liability insurance coverage under our existing insurance policies which includes monthly invoicing, flexible deductibles, claims administration and discounts based on driver performance and vehicle specifications; physical damage waivers; gap insurance; and fleet risk assessment | |
|
Safety
|
Establishing safety standards; providing safety training, driver certification, prescreening and road tests; safety audits; instituting procedures for transport of hazardous materials; coordinating drug and alcohol testing; and loss prevention consulting | |
|
Administrative
|
Vehicle use and other tax reporting; permitting and licensing; and regulatory compliance (including hours of service administration) | |
|
Environmental management
|
Storage tank monitoring; storm water management; environmental training; and ISO 14001 certification | |
|
Information technology
|
RydeSmart tm is a full-featured GPS fleet location, tracking, and vehicle performance management system designed to provide our customers improved fleet operations and cost controls. FleetCARE is our web based tool that provides customers with 24/7 access to key operational and maintenance management information about their fleets. |
Used Vehicles.
We primarily sell our used
vehicles at one of our 55 retail sales centers throughout
North America (18 of which are collocated at an FMS shop),
at our branch locations or through our website at
(6) Contract
maintenance customers include approximately 800 full service
lease customers
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www.Usedtrucks.Ryder.com
. Typically, before we offer used
vehicles for sale, our technicians assure that it is
Road
Ready
tm
,
which means that the vehicle has passed a comprehensive,
multi-point performance inspection based on specifications
formulated through our contract maintenance program. Our retail
sales centers throughout North America allow us to leverage our
expertise and in turn realize higher sales proceeds than in the
wholesale market. Although we generally sell our used vehicles
for prices in excess of book value, the extent to which we are
able to realize a gain on the sale of used vehicles is dependent
upon various factors including the general state of the used
vehicle market, the age and condition of the vehicle at the time
of its disposal and depreciation rates with respect to the
vehicle.
FMS
Business Strategy
Our FMS business mission is to be the leading leasing and
maintenance service provider for light, medium and heavy duty
vehicles. This will be achieved through the following goals and
priorities:
| • | improve customer retention levels and focus on conversion of private fleets and commercial rental customers to full service lease customers; | |
| • | successfully implement sales growth initiatives in our contractual product offerings; | |
| • | focus on contractual revenue growth strategies, including selective acquisitions; | |
| • | deliver consistent industry leading maintenance to our customers while continuing to implement process designs, productivity improvements and compliance discipline in a cost effective manner; | |
| • | offer a wide range of support services that complement our leasing, rental and maintenance businesses; | |
| • | offer competitive pricing through cost management initiatives and maintain pricing discipline on new business; | |
| • | optimize asset utilization and management; and | |
| • | leverage our maintenance facility infrastructure. |
Competition
As an alternative to using our services, customers may choose to
provide these services for themselves, or may choose to obtain
similar or alternative services from other third-party vendors.
Our FMS business segment competes with companies providing
similar services on a national, regional and local level. Many
regional and local competitors provide services on a national
level through their participation in various cooperative
programs. Competitive factors include price, equipment,
maintenance, service and geographic coverage. We compete with
finance lessors and also with truck and trailer manufacturers,
and independent dealers, who provide full service lease
products, finance leases, extended warranty maintenance, rental
and other transportation services. Value-added differentiation
of the full service leasing, contract maintenance,
contract-related maintenance and commercial rental service has
been, and will continue to be, our emphasis.
Acquisitions
In addition to our continued focus on organic growth,
acquisitions play an important role in enhancing our growth
strategy in the U.S., Canada and the U.K. In assessing potential
acquisition targets, we look for companies that would create
value through the creation of operating synergies, leveraging
our existing facility infrastructure and fixed costs, improving
our geographic coverage, diversifying our customer base and
improving our competitive position in target markets.
We completed four FMS acquisitions from 2008 to 2009, under
which we acquired a company’s fleet and contractual
customers. The FMS acquisitions operate under Ryder’s name
and complement our existing market coverage and service network.
On January 10, 2011 we acquired the assets of Carmenita
Leasing, Inc., full
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service leasing and rental business located in Santa Fe
Springs, California, which included a fleet of approximately 190
full service lease and rental units, and 60 contract customers.
On January 28, 2011, we acquired The Scully Companies, Inc.
(“Scully”), which includes Scully’s fleet of
approximately 1,800 full service lease units and 300 rental
vehicles, and approximately 200 contractual customers primarily
served from its six service facilities.
Supply Chain Solutions
Value
Proposition
Through our SCS business, we offer a broad range of innovative
logistics management services that are designed to optimize a
customer’s supply chain and address key customer business
requirements. The organization is aligned by industry verticals
(Automotive, Industrial, Hi-Tech, Retail and Consumer Packaged
Goods) to enable the teams to focus on the specific needs of
their customers. Our SCS product offerings are organized into
three categories: distribution management, transportation
management and professional services. These offerings are
supported by a variety of information technology and engineering
solutions which are an integral part of our other SCS services.
These product offerings can be offered independently or as an
integrated solution to optimize supply chain effectiveness. A
key aspect of our value proposition is our operational
execution. We believe our operational execution is an important
differentiator in the marketplace.
Market
Trends
Global logistics is approximately $7 trillion, of which
approximately $500 billion is outsourced. Logistics
spending in our primary markets of North America and Asia
equates to approximately $3 trillion, of which $260 billion
is outsourced. Over the long-term, companies tend to outsource
more of their logistics. As companies continue to focus on their
core competencies, they find value in utilizing third party
logistics (3PLs) to manage their supply chains. In 2010, the
North American outsourced logistics market grew approximately
10%. We expect 2011 to be another year of outsourced logistics
growth.
Operations
For the year ended December 31, 2010, our SCS business
accounted for 24% of our consolidated revenue.
U.S.
At December 31, 2010, we had 106 SCS
customer accounts in the U.S., most of which are large
enterprises that maintain large, complex supply chains. In
addition, the Total Logistic Control acquisition added
168 SCS customer accounts, which included 131 public
warehousing customers. These customers operate in a variety of
industries including automotive, electronics, high-tech,
telecommunications, industrial, consumer goods, consumer
packaged goods, paper and paper products, office equipment, food
and beverage, and general retail industries. We continue to
further diversify our customer base by expanding into new
industry verticals, most recently retail and consumer packaged
goods. Most of our core SCS business operations in the
U.S. revolve around our customers’ supply chains and
are geographically located to maximize efficiencies and reduce
costs. At December 31, 2010, managed warehouse space
totaled approximately 14 million square feet for the
U.S. and Puerto Rico. Along with those core customer
specific locations, we also concentrate certain logistics
expertise in locations not associated with specific customer
sites. For example, our carrier procurement, contract management
and freight bill audit and payment services groups operate out
of our carrier management center, and our transportation
optimization and execution groups operate out of our logistics
center, both of which have locations in Novi, Michigan and
Fort Worth, Texas.
Canada.
At December 31, 2010, we had 50
SCS customer accounts and managed warehouse space totaling
approximately 1 million square feet. Given the proximity of
this market to our U.S. and Mexico operations, the Canadian
operations are highly coordinated with their U.S. and
Mexico counterparts, managing cross-border transportation and
freight movements.
Mexico.
We began operating in Mexico in the
mid-1990s. At December 31, 2010, we operated and maintained
789 vehicles in Mexico. At December 31, 2010, we had 116
SCS customer accounts and managed
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warehouse space totaling approximately 3 million square
feet. Our Mexican operations offer a full range of SCS services
and manage approximately 1,400 border crossings each month
between Mexico and the U.S. and Canada, often highly
integrated with our distribution and transportation operations.
Asia.
We began operating in Asia in 2000. At
December 31, 2010, we had 32 SCS customer accounts and
managed warehouse space totaling approximately
320,000 square feet. Asia is a key component to our retail
strategy. With the 2008 acquisition of CRSA Logistics and
Transpacific Container Terminals, we were able to gain
significant presence in Asia. We now have a network of owned and
agent offices throughout Asia, with headquarters in Shanghai. We
also entered into a joint venture with a partner in Asia to
provide export consolidation services to North American
retailers and other companies importing from Asia.
SCS
Product Offerings
Dedicated Contract Carriage.
Although offered
as a stand-alone service, dedicated contract carriage can also
be offered as part of an integrated supply chain solution to our
customers. The DCC offerings combine the equipment, maintenance
and administrative services of a full service lease with drivers
and additional services. This combination provides a customer
with a dedicated transportation solution that is designed to
increase their competitive position, improve risk management and
integrate their transportation needs with their overall supply
chain. Our DCC solution offers a high degree of specialization
to meet the needs of customers with sophisticated service
requirements such as tight delivery windows, high-value or
time-sensitive freight, closed-loop distribution, multi-stop
shipments, specialized equipment or integrated transportation
needs. For the year ended December 31, 2010, approximately
44% of our SCS revenue was related to dedicated contract
carriage services.
Transportation Management.
Our SCS business
offers services relating to all aspects of a customer’s
transportation network. Our team of transportation specialists
provides shipment planning and execution, which includes
shipment optimization, load scheduling and delivery confirmation
through a series of technological and web-based solutions. Our
transportation consultants, including our freight brokerage
department, focus on carrier procurement of all modes of
transportation with an emphasis on truck-based transportation,
rate negotiation and freight bill audit and payment services. In
addition, our SCS business provides customers as well as our FMS
and DCC businesses with capacity management services that are
designed to meet backhaul opportunities and minimize excess
miles. For the year ended December 31, 2010, we purchased
and/or
executed over $3.7 billion in freight moves on our
customers behalf. For the year ended December 31, 2010,
transportation management solutions accounted for 13% of our SCS
revenue.
Distribution Management.
Our SCS business
offers a wide range of services relating to a customer’s
distribution operations from designing a customer’s
distribution network to managing distribution facilities.
Services within the facilities generally include managing the
flow of goods from the receiving function to the shipping
function, coordinating warehousing and transportation for
inbound and outbound material flows, handling import and export
for international shipments, coordinating
just-in-time
replenishment of component parts to manufacturing and final
assembly and providing shipments to customer distribution
centers or end-customer delivery points. Additional value-added
services such as light assembly of components into defined units
(kitting), packaging and refurbishment are also provided. For
the year ended December 31, 2010, distribution management
solutions accounted for 38% of our SCS revenue.
Professional Services.
Our SCS business offers
a variety of knowledge-based services that support every aspect
of a customer’s supply chain. Our SCS professionals are
available to evaluate a customer’s existing supply chain to
identify inefficiencies, as well as opportunities for
integration and improvement. Once the assessment is complete, we
work with the customer to develop a supply chain strategy that
will create the most value for the customer and their target
clients. Once a customer has adopted a supply chain strategy,
our SCS logistics team, supported by functional experts, and
representatives from our information technology, real estate and
finance groups work together to design a strategically focused
supply chain solution. The solution may include both a network
design that sets forth the number, location and function of key
components of the network and a transportation solution that
optimizes the mode or modes of transportation and route
selection. In addition to providing the distribution and
transportation expertise necessary to implement the supply chain
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solution, our SCS representatives can coordinate and manage all
aspects of the customer’s supply chain provider network to
assure consistency, efficiency and flexibility. For the year
ended December 31, 2010, knowledge-based professional
services accounted for 5% of our SCS revenue.
SCS
Business Strategy
Our SCS business strategy is to offer our customers
differentiated functional execution, and proactive solutions
from deep expertise in key industry verticals. The strategy
revolves around the following interrelated goals and priorities:
| • | Further diversifying our customer base through expansion with key industry verticals; | |
| • | Developing services specific to the needs of the retail and consumer packaged goods industry; | |
| • | Providing customers with a differentiated quality of service through reliable and flexible supply chain solutions; | |
| • | Creating a culture of innovation that fosters new solutions for our customers’ supply chain needs; | |
| • | Focusing on continuous improvement and standardization; and | |
| • | Training and developing employees to share best practices and improve talent. |
Competition
In the SCS business segment, we compete with a large number of
companies providing similar services, each of which has a
different set of core competencies. We compete with a handful of
large, multi-service companies across all of our service
offerings and industries. We also compete against other
companies only on a specific service offering (for example, in
transportation management or distribution management) or in a
specific industry. We face different competitors in each country
or region where they may have a greater operational presence.
Competitive factors include price, service, market knowledge,
expertise in logistics-related technology, and overall
performance (e.g. timeliness, accuracy, and flexibility).
Acquisitions
On December 31, 2010, we completed the acquisition of Total
Logistic Control (TLC). TLC is a leading provider of
comprehensive supply chain solutions to food, beverage, and
consumer packaged goods manufacturers with significant supply
chains in the U.S. TLC provides clients a broad suite of
end-to-end
services, including distribution management, contract packaging
services and solutions engineering. TLC’s clients consist
of local, regional, national, and international firms engaged in
food and beverage manufacturing, consumer and wholesale
distribution. TLC operates 34 facilities comprising
10.6 million square feet of dry and temperature-controlled
warehousing across 13 states.
TLC compliments our strategic initiative to develop a new
industry group focused on the consumer packaged goods industry.
TLC’s leading capabilities in the areas of packaging and
warehousing, including temperature-controlled facilities, will
continue to be at the center of our consumer packaged goods
offering.
Dedicated Contract Carriage
Value
Proposition
Through our DCC business segment, we combine the equipment,
maintenance and administrative services of a full service lease
with drivers and additional services to provide a customer with
a dedicated transportation solution that is designed to increase
their competitive position, improve risk management and
integrate their transportation needs with their overall supply
chain. Such additional services include routing and scheduling,
fleet sizing, safety, regulatory compliance, risk management,
technology and communication systems support including on-board
computers, and other technical support. These additional
services allow us to address, on behalf of our customers, high
service levels, efficient routing and the labor issues
associated
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with maintaining a private fleet of vehicles, such as driver
turnover, government regulation, including hours of service
regulations, DOT audits and workers’ compensation. Our DCC
solution offers a high degree of specialization to meet the
needs of customers with sophisticated service requirements such
as tight delivery windows, high-value or time-sensitive freight,
closed-loop distribution, multi-stop shipments, specialized
equipment or integrated transportation needs.
Market
Trends
The U.S. dedicated contract carriage market is estimated to
be $13 billion. This market is affected by many of the
trends that impact our FMS business, including the tightening of
capacity in the current U.S. trucking market. The administrative
requirements relating to regulations issued by the Department of
Transportation (DOT) regarding driver screening, training and
testing, as well as record keeping and other costs associated
with the hours of service requirements, make our DCC product an
attractive alternative to private fleet and driver management.
This is expected to become even more significant in light of
Compliance, Safety, Accountability (CSA) 2010 regulatory
changes. The CSA 2010 regulatory changes will also put pressure
on the availability of qualified truck drivers which continues
to lag market requirements. In addition, market demand for
just-in-time
delivery creates a need for well-defined routing and scheduling
plans that are based on comprehensive asset utilization analysis
and fleet rationalization studies that are offered as part of
our DCC product.
Operations/Product
Offerings
For the year ended December 31, 2010, our DCC business
accounted for 10% of our consolidated revenue. At
December 31, 2010, we had 154 DCC customer accounts in the
U.S. Because it is highly customized, our DCC product is
particularly attractive to companies that operate in industries
that have time-sensitive deliveries or special handling
requirements, as well as to companies who require specialized
equipment. Because DCC accounts typically operate in a limited
geographic area, most of the drivers assigned to these accounts
are short haul drivers, meaning they return home at the end of
each work day. Although a significant portion of our DCC
operations are located at customer facilities, our DCC business
utilizes and benefits from our extensive network of FMS
facilities.
In order to customize an appropriate DCC transportation solution
for our customers, our DCC logistics specialists perform a
transportation analysis using advanced logistics planning and
operating tools. Based on this analysis, they formulate a
logistics design that includes the routing and scheduling of
vehicles, the efficient use of vehicle capacity and overall
asset utilization. The goal of the plan is to create a
distribution system that optimizes freight flow while meeting a
customer’s service goals. A team of DCC transportation
specialists can then implement the plan by leveraging the
resources, expertise and technological capabilities of both our
FMS and SCS businesses.
To the extent a distribution plan includes multiple modes of
transportation (air, rail, sea and highway), our DCC team, in
conjunction with our SCS transportation specialists, selects
appropriate transportation modes and carriers, places the
freight, monitors carrier performance and audits billing. In
addition, through our SCS business, we can reduce costs and add
value to a customer’s distribution system by aggregating
orders into loads, looking for shipment consolidation
opportunities and organizing loads for vehicles that are
returning from their destination point back to their point of
origin (backhaul).
DCC
Business Strategy
Our DCC business strategy is to focus on customers who need
specialized equipment, specialized handling or integrated
services. This strategy revolves around the following
interrelated goals and priorities:
| • | Increase market share with customers in the energy and utility, metals and mining, retail, construction, healthcare products, and food and beverage industries; | |
| • | Leverage the support and talent of the FMS sales team in a joint sales program; |
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| • | Align DCC business with other SCS product lines to create revenue opportunities and improve operating efficiencies in both segments; and | |
| • | Improve competitiveness in the non-specialized and non-integrated customer segments. |
Competition
Our DCC business segment competes with truckload carriers and
other dedicated providers servicing on a national, regional and
local level. Competitive factors include price, equipment,
maintenance, service and geographic coverage and driver and
operations expertise. We are able to differentiate the DCC
product offering by leveraging FMS and integrating the DCC
services with those of SCS to create a more comprehensive
transportation solution for our customers. Our strong safety
record and focus on customer service enable us to uniquely meet
the needs of customers with high-value products that require
specialized handling in a manner that differentiates us from
truckload carriers.
ADMINISTRATION
Our financial administrative functions for the U.S. and
Canada, including credit, billing and collections are
consolidated into our Shared Services Center operations, a
centralized processing center located in Alpharetta, Georgia.
Our Shared Services Center also manages contracted third parties
providing administrative finance and support services outside of
the U.S. in order to reduce ongoing operating expenses and
maximize our technology resources. This centralization results
in more efficient and consistent centralized processing of
selected administrative operations. Certain administrative
functions are also performed at the Shared Services Center for
our customers. The Shared Services Center’s main objectives
are to reduce ongoing annual administrative costs, enhance
customer service through process standardization, create an
organizational structure that will improve market flexibility
and allow future reengineering efforts to be more easily
attained at lower implementation costs.
REGULATION
Our business is subject to regulation by various federal, state
and foreign governmental entities. The Department of
Transportation and various federal and state agencies exercise
broad powers over certain aspects of our business, generally
governing such activities as authorization to engage in motor
carrier operations, safety and financial reporting. We are also
subject to a variety of requirements of national, state,
provincial and local governments, including the
U.S. Environmental Protection Agency and the Occupational
Safety and Health Administration, that regulate safety, the
management of hazardous materials, water discharges and air
emissions, solid waste disposal and the release and cleanup of
regulated substances. We may also be subject to licensing and
other requirements imposed by the U.S. Department of
Homeland Security and U.S. Customs Service as a result of
increased focus on homeland security and our Customs-Trade
Partnership Against Terrorism certification. We may also become
subject to new or more restrictive regulations imposed by these
agencies, or other authorities relating to carbon controls and
reporting, engine exhaust emissions, drivers’ hours of
service, security and ergonomics.
The Environmental Protection Agency has issued regulations that
require progressive reductions in exhaust emissions from certain
diesel engines from 2007 through 2010. Emissions standards
require reductions in the sulfur content of diesel fuel since
June 2006. Also, the first phase of progressively stringent
emissions standards relating to emissions after-treatment
devices was introduced on newly-manufactured engines and
vehicles utilizing engines built after January 1, 2007. The
second phase, which required an additional after treatment
system, became effective January 1, 2010.
ENVIRONMENTAL
We have always been committed to sound environmental practices
that reduce risk and build value for us and our customers. We
have a history of adopting “green” designs and
processes because they are efficient, cost effective
transportation solutions that improve our bottom line and bring
value to our customers. We adopted our first worldwide
Environmental Policy mission in 1991 and have updated it
periodically as
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regulatory and customer needs have changed. Our environmental
policy reflects our commitment to supporting the goals of
sustainable development, environmental protection and pollution
prevention in our business. We have adopted pro-active
environmental strategies that have advanced business growth and
continued to improve our performance in ways that reduce
emission outputs and environmental impact. Our environmental
team works with our staff and operating employees to develop and
administer programs in support of our environmental policy and
to help ensure that environmental considerations are integrated
into all business processes and decisions.
In establishing appropriate environmental objectives and targets
for our wide range of business activities around the world, we
focus on (i) the needs of our customers; (ii) the
communities in which we provide services; and
(iii) relevant laws and regulations. We regularly review
and update our environmental management procedures, and
information regarding our environmental activities is routinely
disseminated throughout Ryder. We published our first Corporate
Responsibility Report (CSR) in 2008 which details our
sustainable business practices and environmental strategies to
improve energy use, fuel costs and reduce overall carbon
emissions. Currently there is no global carbon disclosure
requirement for reporting emissions. However, for the past three
years, we have participated in the Carbon Disclosure Project
(CDP), voluntarily disclosing direct and indirect emissions
resulting from our operations. Both of these reports are
publicly available on Ryder’s Green Center at
http://www.Ryder.com/greencenter.
The Green Center provides all stakeholders information on our
key environmental programs and initiatives.
SAFETY
Our safety culture is founded upon a core commitment to the
safety, health and well-being of our employees, customers, and
the community, a commitment that made us an industry leader in
safety throughout our history.
Safety is an integral part of our business strategy because
preventing injury improves employee quality of life, eliminates
service disruptions to our customers, increases efficiency and
customer satisfaction. As a core value, our focus on safety is a
daily regimen, reinforced by many safety programs and continuous
operational improvement and supported by a talented and
dedicated safety organization.
Training is a critical component of our safety program. Monthly
safety training topics delivered by location safety committees
cover specific and relevant safety topics and managers receive
annual safety leadership training. Regular safety behavioral
observations are conducted by managers throughout the
organization everyday and remedial training takes place
on-the-spot
and at every location with a reported injury. We also deliver
comprehensive suite of highly interactive training lessons
through Ryder Pro-TREAD to each driver individually over the
internet.
Our safety policies require that all managers, supervisors and
employees incorporate processes in all aspects of our business.
Monthly safety scorecards are tracked and reviewed by management
for progress toward key safety objectives. Our proprietary
web-based safety tracking system, RyderStar, delivers proactive
safety programs tailored to every location and helps measure
safety activity effectiveness.
EMPLOYEES
At December 31, 2010, we had approximately
25,900 full-time employees worldwide, of which 24,600 were
employed in North America, 1,000 in Europe and 300 in Asia. We
have approximately 13,800 hourly employees in the U.S.,
approximately 2,900 of which are organized by labor unions.
Those employees organized by labor unions are principally
represented by the International Brotherhood of Teamsters, the
International Association of Machinists and Aerospace Workers,
and the United Auto Workers, and their wages and benefits are
governed by 99 labor agreements that are renegotiated
periodically. Some of the businesses in which we currently
engage have experienced a material work stoppage, slowdown or
strike. We consider that our relationship with our employees is
good.
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EXECUTIVE
OFFICERS OF THE REGISTRANT
All of the executive officers of Ryder were elected or
re-elected to their present offices either at or subsequent to
the meeting of the Board of Directors held on May 14, 2010
in conjunction with Ryder’s 2010 Annual Meeting. They all
hold such offices, at the discretion of the Board of Directors,
until their removal, replacement or retirement.
| Name | Age | Position | ||||
|
Gregory T. Swienton
|
61 | Chairman of the Board and Chief Executive Officer | ||||
|
Art A. Garcia
|
49 | Executive Vice President and Chief Financial Officer | ||||
|
Robert D. Fatovic
|
45 | Executive Vice President, Chief Legal Officer and Corporate Secretary | ||||
|
Cristina A. Gallo-Aquino
|
37 | Vice President and Controller | ||||
|
Gregory F. Greene
|
51 | Executive Vice President and Chief Administrative Officer | ||||
|
Robert E. Sanchez
|
45 | President, Global Fleet Management Solutions | ||||
|
John H. Williford
|
54 | President, Global Supply Chain Solutions | ||||
Gregory T. Swienton has been Chairman since May 2002 and Chief
Executive Officer since November 2000. He also served as
President from June 1999 to June 2005. Before joining Ryder,
Mr. Swienton was Senior Vice President of Growth
Initiatives of Burlington Northern Santa Fe Corporation
(BNSF) and before that Mr. Swienton was BNSF’s Senior
Vice President, Coal and Agricultural Commodities Business Unit.
Art A. Garcia has served as Executive Vice President and Chief
Financial Officer since September 2010. Previously,
Mr. Garcia served as Senior Vice President and Controller
since October 2005 and as Vice President and Controller since
February 2002. Mr. Garcia joined Ryder in December 1997 and
has held various positions within Corporate Accounting.
Robert D. Fatovic has served as Executive Vice President,
General Counsel and Corporate Secretary since May 2004. He
previously served as Senior Vice President, U.S. Supply
Chain Operations, High-Tech and Consumer Industries from
December 2002 to May 2004. Mr. Fatovic joined Ryder’s
Law department in 1994 as Assistant Division Counsel and
has held various positions within the Law department including
Vice President and Deputy General Counsel.
Cristina A. Gallo-Aquino has served as Vice President and
Controller since September 2010. Previously,
Ms. Gallo-Aquino served as Assistant Controller from
November 2009 to September 2010, where she was responsible for
Ryder’s Corporate Accounting, Benefits Accounting and
Payroll Accounting departments. Ms. Gallo-Aquino joined
Ryder in 2004 and has held various positions within Corporate
Accounting.
Gregory F. Greene has served as Executive Vice President since
December 2006, as Chief Human Resources Officer since February
2006 and as Chief Administrative Officer since September 2010.
Previously, Mr. Greene served as Senior Vice President,
Strategic Planning and Development from April 2003.
Mr. Greene joined Ryder in August 1993 and has since held
various positions within Human Resources.
Robert E. Sanchez has served as President, Global Fleet
Management Solutions since September 2010. Previously,
Mr. Sanchez has served as Executive Vice President and
Chief Financial Officer since October 2007. He also previously
served as Executive Vice President of Operations,
U.S. Fleet Management Solutions from October 2005 to
October 2007 and as Senior Vice President and Chief Information
Officer from January 2003 to October 2005. Mr. Sanchez
joined Ryder in 1993 and has held various positions.
John H. Williford has served as President, Global Supply Chain
Solutions since June 2008. Prior to joining Ryder,
Mr. Williford founded and served as President and Chief
Executive Officer of Golden Gate Logistics LLC from 2006 to June
2008. From 2002 to 2005, he served as President and Chief
Executive Officer of Menlo Worldwide, Inc., the supply chain
business of CNF, Inc. From 2005 to 2006, Mr. Williford was
engaged as an advisor to Menlo Worldwide subsequent to the sale
of Menlo Forwarding to United Parcel Service.
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FURTHER
INFORMATION
For further discussion concerning our business, see the
information included in Items 7 and 8 of this report.
Industry and market data used throughout Item 1 was
obtained through a compilation of surveys and studies conducted
by industry sources, consultants and analysts.
We make available free of charge through the Investor Relations
page on our website at www.ryder.com our Annual Report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission.
In addition, our Corporate Governance Guidelines, Principles of
Business Conduct (including our Finance Code of Conduct), and
Board committee charters are posted on the Corporate Governance
page of our website at www.ryder.com.
ITEM 1A.
RISK FACTORS
In addition to the factors discussed elsewhere in this report,
the following are some of the important factors that could
affect our business.
Our
operating and financial results may fluctuate due to a number of
factors, many of which are beyond our control.
Our annual and quarterly operating and financial results are
affected by a number of economic, regulatory and competitive
factors, including:
| • | changes in current financial, tax or regulatory requirements that could negatively impact the leasing market; | |
| • | our inability to obtain expected customer retention levels or sales growth targets; | |
| • | our inability to integrate acquisitions as projected, achieve planned synergies or retain customers of companies we acquire; | |
| • | unanticipated interest rate and currency exchange rate fluctuations; | |
| • | labor strikes, work stoppages, driver shortages; | |
| • | higher costs to procure drivers and high driver turnover rates affecting our customers; | |
| • | sudden changes in fuel prices and fuel shortages; | |
| • | relationships with and competition from vehicle manufacturers; | |
| • | changes in accounting rules, estimates, assumptions and accruals, including changes in lease accounting that could impact customers’ leasing decisions; | |
| • | increases in healthcare costs resulting in higher insurance costs; | |
| • | outages, system failures or delays in timely access to data in legacy information technology systems that support key business processes; and | |
| • | reputational risk and other detrimental business consequences in the U.S. and internationally associated with employees, customers, agents, suppliers or other persons using our supply chain or assets to commit illegal acts, including the use of company assets for terrorist activities. |
Changes
in economic conditions could have an adverse effect on the
profitability of our business.
A decline in economic activity can adversely affect demand for
any of our businesses, thus reducing our revenue and earnings.
The freight recession caused our revenues to decline as FMS
customers ran fewer miles with their fleets and SCS customers
had lower freight volumes. The most recent decline in economic
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conditions has caused some of our full service lease customers
to downsize their existing fleets and/or extend instead of renew
their leases. Our profitability has been impacted by higher
maintenance costs on an aging fleet. Our customers remain
cautious about entering into long-term leases. Challenging
economic and market conditions may also result in:
| • | increased competition for fewer projects and sales opportunities; | |
| • | pricing pressure that may adversely affect revenue and gross margin; | |
| • | customer financial difficulty and increased risk of uncollectible accounts receivable; | |
| • | diminished liquidity and credit availability resulting in higher short-term borrowing costs and more stringent borrowing terms; | |
| • | difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective customers; | |
| • | fleet downsizing to match demand which could adversely impact profitability; | |
| • | higher overhead costs as a percentage of revenue; | |
| • | increased risk of charges relating to asset impairments, including goodwill and other intangible assets; and | |
| • | increased risk of declines in the residual values of our vehicles. |
In 2010, we began to see signs of a slow, uneven economic
recovery. Our commercial rental and used vehicle sales
performance improved significantly from the prior year and we
saw an increase in the miles run per vehicle. However, we are
uncertain whether the recent improvements in miles run and
demand for commercial rental will continue and whether we will
be able to maintain our current commercial rental rates, which
increased this year due to customer demand. Uncertainty and lack
of customer confidence around macroeconomic and industry
conditions may continue to impact the spending and financial
position of our customers.
We bear
the residual risk on the value of our vehicles.
We generally bear the residual risk on the value of our
vehicles. Therefore, if the market for used vehicles declines,
or our vehicles are not properly maintained, we may obtain lower
sales proceeds upon the sale of used vehicles. Changes in
residual values also impact the overall competitiveness of our
full service lease product line, as estimated sales proceeds are
a critical component of the overall price of the product.
Additionally, technology changes and sudden changes in supply
and demand together with other market factors beyond our control
vary from year to year and from vehicle to vehicle, making it
difficult to accurately predict residual values used in
calculating our depreciation expense. Although we have developed
disciplines related to the management and maintenance of our
vehicles that are designed to prevent these losses, there is no
assurance that these practices will sufficiently reduce the
residual risk. For a detailed discussion on our accounting
policies and assumptions relating to depreciation and residual
values, please see the section titled “Critical Accounting
Estimates — Depreciation and Residual Value
Guarantees” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Our
profitability could be adversely impacted by our inability to
maintain appropriate commercial rental utilization rates through
our asset management initiatives.
We typically do not purchase vehicles for our full service lease
product line until we have an executed contract with a customer.
In our commercial rental product line, however, we do not
purchase vehicles against specific customer contracts. Rather,
we purchase vehicles and optimize the size and mix of the
commercial rental fleet based upon our expectations of overall
market demand. As a result, we bear the risk for ensuring that
we have the proper vehicles in the right condition and location
to effectively capitalize on market demand in order to drive the
highest levels of utilization and revenue per unit. We employ a
sales force and operations
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team on a full-time basis to manage and optimize this product
line; however, their efforts may not be sufficient to overcome a
significant change in market demand in the rental business or
used vehicle market.
We derive
a significant portion of our SCS revenue from a relatively small
number of customers.
During 2010, sales to our top ten SCS customers representing all
of the industry groups we service, accounted for 65% of our SCS
total revenue and 64% of our SCS operating revenue (revenue less
subcontracted transportation). Additionally, approximately 43%
of our global SCS revenue is from the automotive industry and is
directly impacted by automotive vehicle production. The loss of
any of these customers or a significant reduction in the
services provided to any of these customers could impact our
domestic and international operations and adversely affect our
SCS financial results. In addition, our largest SCS customers
can exert downward pricing pressure and often require
modifications to our standard commercial terms. While we believe
our ongoing cost reduction initiatives have helped mitigate the
effect of price reduction pressures from our SCS customers,
there is no assurance that we will be able to maintain or
improve profitability in those accounts. In 2010, we further
diversified our customer base with the acquisition of TLC, which
is concentrated in the consumer packaged goods industry. While
we continue to focus our efforts on diversifying our customer
base we may not be successful in doing so in the short-term.
Our
profitability could be negatively impacted if the key
assumptions and pricing structure of our SCS contracts prove to
be invalid.
Substantially all of our SCS services are provided under
contractual arrangements with our customers. Under most of these
contracts, all or a portion of our pricing is based on certain
assumptions regarding the scope of services, production volumes,
operational efficiencies, the mix of fixed versus variable
costs, productivity and other factors. If, as a result of
subsequent changes in our customers’ business needs or
operations or market forces that are outside of our control,
these assumptions prove to be invalid, we could have lower
margins than anticipated. Although certain of our contracts
provide for renegotiation upon a material change, there is no
assurance that we will be successful in obtaining the necessary
price adjustments.
We
operate in a highly competitive industry and our business may
suffer if we are unable to adequately address potential downward
pricing pressures and other competitive factors.
Numerous competitive factors could impair our ability to
maintain our current profitability. These factors include the
following:
| • | advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments; | |
| • | we compete with many other transportation and logistics service providers, some of which have greater capital resources than we do; | |
| • | some of our competitors periodically reduce their prices to gain business, which may limit our ability to maintain or increase prices; and | |
| • | because cost of capital is a significant competitive factor, any increase in either our debt or equity cost of capital as a result of reductions in our debt rating or stock price volatility could have a significant impact on our competitive position. |
We
operate in a highly regulated industry, and costs of compliance
with, or liability for violation of, existing or future
regulations could significantly increase our costs of doing
business.
Our business is subject to regulation by various federal, state
and foreign governmental entities. Specifically, the
U.S. Department of Transportation and various state and
federal agencies exercise broad powers over our motor carrier
operations, safety, and the generation, handling, storage,
treatment and disposal of waste materials. We may also become
subject to new or more restrictive regulations imposed by the
Department of Transportation, the Occupational Safety and Health
Administration, the Department of Homeland Security and
U.S. Customs Service, the Environmental Protection Agency
or other authorities,
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relating to the hours of service that our drivers may provide in
any one-time period, homeland security, carbon emissions and
reporting and other matters. Compliance with these regulations
could substantially impair labor and equipment productivity and
increase our costs. Recent changes in and ongoing development of
data privacy laws may result in increased exposure relating to
our data security costs in order to comply with new standards.
With respect to our international operations, we are subject to
compliance with local laws and regulatory requirements in
foreign jurisdictions, including local tax laws, and compliance
with the Federal Corrupt Practices Act. Adherence to rigorous
local laws and regulatory requirements may limit our ability to
expand into certain international markets and result in residual
liability for legal claims and tax disputes arising out of
previously discontinued operations.
Regulations governing exhaust emissions that have been enacted
over the last few years could adversely impact our business. The
Environmental Protection Agency issued regulations that required
progressive reductions in exhaust emissions from certain diesel
engines from 2007 through 2010. Emissions standards require
reductions in the sulfur content of diesel fuel since June 2006.
Also, the first phase of progressively stringent emissions
standards relating to emissions after-treatment devices was
introduced on newly-manufactured engines and vehicles utilizing
engines built after January 1, 2007. The second phase,
which required an additional after-treatment system, became
effective after January 1, 2010. Each of these requirements
could result in higher prices for vehicles, diesel engines and
fuel, which are passed on to our customers, as well as higher
maintenance costs and uncertainty as to reliability of the new
engines, all of which could, over time, increase our costs and
adversely affect our business and results of operations. The new
technology may also impact the residual values of these vehicles
when sold in the future.
Volatility
in assumptions and asset values related to our pension plans may
reduce our profitability and adversely impact current funding
levels.
We historically sponsored a number of defined benefit plans for
employees in the U.S., U.K. and other foreign locations. In
recent years, we made amendments to defined benefit plans which
freeze the retirement benefits for non-grandfathered and certain
non-union employees. Our major defined benefit plans are funded,
with trust assets invested in a diversified portfolio. The cash
contributions made to our defined benefit plans are required to
comply with minimum funding requirements imposed by employee
benefit and tax laws. The projected benefit obligation and
assets of our global defined benefit plans as of
December 31, 2010 were $1.74 billion and
$1.43 billion, respectively. The difference between plan
obligations and assets, or the funded status of the plans, is a
significant factor in determining pension expense and the
ongoing funding requirements of those plans. Macroeconomic
factors, as well as changes in investment returns and discount
rates used to calculate pension expense and related assets and
liabilities can be volatile and may have an unfavorable impact
on our costs and funding requirements. We also participate in
twelve U.S. multi-employer pension (MEP) plans that provide
defined benefits to employees covered by collective bargaining
agreements. In the event that we withdraw from participation in
one of these plans, then applicable law could require us to make
an additional lump-sum contribution to the plan. Our withdrawal
liability for any MEP plan would depend on the extent of the
plan’s funding of vested benefits. Economic conditions have
caused MEP plans to be significantly underfunded. If the
financial condition of the MEP plans were to continue to
deteriorate, participating employers could be subject to
additional assessments. Although we have actively sought to
control increases in these costs and funding requirements, there
can be no assurance that we will succeed, and continued cost
pressure could reduce the profitability of our business and
negatively impact our cash flows.
We
establish self-insurance reserves based on historical loss
development factors, which could lead to adjustments in the
future based on actual development experience.
We retain a portion of the accident risk under vehicle liability
and workers’ compensation insurance programs. Our
self-insurance accruals are based on actuarially estimated,
undiscounted cost of claims, which includes claims incurred but
not reported. While we believe that our estimation processes are
well designed, every estimation process is inherently subject to
limitations. Fluctuations in the frequency or severity of
accidents make it difficult to precisely predict the ultimate
cost of claims. The actual cost of claims can be
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different than the historical selected loss development factors
because of safety performance, payment patterns and settlement
patterns. For a detailed discussion on our accounting policies
and assumptions relating to our self-insurance reserves, please
see the section titled “Critical Accounting
Estimates — Self-Insurance Accruals” in
Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
We may
face difficulties in attracting and retaining drivers.
We hire drivers primarily for our DCC and SCS business segments.
There is significant competition for qualified drivers in the
transportation industry. As a result of driver shortages, we
could be required to increase driver compensation, let trucks
sit idle, utilize lower quality drivers or face difficulty
meeting customer demands, all of which could adversely affect
our growth and profitability.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our properties consist primarily of vehicle maintenance and
repair facilities, warehouses and other real estate and
improvements.
We maintain 624 FMS properties in the U.S., Puerto Rico and
Canada; we own 394 of these and lease the remaining 230. Our FMS
properties are primarily comprised of maintenance facilities
generally including a repair shop, rental counter, fuel service
island administrative offices, and used vehicle retail sales
centers.
Additionally, we manage 182
on-site
maintenance facilities, located at customer locations.
We also maintain 125 locations in the U.S. and Canada in
connection with our domestic SCS and DCC businesses. Almost all
of our SCS locations are leased and generally include a
warehouse and administrative offices.
We maintain 88 international locations (locations outside of the
U.S. and Canada) for our international businesses. These
locations are in the U.K., Luxembourg, Germany, Mexico, China
and Singapore. The majority of these locations are leased and
may be a repair shop, warehouse or administrative office.
Additionally, we maintain 8 U.S. locations primarily used
for Central Support Services. These facilities are generally
administrative offices, of which we own one and lease the
remaining seven.
ITEM 3.
LEGAL PROCEEDINGS
We are involved in various claims, lawsuits and administrative
actions arising in the normal course of our businesses. Some
involve claims for substantial amounts of money
and/or
claims for punitive damages. While any proceeding or litigation
has an element of uncertainty, management believes that the
disposition of such matters, in the aggregate, will not have a
material impact on our consolidated financial condition or
liquidity.
16
Table of Contents
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Ryder
Common Stock Prices
|
Dividends per
|
||||||||||||
| Stock Price |
Common
|
|||||||||||
| High | Low | Share | ||||||||||
|
2010
|
||||||||||||
|
First quarter
|
$ | 42.08 | 31.86 | 0.25 | ||||||||
|
Second quarter
|
48.49 | 38.57 | 0.25 | |||||||||
|
Third quarter
|
44.78 | 37.00 | 0.27 | |||||||||
|
Fourth quarter
|
52.80 | 41.43 | 0.27 | |||||||||
|
2009
|
||||||||||||
|
First quarter
|
$ | 41.24 | 19.00 | 0.23 | ||||||||
|
Second quarter
|
32.89 | 23.47 | 0.23 | |||||||||
|
Third quarter
|
43.18 | 24.09 | 0.25 | |||||||||
|
Fourth quarter
|
46.58 | 35.91 | 0.25 | |||||||||
Our common shares are listed on the New York Stock Exchange
under the trading symbol “R.” At January 31,
2011, there were 9,192 common stockholders of record and our
stock price on the New York Stock Exchange was $48.08.
17
Table of Contents
Performance
Graph
The following graph compares the performance of our common stock
with the performance of the Standard & Poor’s 500
Composite Stock Index and the Dow Jones Transportation 20 Index
for a five year period by measuring the changes in common stock
prices from December 31, 2005 to December 31, 2010.
The stock performance graph assumes for comparison that the
value of the Company’s Common Stock and of each index was
$100 on December 31, 2005 and that all dividends were
reinvested. Past performance is not necessarily an indicator of
future results.
18
Table of Contents
Purchases
of Equity Securities
The following table provides information with respect to
purchases we made of our common stock during the three months
ended December 31, 2010:
|
Approximate Dollar
|
||||||||||||||||||||
|
Total Number of
|
Maximum Number
|
Value That May
|
||||||||||||||||||
|
Shares Purchased as
|
of Shares That May
|
Yet Be Purchased
|
||||||||||||||||||
|
Total Number
|
Average Price
|
Part of Publicly
|
Yet Be Purchased
|
Under the
|
||||||||||||||||
|
of Shares
|
Paid per
|
Announced
|
Under the Anti-Dilutive
|
Discretionary
|
||||||||||||||||
| Purchased (1) | Share | Program | Program (2) | Program (3) | ||||||||||||||||
|
October 1 through October 31, 2010
|
108,800 | $ | 44.00 | 105,000 | 1,583,239 | $ | 20,263,949 | |||||||||||||
|
November 1 through November 30, 2010
|
552,244 | 43.97 | 549,444 | 1,438,795 | 2,423,909 | |||||||||||||||
|
December 1 through December 31, 2010
|
56,131 | 43.74 | 55,841 | 1,438,344 | — | |||||||||||||||
|
Total
|
717,175 | $ | 43.96 | 710,285 | ||||||||||||||||
| (1) | During the three months ended December 31, 2010, we purchased an aggregate of 6,890 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock delivered as payment for the exercise price of options exercised or to satisfy the option holders’ tax withholding liability associated with our share-based compensation programs and (ii) open-market purchases by the trustee of Ryder’s deferred compensation plans relating to investments by employees in our stock, one of the investment options available under the plans. |
| (2) | In December 2009, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock, stock option and stock purchase plans. Under the December 2009 program, management is authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued to employees under our various employee stock, stock option and stock purchase plans from December 1, 2009 through December 15, 2011. The December 2009 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish a prearranged written plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2009 program, which allows for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the three months ended December 31, 2010, we repurchased and retired 144,895 shares under this program at an aggregate cost of $6.4 million. |
| (3) | In February 2010, our Board of Directors authorized a $100 million discretionary share repurchase program over a period not to exceed two years. Share repurchases of common stock were made periodically in open-market transactions and were subject to market conditions, legal requirements and other factors. Management established a prearranged written plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the February 2010 program, which allowed for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the three months ended December 31, 2010, we completed the program and repurchased and retired 565,390 shares at an aggregate cost of $24.9 million. |
19
Table of Contents
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table includes information as of December 31,
2010 about certain plans which provide for the issuance of
common stock in connection with the exercise of stock options
and other share-based awards.
|
Number of
|
||||||||||||
|
Securities
|
||||||||||||
|
Remaining
|
||||||||||||
|
Available for
|
||||||||||||
|
Number of
|
Future Issuance
|
|||||||||||
|
Securities to be
|
Under Equity
|
|||||||||||
|
Issued upon
|
Weighted-Average
|
Compensation
|
||||||||||
|
Exercise of
|
Exercise Price of
|
Plans Excluding
|
||||||||||
|
Outstanding
|
Outstanding
|
Securities
|
||||||||||
|
Options, Warrants
|
Options, Warrants
|
Reflected in
|
||||||||||
| Plans | and Rights | and Rights | Column (a) | |||||||||
| (a) | (b) | (c) | ||||||||||
|
Equity compensation plans approved by security holders:
|
||||||||||||
|
Broad based employee stock plans
|
4,116,254 (1 | ) | $ | 42.25 (3 | ) | 3,073,875 | ||||||
|
Employee stock purchase plan
|
— | — | 1,139,805 | |||||||||
|
Non-employee directors’ stock plans
|
165,689 (2 | ) | 33.29 (3 | ) | 41,471 | |||||||
|
Equity compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
4,281,943 | $ | 42.16 (3 | ) | 4,255,151 | |||||||
| (1) | Includes 670,970 time-vested and performance-based restricted stock awards. | |
| (2) | Includes 128,189 restricted stock units. | |
| (3) | Weighted-average exercise price of outstanding options; excludes restricted stock awards and restricted stock units. |
20
Table of Contents
ITEM 6.
SELECTED FINANCIAL DATA
The following selected consolidated financial information should
be read in conjunction with Items 7 and 8 of this report.
| Years ended December 31 | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (Dollars and shares in thousands, except per share amounts) | ||||||||||||||||||||
|
Operating Data:
|
||||||||||||||||||||
|
Revenue
(1)
|
$ | 5,136,435 | 4,887,254 | 5,999,041 | 6,363,130 | 6,136,418 | ||||||||||||||
|
Earnings from continuing operations
|
$ | 124,608 | 90,117 | 257,579 | 251,779 | 246,694 | ||||||||||||||
|
Comparable earnings from continuing
operations
(2)
|
$ | 116,988 | 94,630 | 267,144 | 248,227 | 243,618 | ||||||||||||||
|
Net
earnings
(2)
|
$ | 118,170 | 61,945 | 199,881 | 253,861 | 248,959 | ||||||||||||||
|
Per Share Data:
|
||||||||||||||||||||
|
Earnings from continuing operations —
Diluted
(2)
|
$ | 2.37 | 1.62 | 4.51 | 4.19 | 3.99 | ||||||||||||||
|
Comparable earnings from continuing operations —
Diluted
(2)
|
$ | 2.22 | 1.70 | 4.68 | 4.13 | 3.94 | ||||||||||||||
|
Net earnings —
Diluted
(3)
|
$ | 2.25 | 1.11 | 3.50 | 4.22 | 4.03 | ||||||||||||||
|
Cash dividends
|
$ | 1.04 | 0.96 | 0.92 | 0.84 | 0.72 | ||||||||||||||
|
Book
value
(4)
|
$ | 27.44 | 26.71 | 24.17 | 32.52 | 28.34 | ||||||||||||||
|
Financial Data:
|
||||||||||||||||||||
|
Total assets
|
$ | 6,652,374 | 6,259,830 | 6,689,508 | 6,854,649 | 6,828,923 | ||||||||||||||
|
Average
assets
(5)
|
$ | 6,366,647 | 6,507,432 | 6,924,342 | 6,914,060 | 6,426,546 | ||||||||||||||
|
Return on average assets
(%)
(5)
|
1.9 | 1.0 | 2.9 | 3.7 | 3.9 | |||||||||||||||
|
Long-term debt
|
$ | 2,326,878 | 2,265,074 | 2,478,537 | 2,553,431 | 2,484,198 | ||||||||||||||
|
Total debt
|
$ | 2,747,002 | 2,497,691 | 2,862,799 | 2,776,129 | 2,816,943 | ||||||||||||||
|
Shareholders’
equity
(4)
|
$ | 1,404,313 | 1,426,995 | 1,345,161 | 1,887,589 | 1,720,779 | ||||||||||||||
|
Debt to
equity(%)
(4)
|
196 | 175 | 213 | 147 | 164 | |||||||||||||||
|
Average shareholders’
equity
(4),(5)
|
$ | 1,401,681 | 1,395,629 | 1,778,489 | 1,790,814 | 1,610,328 | ||||||||||||||
|
Return on average shareholders’
equity(%)
(4),(5)
|
8.4 | 4.4 | 11.2 | 14.2 | 15.5 | |||||||||||||||
|
Adjusted return on average
capital(%)
(6)
|
4.8 | 4.1 | 7.3 | 7.4 | 7.9 | |||||||||||||||
|
Net cash provided by operating activities of continuing
operations
|
$ | 1,028,034 | 984,956 | 1,248,169 | 1,096,559 | 852,466 | ||||||||||||||
|
Free cash
flow
(7)
|
$ | 257,574 | 614,090 | 340,665 | 380,269 | (438,612 | ) | |||||||||||||
|
Capital expenditures paid
|
$ | 1,070,092 | 651,953 | 1,230,401 | 1,304,033 | 1,692,719 | ||||||||||||||
|
Other Data:
|
||||||||||||||||||||
|
Average common shares — Diluted
|
51,884 | 55,094 | 56,539 | 59,728 | 61,478 | |||||||||||||||
|
Number of vehicles — Owned and leased
|
148,700 | 152,400 | 163,400 | 160,700 | 167,200 | |||||||||||||||
|
Average number of vehicles — Owned and leased
|
150,700 | 159,500 | 161,500 | 165,400 | 164,400 | |||||||||||||||
|
Number of employees
|
25,900 | 22,900 | 28,000 | 28,800 | 28,600 | |||||||||||||||
| (1) | Effective January 1, 2008, our contractual relationship with a significant customer changed, and we determined, after formal review of the terms and conditions of the services, we are acting as an agent based on the revised terms of the agreement. As a result, the amount of total revenue and subcontracted transportation expense decreased by $640 million in 2008 due to the reporting of revenue net of subcontracted transportation expense for this particular customer contract. | |
| (2) | Refer to the section titled “Overview” and “Non-GAAP Financial Measures” in Item 7 of this report for a reconciliation of comparable earnings to net earnings. | |
| (3) | Net earnings in 2010, 2009, 2008, 2007 and 2006 included (losses) earnings from discontinued operations of $(6) million, or $(0.12) per diluted common share, $(28) million, or $(0.51) per diluted common share, $(58) million, or $(1.01) per diluted common share, $2 million, or $0.03 per diluted common share, and $2 million, or $0.04 per diluted common share, respectively. | |
| (4) | Shareholders’ equity at December 31, 2010, 2009, 2008, 2007 and 2006 reflected after-tax equity charges of $423 million, $412 million, $480 million, $148 million, and $201 million, respectively, related to our pension and postretirement plans. | |
| (5) | Amounts were computed using an 8-point average based on quarterly information. | |
| (6) | Our adjusted return on capital (ROC) represents the rate of return generated by the capital deployed in our business. We use ROC as an internal measure of how effectively we use the capital invested (borrowed or owned) in our operations. Refer to the section titled “Non-GAAP Financial Measures” in Item 7 of this report for a reconciliation of return on average shareholders’ equity to adjusted return on average capital. | |
| (7) | Refer to the section titled “Financial Resources and Liquidity” in Item 7 of this report for a reconciliation of net cash provided by operating activities to free cash flow. |
21
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) should
be read in conjunction with our consolidated financial
statements and related notes contained in Item 8 of this
report on
Form 10-K.
The following MD&A describes the principal factors
affecting results of operations, financial resources, liquidity,
contractual cash obligations, and critical accounting estimates.
OVERVIEW
Ryder System, Inc. (Ryder) is a global leader in transportation
and supply chain management solutions. Our business is divided
into three business segments, which operate in highly
competitive markets. Our customers select us based on numerous
factors including service quality, price, technology, and
service offerings. As an alternative to using our services,
customers may choose to provide these services for themselves,
or may choose to obtain similar or alternative services from
other third-party vendors. Our customer base includes
enterprises operating in a variety of industries including
automotive, food service, electronics, transportation, grocery,
lumber and wood products, and home furnishing.
The
Fleet Management Solutions (FMS)
business segment is
our largest segment providing full service leasing, contract
maintenance, contract-related maintenance, and commercial rental
of trucks, tractors and trailers to customers principally in the
U.S., Canada and the U.K. FMS revenue and assets in 2010 were
$3.40 billion and $5.94 billion, respectively,
representing 66% of our consolidated revenue and 89% of
consolidated assets.
The
Supply Chain Solutions (SCS)
business segment
provides comprehensive supply chain consulting including
distribution and transportation services throughout North
America and Asia. SCS revenue in 2010 was $1.25 billion,
representing 24% of our consolidated revenue.
The
Dedicated Contract Carriage (DCC)
business
segment provides vehicles and drivers as part of a dedicated
transportation solution in the U.S. DCC revenue in 2010 was
$483 million, representing 10% of our consolidated revenue.
In 2010, we had a very successful year. In what continues to be
an uneven, slow economic recovery, we achieved revenue growth
and very good earnings leverage, including a 38% increase in net
earnings from continuing operations and a 24% increase in
comparable earnings from continuing operations. Our steady
progress throughout the year, culminating in a particularly
strong fourth quarter, enabled Ryder to deliver an increase in
total shareholder value. In Fleet Management Solutions, our
commercial rental performance improved because of better pricing
due to rising demand in the overall marketplace. Used vehicle
sales results improved because of better pricing stemming from a
lower supply of vehicles for sale in the marketplace and higher
demand. Our full service lease product line continued to improve
in miles driven per vehicle; however, customers remain cautious
on entering long-term leases. Our Supply Chain solutions
business delivered solid margins with particularly strong
results from our high-tech and automotive accounts. Our solid
balance sheet and strong cash flow enabled us to announce
several strategic acquisitions which will help grow and expand
capabilities in all three business segments. Additionally, our
financial strength enabled us to continue repurchasing shares
under the previously announced stock buyback programs and
increase our annual dividend.
Total revenue was $5.14 billion, up 5% from
$4.89 billion in 2009. Operating revenue (total revenue
less FMS fuel and subcontracted transportation) was
$4.16 billion in 2010, up 2%. Operating revenue increased
primarily due to higher commercial rental revenue and favorable
movements in foreign exchange rates partially offset by lower
full service lease revenue.
Earnings from continuing operations increased to
$125 million in 2010 from $90 million in 2009 and
earnings per diluted common share from continuing operations
increased to $2.37 from $1.62 in 2009. Earnings from continuing
operations included certain items we do not consider indicative
of our ongoing operations and have been excluded from our
comparable earnings measure. The following discussion provides
22
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
a summary of the 2010 and 2009 special items which are discussed
in more detail throughout our MD&A and within the Notes to
Consolidated Financial Statements:
| Continuing Operations | ||||||||||||
|
Earnings Before
|
Diluted Earnings
|
|||||||||||
| Income Taxes | Earnings | per Share | ||||||||||
|
(Dollars in thousands,
|
||||||||||||
| except per share amounts) | ||||||||||||
|
2010
|
||||||||||||
|
Earnings/EPS from continuing operations
|
$ | 186,305 | $ | 124,608 | $ | 2.37 | ||||||
|
• Tax benefit associated with settlement of prior tax
year’s audits and the expiration of a statute of limitation
|
— | (10,771 | ) | (0.21 | ) | |||||||
|
• Gain on sale of an international asset previously
impaired
(1)
|
(946 | ) | (946 | ) | (0.02 | ) | ||||||
|
• Acquisition
costs
(1)
|
4,097 | 4,097 | 0.08 | |||||||||
|
Comparable earnings from continuing operations
|
$ | 189,456 | $ | 116,988 | $ | 2.22 | ||||||
|
2009
|
||||||||||||
|
Earnings/EPS from continuing operations
|
$ | 143,769 | $ | 90,117 | $ | 1.62 | ||||||
|
• Restructuring and other charges
|
6,406 | 4,176 | 0.08 | |||||||||
|
• Benefit associated with the reversal of reserves for
uncertain tax positions due to the expiration of statutes of
limitation in various jurisdictions
|
— | (2,239 | ) | (0.04 | ) | |||||||
|
• Benefit from a tax law change in Ontario, Canada
|
— | (4,100 | ) | (0.07 | ) | |||||||
|
• Charges related to impairment of international
asset
(1)
|
6,676 | 6,676 | 0.12 | |||||||||
|
Comparable earnings from continuing operations
|
$ | 156,851 | $ | 94,630 | $ | 1.70 | ||||||
| (1) | Refer to Note 26, “Other Items Impacting Comparability,” in the Notes to Consolidated Financial Statements. |
Excluding the special items listed above, comparable earnings
from continuing operations increased 24% to $117 million in
2010. Comparable earnings per diluted common share from
continuing operations increased 31% to $2.22 in 2010. Results
reflect higher earnings in our FMS and SCS business segments.
The FMS earnings increase was driven by improved global
commercial rental performance and used vehicle sales results.
This increase was partially offset by lower full service lease
performance resulting from higher maintenance costs on a
relatively older fleet and the cumulative impact of customer
fleet downsizings. SCS earnings increased due to improved
operating performance, particularly in high-tech accounts and
higher automotive volumes partially offset by higher
compensation costs.
Free cash flow was $258 million in 2010 compared to
$614 million in 2009. The decline was driven by higher
capital expenditures. With our stronger earnings and positive
cash flows, we repurchased a total of 3 million shares of
common stock in 2010 for $123 million and made voluntary
pension contributions of approximately $50 million. We also
increased our annual dividend by 8% to $1.08 per share of common
stock. In addition, during 2010 we paid $205 million to
acquire Total Logistic Control.
Capital expenditures increased 78% to $1.09 billion in 2010
and reflects increased commercial rental spending to refresh and
grow the fleet. Our debt balances increased 10% to
$2.75 billion at December 31, 2010 due to acquisitions
and higher vehicle capital spending levels. Our debt to equity
ratio increased to 196% from 175% in 2009. Our total obligations
(including off-balance sheet debt) to equity ratio also
increased to 203% from 183% in 2009.
23
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
2011 Outlook
We enter 2011 very well positioned to profitably grow the
business. For 2011, we expect to see the continuation of many of
the same positive trends we experienced in 2010. We plan to
benefit from productivity initiatives and operational
efficiencies in our FMS business. This benefit will be partially
offset by higher maintenance costs as our fleet continues to
age. Earnings per share growth is expected from continued
improvement in commercial rental performance, the impact of
acquisitions, continued strong used vehicle sales results and
the benefit of 2010 stock repurchases.
Total revenue for the full-year 2011 is forecast to be
$5.73 billion, which is an increase of 12% compared with
2010. In FMS, contractual leasing and maintenance revenue is
expected to increase 2%. Commercial rental revenue is forecast
to grow by 19%, driven by strong demand and higher pricing.
Total SCS revenue is forecast to increase by 25% reflecting the
impact of acquisitions. Total DCC revenue is expected to
increase by 14% reflecting the impact of the Scully acquisition.
See Note 3, “Acquisitions,” in the Notes to
Consolidated Financial Statements for further discussion.
ITEMS AFFECTING
COMPARABILITY BETWEEN PERIODS
Accounting Changes
See Note 2, “Accounting Changes,” for a
discussion of the impact of changes in accounting standards.
ACQUISITIONS
On December 31, 2010, we acquired Total Logistic Control
(TLC), which is a leading provider of comprehensive supply chain
solutions to food, beverage, and consumer packaged goods (CPG)
manufacturers in the U.S. TLC provides customers a broad
suite of
end-to-end
services, including distribution management, contract packaging
services and solutions engineering. This acquisition will
enhance our SCS capabilities and growth prospects in the areas
of packaging and warehousing, including temperature-controlled
facilities.
We completed four FMS acquisitions from 2008 to 2009, under
which we acquired a company’s fleet and contractual
customers. The FMS acquisitions operate under Ryder’s name
and complement our existing market coverage and service network.
The results of these acquisitions have been included in our
consolidated results since the dates of acquisition.
|
Contractual
|
||||||||||||
| Company Acquired | Date | Vehicles | Customers | Market | ||||||||
|
Edart Leasing LLC
|
February 2, 2009 | 1,600 | 340 | Northeast U.S. | ||||||||
|
Gordon Truck Leasing
|
August 29, 2008 | 500 | 130 | Pennsylvania | ||||||||
|
Gator Leasing, Inc.
|
May 12, 2008 | 2,300 | 300 | Florida | ||||||||
|
Lily Transportation Corp.
|
January 11, 2008 | 1,600 | 200 | Northeast U.S. | ||||||||
On December 19, 2008, we acquired substantially all of the
assets of Transpacific Container Terminal Ltd. and CRSA
Logistics Ltd. (CRSA) in Canada, as well as CRSA operations in
Hong Kong and Shanghai, China. This strategic acquisition added
complementary solutions to our SCS capabilities including
consolidation services in key Asian hubs, as well as
deconsolidation operations in Vancouver, Toronto and Montreal.
24
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FULL YEAR
CONSOLIDATED RESULTS
| Years ended December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Earnings from continuing operations before income taxes
|
$186,305 | 143,769 | 409,288 | 30 | % | (65 | )% | |||||||||||||
|
Provision for income taxes
|
61,697 | 53,652 | 151,709 | 15 | (65 | ) | ||||||||||||||
|
Earnings from continuing operations
|
124,608 | 90,117 | 257,579 | 38 | (65 | ) | ||||||||||||||
|
Loss from discontinued operations, net of tax
|
(6,438 | ) | (28,172 | ) | (57,698 | ) | NM | NM | ||||||||||||
|
Net earnings
|
$118,170 | 61,945 | 199,881 | 91 | % | (69 | )% | |||||||||||||
|
Earnings (loss) per common share — Diluted
|
||||||||||||||||||||
|
Continuing operations
|
$ 2.37 | 1.62 | 4.51 | 46 | % | (64 | )% | |||||||||||||
|
Discontinued operations
|
(0.12 | ) | (0.51 | ) | (1.01 | ) | NM | NM | ||||||||||||
|
Net earnings
|
$ 2.25 | 1.11 | 3.50 | 103 | % | (68 | )% | |||||||||||||
|
Weighted-average shares outstanding — Diluted
|
51,884 | 55,094 | 56,539 | (6 | )% | (3 | )% | |||||||||||||
Earnings from continuing operations before income taxes (NBT)
increased 30% in 2010 to $186 million. Excluding
restructuring and other items, comparable NBT increased 21% in
2010 to $189 million, and comparable earnings from
continuing operations increased 24% to $117 million. The
increase in comparable NBT and earnings from continuing
operations reflects the impact of stronger results in our FMS
and SCS business segments. FMS earnings increased due to
improved global commercial rental performance and used vehicle
sales results. This increase was partially offset by lower full
service lease performance reflecting higher maintenance costs on
a relatively older fleet and the cumulative impact of customer
fleet downsizing. SCS earnings increased due to improved
high-tech and global automotive industry volumes partially
offset by higher compensation costs. Net earnings increased 91%
in 2010 to $118 million or $2.25 per diluted common share.
Net earnings in 2010 included losses from discontinued
operations for SCS South America and Europe of $6 million
or $0.12 per diluted common share. Earnings per share growth in
2010 exceeded the net earnings growth reflecting the impact of
share repurchase programs.
NBT decreased 65% in 2009 to $144 million. Excluding
restructuring and other items, comparable NBT declined 64% in
2009 to $157 million, and comparable earnings from
continuing operations declined 65% to $95 million. The
decrease in comparable NBT and earnings from continuing
operations reflected significantly lower earnings in our FMS
business segment because of a decline in commercial rental, full
service lease and used vehicle sales as well as higher pension
expense. NBT was also negatively impacted by lower global SCS
automotive industry volumes. Net earnings decreased 69% in 2009
to $62 million or $1.11 per diluted common share. Net
earnings in 2009 included losses from discontinued operations
for SCS South America and Europe of $28 million or $0.51
per diluted common share.
25
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
See subsequent discussion within “Full Year Consolidated
Results” and “Full Year Operating Results by Business
Segment” and refer to our Notes to Consolidated Financial
Statements for other items impacting comparability related to
discontinued operations, restructuring and other charges and
income taxes.
| Years ended December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Revenue:
|
||||||||||||||||||||
|
Fleet Management Solutions
|
$3,712,153 | 3,567,836 | 4,454,251 | 4 | % | (20 | )% | |||||||||||||
|
Supply Chain Solutions
|
1,252,251 | 1,139,911 | 1,429,632 | 10 | (20 | ) | ||||||||||||||
|
Dedicated Contract Carriage
|
482,583 | 470,956 | 547,751 | 2 | (14 | ) | ||||||||||||||
|
Eliminations
|
(310,552 | ) | (291,449 | ) | (432,593 | ) | (7 | ) | 33 | |||||||||||
|
Total
|
$5,136,435 | 4,887,254 | 5,999,041 | 5 | % | (19 | )% | |||||||||||||
|
Operating
revenue
(1)
|
$4,158,239 | 4,062,512 | 4,590,080 | 2 | % | (11 | )% | |||||||||||||
| (1) | We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our businesses and as a measure of sales activity. FMS fuel services revenue net of related intersegment billings, which is directly impacted by fluctuations in market fuel prices, is excluded from the operating revenue computation as fuel is largely a pass-through to our customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs. Subcontracted transportation revenue in our SCS and DCC business segments is excluded from the operating revenue computation as subcontracted transportation is largely a pass-through to our customers and we realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of total revenue to operating revenue. |
Total revenue increased 5% to $5.14 billion in 2010
primarily due to higher fuel services revenue, operating revenue
and subcontracted transportation. Operating revenue increased 2%
to $4.16 billion in 2010 primarily due to higher commercial
rental revenue and favorable movements in foreign exchange rates
partially offset by lower full service lease revenue. Total and
operating revenue in 2010 included a favorable foreign exchange
impact of 0.9% due primarily to the strengthening of the
Canadian dollar.
Total revenue decreased 19% to $4.89 billion in 2009
reflecting lower fuel services and operating revenue. Operating
revenue decreased 11% to $4.06 billion in 2009 primarily
due to lower commercial rental revenue and SCS automotive
production volumes. To a lesser extent, operating revenue was
also negatively impacted by lower SCS and DCC fuel
pass-throughs, unfavorable foreign currency movements and lower
FMS contractual revenues partially offset by the benefit of
acquisitions. Total revenue in 2009 included an unfavorable
foreign exchange impact of 1.4% due primarily to the weakening
of the British pound and Mexican peso.
Our FMS segment leases revenue earning equipment and provides
fuel, maintenance and other ancillary services to our SCS and
DCC segments. Eliminations relate to inter-segment sales that
are accounted for at rates similar to those executed with third
parties. The increase in eliminations in 2010 reflects primarily
the pass-through of higher average fuel costs. The decrease in
eliminations in 2009 reflects primarily the pass-through of
lower average fuel costs.
26
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
| Years ended December 31 | Change | |||||||||
|
2010/
|
2009/
|
|||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||
| (Dollars in thousands) | ||||||||||
|
Operating expense (exclusive of items shown separately)
|
$2,441,924 | 2,229,539 | 2,959,518 | 10% | (25)% | |||||
|
Percentage of revenue
|
48% | 46% | 49% | |||||||
Operating expense and operating expense as a percentage of
revenue increased in 2010 primarily as a result of higher fuel
costs and higher maintenance costs. The increase in fuel costs
was driven by an increase in average U.S. fuel prices on
lower fuel volumes. Fuel costs are largely a pass-through to
customers for which we realize minimal changes in profitability
during periods of steady market fuel prices. The growth in
maintenance costs reflects the impact of an aging global fleet.
Operating expense decreased 25% to $2.23 billion in 2009 as
a result of lower fuel costs. The decrease in fuel costs was due
to lower average market prices and lower fuel volumes. The
decrease was partially offset by higher maintenance costs and
safety and insurance costs. The growth in safety and insurance
costs reflects less favorable development in self-insured loss
reserves. During 2010, 2009 and 2008, we recorded a (charge)
benefit of $(3) million, $1 million, and
$23 million, respectively, from development in estimated
prior years’ self-insured loss reserves.
| Years ended December 31 | Change | |||||||||
|
2010/
|
2009/
|
|||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||
| (Dollars in thousands) | ||||||||||
|
Salaries and employee-related costs
|
$1,255,659 | 1,233,243 | 1,345,216 | 2% | (8)% | |||||
|
Percentage of revenue
|
24% | 25% | 22% | |||||||
|
Percentage of operating revenue
|
30% | 30% | 29% | |||||||
Salaries and employee-related costs increased 2% to
$1.26 billion in 2010 primarily due to higher
incentive-based compensation, unfavorable changes in foreign
currency exchange rates and higher driver costs, partially
offset by lower retirement plans expense. Average headcount,
excluding discontinued operations, increased 1% in 2010. The
number of employees at December 31, 2010 increased to
approximately 25,900 compared to 22,900 (excluding those from
discontinued operations) at December 31, 2009. The higher
headcount was primarily due to the acquisition of TLC at the end
of the year.
Pension expense totaled $42 million in 2010 compared to
$66 million in 2009. The decrease in pension expense
reflects reduced amortization of actuarial losses attributed to
higher than expected return on pension assets in 2009 and the
favorable impact from voluntary pension contributions made in
the fourth quarter of 2009. We expect 2011 pension expense to
decrease approximately $9 million primarily because of
reduced amortization of actuarial losses attributed to higher
than expected return on plan assets in 2010. Our 2011 pension
expense estimates are subject to change based upon the
completion of the actuarial analysis for all pension plans. See
the section titled “Critical Accounting
Estimates — Pension Plans” for further discussion
on pension accounting estimates.
Salaries and employee-related costs decreased 8% to
$1.23 billion in 2009 primarily due to lower headcount,
favorable foreign exchange rate changes and lower
incentive-based compensation and commissions partially offset by
higher pension expense and the impact of acquisitions. Average
headcount decreased 9% in 2009 compared with 2008. Pension
expense increased by $65 million as a result of significant
negative pension asset returns in 2008.
27
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
| Years ended December 31 | Change | |||||||||
|
2010/
|
2009/
|
|||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||
| (Dollars in thousands) | ||||||||||
|
Subcontracted transportation
|
$261,325 | 198,860 | 233,106 | 31% | (15)% | |||||
|
Percentage of revenue
|
5% | 4% | 4% | |||||||
Subcontracted transportation expense represents freight
management costs on logistics contracts for which we purchase
transportation from third parties. Subcontracted transportation
expense is directly impacted by whether we are acting as an
agent or principal in our transportation management contracts.
To the extent that we are acting as a principal, revenue is
reported on a gross basis and carriage costs to third parties
are recorded as subcontracted transportation expense.
Subcontracted transportation expense increased 31% to
$261 million in 2010 as a result of increased freight
volumes particularly in the automotive industry.
Subcontracted transportation expense decreased 15% to
$199 million in 2009 as a result of decreased freight
volumes.
| Years ended December 31 | Change | |||||||||||||
|
2010/
|
2009/
|
|||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||
| (Dollars in thousands) | ||||||||||||||
|
Depreciation expense
|
$833,841 | 881,216 | 836,149 | (5 | )% | 5 | % | |||||||
|
Gains on vehicle sales, net
|
(28,727) | (12,292) | (39,020) | 134 | (68 | ) | ||||||||
|
Equipment rental
|
63,228 | 65,828 | 78,292 | (4 | ) | (16 | ) | |||||||
Depreciation expense relates primarily to FMS revenue earning
equipment. Depreciation expense decreased 5% to
$834 million in 2010 because of a smaller fleet as well as
decreased write-downs of $26 million in the carrying value
of vehicles held for sale. The decline was also impacted by a
prior year impairment charge on a Singapore facility. The
decrease in depreciation expense was partially offset by higher
average vehicle investments as well as changes in both residual
values of certain classes of our revenue earning equipment
effective January 1, 2010 and accelerated depreciation for
select vehicles expected to be sold by 2011. Depreciation
expense increased 5% to $881 million in 2009 because of
increased write-downs of $24 million in the carrying value
of vehicles held for sale, accelerated depreciation of
$10 million on certain classes of vehicles expected to be
held for sale through 2010, the impact of acquisitions, higher
average vehicle investments and impairment charges on a
Singapore facility, partially offset by the impact of foreign
exchange rates and a lower number of owned vehicles.
We periodically review and adjust residual values, reserves for
guaranteed lease termination values and useful lives of revenue
earning equipment based on current and expected operating trends
and projected realizable values. See the section titled
“Critical Accounting Estimates — Depreciation and
Residual Value Guarantees” for further discussion. While we
believe that the carrying values and estimated sales proceeds
for revenue earning equipment are appropriate, there can be no
assurance that deterioration in economic conditions or adverse
changes to expectations of future sales proceeds will not occur,
resulting in lower gains or losses on sales. In 2010 and 2009,
we accelerated depreciation on certain classes of vehicles
expected to be sold through 2011. The impact of this change
increased depreciation by $5 million and $10 million
in 2010 and 2009, respectively. At the end of each year, we
complete our annual depreciation review of the residual values
and useful lives of our revenue earning equipment. Our annual
review is established with a long-term view considering
historical market price changes, current and expected future
market price trends, expected life of vehicles and extent of
alternative uses. Based on the results of the 2008 review, the
adjustment to depreciation was not significant for 2009. Based
on the results of our 2009 analysis, we adjusted the residual
values of certain classes of our revenue earning equipment
effective January 1, 2010. The residual value changes
decreased pre-tax earnings for 2010 by approximately
$14 million compared with 2009. Based on the results of the
2010 review, we adjusted the residual values and useful lives of
certain classes of revenue
28
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
earning equipment effective January 1, 2011. The changes
will increase pre-tax earnings by approximately $5 million
compared with 2010.
Gains on vehicle sales, net increased 134% to $29 million
in 2010 due to higher average pricing on vehicles sold. Gains on
vehicle sales, net decreased 68% to $12 million in 2009 due
to lower average pricing on vehicles sold primarily in our used
truck class.
Equipment rental consists primarily of rent expense for FMS
revenue earning equipment under lease by us as lessee. Equipment
rental decreased 4% to $63 million in 2010 primarily due to
a lower number of leased vehicles partially offset by higher
rental costs associated with investments in material handling
equipment to support our SCS operations. Equipment rental
decreased 16% to $66 million in 2009 because of a reduction
in the average number of vehicles leased from third parties.
| Years ended December 31 | Change | |||||||||||||
|
2010/
|
2009/
|
|||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||
| (Dollars in thousands) | ||||||||||||||
|
Interest expense
|
$129,994 | 144,342 | 152,448 | (10 | )% | (5 | )% | |||||||
|
Effective interest rate
|
5.2% | 5.4% | 5.3% | |||||||||||
Interest expense decreased 10% to $130 million in 2010
because of lower average debt balances and a lower effective
interest rate. Interest expense decreased 5% to
$144 million in 2009 because of lower average debt balances
partially offset by a higher effective interest rate. A
hypothetical 10 basis point change in short-term market
interest rates would change annual pre-tax earnings by
$0.7 million.
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Miscellaneous (income) expense, net
|
$(7,114 | ) | (3,657 | ) | 2,564 | |||||||
Miscellaneous (income) expense, net consists of investment
(income) losses on securities held to fund certain benefit
plans, interest income, (gains) losses from sales of property,
foreign currency transaction (gains) losses, and non-operating
items. Miscellaneous (income) expense, net improved
$3 million in 2010 primarily due to gains from sales of
property and a life insurance recovery partially offset by lower
income on investment securities. Miscellaneous (income) expense,
net improved $6 million in 2009 due to better market
performance of our investment securities partially offset by
lower foreign currency transaction gains in 2009.
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Restructuring and other charges, net
|
$ — | 6,406 | 21,480 | |||||||||
See Note 5, “Restructuring and Other Charges,” in
the Notes to Consolidated Financial Statements for further
discussion around the charges related to these actions.
| Years ended December 31 | Change | |||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Provision for income taxes
|
$ | 61,697 | 53,652 | 151,709 | 15 | % | (65 | )% | ||||||||
|
Effective tax rate from continuing operations
|
33.1% | 37.3% | 37.1% | |||||||||||||
The 2010 effective income tax rate benefited from the favorable
settlement of domestic tax audits in 2010 and the reversal of
reserves for uncertain tax positions due to the expiration of a
statute of limitation. In the aggregate, these items reduced the
effective rate by 5.7% of pre-tax earnings from continuing
operations. The 2009 effective income tax rate benefited from
enacted tax law changes in Ontario, Canada, the favorable
settlement of a foreign tax audit and reversal of reserves for
uncertain tax positions for which the statute of limitation in
various jurisdictions had expired. In the aggregate, these items
reduced the effective rate by 6.5%
29
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
of pre-tax earnings. The benefits in 2009 were partially offset
by the impact of non-deductible expenses on lower pre-tax
earnings from continuing operations. The 2008 effective income
tax rate benefited from enacted tax law changes in Massachusetts
and the reversal of reserves for uncertain tax positions, for
which the statute of limitation in various jurisdictions had
expired which, in the aggregate, totaled 3.3% of pre-tax
earnings. The benefits in 2008 were partially offset by the
adverse impact of non-deductible restructuring and other charges.
On December 17, 2010 and September 27, 2010, the
U.S. enacted the Tax Relief, Unemployment Insurance
Reauthorization and Job Creation Act, and the Small Business Job
Act of 2010, respectively. These Acts expanded and extended
bonus depreciation to qualified property placed in service
during 2010 through 2012. The impact of these changes is
expected to result in a net operating loss carryforward in 2011.
In addition, these changes are expected to significantly reduce
our U.S. federal tax payments through 2013.
| Years ended December 31 | ||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||
| (In thousands) | ||||||||||||||
|
Loss from discontinued operations, net of tax
|
$ | (6,438 | ) | (28,172 | ) | (57,698 | ) | |||||||
Pre-tax loss from discontinued operations in 2010 primarily
included exit costs related to a leased facility and adverse
legal developments. Pre-tax loss from discontinued operations in
2009 and 2008 included operating losses of $11 million and
$12 million, respectively. During 2009 and 2008, we also
incurred $17 million and $47 million, respectively, of
pre-tax restructuring and other charges (primarily exit-related)
related to discontinued operations. See Note 4,
“Discontinued Operations,” in the Notes to
Consolidated Financial Statements for additional information.
30
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FULL YEAR
OPERATING RESULTS BY BUSINESS SEGMENT
| Years ended December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Revenue:
|
||||||||||||||||||||
|
Fleet Management Solutions
|
$3,712,153 | 3,567,836 | 4,454,251 | 4 | % | (20 | )% | |||||||||||||
|
Supply Chain Solutions
|
1,252,251 | 1,139,911 | 1,429,632 | 10 | (20 | ) | ||||||||||||||
|
Dedicated Contract Carriage
|
482,583 | 470,956 | 547,751 | 2 | (14 | ) | ||||||||||||||
|
Eliminations
|
(310,552 | ) | (291,449 | ) | (432,593 | ) | (7 | ) | 33 | |||||||||||
|
Total
|
$5,136,435 | 4,887,254 | 5,999,041 | 5 | % | (19 | )% | |||||||||||||
|
Operating Revenue:
|
||||||||||||||||||||
|
Fleet Management Solutions
|
$2,846,532 | 2,817,733 | 3,038,923 | 1 | % | (7 | )% | |||||||||||||
|
Supply Chain Solutions
|
1,004,962 | 955,409 | 1,207,523 | 5 | (21 | ) | ||||||||||||||
|
Dedicated Contract Carriage
|
468,547 | 456,598 | 536,754 | 3 | (15 | ) | ||||||||||||||
|
Eliminations
|
(161,802 | ) | (167,228 | ) | (193,120 | ) | 3 | 13 | ||||||||||||
|
Total
|
$4,158,239 | 4,062,512 | 4,590,080 | 2 | % | (11 | )% | |||||||||||||
|
NBT:
|
||||||||||||||||||||
|
Fleet Management Solutions
|
$ 172,185 | 140,400 | 395,909 | 23 | % | (65 | )% | |||||||||||||
|
Supply Chain Solutions
|
47,111 | 35,700 | 56,953 | 32 | (37 | ) | ||||||||||||||
|
Dedicated Contract Carriage
|
30,966 | 37,643 | 49,628 | (18 | ) | (24 | ) | |||||||||||||
|
Eliminations
|
(19,275 | ) | (21,058 | ) | (31,803 | ) | 8 | 34 | ||||||||||||
| 230,987 | 192,685 | 470,687 | 20 | (59 | ) | |||||||||||||||
|
Unallocated Central Support Services
|
(41,531 | ) | (35,834 | ) | (38,302 | ) | (16 | ) | 6 | |||||||||||
|
Restructuring and other charges, net and other
items
(1)
|
(3,151 | ) | (13,082 | ) | (23,097 | ) | NM | NM | ||||||||||||
|
Earnings from continuing operations before income taxes
|
$ 186,305 | 143,769 | 409,288 | 30 | % | (65 | )% | |||||||||||||
| (1) | See Note 5, “Restructuring and Other Charges” and Note 26, “Other Items Impacting Comparability,” in the Notes to Consolidated Financial Statements for a discussion of items excluded from our segment measure of profitability. |
As part of management’s evaluation of segment operating
performance, we define the primary measurement of our segment
financial performance as “Net Before Taxes” (NBT) from
continuing operations, which includes an allocation of CSS and
excludes restructuring and other charges, net and other items we
do not believe are representative of the ongoing operations of
the segment.
31
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of items excluded
from our segment NBT measure to their classification within our
Consolidated Statements of Earnings:
|
Consolidated
|
||||||||||||||
|
Statements of Earnings
|
Years ended December 31 | |||||||||||||
| Description | Line Item (1) | 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||||
|
Severance and employee-related
costs
(2)
|
Restructuring | $ | — | (2,206 | ) | (11,209 | ) | |||||||
|
Contract termination
costs
(2)
|
Restructuring | — | — | (29 | ) | |||||||||
|
Early retirement of
debt
(2)
|
Restructuring | — | (4,178 | ) | — | |||||||||
|
Asset
impairments
(2)
|
Restructuring | — | (22 | ) | (10,242 | ) | ||||||||
|
Restructuring and other charges, net
|
— | (6,406 | ) | (21,480 | ) | |||||||||
|
International asset
impairment
(3)
|
Depreciation expense | — | (6,676 | ) | (1,617 | ) | ||||||||
|
Gain on sale of
property
(3)
|
Miscellaneous income | 946 | — | — | ||||||||||
|
Acquisition
costs
(3)
|
Operating expense | (4,097 | ) | — | — | |||||||||
|
Restructuring and other charges, net and other items
|
$ | (3,151 | ) | (13,082 | ) | (23,097 | ) | |||||||
| (1) | Restructuring refers to the “Restructuring and other charges, net;” and Miscellaneous income refers to “Miscellaneous (income) expense, net” on our Consolidated Statements of Earnings. | |
| (2) | See Note 5, “Restructuring and Other Charges,” in the Notes to Consolidated Financial Statements for additional information. | |
| (3) | See Note 26, “Other Items Impacting Comparability” in the Notes to Consolidated Financial Statements for additional information. |
Our FMS segment leases revenue earning equipment and provides
fuel, maintenance and other ancillary services to our SCS and
DCC segments. Inter-segment revenue and NBT are accounted for at
rates similar to those executed with third parties. NBT related
to inter-segment equipment and services billed to customers
(equipment contribution) are included in both FMS and the
business segment which served the customer and then eliminated
(presented as “Eliminations”).
The following table sets forth equipment contribution included
in NBT for our SCS and DCC segments:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Equipment Contribution:
|
||||||||||||
|
Supply Chain Solutions
|
$ | 8,426 | 9,461 | 16,701 | ||||||||
|
Dedicated Contract Carriage
|
10,849 | 11,597 | 15,102 | |||||||||
|
Total
|
$ | 19,275 | 21,058 | 31,803 | ||||||||
CSS represents those costs incurred to support all business
segments, including human resources, finance, corporate services
and public affairs, information technology, health and safety,
legal and corporate communications. The objective of the NBT
measurement is to provide clarity on the profitability of each
business segment and, ultimately, to hold leadership of each
business segment and each operating segment within each business
segment accountable for their allocated share of CSS costs.
Segment results are not necessarily indicative of the results of
operations that would have occurred had each segment been an
independent, stand-alone entity during the periods presented.
Certain costs are considered to be overhead not attributable to
any segment and remain unallocated in CSS. Included within the
unallocated overhead remaining within CSS are the costs for
investor relations, public affairs and certain executive
compensation. See Note 29, “Segment Reporting,”
in the Notes to Consolidated Financial Statements for a
description of how the remainder of CSS costs is allocated to
the business segments.
32
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Fleet
Management Solutions
| Years ended December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Full service lease
|
$1,934,346 | 1,989,676 | 2,041,513 | (3 | )% | (3 | )% | |||||||||||||
|
Contract maintenance
|
158,784 | 167,182 | 168,157 | (5 | ) | (1 | ) | |||||||||||||
|
Contractual revenue
|
2,093,130 | 2,156,858 | 2,209,670 | (3 | ) | (2 | ) | |||||||||||||
|
Contract-related maintenance
|
160,871 | 163,306 | 193,856 | (1 | ) | (16 | ) | |||||||||||||
|
Commercial rental
|
525,083 | 431,058 | 557,491 | 22 | (23 | ) | ||||||||||||||
|
Other
|
67,448 | 66,511 | 77,906 | 1 | (15 | ) | ||||||||||||||
|
Operating
revenue
(1)
|
2,846,532 | 2,817,733 | 3,038,923 | 1 | (7 | ) | ||||||||||||||
|
Fuel services revenue
|
865,621 | 750,103 | 1,415,328 | 15 | (47 | ) | ||||||||||||||
|
Total revenue
|
$3,712,153 | 3,567,836 | 4,454,251 | 4 | % | (20 | )% | |||||||||||||
|
Segment NBT
|
$ 172,185 | 140,400 | 395,909 | 23 | % | (65 | )% | |||||||||||||
|
Segment NBT as a % of total revenue
|
4.6% | 3.9% | 8.9% | 70 | bps | (500 | ) bps | |||||||||||||
|
Segment NBT as a % of operating
revenue
(1)
|
6.0% | 5.0% | 13.0% | 100 | bps | (800 | ) bps | |||||||||||||
| (1) | We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our FMS business segment and as a measure of sales activity. Fuel services revenue, which is directly impacted by fluctuations in market fuel prices, is excluded from our operating revenue computation as fuel is largely a pass-through to customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs. |
2010
versus 2009
Total revenue increased 4% in 2010 to $3.71 billion due
primarily to higher fuel services revenue. Fuel services revenue
increased 15% in 2010 due to higher fuel cost pass-throughs.
Operating revenue increased 1% in 2010 to $2.85 billion
reflecting higher commercial rental revenue partially offset by
lower contractual revenue. Total and operating revenue in 2010
also included a favorable foreign exchange impact of 0.6%.
Full service lease revenue declined 3% and contract maintenance
revenue declined 5% as a result of the cumulative impact of
customer fleet downsizings. However, the level of downsizings
decreased toward the latter half of the year. We expect
favorable contractual revenue comparisons next year due to
acquisitions as well as a reduction in customer fleet
downsizings. Commercial rental revenue increased 22% in 2010
reflecting improving global market demand and higher pricing.
The average global rental fleet increased 1% in 2010 in response
to increased demand. Power fleet utilization increased to 76.1%
in 2010. We expect favorable commercial rental comparisons next
year driven by higher demand and higher pricing on a larger
fleet.
33
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
The following table provides rental statistics on our global
fleet:
| Years ended December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Non-lease customer rental revenue
|
$332,077 | 265,143 | 329,875 | 25 | % | (20) | % | |||||||||||||
|
Lease customer rental
revenue
(1)
|
$193,006 | 165,915 | 227,616 | 16 | % | (27) | % | |||||||||||||
|
Average commercial rental power fleet size — in
service
(2),(3)
|
23,800 | 23,000 | 25,800 | 3 | % | (11) | % | |||||||||||||
|
Commercial rental utilization — power fleet
|
76.1 | % | 68.0 | % | 71.4 | % | 810 | bps | (340) | bps | ||||||||||
| (1) | Lease customer rental revenue is revenue from rental vehicles provided to our existing full service lease customers, generally during peak periods in their operations. | |
| (2) | Number of units rounded to nearest hundred and calculated using average counts. | |
| (3) | Fleet size excluding trailers. |
FMS NBT increased 23% in 2010 to $172 million primarily due
to better commercial rental performance, improved used vehicle
sales results, and lower retirement plans expense. These items
were partially offset by lower full service lease results and,
to a lesser extent, higher compensation and depreciation
expense. Commercial rental performance improved as a result of
increased market demand and higher pricing. Used vehicle sales
results were positively impacted by higher pricing and a lower
average inventory level. Retirement plan costs decreased
$20 million because of improved performance in the overall
stock market in 2009 which impacted 2010 pension expense. Full
service lease performance was adversely impacted by increased
maintenance costs on a relatively older fleet and the cumulative
impact of customer fleet downsizing. Depreciation expense
increased $10 million resulting from residual value changes
and accelerated depreciation.
2009
versus 2008
Total revenue decreased 20% in 2009 to $3.57 billion due
primarily to lower fuel services revenue. Fuel services revenue
decreased 47% in 2009 because of lower average fuel prices as
well as reduced gallons pumped. Operating revenue decreased 7%
in 2009 to $2.82 billion reflecting declines in all product
lines, especially commercial rental, in light of the
deterioration in global economic conditions in 2009, partially
offset by the benefit of acquisitions. Total and operating
revenue in 2009 also included an unfavorable foreign exchange
impact of 1.2% and 1.7%, respectively.
Full service lease revenue declined 3% and contract maintenance
revenue declined 1% as a result of fleet downsizing decisions
and lower variable revenue from fewer miles driven by our
customers with their fleets. Commercial rental revenue decreased
23% in 2009 reflecting weak global market demand and lower
pricing. In 2009, we reduced the size and mix of our rental
fleet in order to better align with market demand. The average
global rental fleet size declined 13% in 2009 and year-end fleet
counts decreased by 15% compared with 2008. As a result of our
fleet right-sizing actions, rental fleet utilization in the
fourth quarter of 2009 improved over the prior-year period for
the first time in 2009.
FMS NBT decreased 65% in 2009 to $140 million driven
primarily by the economic slowdown and freight recession, which
resulted in a decline in global commercial rental demand, lower
full service lease performance and lower used vehicle sales
results. Results in 2009 were also impacted by significantly
higher pension expense. These items were partially offset by
cost reduction initiatives, including workforce reductions
implemented in early 2009. Commercial rental results were
impacted by weak global demand which drove lower utilization
and, to a lesser extent, reduced pricing on a smaller fleet.
Full service lease results were adversely impacted by the
protracted length and severity of the freight recession, which
resulted in reduced customer demand for new leases and
downsizing of customer fleets. Used vehicle sales results
declined primarily due to weak market demand which drove lower
pricing, as well as higher average inventory levels. Used
vehicle inventory levels
34
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
improved during the second half of the year and finished the
year 10% below the prior year. Pension expense significantly
increased in 2009 because of poor performance in the overall
stock market in 2008.
Our global fleet of owned and leased revenue earning equipment
and contract maintenance vehicles is summarized as follows
(number of units rounded to the nearest hundred):
| December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
|
End of period vehicle count
|
||||||||||||||||||||
|
By type:
|
||||||||||||||||||||
|
Trucks
(1)
|
63,000 | 63,600 | 68,300 | (1 | )% | (7 | )% | |||||||||||||
|
Tractors
(2)
|
49,600 | 50,300 | 51,900 | (1 | ) | (3 | ) | |||||||||||||
|
Trailers
(3)
|
33,000 | 35,400 | 39,900 | (7 | ) | (11 | ) | |||||||||||||
|
Other
|
3,100 | 3,100 | 3,300 | — | (6 | ) | ||||||||||||||
|
Total
|
148,700 | 152,400 | 163,400 | (2 | )% | (7 | )% | |||||||||||||
|
By ownership:
|
||||||||||||||||||||
|
Owned
|
145,000 | 147,200 | 158,100 | (1 | )% | (7 | )% | |||||||||||||
|
Leased
|
3,700 | 5,200 | 5,300 | (29 | ) | (2 | ) | |||||||||||||
|
Total
|
148,700 | 152,400 | 163,400 | (2 | )% | (7 | )% | |||||||||||||
|
By product line:
|
||||||||||||||||||||
|
Full service lease
|
111,100 | 115,100 | 120,600 | (3 | )% | (5 | )% | |||||||||||||
|
Commercial rental
|
29,700 | 27,400 | 32,300 | 8 | (15 | ) | ||||||||||||||
|
Service vehicles and other
|
2,700 | 3,000 | 2,800 | (10 | ) | 7 | ||||||||||||||
|
Active units
|
143,500 | 145,500 | 155,700 | (1 | ) | (7 | ) | |||||||||||||
|
Held for sale
|
5,200 | 6,900 | 7,700 | (25 | ) | (10 | ) | |||||||||||||
|
Total
|
148,700 | 152,400 | 163,400 | (2 | ) | (7 | ) | |||||||||||||
|
Customer vehicles under contract maintenance
|
33,400 | 34,400 | 35,500 | (3 | )% | (3 | )% | |||||||||||||
|
Average vehicle count
|
||||||||||||||||||||
|
By product line:
|
||||||||||||||||||||
|
Full service lease
|
112,500 | 118,800 | 118,100 | (5 | )% | 1 | % | |||||||||||||
|
Commercial rental
|
29,800 | 29,400 | 33,900 | 1 | (13 | ) | ||||||||||||||
|
Service vehicles and other
|
2,600 | 2,900 | 3,300 | (10 | ) | (12 | ) | |||||||||||||
|
Active units
|
144,900 | 151,100 | 155,300 | (4 | ) | (3 | ) | |||||||||||||
|
Held for sale
|
5,800 | 8,400 | 6,200 | (31 | ) | 35 | ||||||||||||||
|
Total
|
150,700 | 159,500 | 161,500 | (6 | ) | (1 | ) | |||||||||||||
|
Customer vehicles under contract maintenance
|
33,700 | 35,200 | 33,900 | (4 | )% | 4 | % | |||||||||||||
| (1) | Generally comprised of Class 1 through Class 6 type vehicles with a Gross Vehicle Weight (GVW) up to 26,000 pounds. | |
| (2) | Generally comprised of over the road on highway tractors and are primarily comprised of Classes 7 and 8 type vehicles with a GVW of over 26,000 pounds. | |
| (3) | Generally comprised of dry, flatbed and refrigerated type trailers. |
Note: Average vehicle counts
were computed using 24-point average based on monthly
information.
35
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
The totals in the previous table include the following
non-revenue earning equipment for the global fleet (number of
units rounded to the nearest hundred):
| December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| Number of Units | 2010 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||
|
Not yet earning revenue (NYE)
|
800 | 700 | 1,500 | 14 | % | (53 | )% | |||||||||||||
|
No longer earning revenue (NLE):
|
||||||||||||||||||||
|
Units held for sale
|
5,200 | 6,900 | 7,700 | (25 | ) | (10 | ) | |||||||||||||
|
Other NLE units
|
2,000 | 2,900 | 2,900 | (31 | ) | — | ||||||||||||||
|
Total
|
8,000 | 10,500 | 12,100 | (24 | )% | (13 | )% | |||||||||||||
NYE units represent new vehicles on hand that are being prepared
for deployment to a lease customer or into the rental fleet.
Preparations include activities such as adding lift gates,
paint, decals, cargo area and refrigeration equipment. For 2010,
the number of NYE units increased compared with prior year
reflecting new lease sales and, to a lesser extent, the refresh
and growth of the rental fleet. For 2009, the number of NYE
units decreased reflecting lower new replacement lease activity.
NLE units represent all vehicles held for sale and vehicles for
which no revenue has been earned in the previous 30 days.
Accordingly, these vehicles may be temporarily out of service,
being prepared for sale or awaiting redeployment. The number of
NLE units decreased because of lower used vehicle inventory
levels and higher rental utilization. For 2009, the number of
NLE units decreased because of lower used vehicle inventory
levels. We expect NLE levels in 2011 to be slightly higher due
to increased levels of vehicle replacement activity from both
our lease and rental fleets.
Supply Chain Solutions
| Years ended December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Operating revenue:
|
||||||||||||||||||||
|
Automotive
|
$ 449,170 | 409,862 | 616,477 | 10 | % | (34 | )% | |||||||||||||
|
High-tech
|
220,494 | 209,852 | 229,923 | 5 | (9 | ) | ||||||||||||||
|
Retail and CPG
|
177,797 | 167,097 | 167,874 | 6 | — | |||||||||||||||
|
Industrial and other
|
157,501 | 168,598 | 193,249 | (7 | ) | (13 | ) | |||||||||||||
|
Total operating
revenue
(1)
|
1,004,962 | 955,409 | 1,207,523 | 5 | (21 | ) | ||||||||||||||
|
Subcontracted transportation
|
247,289 | 184,502 | 222,109 | 34 | (17 | ) | ||||||||||||||
|
Total revenue
|
$1,252,251 | 1,139,911 | 1,429,632 | 10 | % | (20 | )% | |||||||||||||
|
Segment NBT
|
$47,111 | 35,700 | 56,953 | 32 | % | (37 | )% | |||||||||||||
|
Segment NBT as a % of total revenue
|
3.8% | 3.1% | 4.0% | 70 | bps | (90 | ) bps | |||||||||||||
|
Segment NBT as a % of operating
revenue
(1)
|
4.7% | 3.7% | 4.7% | 100 | bps | (100 | ) bps | |||||||||||||
|
Memo: Fuel
costs
(2)
|
$ 78,806 | 64,915 | 136,400 | 21 | % | (52 | )% | |||||||||||||
| (1) | We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our SCS business segment and as a measure of sales activity. Subcontracted transportation is excluded from our operating revenue computation as subcontracted transportation is largely a pass-through to customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. | |
| (2) | Fuel costs are largely a pass-through to customers and therefore have a direct impact on revenue. |
36
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
2010
versus 2009
Total revenue increased 10% in 2010 to $1.25 billion due to
higher subcontracted transportation, higher operating revenue
and favorable foreign exchange rate movements. Operating revenue
increased 5% to $1.00 billion primarily due to higher
freight volumes particularly in the automotive industry and
favorable foreign exchange rate movements partially offset by
prior year contract rationalizations. For 2010, SCS total
revenue and operating revenue included a favorable foreign
currency exchange impact of 2.3% and 2.1%, respectively. We
expect favorable operating revenue comparisons next year due to
the impact of the TLC acquisition, higher overall freight
volumes and new business.
SCS NBT increased 32% in 2010 to $47 million primarily due
to improved operating performance, particularly in high tech
accounts and higher automotive production volumes partially
offset by higher compensation costs.
2009
versus 2008
Total revenue decreased 20% in 2009 to $1.14 billion and
operating revenue decreased 21% in 2009 to $955 million.
Total revenue and operating revenue decreased as a result of
lower automotive production, overall freight volumes and fuel
cost pass-throughs. For 2009, SCS total revenue and operating
revenue included an unfavorable foreign currency exchange impact
of 2.4% and 2.0%, respectively.
SCS NBT decreased 37% in 2009 to $36 million primarily due
to significantly reduced North American automotive volumes which
decreased NBT by $19 million, including costs incurred upon
the termination of certain automotive operations. During the
second quarter of 2009, several of our automotive customers
filed for bankruptcy. We did not realize any losses on our
pre-petition accounts receivable with any of these customers.
Dedicated Contract Carriage
| Years ended December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Operating
revenue
(1)
|
$ | 468,547 | 456,598 | 536,754 | 3 | % | (15 | )% | ||||||||||||
|
Subcontracted transportation
|
14,036 | 14,358 | 10,997 | (2 | ) | 31 | ||||||||||||||
|
Total revenue
|
$ | 482,583 | 470,956 | 547,751 | 2 | % | (14 | )% | ||||||||||||
|
Segment NBT
|
$ | 30,966 | 37,643 | 49,628 | (18 | )% | (24 | )% | ||||||||||||
|
Segment NBT as a % of total revenue
|
6.4% | 8.0% | 9.1% | (160 | ) bps | (110 | ) bps | |||||||||||||
|
Segment NBT as a % of operating
revenue
(1)
|
6.6% | 8.2% | 9.2% | (160 | ) bps | (100 | ) bps | |||||||||||||
|
Memo: Fuel
costs
(2)
|
$ | 83,928 | 69,858 | 123,003 | 20 | % | (43 | )% | ||||||||||||
| (1) | We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our DCC business segment and as a measure of sales activity. Subcontracted transportation is excluded from our operating revenue computation as subcontracted transportation is largely a pass-through to customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. | |
| (2) | Fuel costs are largely a pass-through to customers and therefore have a direct impact on revenue. |
2010
versus 2009
Total revenue increased 2% in 2010 to $483 million and
operating revenue increased 3% in 2010 to $469 million due
to higher fuel cost pass-throughs. We expect favorable operating
revenue comparisons next
37
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
year because of the announced Scully acquisition which closed on
January 28, 2011. See Note 3,
“Acquisitions,” in the Notes to Consolidated Financial
Statements for additional information.
DCC NBT decreased 18% in 2010 to $31 million primarily due
to investments associated with new technology initiatives,
higher compensation costs, increased self-insurance costs from
unfavorable development related to prior year claims, and lower
operating performance caused by increased driver costs.
2009
versus 2008
Total revenue declined 14% in 2009 to $471 million and
operating revenue declined 15% in 2009 to $457 million as a
result of lower fuel cost pass-throughs, lower freight volumes
and non-renewal of customer contracts.
DCC NBT decreased 24% in 2009 to $38 million as a result of
lower revenue, and to a lesser extent, increased self-insurance
costs. The increase in self-insurance costs reflected less
favorable development in estimated prior years’
self-insured loss reserves.
Central Support Services
| Years ended December 31 | Change | |||||||||||||||||||
|
2010/
|
2009/
|
|||||||||||||||||||
| 2010 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Human resources
|
$ 15,504 | 14,707 | 15,943 | 5 | % | (8 | )% | |||||||||||||
|
Finance
|
53,409 | 51,353 | 55,835 | 4 | (8 | ) | ||||||||||||||
|
Corporate services and public affairs
|
11,440 | 11,556 | 13,117 | (1 | ) | (12 | ) | |||||||||||||
|
Information technology
|
56,873 | 52,826 | 57,538 | 8 | (8 | ) | ||||||||||||||
|
Health and safety
|
6,690 | 6,673 | 7,754 | — | (14 | ) | ||||||||||||||
|
Other
|
39,794 | 30,450 | 34,847 | 31 | (13 | ) | ||||||||||||||
|
Total CSS
|
183,710 | 167,565 | 185,034 | 10 | (9 | ) | ||||||||||||||
|
Allocation of CSS to business segments
|
(142,179 | ) | (131,731 | ) | (146,732 | ) | (8 | ) | 10 | |||||||||||
|
Unallocated CSS
|
$ 41,531 | 35,834 | 38,302 | 16 | % | (6 | )% | |||||||||||||
2010
versus 2009
Total CSS costs increased 10% in 2010 to $184 million
primarily due to increased compensation costs, information
technology investments and professional service fees related to
strategic initiatives. Unallocated CSS costs increased due to
higher compensation costs.
2009
versus 2008
Total CSS costs decreased 9% in 2009 to $168 million
reflecting lower spending across all functional areas as a
result of cost reduction actions implemented in early 2009 and
lower incentive-based compensation. These items were partially
offset by higher professional service fees on cost savings
initiatives. Unallocated CSS costs decreased 6% in 2009 to
$36 million primarily due to lower incentive-based
compensation offset slightly by higher spending on cost savings
initiatives.
38
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FOURTH
QUARTER CONSOLIDATED RESULTS
|
Three months ended
|
||||||||||||
| December 31, | Change | |||||||||||
| 2010 | 2009 | 2010/ 2009 | ||||||||||
|
(Dollars and shares in thousands,
|
||||||||||||
|
except per share amounts)
|
||||||||||||
|
Total revenue
|
$1,313,426 | 1,246,968 | 5 | % | ||||||||
|
Operating revenue
|
$1,061,939 | 1,019,822 | 4 | % | ||||||||
|
Earnings from continuing operations before income taxes
|
$ 49,608 | 31,800 | 56 | % | ||||||||
|
Provision for income taxes
|
8,146 | 8,130 | — | |||||||||
|
Earnings from continuing operations
|
41,462 | 23,670 | 75 | |||||||||
|
Loss from discontinued operations, net of tax
|
(4,341 | ) | (15,422 | ) | (72 | ) | ||||||
|
Net earnings
|
$ 37,121 | 8,248 | 350 | % | ||||||||
|
Earnings (loss) per common share — Diluted
|
||||||||||||
|
Continuing operations
|
$ 0.80 | 0.43 | 86 | % | ||||||||
|
Discontinued operations
|
(0.08 | ) | (0.28 | ) | (71 | ) | ||||||
|
Net earnings
|
$ 0.72 | 0.15 | 380 | % | ||||||||
|
Weighted-average shares outstanding — Diluted
|
51,040 | 54,235 | (6 | )% | ||||||||
Total revenue increased 5% in the fourth quarter of 2010 to
$1.31 billion primarily due to higher operating revenue in
all our business segments and higher fuel services revenue.
Operating revenue increased 4% in the fourth quarter of 2010 to
$1.06 billion primarily due to higher commercial rental
revenue, and to a lesser extent, improved SCS high-tech and
automotive volumes. The increase in revenue was partially offset
by lower full service lease revenue. Total revenue and operating
revenue in the fourth quarter of 2010 included a favorable
foreign exchange impact of 0.4% and 0.3%, respectively.
Earnings from continuing operations before income taxes (NBT)
increased 56% in the fourth quarter of 2010 to $50 million
which reflects significantly higher earnings in our FMS business
segment driven by better commercial rental performance and
improved used vehicle results. The higher earnings were
partially offset by lower full service lease performance
resulting from higher maintenance costs due to fleet aging and
the cumulative impact of customer fleet reductions. Fourth
quarter 2010 results also included a $1.5 million pension
settlement charge, allocated between the FMS and SCS business
segments.
Earnings from continuing operations in the fourth quarter of
2010 included a net benefit of $8 million or $0.15 per
diluted common share related to certain tax benefits, partially
offset by restructuring and other items. The tax benefits
related to a favorable settlement of prior tax year’s
audits and the expiration of a statute of limitation.
Restructuring and other items related to costs incurred on the
TLC acquisition and were partially offset by a gain on sale of
an international supply chain facility. Earnings from continuing
operations in the fourth quarter of 2009 included a net benefit
of $1 million or $0.02 per diluted common share related
primarily to changes in Canadian income tax laws partially
offset by an impairment charge related to the facility sold in
2010.
Earnings per share growth in the fourth quarter of 2010 exceeded
the net earnings growth reflecting the impact of share
repurchase programs.
39
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
In 2009, we discontinued SCS operations in South America and
Europe. Accordingly, results of these operations are reported as
discontinued operations for all periods presented. Pre-tax
losses from discontinued operations totaled $5 million
($4 million
after-tax
or
$0.08 per diluted share) for the three months ended
December 31, 2010, compared with a loss of $15 million
($15 million
after-tax
or
$0.28 per diluted share) in the year-earlier period. Results of
discontinued operations for 2010 included a loss on a lease
facility, which we no longer operate, and losses related to
adverse legal developments. Results of discontinued operations
for the fourth quarter of 2009 included accumulated foreign
currency translation losses associated with the substantial
liquidation of investments in certain discontinued operations.
FOURTH
QUARTER OPERATING RESULTS BY BUSINESS SEGMENT
| Three months ended December 31, | Change | |||||||||||
| 2010 | 2009 | 2010/2009 | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Revenue:
|
||||||||||||
|
Fleet Management Solutions
|
$ 948,060 | 900,219 | 5 | % | ||||||||
|
Supply Chain Solutions
|
325,094 | 302,085 | 8 | |||||||||
|
Dedicated Contract Carriage
|
121,825 | 119,267 | 2 | |||||||||
|
Eliminations
|
(81,553 | ) | (74,603 | ) | (9 | ) | ||||||
|
Total
|
$1,313,426 | 1,246,968 | 5 | % | ||||||||
|
Operating Revenue:
|
||||||||||||
|
Fleet Management Solutions
|
$ 726,254 | 699,452 | 4 | % | ||||||||
|
Supply Chain Solutions
|
258,309 | 247,596 | 4 | |||||||||
|
Dedicated Contract Carriage
|
119,257 | 113,444 | 5 | |||||||||
|
Eliminations
|
(41,881 | ) | (40,670 | ) | (3 | ) | ||||||
|
Total
|
$1,061,939 | 1,019,822 | 4 | % | ||||||||
|
NBT:
|
||||||||||||
|
Fleet Management Solutions
|
$ 49,498 | 31,946 | 55 | % | ||||||||
|
Supply Chain Solutions
|
12,327 | 11,739 | 5 | |||||||||
|
Dedicated Contract Carriage
|
6,529 | 6,922 | (6 | ) | ||||||||
|
Eliminations
|
(4,770 | ) | (4,883 | ) | 2 | |||||||
| 63,584 | 45,724 | 39 | ||||||||||
|
Unallocated Central Support Services
|
(10,825 | ) | (11,253 | ) | 4 | |||||||
|
Restructuring and other charges, net and other items
|
(3,151 | ) | (2,671 | ) | NM | |||||||
|
Earnings from continuing operations before income taxes
|
$ 49,608 | 31,800 | 56 | % | ||||||||
Fleet Management Solutions
Total revenue increased 5% to $948 million in the fourth
quarter of 2010 reflecting higher operating revenue and fuel
services revenue. Operating revenue increased 4% to
$726 million in the fourth quarter of 2010 because of
higher commercial rental revenue reflecting strong global market
demand and higher pricing. The increase in operating revenue was
partially offset by lower contractual revenue reflecting the
cumulative impact of customer fleet downsizings.
FMS NBT increased 55% to $49 million in the fourth quarter
of 2010 reflecting significantly better commercial rental
performance, improved used vehicle sales results and lower
retirement plans expense. These
40
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
items were partially offset by lower full service lease results,
higher compensation costs and investments in sales and
information technology investments.
Supply Chain Solutions
Total revenue increased 8% to $325 million in the fourth
quarter of 2010 and operating revenue increased 4% to
$258 million in the fourth quarter of 2010. Both total
revenue and operating revenue increased primarily due to
improved high-tech and automotive volumes and new business.
SCS NBT increased 5% to $12 million in the fourth quarter
of 2010 because of better operating performance particularly in
high-tech accounts partially offset by higher compensation costs
and a pension settlement charge of $1 million.
Dedicated Contract Carriage
Total revenue increased 2% to $122 million in the fourth
quarter of 2010 and operating revenue increased 5% to
$119 million in the fourth quarter of 2010. Both total
revenue and operating revenue increased due to the pass-through
of higher fuel costs and net new business.
DCC NBT decreased 6% to $7 million in the fourth quarter of
2010 because of lower operating performance reflecting increased
driver costs.
Central Support Services
Unallocated CSS costs decreased 4% to $11 million in the
fourth quarter of 2010 because of lower professional fees
partially offset by higher compensation costs.
FINANCIAL
RESOURCES AND LIQUIDITY
Cash Flows
The following is a summary of our cash flows from operating,
financing and investing activities from continuing operations:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Net cash provided by (used in):
|
||||||||||||
|
Operating activities
|
$ | 1,028,034 | 984,956 | 1,248,169 | ||||||||
|
Financing activities
|
78,166 | (542,016 | ) | (148,152 | ) | |||||||
|
Investing activities
|
(982,464 | ) | (448,610 | ) | (1,103,468 | ) | ||||||
|
Effect of exchange rate changes on cash
|
1,723 | 1,794 | 1,408 | |||||||||
|
Net change in cash and cash equivalents
|
$ | 125,459 | (3,876 | ) | (2,043 | ) | ||||||
Cash provided by operating activities from continuing operations
increased to $1.03 billion in 2010 compared with
$985 million in 2009 because of reduced working capital
needs primarily from lower pension contributions and
compensation-related payments, partially offset by lower cash
based earnings. Cash provided by financing activities increased
to $78 million in 2010 from cash used in financing
activities of $542 million in 2009 reflecting higher
borrowing needs to fund capital spending, including
acquisitions. Cash used in investing activities increased to
$982 million in 2010 compared with $449 million in
2009 primarily due to higher vehicle capital spending and
acquisition-related payments in 2010.
Cash provided by operating activities from continuing operations
decreased to $985 million in 2009 compared with
$1.25 billion in 2008 because of lower cash-based earnings
and higher pension contributions. Cash used in financing
activities increased to $542 million in 2009 compared with
$148 million in 2008
41
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
reflecting higher net debt repayments resulting from less
borrowing needs to fund capital spending, including
acquisitions. Cash used in investing activities decreased to
$449 million in 2009 compared with $1.10 billion in
2008 primarily due to lower vehicle capital spending and
acquisition-related payments in 2009.
Our principal sources of operating liquidity are cash from
operations and proceeds from the sale of revenue earning
equipment. We refer to the sum of operating cash flows, proceeds
from the sales of revenue earning equipment and operating
property and equipment, collections on direct finance leases,
sale and leaseback of revenue earning equipment and other cash
inflows as “total cash generated.” We refer to the net
amount of cash generated from operating and investing activities
(excluding changes in restricted cash and acquisitions) as
“free cash flow.” Although total cash generated and
free cash flow are non-GAAP financial measures, we consider them
to be important measures of comparative operating performance.
We also believe total cash generated to be an important measure
of total cash inflows generated from our ongoing business
activities. We believe free cash flow provides investors with an
important perspective on the cash available for debt service,
acquisitions and for shareholders after making capital
investments required to support ongoing business operations. Our
calculation of free cash flow may be different from the
calculation used by other companies and therefore comparability
may be limited.
The following table shows the sources of our free cash flow
computation:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Net cash provided by operating activities
|
$ | 1,028,034 | 984,956 | 1,248,169 | ||||||||
|
Sales of revenue earning equipment
|
220,843 | 211,002 | 257,679 | |||||||||
|
Sales of operating property and equipment
|
13,844 | 4,634 | 3,727 | |||||||||
|
Collections on direct finance leases
|
61,767 | 65,242 | 61,096 | |||||||||
|
Other, net
|
3,178 | 209 | 395 | |||||||||
|
Total cash generated
|
1,327,666 | 1,266,043 | 1,571,066 | |||||||||
|
Purchases of property and revenue earning equipment
|
(1,070,092 | ) | (651,953 | ) | (1,230,401 | ) | ||||||
|
Free cash flow
|
$ | 257,574 | 614,090 | 340,665 | ||||||||
Free cash flow decreased to $258 million in 2010 compared
with $614 million in 2009 primarily due to higher vehicle
capital spending and lower cash-based earnings partially offset
by lower pension contributions. Free cash flow increased to
$614 million in 2009 compared with $341 million in
2008 as lower net capital expenditures were partially offset by
lower cash-based earnings and higher pension contributions. We
expect negative free cash flow in 2011 to be approximately
$265 million reflecting higher capital expenditures.
Capital expenditures are generally used to purchase revenue
earning equipment (trucks, tractors and trailers) within our FMS
segment. These expenditures primarily support the full service
lease product line and also the commercial rental product line.
The level of capital required to support the full service lease
product line varies directly with the customer contract signings
for replacement vehicles and growth. These contracts are
long-term agreements that result in predictable cash flows
typically over a three to seven year term for trucks and
tractors and ten years for trailers. The commercial rental
product line utilizes capital for the purchase of vehicles to
replenish and expand the fleet available for shorter-term use by
contractual or occasional customers. Operating property and
equipment expenditures primarily relate to FMS and SCS spending
on items such as vehicle maintenance facilities and equipment,
computer and telecommunications equipment, investments in
technologies and warehouse facilities and equipment.
42
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
The following is a summary of capital expenditures:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Revenue earning equipment:
|
||||||||||||
|
Full service lease
|
$ | 646,671 | 547,750 | 985,924 | ||||||||
|
Commercial rental
|
378,678 | 7,436 | 171,128 | |||||||||
| 1,025,349 | 555,186 | 1,157,052 | ||||||||||
|
Operating property and equipment
|
62,302 | 56,216 | 108,284 | |||||||||
|
Total capital
expenditures
(1)
|
1,087,651 | 611,402 | 1,265,336 | |||||||||
|
Changes in accounts payable related to purchases of revenue
earning equipment
|
(17,559 | ) | 40,551 | (34,935 | ) | |||||||
|
Cash paid for purchases of property and revenue earning equipment
|
$ | 1,070,092 | 651,953 | 1,230,401 | ||||||||
| (1) | Capital expenditures exclude non-cash additions of approximately $2 million and $1 million in 2009 and 2008, respectively, in assets held under capital leases resulting from the extension of existing operating leases and other additions. |
Capital expenditures (accrual basis) increased 78% to
$1.09 billion in 2010 primarily as a result of a planned
increase in commercial rental spending to refresh and grow the
fleet. Capital expenditures decreased 52% to $611 million
in 2009 as a result of reduced full service lease vehicle
spending due to lower new and replacement sales in the current
global economic environment, as well as increased use of lease
term extensions and used vehicle redeployments. Additionally,
the decrease reflects planned minimal spending on transactional
commercial rental vehicles. We expect capital expenditures to
increase to $1.75 billion, as we make investments in both
the lease and rental fleet. We expect to fund 2011 capital
expenditures with both internally generated funds and additional
financing.
Working Capital
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
Current assets
|
$ | 1,023,301 | $ | 880,373 | ||||
|
Current liabilities
|
1,131,519 | 850,274 | ||||||
|
Working capital
|
$ | (108,218 | ) | $ | 30,099 | |||
Our net working capital (current assets less current
liabilities) was $(108) million at December 31, 2010
compared with $30 million at December 31, 2009. The
decrease in net working capital was primarily due to an increase
of $188 million in the current portion of long-term debt.
Excluding the increase in short-term debt, other working capital
components increased $49 million resulting from higher cash
flows partially offset by higher accrued compensation.
Financing
and Other Funding Transactions
We utilize external capital primarily to support working capital
needs and growth in our asset-based product lines. The variety
of financing alternatives typically available to fund our
capital needs include commercial paper, long-term and
medium-term public and private debt, asset-backed securities,
bank term loans, leasing arrangements and bank credit
facilities. Our principal sources of financing are issuances of
commercial paper and medium-term notes.
Our ability to access unsecured debt in the capital markets is
linked to both our short-term and long-term debt ratings. These
ratings are intended to provide guidance to fixed income
investors in determining the
43
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
credit risk associated with particular Ryder securities based on
current information obtained by the rating agencies from us or
from other sources. Lower ratings generally result in higher
borrowing costs as well as reduced access to unsecured capital
markets. A downgrade of our short-term debt ratings to a lower
tier would impair our ability to issue commercial paper. As a
result, we would have to rely on alternative funding sources. A
downgrade of our debt ratings would not affect our ability to
borrow amounts under our revolving credit facility described
below, given ongoing compliance with the terms and conditions of
the credit facility.
Our debt ratings at December 31, 2010 were as follows:
| Short-term | Long-term | Outlook | ||||||||
|
Moody’s Investors Service
|
P2 | Baa1 | Stable (affirmed February 2011) | |||||||
|
Standard & Poor’s Ratings Services
|
A2 | BBB+ | Stable (raised August 2010) | |||||||
|
Fitch Ratings
|
F2 | A− | Stable (affirmed March 2010) | |||||||
We believe that our operating cash flows, together with our
access to commercial paper markets and other available debt
financing, will be adequate to meet our operating, investing and
financing needs in the foreseeable future. However, there can be
no assurance that unanticipated volatility and disruption in
commercial paper markets would not impair our ability to access
these markets on terms commercially acceptable to us or at all.
If we cease to have access to commercial paper and other sources
of unsecured borrowings, we would meet our liquidity needs by
drawing upon contractually committed lending agreements as
described below
and/or
by
seeking other funding sources.
We can borrow up to $875 million under a global revolving
credit facility with a syndicate of thirteen lending
institutions led by Bank of America N.A., Bank of
Tokyo-Mitsubishi UFJ, Ltd., Mizuho Corporate Bank, Ltd., Royal
Bank of Scotland Plc and Wells Fargo N.A. The global credit
facility matures in April 2012 and is used primarily to finance
working capital and provide support for the issuance of
unsecured commercial paper in the U.S. and Canada. This
facility can also be used to issue up to $75 million in
letters of credit (there were no letters of credit outstanding
against the facility at December 31, 2010). At our option,
the interest rate on borrowings under the credit facility is
based on LIBOR, prime, federal funds or local equivalent rates.
The agreement provides for annual facility fees, which range
from 22.5 basis points to 62.5 basis points, and are
based on Ryder’s long-term credit ratings. The credit
facility’s current annual facility fee is 37.5 basis
points, which applies to the total facility size of
$875 million. The credit facility contains no provisions
limiting its availability in the event of a material adverse
change to Ryder’s business operations; however, the credit
facility does contain standard representations and warranties,
events of default, cross-default provisions, and certain
affirmative and negative covenants. In order to maintain
availability of funding, we must maintain a ratio of debt to
consolidated tangible net worth, of less than or equal to 300%.
Tangible net worth, as defined in the credit facility, includes
50% of our deferred federal income tax liability and excludes
the book value of our intangible assets. The ratio at
December 31, 2010 was 189%. At December 31, 2010,
$506 million was available under the credit facility, net
of the support for commercial paper borrowings.
Our global revolving credit facility permits us to refinance
short-term commercial paper obligations on a long-term basis.
Settlement of short-term commercial paper obligations not
expected to require the use of working capital are classified as
long-term as we have both the intent and ability to refinance on
a long-term basis.
We have a trade receivables purchase and sale program, pursuant
to which we sell certain of our domestic trade accounts
receivable to a bankruptcy remote, consolidated subsidiary of
Ryder, that in turn sells, on a revolving basis, an ownership
interest in certain of these accounts receivable to a
receivables conduit or committed purchasers. We use this program
to provide additional liquidity to fund our operations,
particularly when it is cost effective to do so. The costs under
the program may vary based on changes in interest rates. The
available proceeds amounts that may be received under the
program are limited to $175 million. In
44
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
October 2010, we renewed the trade receivables purchase and
sales program. If no event occurs which causes early
termination, the
364-day
program will expire on October 28, 2011. The program
contains provisions restricting its availability in the event of
a material adverse change to our business operations or the
collectibility of the collateralized receivables. At
December 31, 2010 and December 31, 2009, no amounts
were outstanding under the program.
Historically, we have established asset-backed securitization
programs whereby we have sold beneficial interests in certain
long-term vehicle leases and related vehicle residuals to a
bankruptcy-remote special purpose entity that in turn transfers
the beneficial interest to a special purpose securitization
trust in exchange for cash. The securitization trust funds the
cash requirement with the issuance of asset-backed securities,
secured or otherwise collateralized by the beneficial interest
in the long-term vehicle leases and the residual value of the
vehicles. The securitization provides us with further liquidity
and access to additional capital markets based on market
conditions. On June 18, 2008, Ryder Funding II LP, a
special purpose bankruptcy-remote subsidiary wholly-owned by
Ryder, filed a registration statement on
Form S-3
with the Securities and Exchange Commission (SEC) for the
registration of $600 million in asset-backed notes. The
registration statement became effective on November 6, 2008
and remains effective until November 6, 2011.
On February 25, 2010, Ryder filed an automatic shelf
registration statement on
Form S-3
with the SEC. The registration is for an indeterminate number of
securities and is effective for three years. Under this
universal shelf registration statement, we have the capacity to
offer and sell from time to time various types of securities,
including common stock, preferred stock and debt securities,
subject to market demand and ratings status.
In September 2010, we issued $300 million of unsecured
medium-term notes maturing in March 2016. If the notes are
downgraded following, and as a result of, a change of control,
the note holder can require us to repurchase all or a portion of
the notes at a purchase price equal to 101% of the principal
amount plus accrued and unpaid interest. The medium-term notes
were issued to take advantage of historically low interest rates
and fund capital expenditures and debt maturities.
At December 31, 2010, we had the following amounts
available to fund operations under the aforementioned facilities:
| (In millions) | ||||
|
Global revolving credit facility
|
$ | 506 | ||
|
Trade receivables program
|
175 | |||
45
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
The following table shows the movements in our debt balance:
| Years ended December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Debt balance at January 1
|
$ | 2,497,691 | 2,862,799 | |||||
|
Cash-related changes in debt:
|
||||||||
|
Net change in commercial paper borrowings
|
174,939 | 148,256 | ||||||
|
Proceeds from issuance of medium-term notes
|
300,000 | — | ||||||
|
Proceeds from issuance of other debt instruments
|
14,169 | 2,014 | ||||||
|
Retirement of medium-term notes and debentures
|
(175,000 | ) | (276,000 | ) | ||||
|
Other debt repaid, including capital lease obligations
|
(73,668 | ) | (243,710 | ) | ||||
|
Net change from discontinued operations
|
(2,955 | ) | (9,427 | ) | ||||
| 237,485 | (378,867 | ) | ||||||
|
Non-cash changes in debt:
|
||||||||
|
Fair market value adjustment on notes subject to hedging
|
3,328 | (6,290 | ) | |||||
|
Addition of capital lease obligations, including acquisitions
|
2,164 | 1,949 | ||||||
|
Changes in foreign currency exchange rates and other non-cash
items
|
6,334 | 18,100 | ||||||
|
Total changes in debt
|
249,311 | (365,108 | ) | |||||
|
Debt balance at December 31
|
$ | 2,747,002 | 2,497,691 | |||||
In accordance with our funding philosophy, we attempt to match
the aggregate average remaining re-pricing life of our debt with
the aggregate average remaining re-pricing life of our assets.
We utilize both fixed-rate and variable-rate debt to achieve
this match and generally target a mix of 25% — 45%
variable-rate debt as a percentage of total debt outstanding.
The variable-rate portion of our total obligations (including
notional value of swap agreements) was 28% and 26% at
December 31, 2010 and 2009, respectively.
Ryder’s leverage ratios and a reconciliation of on-balance
sheet debt to total obligations were as follows:
|
December 31,
|
%
|
December 31,
|
%
|
|||||||||
| 2010 | of Equity | 2009 | of Equity | |||||||||
| (Dollars in thousands) | ||||||||||||
|
On-balance sheet debt
|
$ | 2,747,002 | 196% | $ | 2,497,691 | 175% | ||||||
|
Off-balance sheet debt — PV of minimum lease
payments and guaranteed residual values under operating leases
for
vehicles
(1)
|
99,797 | 118,828 | ||||||||||
|
Total obligations
|
$ | 2,846,799 | 203% | $ | 2,616,519 | 183% | ||||||
| (1) | Present value (PV) does not reflect payments we would be required to make if we terminated the related leases prior to the scheduled expiration dates. |
On-balance sheet debt to equity consists of balance sheet debt
divided by total equity. Total obligations to equity represents
balance sheet debt plus the present value of minimum lease
payments and guaranteed residual values under operating leases
for vehicles, discounted based on our incremental borrowing rate
at lease inception, all divided by total equity. Although total
obligations is a non-GAAP financial measure, we believe that
total obligations is useful as it provides a more complete
analysis of our existing financial obligations and helps better
assess our overall leverage position. The increase in our
leverage ratios in 2010 was driven by increased funding needs to
support acquisitions and stock repurchases.
46
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Off-Balance
Sheet Arrangements
Sale and leaseback transactions.
We
periodically enter into sale and leaseback transactions in order
to lower the total cost of funding our operations, to diversify
our funding among different classes of investors (e.g., regional
banks, pension plans, insurance companies, etc.) and to
diversify our funding among different types of funding
instruments. These sale-leaseback transactions are often
executed with third-party financial institutions. In general,
these sale-leaseback transactions result in a reduction in
revenue earning equipment and debt on the balance sheet, as
proceeds from the sale of revenue earning equipment are
primarily used to repay debt. Accordingly, sale-leaseback
transactions will result in reduced depreciation and interest
expense and increased equipment rental expense.
Our sale-leaseback transactions contain limited guarantees by us
of the residual values of the leased vehicles (residual value
guarantees) that are conditioned upon disposal of the leased
vehicles prior to the end of their lease term. The amount of
future payments for residual value guarantees will depend on the
market for used vehicles and the condition of the vehicles at
time of disposal. See Note 19, “Guarantees,” in
the Notes to Consolidated Financial Statements for additional
information. We did not enter into any sale-leaseback
transactions during the years ended December 31, 2010 and
2009.
Guarantees.
We executed various agreements
with third parties that contain standard indemnifications that
may require us to indemnify a third party against losses arising
from a variety of matters such as lease obligations, financing
agreements, environmental matters, and agreements to sell
business assets. In each of these instances, payment by us is
contingent on the other party bringing about a claim under the
procedures outlined in the specific agreement. Normally, these
procedures allow us to dispute the other party’s claim.
Additionally, our obligations under these agreements may be
limited in terms of the amount
and/or
timing of any claim. We have entered into individual
indemnification agreements with each of our independent
directors, through which we will indemnify such director acting
in good faith against any and all losses, expenses and
liabilities arising out of such director’s service as a
director of Ryder. The maximum amount of potential future
payments under these agreements is generally unlimited.
We cannot predict the maximum potential amount of future
payments under certain of these agreements, including the
indemnification agreements, due to the contingent nature of the
potential obligations and the distinctive provisions that are
involved in each individual agreement. Historically, no such
payments made by Ryder have had a material effect on our
consolidated financial statements. We believe that if a loss
were incurred in any of these matters, the loss would not result
in a material impact on our consolidated results of operations
or financial position. The total amount of maximum exposure
determinable under these types of provisions at
December 31, 2010 and 2009, was $9 million and
$11 million, respectively, and we accrued $8 million
in 2010 and $9 million in 2009 as a corresponding
liability. See Note 19, “Guarantees,” in the
Notes to Consolidated Financial Statements for further
discussion.
47
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Contractual
Obligations and Commitments
As part of our ongoing operations, we enter into arrangements
that obligate us to make future payments under contracts such as
debt agreements, lease agreements and unconditional purchase
obligations. The following table summarizes our expected future
contractual cash obligations and commitments at
December 31, 2010:
| 2011 | 2012- 2013 | 2014- 2015 | Thereafter | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Debt
|
$ | 417,932 | 980,814 | 558,273 | 763,185 | 2,720,204 | ||||||||||||||
|
Capital lease obligations
|
2,153 | 4,240 | 3,952 | 1,024 | 11,369 | |||||||||||||||
|
Total debt, including capital
leases
(1)
|
420,085 | 985,054 | 562,225 | 764,209 | 2,731,573 | |||||||||||||||
|
Interest on
debt
(2)
|
116,741 | 180,245 | 119,156 | 124,968 | 541,110 | |||||||||||||||
|
Operating
leases
(3)
|
100,156 | 116,839 | 62,839 | 27,230 | 307,064 | |||||||||||||||
|
Purchase
obligations
(4)
|
309,927 | 18,447 | 11,545 | 7,746 | 347,665 | |||||||||||||||
|
Total contractual cash obligations
|
526,824 | 315,531 | 193,540 | 159,944 | 1,195,839 | |||||||||||||||
|
Insurance obligations (primarily self-insurance)
|
110,697 | 87,669 | 33,756 | 27,214 | 259,336 | |||||||||||||||
|
Other long-term
liabilities
(5),(6),(7)
|
6,103 | 5,529 | 2,200 | 46,535 | 60,367 | |||||||||||||||
|
Total
|
$ | 1,063,709 | 1,393,783 | 791,721 | 997,902 | 4,247,115 | ||||||||||||||
| (1) | Net of unamortized discount. | |
| (2) | Total debt matures at various dates through fiscal year 2025 and bears interest principally at fixed rates. Interest on variable-rate debt is calculated based on the applicable rate at December 31, 2010. Amounts are based on existing debt obligations, including capital leases, and do not consider potential refinancing of expiring debt obligations. | |
| (3) | Represents future lease payments associated with vehicles, equipment and properties under operating leases. Amounts are based upon the general assumption that the leased asset will remain on lease for the length of time specified by the respective lease agreements. No effect has been given to renewals, cancellations, contingent rentals or future rate changes. | |
| (4) | The majority of our purchase obligations are pay-as-you-go transactions made in the ordinary course of business. Purchase obligations include agreements to purchase goods or services that are legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed minimum or variable price provisions; and the approximate timing of the transaction. The most significant item included in the above table are purchase obligations related to vehicles. Purchase orders made in the ordinary course of business that are cancelable are excluded from the above table. Any amounts for which we are liable under purchase orders for goods received are reflected in our Consolidated Balance Sheets as “Accounts payable” and “Accrued expenses and other current liabilities” and are excluded from the above table. | |
| (5) | Represents other long-term liability amounts reflected in our Consolidated Balance Sheets that have known payment streams. The most significant items included were asset retirement obligations and deferred compensation obligations. | |
| (6) | The amounts exclude our estimated pension contributions. For 2011, our pension contributions, including our minimum funding requirements as set forth by ERISA and international regulatory bodies, are expected to be $15 million. Our minimum funding requirements after 2011 are dependent on several factors. However, we estimate that the undiscounted required global contributions over the next five years are approximately $396 million (pre-tax) (assuming expected long-term rate of return realized and other assumptions remain unchanged). We also have payments due under our other postretirement benefit (OPEB) plans. These plans are not required to be funded in advance, but are pay-as-you-go. See Note 24, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements for additional information. | |
| (7) | The amounts exclude $67 million of liabilities associated with uncertain tax positions as we are unable to reasonably estimate the ultimate amount or timing of settlement. See Note 14, “Income Taxes,” in the Notes to Consolidated Financial Statements for additional information. |
48
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Pension
Information
Over the past few years we have made the following amendments to
our defined benefit retirement plans:
| • | In July 2009, our Board of Directors approved an amendment to freeze our United Kingdom (UK) retirement plan for all participants effective March 31, 2010. | |
| • | In July 2008, our Board of Directors approved an amendment to freeze the defined benefit portion of our Canadian retirement plan effective January 1, 2010 for current participants who do not meet certain grandfathering criteria. | |
| • | In January 2007, our Board of Directors approved the amendment to freeze the U.S. pension plans effective December 31, 2007 for current participants who did not meet certain grandfathering criteria. |
As a result of these amendments, non-grandfathered plan
participants ceased accruing benefits under the plan as of the
respective amendment effective date and began receiving an
enhanced benefit under a defined contribution plan. All
retirement benefits earned as of the amendment effective date
were fully preserved and will be paid in accordance with the
plan and legal requirements. The freeze of the Canadian defined
benefit plan created a pre-tax curtailment gain in 2008 of
$4 million. There was no material impact to our financial
condition and operating results from the other plan amendments
in 2010 or 2009.
Due to the underfunded status of our defined benefit plans, we
had an accumulated net pension equity charge (after-tax) of
$423 million and $412 million at December 31,
2010 and 2009, respectively. The higher equity charge in 2010
reflects the impact of a lower discount rate partially offset by
higher actual returns compared to the expected asset returns
during 2010. The total asset return for our U.S. qualified
pension plan (our primary plan) was 12% in 2010.
The funded status of our pension plans is dependent upon many
factors, including returns on invested assets and the level of
certain market interest rates. We review pension assumptions
regularly and we may from time to time make voluntary
contributions to our pension plans, which exceed the amounts
required by statute. During 2010, total pension contributions,
including our international plans, were $64 million
compared with $131 million in 2009. We made voluntary
pension contributions of $50 million in 2010. We estimate
2011 required pension contributions will be $15 million.
After considering the 2010 contributions and asset performance,
the projected estimated global pension contributions that would
be required over the next 5 years totals approximately
$396 million (pre-tax). Changes in interest rates and the
market value of the securities held by the plans could
materially change, positively or negatively, the funded status
of the plans and affect the level of pension expense and
required contributions in future years. The ultimate amount of
contributions is also dependent upon the requirements of
applicable laws and regulations. See Note 24,
“Employee Benefit Plans,” in the Notes to Consolidated
Financial Statements for additional information.
We participate in twelve U.S. multi-employer pension (MEP)
plans that provide defined benefits to employees covered by
collective bargaining agreements. At December 31, 2010,
approximately 1,100 employees (approximately 4% of total
employees) participated in these MEP plans. The annual net
pension cost of the MEP plans is equal to the annual
contribution determined in accordance with the provisions of
negotiated labor contracts. Our current annualized MEP plan
contributions total approximately $5 million. Pursuant to
current U.S. pension laws, if any MEP plans fail to meet
certain minimum funding thresholds, we could be required to make
additional MEP plan contributions, until the respective labor
agreement expires, of up to 10% of current contractual
requirements. Several factors could cause MEP plans not to meet
these minimum funding thresholds, including unfavorable
investment performance, changes in participant demographics, and
increased benefits to participants. The plan administrators and
trustees of the MEP plans provide us with the annual funding
notice as required by law. This notice sets forth the funded
status of the plan as of the beginning of the prior year but
does not provide any company-specific information.
49
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Employers participating in MEP plans can elect to withdraw from
the plans, contingent upon labor union consent, and be subject
to a withdrawal obligation based on, among other factors, the
MEP plan’s unfunded vested benefits. U.S. pension
regulations provide that an employer can fund its withdrawal
obligation in a lump sum or over a time period of up to
20 years based on previous contribution rates. Based on the
most recently available plan information, collectively as of
January 2009, we estimate our pre-tax contingent MEP plan
withdrawal obligation to be approximately $29 million. We
have no current intention of taking any action that would
subject us to the payment of material withdrawal obligations;
however, under applicable law, in very limited circumstances,
the plan trustee can impose these obligations on us.
Share
Repurchase Programs and Cash Dividends
Refer to Note 20, “Share Repurchase Programs,” in
the Notes to Consolidated Financial Statements for further
discussion on our share repurchase programs.
Cash dividend payments to shareholders of common stock were
$54 million in 2010, $53 million in 2009, and
$52 million in 2008. During 2010, we increased our annual
dividend to $1.08 per share of common stock.
Market
Risk
In the normal course of business, we are exposed to fluctuations
in interest rates, foreign currency exchange rates and fuel
prices. We manage these exposures in several ways, including, in
certain circumstances, the use of a variety of derivative
financial instruments when deemed prudent. We do not enter into
leveraged derivative financial transactions or use derivative
financial instruments for trading purposes.
Exposure to market risk for changes in interest rates exists for
our debt obligations. Our interest rate risk management program
objectives are to limit the impact of interest rate changes on
earnings and cash flows and to lower overall borrowing costs. We
manage our exposure to interest rate risk primarily through the
proportion of fixed-rate and variable-rate debt we hold in the
total debt portfolio. From time to time, we also use interest
rate swap and cap agreements to manage our fixed-rate and
variable-rate exposure and to better match the repricing of debt
instruments to that of our portfolio of assets. See
Note 18, “Derivatives,” in the Notes to
Consolidated Financial Statements for further discussion on
interest rate swap agreements.
At December 31, 2010, we had $1.99 billion of
fixed-rate debt outstanding (excluding capital leases) with a
weighted-average interest rate of 5.6% and a fair value of
$2.12 billion. A hypothetical 10% decrease or increase in
the December 31, 2010 market interest rates would impact
the fair value of our fixed-rate debt by approximately
$32 million at December 31, 2010. Changes in the
relative sensitivity of the fair value of our financial
instrument portfolio for these theoretical changes in the level
of interest rates are primarily driven by changes in our debt
maturities, interest rate profile and amount.
At December 31, 2010, we had $742 million of
variable-rate debt, including the impact of an interest rate
swap, which effectively changed $250 million of fixed-rate
debt instruments with an interest rate of 6.0% to LIBOR-based
floating-rate debt with an interest rate of 2.63%. Changes in
the fair value of the interest rate swap were offset by changes
in the fair value of the debt instruments and no net gain or
loss was recognized in earnings. The fair value of our interest
rate swap agreement at December 31, 2010 was recorded as an
asset totaling $15 million. The fair value of our
variable-rate debt at December 31, 2010 was
$741 million. A hypothetical 10 basis point change in
market interest rates would impact pre-tax earnings from
continuing operations by approximately $0.7 million.
We also are subject to interest rate risk with respect to our
pension and postretirement benefit obligations, as changes in
interest rates will effectively increase or decrease our
liabilities associated with these benefit plans, which also
results in changes to the amount of pension and postretirement
benefit expense recognized each period.
50
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Exposure to market risk for changes in foreign currency exchange
rates relates primarily to our foreign operations’ buying,
selling and financing in currencies other than local currencies
and to the carrying value of net investments in foreign
subsidiaries. The majority of our transactions are denominated
in U.S. dollars. The principal foreign currency exchange
rate risks to which we are exposed include the Canadian dollar,
British pound sterling and Mexican peso. We manage our exposure
to foreign currency exchange rate risk related to our foreign
operations’ buying, selling and financing in currencies
other than local currencies by naturally offsetting assets and
liabilities not denominated in local currencies to the extent
possible. A hypothetical uniform 10% strengthening in the value
of the dollar relative to all the currencies in which our
transactions are denominated would result in a decrease to
pre-tax earnings from continuing operations of approximately
$4 million. We also use foreign currency option contracts
and forward agreements from time to time to hedge foreign
currency transactional exposure. We generally do not hedge the
translation exposure related to our net investment in foreign
subsidiaries, since we generally have no near-term intent to
repatriate funds from such subsidiaries.
Exposure to market risk for fluctuations in fuel prices relates
to a small portion of our service contracts for which the cost
of fuel is integral to service delivery and the service contract
does not have a mechanism to adjust for increases in fuel
prices. At December 31, 2010, we also had various fuel
purchase arrangements in place to ensure delivery of fuel at
market rates in the event of fuel shortages. We are exposed to
fluctuations in fuel prices in these arrangements since none of
the arrangements fix the price of fuel to be purchased.
Increases and decreases in the price of fuel are generally
passed on to our customers for which we realize minimal changes
in profitability during periods of steady market fuel prices.
However, profitability may be positively or negatively impacted
by sudden increases or decreases in market fuel prices during a
short period of time as customer pricing for fuel services is
established based on market fuel costs. We believe the exposure
to fuel price fluctuations would not materially impact our
results of operations, cash flows or financial position.
ENVIRONMENTAL
MATTERS
Refer to Note 25, “Environmental Matters,” in the
Notes to Consolidated Financial Statements for a discussion
surrounding environmental matters.
CRITICAL
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
U.S. GAAP requires us to make estimates and assumptions.
Our significant accounting policies are described in the Notes
to Consolidated Financial Statements. Certain of these policies
require the application of subjective or complex judgments,
often as a result of the need to make estimates about the effect
of matters that are inherently uncertain. These estimates and
assumptions are based on historical experience, changes in the
business environment and other factors that we believe to be
reasonable under the circumstances. Different estimates that
could have been applied in the current period or changes in the
accounting estimates that are reasonably likely can result in a
material impact on our financial condition and operating results
in the current and future periods. We review the development,
selection and disclosure of these critical accounting estimates
with Ryder’s Audit Committee on an annual basis.
The following discussion, which should be read in conjunction
with the descriptions in the Notes to Consolidated Financial
Statements, is furnished for additional insight into certain
accounting estimates that we consider to be critical.
Depreciation and Residual Value Guarantees.
We
periodically review and adjust the residual values and useful
lives of revenue earning equipment of our FMS business segment
as described in Note 1, “Summary of Significant
Accounting Policies — Revenue Earning Equipment,
Operating Property and Equipment, and Depreciation” and
“Summary of Significant Accounting Policies —
Residual Value Guarantees and Deferred
51
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Gains,” in the Notes to Consolidated Financial Statements.
Reductions in residual values (i.e., the price at which we
ultimately expect to dispose of revenue earning equipment) or
useful lives will result in an increase in depreciation expense
over the life of the equipment. Based on the mix of revenue
earning equipment at December 31, 2010, a 10% decrease in
expected vehicle residual values would increase depreciation
expense in 2011 by approximately $100 million. We review
residual values and useful lives of revenue earning equipment on
an annual basis or more often if deemed necessary for specific
groups of our revenue earning equipment. Reviews are performed
based on vehicle class, generally subcategories of trucks,
tractors and trailers by weight and usage. Our annual review is
established with a long-term view considering historical market
price changes, current and expected future market price trends,
expected life of vehicles included in the fleet and extent of
alternative uses for leased vehicles (e.g., rental fleet, and
SCS and DCC applications). As a result, future depreciation
expense rates are subject to change based upon changes in these
factors. At the end of each year, we complete our annual review
of the residual values and useful lives of revenue earning
equipment. Based on the results of our analysis in 2010, we will
adjust the residual values and useful lives of certain classes
of our revenue earning equipment effective January 1, 2011.
The change will increase earnings in 2011 by approximately
$5 million compared with 2010. Factors that could cause
actual results to materially differ from the estimated results
include significant changes in the used-equipment market brought
on by unforeseen changes in technology innovations and any
resulting changes in the useful lives of used equipment.
We also lease vehicles under operating lease agreements. Certain
of these agreements contain limited guarantees for a portion of
the residual values of the equipment. Results of the reviews
described above for owned equipment are also applied to
equipment under operating lease. The amount of residual value
guarantees expected to be paid is recognized as rent expense
over the expected remaining term of the lease. At
December 31, 2010, total liabilities for residual value
guarantees of $4 million were included in “Accrued
expenses and other current liabilities” (for those payable
in less than one year) and in “Other non-current
liabilities.” Based on the existing mix of vehicles under
operating lease agreements at December 31, 2010, a 10%
decrease in expected vehicle residual values would increase rent
expense in 2011 by approximately $1 million.
Pension Plans.
We apply actuarial methods to
determine the annual net periodic pension expense and pension
plan liabilities on an annual basis, or on an interim basis if
there is an event requiring remeasurement. Each December, we
review actual experience compared with the more significant
assumptions used and make adjustments to our assumptions, if
warranted. In determining our annual estimate of periodic
pension cost, we are required to make an evaluation of critical
factors such as discount rate, expected long-term rate of
return, expected increase in compensation levels, retirement
rate and mortality. Discount rates are based upon a duration
analysis of expected benefit payments and the equivalent average
yield for high quality corporate fixed income investments as of
our December 31 annual measurement date. In order to provide a
more accurate estimate of the discount rate relevant to our
plan, we use models that match projected benefits payments of
our primary U.S. plan to coupons and maturities from a
hypothetical portfolio of high quality corporate bonds.
Long-term rate of return assumptions are based on actuarial
review of our asset allocation strategy and long-term expected
asset returns. Investment management and other fees paid using
plan assets are factored into the determination of asset return
assumptions. In 2010, we adjusted our long-term expected rate of
return assumption for our primary U.S. plan down to 7.65%
from 7.9% based on the factors reviewed. The composition of our
pension assets was 67% equity securities and 33% debt securities
and other investments. As part of our strategy to manage future
pension costs and net funded status volatility, we regularly
assess our pension investment strategy. We evaluate our mix of
investments between equity and fixed income securities and may
adjust the composition of our pension assets when appropriate.
For 2011, we changed our target asset allocation to 60% equity
securities, 30% fixed income, and 10% all other types of
investments. The rate of increase in compensation levels and
retirement rates are based primarily on actual experience.
52
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Accounting guidance applicable to pension plans does not require
immediate recognition of the effects of a deviation between
these assumptions and actual experience or the revision of an
estimate. This approach allows the favorable and unfavorable
effects that fall within an acceptable range to be netted and
recorded within “Accumulated other comprehensive
loss.” We had a pre-tax actuarial loss of $658 million
at the end of 2010 compared with a loss of $638 million at
the end of 2009. The increase in the net actuarial loss in 2010
resulted primarily from a lower discount rate partially offset
by higher than expected pension asset returns. To the extent the
amount of actuarial gains and losses exceed 10% of the larger of
the benefit obligation or plan assets, such amount is amortized
over the average remaining life expectancy of active
participants or the remaining life expectancy of inactive
participants if all or almost all of a plan’s participants
are inactive. The amount of the actuarial loss subject to
amortization in 2011 and future years will be $484 million.
The effect on years beyond 2011 will depend substantially upon
the actual experience of our plans.
Disclosure of the significant assumptions used in arriving at
the 2010 net pension expense is presented in Note 24,
“Employee Benefit Plans,” in the Notes to Consolidated
Financial Statements. A sensitivity analysis of 2010 net
pension expense to changes in key underlying assumptions for our
primary plan, the U.S. pension plan, is presented below.
|
Effect on
|
||||||||||||||||
|
Impact on 2010 Net
|
December 31, 2010
|
|||||||||||||||
| Assumed Rate | Change | Pension Expense | Projected Benefit Obligation | |||||||||||||
|
Expected long-term rate of return on assets
|
7.65% | +/− 0.25 | % | −/+ $2.0 million | ||||||||||||
|
Discount rate increase
|
6.20% | + 0.25 | % | − $3.0 million | − $3 million | |||||||||||
|
Discount rate decrease
|
6.20% | − 0.25 | % | + $3.0 million | + $3 million | |||||||||||
|
Actual return on assets
|
7.65% | +/− 0.25 | % | −/+ $0.3 million | ||||||||||||
Self-Insurance Accruals.
Self-insurance
accruals were $243 million as of December 31, 2010 and
2009. The majority of our self-insurance relates to vehicle
liability and workers’ compensation. We use a variety of
statistical and actuarial methods that are widely used and
accepted in the insurance industry to estimate amounts for
claims that have been reported but not paid and claims incurred
but not reported. In applying these methods and assessing their
results, we consider such factors as frequency and severity of
claims, claim development and payment patterns and changes in
the nature of our business, among other factors. Such factors
are analyzed for each of our business segments. Our estimates
may be impacted by such factors as increases in the market price
for medical services, unpredictability of the size of jury
awards and limitations inherent in the estimation process.
During 2010, 2009, and 2008, we recorded a (charge) benefit of
$(3) million, $1 million, and $23 million,
respectively, from development in estimated prior years’
self-insured loss reserves. Based on self-insurance accruals at
December 31, 2010, a 5% adverse change in actuarial claim
loss estimates would increase operating expense in 2011 by
approximately $11 million.
Goodwill Impairment.
We assess goodwill for
impairment, as described in Note 1, “Summary of
Significant Accounting Policies — Goodwill and Other
Intangible Assets,” in the Notes to Consolidated Financial
Statements, on an annual basis or more often if deemed
necessary. At December 31, 2010, goodwill totaled
$356 million. To determine whether goodwill impairment
indicators exist, we are required to assess the fair value of
the reporting unit and compare it to the carrying value. A
reporting unit is a component of an operating segment for which
discrete financial information is available and management
regularly reviews its operating performance.
Our valuation of fair value for each reporting unit is
determined based on an average of discounted future cash flow
models that use ten years of projected cash flows and various
terminal values based on multiples, book value or growth
assumptions. We considered the current trading multiples for
comparable publicly-traded companies and the historical pricing
multiples for comparable merger and acquisition transactions
that have occurred in our industry. Rates used to discount cash
flows are dependent upon interest rates and the cost of capital
at a point in time. Our discount rates reflect a weighted
average cost of capital based on our industry
53
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
and capital structure adjusted for equity risk premiums and size
risk premiums based on market capitalization. Estimates of
future cash flows are dependent on our knowledge and experience
about past and current events and assumptions about conditions
we expect to exist, including long-term growth rates, capital
requirements and useful lives. Our estimates of cash flows are
also based on historical and future operating performance,
economic conditions and actions we expect to take. In addition
to these factors, our SCS reporting units are dependent on
several key customers or industry sectors. The loss of a key
customer may have a significant impact to one of our SCS
reporting units, causing us to assess whether or not the event
resulted in a goodwill impairment loss. While we believe our
estimates of future cash flows are reasonable, there can be no
assurance that deterioration in economic conditions, customer
relationships or adverse changes to expectations of future
performance will not occur, resulting in a goodwill impairment
loss. Our annual impairment test performed as of April 1,
2010 did not result in any impairment of goodwill. The excess of
fair value over carrying value for each of our reporting units
as of April 1, 2010, our annual testing date, ranged from
approximately $2 million to approximately
$597 million. The fair value of our reporting units with a
material amount of goodwill significantly exceeded the carrying
value. In order to evaluate the sensitivity of the fair value
calculations on the goodwill impairment test, we applied a
hypothetical 5% decrease to the fair values of each reporting
unit. This hypothetical 5% decrease would result in excess fair
value over carrying value ranging from approximately
$1 million to approximately $395 million for each of
our reporting units.
Revenue Recognition.
We recognize revenue when
persuasive evidence of an arrangement exists, the services have
been rendered to customers or delivery has occurred, the pricing
is fixed or determinable, and collectibility is reasonably
assured. In the normal course of business, we may act as or use
an agent in executing transactions with our customers. In these
arrangements, we evaluate whether we should report revenue based
on the gross amount billed to the customer or on the net amount
received from the customer after payments to third parties.
Determining whether revenue should be reported as gross or net
is based on an assessment of whether we are acting as the
principal or the agent in the transaction and involves judgment
based on the terms of the arrangement. To the extent we are
acting as the principal in the transaction, revenue is reported
on a gross basis. To the extent we are acting as an agent in the
transaction, revenue is reported on a net basis. In the majority
of our arrangements, we are acting as a principal and therefore
report revenue on a gross basis. However, our SCS business
segment engages in some transactions where we act as agents and
thus record revenue on a net basis. The impact on net earnings
is the same whether we record revenue on a gross or net basis.
In transportation management arrangements where we act as
principal, revenue is reported on a gross basis for
subcontracted transportation billed to our customers. From time
to time, the terms and conditions of our transportation
management arrangements may change, which could require a change
in revenue recognition from a gross basis to a net basis or vice
versa. Our non-GAAP measure of operating revenue would not be
impacted from this change in revenue reporting.
Income Taxes.
Our overall tax position is
complex and requires careful analysis by management to estimate
the expected realization of income tax assets and liabilities.
Tax regulations require items to be included in the tax return
at different times than the items are reflected in the financial
statements. As a result, the effective tax rate reflected in the
financial statements is different than that reported in the tax
return. Some of these differences are permanent, such as
expenses that are not deductible on the tax return, and some are
timing differences, such as depreciation expense. Timing
differences create deferred tax assets and liabilities. Deferred
tax assets generally represent items that can be used as a tax
deduction or credit in the tax return in future years for which
we have already recorded the tax benefit in the financial
statements. Deferred tax assets amounted to $365 million
and $320 million at December 31, 2010 and 2009,
respectively. We record a valuation allowance for deferred tax
assets to reduce such assets to amounts expected to be realized.
At December 31, 2010 and 2009, the deferred tax valuation
54
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
allowance, principally attributed to foreign tax loss
carryforwards in the SCS business segment, was $39 million
and $37 million, respectively. In determining the required
level of valuation allowance, we consider whether it is more
likely than not that all or some portion of deferred tax assets
will not be realized. This assessment is based on
management’s expectations as to whether sufficient taxable
income of an appropriate character will be realized within tax
carryback and carryforward periods. Our assessment involves
estimates and assumptions about matters that are inherently
uncertain, and unanticipated events or circumstances could cause
actual results to differ from these estimates. Should we change
our estimate of the amount of deferred tax assets that we would
be able to realize, an adjustment to the valuation allowance
would result in an increase or decrease to the provision for
income taxes in the period such a change in estimate was made.
We are subject to tax audits in numerous jurisdictions in the
U.S. and around the world. Tax audits by their very nature
are often complex and can require several years to complete. In
the normal course of business, we are subject to challenges from
the Internal Revenue Service (IRS) and other tax authorities
regarding amounts of taxes due. These challenges may alter the
timing or amount of taxable income or deductions, or the
allocation of income among tax jurisdictions. As part of our
calculation of the provision for income taxes on earnings, we
determine whether the benefits of our tax positions are at least
more likely than not of being sustained upon audit based on the
technical merits of the tax position. For tax positions that are
more likely than not of being sustained upon audit, we accrue
the largest amount of the benefit that is more likely than not
of being sustained in our consolidated financial statements.
Such accruals require management to make estimates and judgments
with respect to the ultimate outcome of a tax audit. Actual
results could vary materially from these estimates. We adjust
these reserves, including any impact on the related interest and
penalties, in light of changing facts and circumstances, such as
progress of a tax audit.
A number of years may elapse before a particular matter for
which we have established a reserve is audited and finally
resolved. The number of years with open tax audits varies
depending on the tax jurisdiction. The tax benefit that has been
previously reserved because of a failure to meet the “more
likely than not” recognition threshold would be recognized
in our income tax expense in the first interim period when the
uncertainty is resolved under any one of the following
conditions: (1) the tax position is “more likely than
not” to be sustained, (2) the tax position, amount,
and/or
timing is ultimately settled through negotiation or litigation,
or (3) the statute of limitations for the tax position has
expired. Settlement of any particular issue would usually
require the use of cash. See Note 14, “Income
Taxes,” in the Notes to Consolidated Financial Statements
for further discussion of the status of tax audits and uncertain
tax positions.
RECENT
ACCOUNTING PRONOUNCEMENTS
See Note 1, “Summary of Significant Accounting
Policies — Recent Accounting Pronouncements,” in
the Notes to Consolidated Financial Statements for a discussion
of recent accounting pronouncements.
NON-GAAP FINANCIAL
MEASURES
This Annual Report on
Form 10-K
includes information extracted from consolidated financial
information but not required by generally accepted accounting
principles (GAAP) to be presented in the financial statements.
Certain of this information are considered “non-GAAP
financial measures” as defined by SEC rules. Specifically,
we refer to adjusted return on average capital, operating
revenue, salaries and employee-related costs as a percentage of
operating revenue, FMS operating revenue, FMS NBT as a % of
operating revenue, SCS operating revenue, SCS NBT as a % of
operating revenue, DCC operating revenue, DCC NBT as a % of
operating revenue, total cash generated, free cash flow, total
obligations, total obligations to equity, and comparable
earnings from continuing operations and comparable earnings per
diluted common share from continuing operations. We believe that
the comparable earnings from continuing operations and
comparable earnings per diluted common share from continuing
operations measures provide useful information to investors
because they exclude significant items that are unrelated to our
ongoing business operations. As
55
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
required by SEC rules, we provide a reconciliation of each
non-GAAP financial measure to the most comparable GAAP measure
and an explanation why management believes that presentation of
the non-GAAP financial measure provides useful information to
investors. Non-GAAP financial measures should be considered in
addition to, but not as a substitute for or superior to, other
measures of financial performance prepared in accordance with
GAAP.
The following table provides a numerical reconciliation of
earnings from continuing operations before income taxes to
comparable earnings from continuing operations before income
taxes for the years ended December 31, 2008, 2007 and 2006
which was not provided within the MD&A discussion:
| Years ended December 31 | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (In thousands) | ||||||||||||
|
Earnings from continuing operations before income taxes
|
$ | 409,288 | 402,204 | 390,275 | ||||||||
|
Net restructuring charges
|
21,480 | 9,290 | — | |||||||||
|
International impairment
|
1,617 | — | — | |||||||||
|
Gain on sale of property
|
— | (10,110 | ) | — | ||||||||
|
Pension accounting charge
|
— | — | 5,872 | |||||||||
|
Comparable earnings from continuing operations before income
taxes
|
$ | 432,385 | 401,384 | 396,147 | ||||||||
The following table provides a numerical reconciliation of net
cash provided by operating activities to free cash flow for the
years ended December 31, 2007 and 2006 which was not
provided within the MD&A discussion:
| Years ended December 31 | ||||||||
| 2007 | 2006 | |||||||
| (In thousands) | ||||||||
|
Net cash provided by operating activities
|
$ | 1,096,559 | 852,466 | |||||
|
Sales of revenue earning equipment
|
354,736 | 326,134 | ||||||
|
Sales of operating property and equipment
|
18,725 | 6,256 | ||||||
|
Collections on direct finance leases
|
62,346 | 65,343 | ||||||
|
Sale and leaseback of revenue earning equipment
|
150,348 | — | ||||||
|
Other, net
|
1,588 | 2,196 | ||||||
|
Total cash generated
|
1,684,302 | 1,252,395 | ||||||
|
Purchases of property and revenue earning equipment
|
(1,304,033 | ) | (1,691,007 | ) | ||||
|
Free cash flow
|
$ | 380,269 | (438,612 | ) | ||||
56
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
The following table provides a numerical reconciliation of
earnings from continuing operations and earnings per diluted
common share from continuing operations to comparable earnings
from continuing operations and comparable earnings per diluted
common share from continuing operations for the years ended
December 31, 2008, 2007 and 2006 which was not provided
within the MD&A discussion:
| Years ended December 31 | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| (In thousands) | ||||||||||||
|
Earnings from continuing operations
|
$ | 257,579 | 251,779 | 246,694 | ||||||||
|
Net restructuring charges
|
17,493 | 5,935 | — | |||||||||
|
Tax law changes and/or benefits from reserve reversals
|
(9,545 | ) | (3,333 | ) | (6,796 | ) | ||||||
|
International asset impairment
|
1,617 | — | — | |||||||||
|
Gain on sale of property
|
— | (6,154 | ) | — | ||||||||
|
Pension accounting charge
|
— | — | 3,720 | |||||||||
|
Comparable earnings from continuing operations
|
$ | 267,144 | 248,227 | 243,618 | ||||||||
|
Earnings per diluted common share from continuing operations
|
$ | 4.51 | 4.19 | 3.99 | ||||||||
|
Net restructuring charges
|
0.31 | 0.10 | — | |||||||||
|
Tax law changes/or benefits from reserve reversals
|
(0.17 | ) | (0.06 | ) | (0.11 | ) | ||||||
|
International asset impairment
|
0.03 | — | — | |||||||||
|
Gain on sale of property
|
— | (0.10 | ) | — | ||||||||
|
Pension accounting charge
|
— | — | 0.06 | |||||||||
|
Comparable earnings per diluted common share from continuing
operations
|
$ | 4.68 | 4.13 | 3.94 | ||||||||
The following table provides a numerical reconciliation of total
revenue to operating revenue for the years ended
December 31, 2010, 2009 and 2008 which was not provided
within the MD&A discussion:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Total revenue
|
$ | 5,136,435 | 4,887,254 | 5,999,041 | ||||||||
|
FMS fuel services and SCS/DCC subcontracted transportation
revenue
|
(1,126,946 | ) | (948,963 | ) | (1,648,434 | ) | ||||||
|
Fuel eliminations
|
148,750 | 124,221 | 239,473 | |||||||||
|
Operating revenue
|
$ | 4,158,239 | 4,062,512 | 4,590,080 | ||||||||
The following table provides a numerical reconciliation of total
revenue to operating revenue for the three months ended
December 31, 2010 and 2009 which was not provided within
the MD&A discussion:
| Three months ended December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Total revenue
|
1,313,426 | 1,246,968 | ||||||
|
FMS fuel services and SCS/DCC subcontracted transportation
|
(291,159 | ) | (261,079 | ) | ||||
|
Fuel eliminations
|
39,672 | 33,933 | ||||||
|
Operating revenue
|
1,061,939 | 1,019,822 | ||||||
57
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
The following table provides a numerical reconciliation of net
earnings to adjusted net earnings and average total debt to
adjusted average total capital for the years ended
December 31, 2010, 2009, 2008, 2007 and 2006 which was not
provided within the MD&A discussion:
| Years ended December 31 | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Net earnings
[A]
|
$ | 118,170 | 61,945 | 199,881 | 253,861 | 248,959 | ||||||||||||||
|
Restructuring and other charges, net and other
items
(1)
|
6,225 | 29,943 | 70,447 | 1,467 | — | |||||||||||||||
|
Income taxes
|
60,610 | 53,737 | 150,075 | 151,603 | 144,014 | |||||||||||||||
|
Adjusted net earnings before income taxes
|
185,005 | 145,625 | 420,403 | 406,931 | 392,973 | |||||||||||||||
|
Adjusted interest
expense
(2)
|
132,778 | 149,968 | 164,975 | 169,060 | 146,565 | |||||||||||||||
|
Adjusted income
taxes
(3)
|
(123,429 | ) | (121,758 | ) | (230,456 | ) | (219,971 | ) | (207,183 | ) | ||||||||||
|
Adjusted net earnings
[B]
|
$ | 194,354 | 173,835 | 354,922 | 356,020 | 332,355 | ||||||||||||||
|
Average total debt
|
$ | 2,512,005 | 2,691,569 | 2,881,931 | 2,847,692 | 2,480,314 | ||||||||||||||
|
Average off-balance sheet debt
|
114,212 | 141,629 | 170,694 | 150,124 | 98,767 | |||||||||||||||
|
Average obligations
[C]
|
2,626,217 | 2,833,198 | 3,052,625 | 2,997,816 | 2,579,081 | |||||||||||||||
|
Average shareholders’ equity
[D]
|
1,401,681 | 1,395,629 | 1,778,489 | 1,790,814 | 1,610,328 | |||||||||||||||
|
Average adjustments to shareholders’
equity
(4)
|
2,059 | 15,645 | 9,608 | 855 | (5,114 | ) | ||||||||||||||
|
Average adjusted shareholders’ equity
[E]
|
1,403,740 | 1,411,274 | 1,788,097 | 1,791,669 | 1,605,214 | |||||||||||||||
|
Average adjusted capital
|
$ | 4,029,957 | 4,244,472 | 4,840,722 | 4,789,485 | 4,184,295 | ||||||||||||||
|
Return on average shareholders’ equity (%)
[A/D]
|
8.4 | 4.4 | 11.2 | 14.2 | 15.5 | |||||||||||||||
|
Adjusted return on average capital (%)
[B]/[C+E]
|
4.8 | 4.1 | 7.3 | 7.4 | 7.9 | |||||||||||||||
| (1) | For 2010, 2009 and 2008, see Note 4, “Discontinued operations,” Note 5, “Restructuring and Other Charges” and Note 26, “Other Items Impacting Comparability,” in the Notes to Consolidated Financial Statements; 2007 includes restructuring and other charges of $11 million in the second half of 2007 and a gain of $10 million related to the sale of property in the third quarter. | |
| (2) | Includes interest on off-balance sheet vehicle obligations. | |
| (3) | Calculated by excluding taxes related to restructuring and other charges, net and other items, impacts of tax law changes or reserve reversals and interest expense. | |
| (4) | Represents shareholders’ equity adjusted for restructuring and other charges and other items, net of their related tax effects, as discussed above. |
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements (within the meaning of the Federal
Private Securities Litigation Reform Act of 1995) are
statements that relate to expectations, beliefs, projections,
future plans and strategies, anticipated events or trends
concerning matters that are not historical facts. These
statements are often preceded by or include the words
“believe,” “expect,” “intend,”
“estimate,” “anticipate,” “will,”
“may,” “could,” “should” or
similar expressions. This Annual Report contains forward-looking
statements including, but not limited to, statements regarding:
| • | our expectations as to anticipated revenue and earnings, as well as future economic conditions and market demand, with respect to earnings per share, operating revenue, contractual and maintenance revenue improvement, positive commercial rental performance and used vehicle sales results, freight volume projections, outsourced logistics growth and increased revenue from recent acquisitions; | |
| • | our ability to successfully achieve the operational goals that are the basis of our business strategies, including improving customer retention levels, focusing on sales and revenue growth in contractual product |
58
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
offerings, delivering industry leading maintenance in a cost
effective manner, offering competitive pricing, a wide range of
support services and value-added differentiation, optimizing
asset utilization and management, leveraging infrastructure,
providing operational execution, expanding our expertise and
market presence in certain supply chain industry segments and
maintaining a diversified customer base;
| • | impact of losses from conditional obligations arising from guarantees; | |
| • | number of NLE vehicles in inventory and the size of our contractual lease and commercial rental fleets; | |
| • | estimates of free cash flow and capital expenditures for 2011; | |
| • | the adequacy of our accounting estimates and reserves for pension expense, employee benefit plan obligations, depreciation and residual value guarantees, self-insurance reserves, impairment of goodwill and other long-lived assets, revenue recognition, allowance for accounts receivable, income taxes, contingent liabilities, fair value estimates, risk of loss under derivative instruments and hedging activities and accounting changes; | |
| • | our ability to fund all of our operations for the foreseeable future through internally generated funds and outside funding sources; | |
| • | future availability and our expected use of outside funding sources; | |
| • | the anticipated impact of fuel price fluctuations; | |
| • | our expectations as to future pension expense, contributions and return on plan assets; | |
| • | our expectations relating to withdrawal liability and funding levels of multi-employer plans; | |
| • | the anticipated deferral of federal and state tax gains on disposal of eligible revenue earning equipment pursuant to our vehicle like-kind exchange program; | |
| • | our expectations regarding the completion and ultimate outcome of certain tax audits; | |
| • | the impact of recent U.S. tax law changes; | |
| • | the ultimate disposition of legal proceedings and estimated environmental liabilities; | |
| • | our expectations relating to compliance with new regulatory requirements; and | |
| • | our expectations regarding the effect of the adoption of recent accounting pronouncements. |
These statements, as well as other forward-looking statements
contained in this Annual Report, are based on our current plans
and expectations and are subject to risks, uncertainties and
assumptions. We caution readers that certain important factors
could cause actual results and events to differ significantly
from those expressed in any forward-looking statements. For a
detailed description of certain of these risk factors, please
see “Item 1A. Risk Factors” of this Annual Report.
The risks included in the Annual Report are not exhaustive. New
risk factors emerge from time to time and it is not possible for
management to predict all such risk factors or to assess the
impact of such risk factors on our business. As a result, no
assurance can be given as to our future results or achievements.
You should not place undue reliance on the forward-looking
statements contained herein, which speak only as of the date of
this Annual Report. We do not intend, or assume any obligation,
to update or revise any forward-looking statements contained in
this Annual Report, whether as a result of new information,
future events or otherwise.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information required by ITEM 7A is included in
ITEM 7 (page 50) of PART II of this report.
59
Table of Contents
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL
STATEMENTS
| Page No. | ||||
| 61 | ||||
| 62 | ||||
| 63 | ||||
| 64 | ||||
| 65 | ||||
| 66 | ||||
| 67 | ||||
| 77 | ||||
| 77 | ||||
| 80 | ||||
| 82 | ||||
| 83 | ||||
| 84 | ||||
| 84 | ||||
| 85 | ||||
| 85 | ||||
| 86 | ||||
| 87 | ||||
| 87 | ||||
| 88 | ||||
| 92 | ||||
| 95 | ||||
| 97 | ||||
| 99 | ||||
| 99 | ||||
| 101 | ||||
| 102 | ||||
| 103 | ||||
| 103 | ||||
| 107 | ||||
| 116 | ||||
| 116 | ||||
| 117 | ||||
| 117 | ||||
| 117 | ||||
| 122 | ||||
|
Consolidated Financial Statement Schedule for the Years Ended
December 31, 2010, 2009 and 2008:
|
||||
| 123 | ||||
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
60
Table of Contents
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
TO THE SHAREHOLDERS OF RYDER SYSTEM, INC.:
Management of Ryder System, Inc., together with its consolidated
subsidiaries (Ryder), is responsible for establishing and
maintaining adequate internal control over financial reporting
as defined in
Rule 13a-
15(f) under the Securities Exchange Act of 1934. Ryder’s
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of the consolidated financial
statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
Ryder’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
assets of Ryder; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of
Ryder’s management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of Ryder’s
assets that could have a material effect on the consolidated
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Ryder’s internal
control over financial reporting as of December 31, 2010.
In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission in “Internal Control —
Integrated Framework.” Based on our assessment and those
criteria, management determined that Ryder maintained effective
internal control over financial reporting as of
December 31, 2010.
Ryder’s independent registered certified public accounting
firm has audited the effectiveness of Ryder’s internal
control over financial reporting. Their report appears on
page 62.
61
Table of Contents
REPORT OF
INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
FIRM
TO THE BOARD
OF DIRECTORS AND SHAREHOLDERS OF
RYDER SYSTEM, INC.:
RYDER SYSTEM, INC.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of earnings,
shareholders’ equity, and cash flows present fairly, in all
material respects, the financial position of Ryder System, Inc.
and its subsidiaries at December 31, 2010 and 2009, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2010 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Company’s management is
responsible for these financial statements and financial
statement schedule, for maintaining effective internal control
over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is
to express opinions on these financial statements, on the
financial statement schedule and on the Company’s internal
control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
February 14, 2011
Miami, Florida
62
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
CONSOLIDATED STATEMENTS OF EARNINGS
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands, except per share amounts) | ||||||||||||
|
Revenue
|
$ | 5,136,435 | 4,887,254 | 5,999,041 | ||||||||
|
Operating expense (exclusive of items shown separately)
|
2,441,924 | 2,229,539 | 2,959,518 | |||||||||
|
Salaries and employee-related costs
|
1,255,659 | 1,233,243 | 1,345,216 | |||||||||
|
Subcontracted transportation
|
261,325 | 198,860 | 233,106 | |||||||||
|
Depreciation expense
|
833,841 | 881,216 | 836,149 | |||||||||
|
Gains on vehicle sales, net
|
(28,727 | ) | (12,292 | ) | (39,020 | ) | ||||||
|
Equipment rental
|
63,228 | 65,828 | 78,292 | |||||||||
|
Interest expense
|
129,994 | 144,342 | 152,448 | |||||||||
|
Miscellaneous (income) expense, net
|
(7,114 | ) | (3,657 | ) | 2,564 | |||||||
|
Restructuring and other charges, net
|
— | 6,406 | 21,480 | |||||||||
| 4,950,130 | 4,743,485 | 5,589,753 | ||||||||||
|
Earnings from continuing operations before income taxes
|
186,305 | 143,769 | 409,288 | |||||||||
|
Provision for income taxes
|
61,697 | 53,652 | 151,709 | |||||||||
|
Earnings from continuing operations
|
124,608 | 90,117 | 257,579 | |||||||||
|
Loss from discontinued operations, net of tax
|
(6,438 | ) | (28,172 | ) | (57,698 | ) | ||||||
|
Net earnings
|
$ | 118,170 | 61,945 | 199,881 | ||||||||
|
Earnings (loss) per common share — Basic
|
||||||||||||
|
Continuing operations
|
$ | 2.38 | 1.62 | 4.54 | ||||||||
|
Discontinued operations
|
(0.13 | ) | (0.51 | ) | (1.02 | ) | ||||||
|
Net earnings
|
$ | 2.25 | 1.11 | 3.52 | ||||||||
|
Earnings (loss) per common share — Diluted
|
||||||||||||
|
Continuing operations
|
$ | 2.37 | 1.62 | 4.51 | ||||||||
|
Discontinued operations
|
(0.12 | ) | (0.51 | ) | (1.01 | ) | ||||||
|
Net earnings
|
$ | 2.25 | 1.11 | 3.50 | ||||||||
See accompanying notes to consolidated financial
statements.
63
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands, except per share amount) | ||||||||
|
Assets:
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 213,053 | 98,525 | |||||
|
Receivables, net
|
615,003 | 598,661 | ||||||
|
Inventories
|
58,701 | 50,146 | ||||||
|
Prepaid expenses and other current assets
|
136,544 | 133,041 | ||||||
|
Total current assets
|
1,023,301 | 880,373 | ||||||
|
Revenue earning equipment, net of accumulated depreciation of
$3,247,400 and $3,013,179, respectively
|
4,201,218 | 4,178,659 | ||||||
|
Operating property and equipment, net of accumulated
depreciation of $880,757 and $855,657, respectively
|
606,843 | 543,910 | ||||||
|
Goodwill
|
355,842 | 216,444 | ||||||
|
Intangible assets
|
72,269 | 39,120 | ||||||
|
Direct financing leases and other assets
|
392,901 | 401,324 | ||||||
|
Total assets
|
$ | 6,652,374 | 6,259,830 | |||||
|
Liabilities and shareholders’ equity:
|
||||||||
|
Current liabilities:
|
||||||||
|
Short-term debt and current portion of long-term debt
|
$ | 420,124 | 232,617 | |||||
|
Accounts payable
|
294,380 | 262,712 | ||||||
|
Accrued expenses and other current liabilities
|
417,015 | 354,945 | ||||||
|
Total current liabilities
|
1,131,519 | 850,274 | ||||||
|
Long-term debt
|
2,326,878 | 2,265,074 | ||||||
|
Other non-current liabilities
|
680,808 | 681,613 | ||||||
|
Deferred income taxes
|
1,108,856 | 1,035,874 | ||||||
|
Total liabilities
|
5,248,061 | 4,832,835 | ||||||
|
Shareholders’ equity:
|
||||||||
|
Preferred stock of no par value per share —
authorized, 3,800,917; none outstanding, December 31, 2010
or 2009
|
— | — | ||||||
|
Common stock of $0.50 par value per share —
authorized, 400,000,000; outstanding, December 31,
2010 — 51,174,757; December 31, 2009 —
53,419,721
|
25,587 | 26,710 | ||||||
|
Additional paid-in capital
|
735,540 | 743,026 | ||||||
|
Retained earnings
|
1,019,785 | 1,036,178 | ||||||
|
Accumulated other comprehensive loss
|
(376,599 | ) | (378,919 | ) | ||||
|
Total shareholders’ equity
|
1,404,313 | 1,426,995 | ||||||
|
Total liabilities and shareholders’ equity
|
$ | 6,652,374 | 6,259,830 | |||||
See accompanying notes to consolidated financial
statements.
64
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Cash flows from operating activities of continuing operations:
|
||||||||||||
|
Net earnings
|
$ | 118,170 | 61,945 | 199,881 | ||||||||
|
Less: Loss from discontinued operations, net of tax
|
(6,438 | ) | (28,172 | ) | (57,698 | ) | ||||||
|
Earnings from continuing operations
|
124,608 | 90,117 | 257,579 | |||||||||
|
Depreciation expense
|
833,841 | 881,216 | 836,149 | |||||||||
|
Gains on vehicle sales, net
|
(28,727 | ) | (12,292 | ) | (39,020 | ) | ||||||
|
Goodwill impairment
|
— | — | 10,322 | |||||||||
|
Share-based compensation expense
|
16,543 | 16,404 | 17,076 | |||||||||
|
Amortization expense and other non-cash charges, net
|
40,900 | 41,301 | 14,941 | |||||||||
|
Deferred income tax expense
|
41,097 | 92,683 | 128,800 | |||||||||
|
Changes in operating assets and liabilities, net of acquisitions:
|
||||||||||||
|
Receivables
|
(18,020 | ) | 19,478 | 173,872 | ||||||||
|
Inventories
|
(7,508 | ) | (1,087 | ) | 10,497 | |||||||
|
Prepaid expenses and other assets
|
(4,896 | ) | (11,583 | ) | (33,360 | ) | ||||||
|
Accounts payable
|
6,906 | 15,570 | (109,143 | ) | ||||||||
|
Accrued expenses and other non-current liabilities
|
23,290 | (146,851 | ) | (19,544 | ) | |||||||
|
Net cash provided by operating activities of continuing
operations
|
1,028,034 | 984,956 | 1,248,169 | |||||||||
|
Cash flows from financing activities of continuing operations:
|
||||||||||||
|
Net change in commercial paper borrowings
|
174,939 | 148,256 | (522,312 | ) | ||||||||
|
Debt proceeds
|
314,169 | 2,014 | 744,004 | |||||||||
|
Debt repaid, including capital lease obligations
|
(248,668 | ) | (519,710 | ) | (118,641 | ) | ||||||
|
Dividends on common stock
|
(54,474 | ) | (53,334 | ) | (52,238 | ) | ||||||
|
Common stock issued
|
17,028 | 7,442 | 54,713 | |||||||||
|
Common stock repurchased
|
(123,300 | ) | (116,281 | ) | (256,132 | ) | ||||||
|
Excess tax benefits from share-based compensation
|
754 | 775 | 6,471 | |||||||||
|
Debt issuance costs
|
(2,282 | ) | (11,178 | ) | (4,017 | ) | ||||||
|
Net cash provided by (used in) financing activities of
continuing operations
|
78,166 | (542,016 | ) | (148,152 | ) | |||||||
|
Cash flows from investing activities of continuing operations:
|
||||||||||||
|
Purchases of property and revenue earning equipment
|
(1,070,092 | ) | (651,953 | ) | (1,230,401 | ) | ||||||
|
Sales of revenue earning equipment
|
220,843 | 211,002 | 257,679 | |||||||||
|
Sales of operating property and equipment
|
13,844 | 4,634 | 3,727 | |||||||||
|
Acquisitions
|
(211,897 | ) | (88,873 | ) | (246,993 | ) | ||||||
|
Collections on direct finance leases
|
61,767 | 65,242 | 61,096 | |||||||||
|
Changes in restricted cash
|
(107 | ) | 11,129 | 51,029 | ||||||||
|
Other, net
|
3,178 | 209 | 395 | |||||||||
|
Net cash used in investing activities of continuing operations
|
(982,464 | ) | (448,610 | ) | (1,103,468 | ) | ||||||
|
Effect of exchange rate changes on cash
|
1,723 | 1,794 | 1,408 | |||||||||
|
Increase (decrease) in cash and cash equivalents from continuing
operations
|
125,459 | (3,876 | ) | (2,043 | ) | |||||||
|
Cash flows from discontinued operations:
|
||||||||||||
|
Operating cash flows
|
(9,276 | ) | (25,737 | ) | 7,362 | |||||||
|
Financing cash flows
|
(2,955 | ) | (9,427 | ) | (2,478 | ) | ||||||
|
Investing cash flows
|
1,677 | 16,669 | 678 | |||||||||
|
Effect of exchange rate changes on cash
|
(377 | ) | 591 | 327 | ||||||||
|
(Decrease) increase in cash and cash equivalents from
discontinued operations
|
(10,931 | ) | (17,904 | ) | 5,889 | |||||||
|
Increase (decrease) in cash and cash equivalents
|
114,528 | (21,780 | ) | 3,846 | ||||||||
|
Cash and cash equivalents at January 1
|
98,525 | 120,305 | 116,459 | |||||||||
|
Cash and cash equivalents at December 31
|
$ | 213,053 | 98,525 | 120,305 | ||||||||
See accompanying notes to consolidated financial
statements.
65
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
Accumulated
|
||||||||||||||||||||||||||||
|
Preferred
|
Additional
|
Other
|
||||||||||||||||||||||||||
| Stock | Common Stock |
Paid-In
|
Retained
|
Comprehensive
|
||||||||||||||||||||||||
| Amount | Shares | Par | Capital | Earnings | Loss | Total | ||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||||||||||||||
|
Balance at January 1, 2008
|
$ | — | 58,041,563 | $ | 28,883 | 729,451 | 1,160,132 | (30,877 | ) | 1,887,589 | ||||||||||||||||||
|
Components of comprehensive income:
|
||||||||||||||||||||||||||||
|
Net earnings
|
— | — | — | — | 199,881 | — | 199,881 | |||||||||||||||||||||
|
Foreign currency translation adjustments
|
— | — | — | — | — | (180,819 | ) | (180,819 | ) | |||||||||||||||||||
|
Net unrealized loss related to derivatives
|
— | — | — | — | — | (119 | ) | (119 | ) | |||||||||||||||||||
|
Amortization of pension and postretirement items, net of tax of
$(1,344)
|
— | — | — | — | — | 2,564 | 2,564 | |||||||||||||||||||||
|
Pension curtailment, net of tax of $634
|
— | — | — | — | — | (1,287 | ) | (1,287 | ) | |||||||||||||||||||
|
Change in net actuarial loss, net of tax of $188,654
|
— | — | — | — | — | (333,689 | ) | (333,689 | ) | |||||||||||||||||||
|
Total comprehensive loss
|
(313,469 | ) | ||||||||||||||||||||||||||
|
Common stock dividends declared and paid — $0.92 per
share
|
— | — | — | — | (52,238 | ) | — | (52,238 | ) | |||||||||||||||||||
|
Common stock issued under employee stock option and stock
purchase
plans
(1)
|
— | 1,593,073 | 934 | 53,496 | — | — | 54,430 | |||||||||||||||||||||
|
Benefit plan stock
sales
(2)
|
— | 1,859 | 1 | 282 | — | — | 283 | |||||||||||||||||||||
|
Common stock repurchases
|
— | (3,978,436 | ) | (1,989 | ) | (51,737 | ) | (202,406 | ) | — | (256,132 | ) | ||||||||||||||||
|
Share-based compensation
|
— | — | — | 17,076 | — | — | 17,076 | |||||||||||||||||||||
|
Tax benefits from share-based compensation
|
— | — | — | 7,622 | — | — | 7,622 | |||||||||||||||||||||
|
Balance at December 31, 2008
|
— | 55,658,059 | 27,829 | 756,190 | 1,105,369 | (544,227 | ) | 1,345,161 | ||||||||||||||||||||
|
Components of comprehensive income:
|
||||||||||||||||||||||||||||
|
Net earnings
|
— | — | — | — | 61,945 | — | 61,945 | |||||||||||||||||||||
|
Foreign currency translation adjustments
|
— | — | — | — | — | 96,899 | 96,899 | |||||||||||||||||||||
|
Net unrealized gain related to derivatives
|
— | — | — | — | — | 149 | 149 | |||||||||||||||||||||
|
Amortization of pension and postretirement items, net of tax of
$(7,930)
|
— | — | — | — | — | 14,287 | 14,287 | |||||||||||||||||||||
|
Pension curtailment, net of tax of $4,689
|
— | — | — | — | — | (12,058 | ) | (12,058 | ) | |||||||||||||||||||
|
Change in net actuarial loss, net of tax of $(38,906)
|
— | — | — | — | — | 66,031 | 66,031 | |||||||||||||||||||||
|
Total comprehensive income
|
227,253 | |||||||||||||||||||||||||||
|
Common stock dividends declared and paid — $0.96 per
share
|
— | — | — | — | (53,334 | ) | — | (53,334 | ) | |||||||||||||||||||
|
Common stock issued under employee stock option and stock
purchase
plans
(1)
|
— | 483,270 | 242 | 6,906 | — | — | 7,148 | |||||||||||||||||||||
|
Benefit plan stock
sales
(2)
|
— | 4,673 | 2 | 292 | — | — | 294 | |||||||||||||||||||||
|
Common stock repurchases
|
— | (2,726,281 | ) | (1,363 | ) | (37,116 | ) | (77,802 | ) | — | (116,281 | ) | ||||||||||||||||
|
Share-based compensation
|
— | — | — | 16,404 | — | — | 16,404 | |||||||||||||||||||||
|
Tax benefits from share-based compensation
|
— | — | — | 350 | — | — | 350 | |||||||||||||||||||||
|
Balance at December 31, 2009
|
— | 53,419,721 | 26,710 | 743,026 | 1,036,178 | (378,919 | ) | 1,426,995 | ||||||||||||||||||||
|
Components of comprehensive income:
|
||||||||||||||||||||||||||||
|
Net earnings
|
— | — | — | — | 118,170 | — | 118,170 | |||||||||||||||||||||
|
Foreign currency translation adjustments
|
— | — | — | — | — | 13,009 | 13,009 | |||||||||||||||||||||
|
Realized gain related to derivatives
|
— | — | — | — | — | (14 | ) | (14 | ) | |||||||||||||||||||
|
Amortization of pension and postretirement items, net of tax of
$(6,046)
|
— | — | — | — | — | 10,828 | 10,828 | |||||||||||||||||||||
|
Pension settlement, net of tax of $(469)
|
— | — | — | — | — | 1,074 | 1,074 | |||||||||||||||||||||
|
Change in net actuarial loss, net of tax of $13,242
|
— | — | — | — | — | (22,577 | ) | (22,577 | ) | |||||||||||||||||||
|
Total comprehensive income
|
120,490 | |||||||||||||||||||||||||||
|
Common stock dividends declared and paid — $1.04 per
share
|
— | — | — | — | (54,474 | ) | — | (54,474 | ) | |||||||||||||||||||
|
Common stock issued under employee stock option and stock
purchase
plans
(1)
|
— | 740,242 | 370 | 16,658 | — | — | 17,028 | |||||||||||||||||||||
|
Benefit plan stock
purchases
(2)
|
— | (3,160 | ) | (2 | ) | (128 | ) | — | — | (130 | ) | |||||||||||||||||
|
Common stock repurchases
|
— | (2,982,046 | ) | (1,491 | ) | (41,590 | ) | (80,089 | ) | — | (123,170 | ) | ||||||||||||||||
|
Share-based compensation
|
— | — | — | 16,543 | — | — | 16,543 | |||||||||||||||||||||
|
Tax benefits from share-based compensation
|
— | — | — | 1,031 | — | — | 1,031 | |||||||||||||||||||||
|
Balance at December 31, 2010
|
$ | — | 51,174,757 | $ | 25,587 | 735,540 | 1,019,785 | (376,599 | ) | 1,404,313 | ||||||||||||||||||
| (1) | Net of common shares delivered as payment for the exercise price or to satisfy the holders’ withholding tax liability upon exercise of options. | |
| (2) | Represents open-market transactions of common shares by the trustee of Ryder’s deferred compensation plans. |
See accompanying notes to consolidated financial
statements.
66
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of
Consolidation and Presentation
The consolidated financial statements include the accounts of
Ryder System, Inc. (Ryder) and all entities in which Ryder has a
controlling voting interest (“subsidiaries”) and
variable interest entities (“VIEs”) where Ryder is
determined to be the primary beneficiary. Ryder is deemed to be
the primary beneficiary if we have the power to direct the
activities that most significantly impact the entity’s
economic performance and we share in the significant risks and
rewards of the entity. All significant intercompany accounts and
transactions between consolidated companies have been eliminated
in consolidation. Certain prior year amounts have been
reclassified to conform to the current period presentation.
In December of 2008, we announced strategic initiatives to
improve our competitive advantage and drive long-term profitable
growth. As part of these initiatives, we decided to discontinue
Supply Chain Solutions operations in South America and Europe.
In the second half of 2009, we ceased service operations in
South America and Europe. Accordingly, results of these
operations, financial position and cash flows are separately
reported as discontinued operations for all periods presented
either in the Consolidated Financial Statements or notes thereto.
Use of
Estimates
The preparation of our consolidated financial statements
requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. These estimates are based on
management’s best knowledge of historical trends, actions
that we may take in the future, and other information available
when the consolidated financial statements are prepared. Changes
in estimates are recognized in accordance with the accounting
rules for the estimate, which is typically in the period when
new information becomes available. Areas where the nature of the
estimate make it reasonably possible that actual results could
materially differ from the amounts estimated include:
depreciation and residual value guarantees, employee benefit
plan obligations, self-insurance accruals, impairment
assessments on long-lived assets (including goodwill and
indefinite-lived intangible assets), revenue recognition,
allowance for accounts receivable, income tax liabilities and
contingent liabilities.
Cash
Equivalents
Cash equivalents represent cash in excess of current operating
requirements invested in short-term, interest-bearing
instruments with maturities of three months or less at the date
of purchase and are stated at cost.
Restricted
Cash
Restricted cash primarily consists of cash proceeds from the
sale of eligible vehicles or operating property set aside for
the acquisition of replacement vehicles or operating property
under our like-kind exchange tax programs. See Note 14,
“Income Taxes,” for a complete discussion of the
vehicle like-kind exchange tax program. We classify restricted
cash within “Prepaid expenses and other current
assets” if the restriction is expected to expire in the
twelve months following the balance sheet date or within
“Direct financing leases and other assets” if the
restriction is expected to expire more than twelve months after
the balance sheet date. The changes in restricted cash balances
are reflected as an investing activity in our Consolidated
Statements of Cash Flows as they relate to sales and purchases
of revenue earning equipment and operating property and
equipment.
67
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Revenue
Recognition
We generate revenue primarily through the lease, rental and
maintenance of revenue earning equipment and services rendered
under service contracts. We recognize revenue when persuasive
evidence of an arrangement exists, the services have been
rendered to customers or delivery has occurred, the pricing is
fixed or determinable, and collectibility is reasonably assured.
We are required to make judgments about whether pricing is fixed
or determinable and whether or not collectibility is reasonably
assured.
Revenue is recorded on a gross basis, without deducting
third-party services costs, when we are acting as a principal
with substantial risks and rewards of ownership. Revenue is
recorded on a net basis, after deducting third-party services
costs, when we are acting as an agent without substantial risks
and rewards of ownership. Sales tax collected from customers and
remitted to the applicable taxing authorities is accounted for
on a net basis, with no impact on revenue. In addition to the
aforementioned general policy, the following are the specific
revenue recognition policies for our reportable business
segments by major revenue arrangement:
Fleet
Management Solutions (FMS)
Our full service lease arrangements include lease deliverables
such as the lease of a vehicle and the executory agreement for
the maintenance, insurance and taxes of the leased equipment
during the lease term and non-lease deliverables. Arrangement
consideration is allocated between lease deliverables and
non-lease deliverables based on management’s best estimate
of the relative fair value of each deliverable. The arrangement
consideration allocated to lease deliverables is accounted for
pursuant to accounting guidance on leases. Our full service
lease arrangements provide for a fixed charge billing and a
variable charge billing based on mileage or time usage. Fixed
charges are typically billed at the beginning of the month for
the services to be provided that month. Variable charges are
typically billed a month in arrears. Costs associated with the
activities performed under our full service leasing arrangements
are primarily comprised of labor, parts, outside work,
depreciation, interest, licenses, insurance, operating taxes and
vehicle rent. These costs are expensed as incurred except for
depreciation. Refer to “Summary of Significant Accounting
Policies — Revenue Earning Equipment, Operating
Property and Equipment, and Depreciation” for information
regarding our depreciation policies.
Revenue from lease and rental agreements is driven by the
classification of the arrangement typically as either an
operating or direct finance lease (DFL).
| • | The majority of our leases and all of our rental arrangements are classified as operating leases and therefore, we recognize lease and commercial rental revenue on a straight-line basis as it becomes receivable over the term of the lease or rental arrangement. Lease and rental agreements do not usually provide for scheduled rent increases or escalations. However, lease agreements allow for rate changes based upon changes in the Consumer Price Index (CPI). Lease and rental agreements provide for a time charge plus a fixed per-mile charge. The fixed time charge, the fixed per-mile charge and the changes in rates attributed to changes in the CPI are considered contingent rentals and recognized as earned. | |
| • | The non-lease deliverables of our full service lease arrangements are comprised of access to substitute vehicles, emergency road service, and safety services. These services are available to our customers throughout the lease term. Accordingly, revenue is recognized on a straight-line basis over the lease term. | |
| • | Direct financing lease revenue is recognized using the effective interest method, which provides a constant periodic rate of return on the outstanding investment on the lease. Interest is no longer recognized when the receivable is deemed to be uncollectible. |
68
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Under our contract maintenance arrangements, we provide
maintenance and repairs required to keep a vehicle in good
operating condition, schedule mechanical preventive maintenance
inspections and access to emergency road service and substitute
vehicles. The vast majority of our services are routine services
performed on a recurring basis throughout the term of the
arrangement. From time to time, we provide non-routine major
repair services in order to place a vehicle back in service.
Revenue from maintenance service contracts is recognized on a
straight-line basis as maintenance services are rendered over
the terms of the related arrangements. Contract maintenance
arrangements are generally cancelable, without penalty, after
one year with 60 days prior written notice. Our maintenance
service arrangement provides for a monthly fixed charge and a
monthly variable charge based on mileage or time usage. Fixed
charges are typically billed at the beginning of the month for
the services to be provided that month. Variable charges are
typically billed a month in arrears. Contract maintenance
agreements allow for rate changes based upon changes in the CPI.
The fixed
per-mile
charge and the changes in rates attributed to changes in the CPI
are recognized as earned. Costs associated with the activities
performed under our contract maintenance arrangements are
primarily comprised of labor, parts, outside work, licenses,
insurance and operating taxes. These costs are expensed as
incurred.
Revenue from fuel services is recognized when fuel is delivered
to customers.
Supply
Chain Solutions (SCS) and Dedicated Contract Carriage
(DCC)
Revenue from service contracts is recognized as services are
rendered in accordance with contract terms, which typically
include discrete billing rates for the services. In
transportation management arrangements where we act as
principal, revenue is reported on a gross basis, without
deducting third-party purchased transportation costs. To the
extent that we are acting as an agent in the arrangement,
revenue is reported on a net basis, after deducting purchased
transportation costs.
Accounts
Receivable Allowance
We maintain an allowance for uncollectible customer receivables
and an allowance for billing adjustments related to certain
discounts and billing corrections. Estimates are updated
regularly based on historical experience of bad debts and
billing adjustments processed, current collection trends and
aging analysis. Accounts are charged against the allowance when
determined to be uncollectible. The allowance is maintained at a
level deemed appropriate based on loss experience and other
factors affecting collectibility. Historical results may not
necessarily be indicative of future results.
Inventories
Inventories, which consist primarily of fuel, tires and vehicle
parts, are valued using the lower of weighted-average cost or
market.
Revenue
Earning Equipment, Operating Property and Equipment, and
Depreciation
Revenue earning equipment, comprised of vehicles and operating
property and equipment are initially recorded at cost inclusive
of vendor rebates. Revenue earning equipment and operating
property and equipment under capital lease are initially
recorded at the lower of the present value of minimum lease
payments or fair value. Vehicle repairs and maintenance that
extend the life or increase the value of a vehicle are
capitalized, whereas ordinary maintenance and repairs are
expensed as incurred. The cost of vehicle replacement tires and
tire repairs are expensed as incurred. Direct costs incurred in
connection with developing or obtaining internal-use software
are capitalized. Costs incurred during the preliminary software
development project stage, as well as maintenance and training
costs, are expensed as incurred.
Leasehold improvements are depreciated over the shorter of their
estimated useful lives or the term of the related lease, which
may include one or more option renewal periods where failure to
exercise such options would result in an economic penalty in
such amount that renewal appears, at the inception of the lease,
to be
69
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
reasonably assured. If a substantial additional investment is
made in a leased property during the term of the lease, we
re-evaluate the lease term to determine whether the investment,
together with any penalties related to non-renewal, would
constitute an economic penalty in such amount that renewal
appears to be reasonably assured.
Provision for depreciation is computed using the straight-line
method on all depreciable assets. We periodically review and
adjust, as appropriate, the residual values and useful lives of
revenue earning equipment. Our review of the residual values and
useful lives of revenue earning equipment, is established with a
long-term view considering historical market price changes,
current and expected future market price trends, expected life
of vehicles and extent of alternative uses. Factors that could
cause actual results to materially differ from estimates include
but are not limited to unforeseen changes in technology
innovations.
We routinely dispose of used revenue earning equipment as part
of our FMS business. Revenue earning equipment held for sale is
stated at the lower of carrying amount or fair value less costs
to sell. For revenue earning equipment held for sale, we
stratify our fleet by vehicle type (tractors, trucks, and
trailers), weight class, age and other relevant characteristics
and create classes of similar assets for analysis purposes. Fair
value is determined based upon recent market prices obtained
from our own sales experience for sales of each class of similar
assets and vehicle condition. Reductions in the carrying values
of vehicles held for sale are recorded within “Depreciation
expense” in the Consolidated Statements of Earnings. While
we believe our estimates of residual values and fair values of
revenue earning equipment are reasonable, changes to our
estimates of values may occur due to changes in the market for
used vehicles, the condition of the vehicles, and inherent
limitations in the estimation process.
Gains and losses on sales of operating property and equipment
are reflected in “Miscellaneous (income) expense, net.”
Goodwill
and Other Intangible Assets
Goodwill and other intangible assets with indefinite useful
lives are not amortized, but rather, are tested for impairment
at least annually
(April 1
st
).
In addition to the annual impairment test, an interim test for
impairment is completed when events or circumstances change
between annual tests that would more likely than not reduce the
fair value of the reporting unit below its carrying value.
Recoverability of goodwill is evaluated using a two-step
process. The first step involves a comparison of the fair value
of each of our reporting units with its carrying amount. If a
reporting unit’s carrying amount exceeds its fair value,
the second step is performed. The second step involves a
comparison of the implied fair value and carrying value of that
reporting unit’s goodwill. To the extent that a reporting
unit’s carrying amount exceeds the implied fair value of
its goodwill, an impairment loss is recognized. Identifiable
intangible assets not subject to amortization are assessed for
impairment by comparing the fair value of the intangible asset
to its carrying amount. An impairment loss is recognized for the
amount by which the carrying value exceeds fair value.
In making our assessments of fair value, we rely on our
knowledge and experience about past and current events and
assumptions about conditions we expect to exist in the future.
These assumptions are based on a number of factors including
future operating performance, economic conditions, actions we
expect to take, and present value techniques. Rates used to
discount future cash flows are dependent upon interest rates and
the cost of capital at a point in time. There are inherent
uncertainties related to these factors and management’s
judgment in applying them to the analysis of goodwill
impairment. It is possible that assumptions underlying the
impairment analysis will change in such a manner that impairment
in value may occur in the future.
Intangible assets with finite lives are amortized over their
respective estimated useful lives. Identifiable intangible
assets that are subject to amortization are evaluated for
impairment using a process similar to that used to evaluate
long-lived assets described below.
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Impairment
of Long-Lived Assets Other than Goodwill
Long-lived assets held and used, including revenue earning
equipment, operating property and equipment and intangible
assets with finite lives, are tested for recoverability when
circumstances indicate that the carrying amount of assets may
not be recoverable. Recoverability of long-lived assets is
evaluated by comparing the carrying amount of an asset or asset
group to management’s best estimate of the undiscounted
future operating cash flows (excluding interest charges)
expected to be generated by the asset or asset group. If these
comparisons indicate that the asset or asset group is not
recoverable, an impairment loss is recognized for the amount by
which the carrying value of the asset or asset group exceeds
fair value. Fair value is determined by quoted market price, if
available, or an estimate of projected future operating cash
flows, discounted using a rate that reflects the related
operating segment’s average cost of funds. Long-lived
assets to be disposed of including revenue earning equipment and
operating property and equipment, are reported at the lower of
carrying amount or fair value less costs to sell.
Debt
Issuance Costs
Costs incurred to issue debt are deferred and amortized as a
component of interest expense over the estimated term of the
related debt using the effective interest rate method.
Contract
Incentives
Payments made to or on behalf of a lessee or customer upon
entering into a lease of our revenue earning equipment or
contract are deferred and recognized on a straight-line basis as
a reduction of revenue over the contract term. Amounts to be
amortized in the next year have been classified as “Prepaid
expenses and other current assets” with the remainder
included in “Direct financing leases and other assets.”
Self-Insurance
Accruals
We retain a portion of the accident risk under vehicle
liability, workers’ compensation and other insurance
programs. Under our insurance programs, we retain the risk of
loss in various amounts up to $3 million on a per
occurrence basis. Self-insurance accruals are based primarily on
an actuarially estimated, undiscounted cost of claims, which
includes claims incurred but not reported. Such liabilities are
based on estimates. Historical loss development factors are
utilized to project the future development of incurred losses,
and these amounts are adjusted based upon actual claim
experience and settlements. While we believe that the amounts
are adequate, there can be no assurance that changes to our
actuarial estimates may not occur due to limitations inherent in
the estimation process. Changes in the actuarial estimates of
these accruals are charged or credited to earnings in the period
determined. Amounts estimated to be paid within the next year
have been classified as “Accrued expenses and other current
liabilities” with the remainder included in “Other
non-current liabilities.”
We also maintain additional insurance at certain amounts in
excess of our respective underlying retention. Amounts
recoverable from insurance companies are not offset against the
related accrual as our insurance policies do not extinguish or
provide legal release from the obligation to make payments
related to such risk-related losses. Amounts expected to be
received within the next year from insurance companies have been
included within “Receivables, net” with the remainder
included in “Direct financing leases and other assets”
and are recognized only when realization of the claim for
recovery is considered probable. The accrual for the related
claim has been classified within “Accrued expenses and
other current liabilities” if it is estimated to be paid
within the next year, otherwise it has been classified in
“Other non-current liabilities.”
Residual
Value Guarantees and Deferred Gains
We periodically enter into agreements for the sale and operating
leaseback of revenue earning equipment. These leases contain
purchase
and/or
renewal options as well as limited guarantees of the
lessor’s residual
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
value (“residual value guarantees”). We review the
residual values of revenue earning equipment that we lease from
third parties and our exposures under residual value guarantees.
The review is conducted in a manner similar to that used to
analyze residual values and fair values of owned revenue earning
equipment. The residual value guarantees are conditioned on
termination of the lease prior to its contractual lease term.
The amount of residual value guarantees expected to be paid is
recognized as rent expense over the expected remaining term of
the lease. Adjustments in the estimate of residual value
guarantees are recognized prospectively over the expected
remaining lease term. While we believe that the amounts are
adequate, changes to our estimates of residual value guarantees
may occur due to changes in the market for used vehicles, the
condition of the vehicles at the end of the lease and inherent
limitations in the estimation process. See Note 19,
“Guarantees,” for additional information.
Gains on the sale and operating leaseback of revenue earning
equipment are deferred and amortized on a straight-line basis
over the term of the lease as a reduction of rent expense.
Income
Taxes
Our provision for income taxes is based on reported earnings
before income taxes. Deferred taxes are recognized for the
future tax effects of temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases using tax rates in
effect for the years in which the differences are expected to
reverse. The effects of changes in tax laws on deferred tax
balances are recognized in the period the new legislation is
enacted. Valuation allowances are recognized to reduce deferred
tax assets to the amount that is more likely than not to be
realized. In assessing the likelihood of realization, management
considers estimates of future taxable income. We calculate our
current and deferred tax position based on estimates and
assumptions that could differ from the actual results reflected
in income tax returns filed in subsequent years. Adjustments
based on filed returns are recorded when identified.
We are subject to tax audits in numerous jurisdictions in the
U.S. and foreign countries. Tax audits by their very nature
are often complex and can require several years to complete. In
the normal course of business, we are subject to challenges from
the Internal Revenue Service (IRS) and other tax authorities
regarding amounts of taxes due. These challenges may alter the
timing or amount of taxable income or deductions, or the
allocation of income among tax jurisdictions. As part of our
calculation of the provision for income taxes on earnings, we
recognize the tax benefit from uncertain tax positions that are
at least more likely than not of being sustained upon audit
based on the technical merits of the tax position. The tax
benefit to be recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. Such calculations require
management to make estimates and judgments with respect to the
ultimate outcome of a tax audit. Actual results could vary
materially from these estimates.
Interest and penalties related to income tax exposures are
recognized as incurred and included in “Provision for
income taxes” in our Consolidated Statements of Earnings.
Accruals for income tax exposures, including penalties and
interest, expected to be settled within the next year are
included in “Accrued expenses and other current
liabilities” with the remainder included in “Other
non-current liabilities” in our Consolidated Balance
Sheets. The federal benefit from state income tax exposures is
included in “Deferred income taxes” in our
Consolidated Balance Sheets.
Severance
and Contract Termination Costs
We recognize liabilities for severance and contract termination
costs based upon the nature of the cost to be incurred. For
involuntary separation plans that are completed within the
guidelines of our written involuntary separation plan, we record
the liability when it is probable and reasonably estimable. For
one-time termination benefits, such as additional severance pay
or benefit payouts, and other exit costs, such as contract
termination costs, the liability is measured and recognized
initially at fair value in the period in which the liability is
incurred, with subsequent changes to the liability recognized as
adjustments in the period of
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change. Severance related to position eliminations that are part
of a restructuring plan are recorded within “Restructuring
and other charges, net” in the Consolidated Statements of
Earnings, otherwise severance is recorded within “Salaries
and employee-related costs” in the Consolidated Statements
of Earnings.
Environmental
Expenditures
We record liabilities for environmental assessments
and/or
cleanup when it is probable a loss has been incurred and the
costs can be reasonably estimated. Environmental liability
estimates may include costs such as anticipated site testing,
consulting, remediation, disposal, post-remediation monitoring
and legal fees, as appropriate. The liability does not reflect
possible recoveries from insurance companies or reimbursement of
remediation costs by state agencies, but does include estimates
of cost sharing with other potentially responsible parties.
Estimates are not discounted, as the timing of the anticipated
cash payments is not fixed or readily determinable. Subsequent
adjustments to initial estimates are recorded as necessary based
upon additional information developed in subsequent periods. In
future periods, new laws or regulations, advances in remediation
technology and additional information about the ultimate
remediation methodology to be used could significantly change
our estimates. Claims for reimbursement of remediation costs are
recorded when recovery is deemed probable.
Asset
Retirement Obligations
Asset retirement obligations (AROs) are legal obligations
associated with the retirement of long-lived assets. Our AROs
are associated with underground tanks, tires and leasehold
improvements. These liabilities are initially recorded at fair
value and the related asset retirement costs are capitalized by
increasing the carrying amount of the related assets by the same
amount as the liability. Asset retirement costs are subsequently
depreciated over the useful lives of the related assets.
Subsequent to initial recognition, we record
period-to-period
changes in the ARO liability resulting from the passage of time
within “Operating expense” in the Consolidated
Statements of Earnings and revisions to either the timing or the
amount of the original expected cash flows to the related assets.
Derivative
Instruments and Hedging Activities
We use financial instruments, including forward exchange
contracts, futures, swaps and cap agreements to manage our
exposures to movements in interest rates and foreign currency
exchange rates. The use of these financial instruments modifies
the exposure of these risks with the intent to reduce the risk
or cost to us. We do not enter into derivative financial
instruments for trading purposes. We limit our risk that
counterparties to the derivative contracts will default and not
make payments by entering into derivative contracts only with
counterparties comprised of large banks and financial
institutions (primarily J.P. Morgan) that meet established
credit criteria. We do not expect to incur any losses as a
result of counterparty default.
On the date a derivative contract is entered into, we formally
document, among other items, the intended hedging designation
and relationship, along with the risk management objectives and
strategies for entering into the derivative contract. We also
formally assess, both at inception and on an ongoing basis,
whether the derivatives we used in hedging transactions are
highly effective in offsetting changes in fair values or cash
flows of hedged items. Cash flows from derivatives that are
accounted for as hedges are classified in the Consolidated
Statements of Cash Flows in the same category as the items being
hedged. When it is determined that a derivative is not highly
effective as a hedge or that it has ceased to be a highly
effective hedge, we discontinue hedge accounting prospectively.
The hedging designation may be classified as one of the
following:
No Hedging Designation.
The gain or loss on a
derivative instrument not designated as an accounting hedging
instrument is recognized in earnings.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Fair Value Hedge.
A hedge of a recognized
asset or liability or an unrecognized firm commitment is
considered a fair value hedge. For fair value hedges, both the
effective and ineffective portions of the changes in the fair
value of the derivative, along with the gain or loss on the
hedged item that is attributable to the hedged risk, are both
recorded in earnings.
Cash Flow Hedge.
A hedge of a forecasted
transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability is considered
a cash flow hedge. The effective portion of the change in the
fair value of a derivative that is declared as a cash flow hedge
is recorded in “Accumulated other comprehensive loss”
until earnings are affected by the variability in cash flows of
the designated hedged item.
Net Investment Hedge.
A hedge of a net
investment in a foreign operation is considered a net investment
hedge. The effective portion of the change in the fair value of
the derivative used as a net investment hedge of a foreign
operation is recorded in the currency translation adjustment
account within “Accumulated other comprehensive loss.”
The ineffective portion, if any, on the hedged item that is
attributable to the hedged risk is recorded in earnings and
reported in “Miscellaneous (income) expense, net” in
the Consolidated Statements of Earnings.
Foreign
Currency Translation
Our foreign operations generally use the local currency as their
functional currency. Assets and liabilities of these operations
are translated at the exchange rates in effect on the balance
sheet date. If exchangeability between the functional currency
and the U.S. dollar is temporarily lacking at the balance
sheet date, the first subsequent rate at which exchanges can be
made is used to translate assets and liabilities. Income
statement items are translated at the average exchange rates for
the year. The impact of currency fluctuations is recorded in
“Accumulated other comprehensive loss” as a currency
translation adjustment. Upon sale or upon complete or
substantially complete liquidation of an investment in a foreign
operation, the currency translation adjustment attributable to
that operation is removed from accumulated other comprehensive
loss and is reported as part of the gain or loss on sale or
liquidation of the investment for the period during which the
sale or liquidation occurs. Gains and losses resulting from
foreign currency transactions are recorded in
“Miscellaneous (income) expense, net” in the
Consolidated Statements of Earnings.
Share-Based
Compensation
The fair value of stock option awards and nonvested stock awards
other than restricted stock units (RSUs), is expensed on a
straight-line basis over the vesting period of the awards. RSUs
are generally expensed in the year they are granted. Share-based
compensation expense is generally reported in “Salaries and
employee-related costs” in our Consolidated Statements of
Earnings. Cash flows from the tax benefits resulting from tax
deductions in excess of the compensation expense recognized for
those options (windfall tax benefits) are classified as
financing cash flows. Tax benefits resulting from tax deductions
in excess of share-based compensation expense recognized are
credited to additional paid-in capital in the Consolidated
Balance Sheets. Realized tax shortfalls are first offset against
the cumulative balance of windfall tax benefits, if any, and
then charged directly to income tax expense. We have applied the
long-form method for determining the pool of windfall tax
benefits and had a pool of windfall tax benefits for all periods
presented.
Defined
Benefit Pension and Postretirement Benefit Plans
The funded status of our defined benefit pension plans and
postretirement benefit plans are recognized in the Consolidated
Balance Sheets. The funded status is measured as the difference
between the fair value of plan assets and the benefit obligation
at December 31, the measurement date. The fair value of
plan assets represents the current market value of contributions
made to irrevocable trust funds, held for the sole benefit of
participants, which are invested by the trust funds. For defined
benefit pension plans, the benefit obligation
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
represents the actuarial present value of benefits expected to
be paid upon retirement based on estimated future compensation
levels. For postretirement benefit plans, the benefit obligation
represents the actuarial present value of postretirement
benefits attributed to employee services already rendered.
Overfunded plans, with the fair value of plan assets exceeding
the benefit obligation, are aggregated and recorded as a prepaid
pension asset equal to this excess. Underfunded plans, with the
benefit obligation exceeding the fair value of plan assets, are
aggregated and recorded as a pension and postretirement benefit
liability equal to this excess.
The current portion of pension and postretirement benefit
liabilities represent the actuarial present value of benefits
payable within the next 12 months exceeding the fair value
of plan assets (if funded), measured on a
plan-by-plan
basis. These liabilities are recorded in “Accrued expenses
and other current liabilities” in the Consolidated Balance
Sheets.
Pension and postretirement benefit expense is recorded in
“Salaries and employee-related costs” in the
Consolidated Statements of Earnings and includes service cost,
interest cost, expected return on plan assets (if funded), and
amortization of prior service credit and net actuarial loss.
Service cost represents the actuarial present value of
participant benefits earned in the current year. Interest cost
represents the time value of money cost associated with the
passage of time. The expected return on plan assets represents
the average rate of earnings expected on the funds invested or
to be invested to provide for the benefits included in the
obligation. Prior service credit represents the impact of
negative plan amendments. Net actuarial loss arises as a result
of differences between actual experience and assumptions or as a
result of changes in actuarial assumptions. Net actuarial loss
and prior service credit not recognized as a component of
pension and postretirement benefit expense as they arise are
recognized as a component of accumulated comprehensive loss, net
of tax in the Consolidated Statements of Shareholders’
Equity. These pension and postretirement items are subsequently
amortized as a component of pension and postretirement benefit
expense over the remaining service period, if the majority of
the employees are active, otherwise over the remaining life
expectancy, provided such amounts exceed thresholds which are
based upon the benefit obligation or the value of plan assets.
The measurement of benefit obligations and pension and
postretirement benefit expense is based on estimates and
assumptions approved by management. These valuations reflect the
terms of the plans and use participant-specific information such
as compensation, age and years of service, as well as certain
assumptions, including estimates of discount rates, expected
return on plan assets, rate of compensation increases, interest
rates and mortality rates.
Fair
Value Measurements
We carry various assets and liabilities at fair value in the
Consolidated Balance Sheets. The most significant assets and
liabilities are vehicles held for sale, which are stated at the
lower of carrying amount or fair value less costs to sell,
investments held in Rabbi Trusts and derivatives.
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. Fair value measurements
are classified based on the following fair value hierarchy:
| Level 1 | Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| Level 2 | Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| Level 3 | Unobservable inputs for the asset or liability. These inputs reflect our own assumptions about the assumptions a market participant would use in pricing the asset or liability. |
When available, we use unadjusted quoted market prices to
measure fair value and classify such measurements within
Level 1. If quoted prices are not available, fair value is
based upon model-driven valuations that use current market-based
or independently sourced market parameters such as interest
rates and currency rates. Items valued using these models are
classified according to the lowest level input or value driver
that is significant to the valuation.
Revenue earning equipment held for sale is measured at fair
value on a nonrecurring basis and is stated at the lower of
carrying amount or fair value less costs to sell. Investments
held in Rabbi Trusts and derivatives are carried at fair value
on a recurring basis. Investments held in Rabbi Trusts include
exchange-traded equity securities and mutual funds. Fair values
for these investments are based on quoted prices in active
markets. For derivatives, fair value is based on model-driven
valuations using the LIBOR rate or observable forward foreign
exchange rates, which are observable at commonly quoted
intervals for the full term of the financial instrument.
Earnings
Per Share
Earnings per share is computed using the two-class method. The
two-class method of computing earnings per share is an earnings
allocation formula that determines earnings per share for common
stock and any participating securities according to dividends
declared (whether paid or unpaid) and participation rights in
undistributed earnings. Our nonvested stock (time-vested
restricted stock rights, market-based restricted stock rights
and restricted stock units) are considered participating
securities since the share-based awards contain a
non-forfeitable right to dividend equivalents irrespective of
whether the awards ultimately vest. Under the two-class method,
earnings per common share are computed by dividing the sum of
distributed earnings to common shareholders and undistributed
earnings allocated to common shareholders by the weighted
average number of common shares outstanding for the period. In
applying the two-class method, undistributed earnings are
allocated to both common shares and participating securities
based on the weighted average shares outstanding during the
period.
Diluted earnings per common share reflect the dilutive effect of
potential common shares from stock options. The dilutive effect
of stock options is computed using the treasury stock method,
which assumes any proceeds that could be obtained upon the
exercise of stock options would be used to purchase common
shares at the average market price for the period. The assumed
proceeds include the purchase price the grantee pays, the
windfall tax benefit that we receive upon assumed exercise and
the unrecognized compensation expense at the end of each period.
We calculate the assumed proceeds from excess tax benefits based
on the deferred tax assets actually recorded without
consideration of “as if” deferred tax assets.
Share
Repurchases
Repurchases of shares of common stock are made periodically in
open-market transactions and are subject to market conditions,
legal requirements and other factors. The cost of share
repurchases is allocated between common stock and retained
earnings based on the amount of additional paid-in capital at
the time of the share repurchase.
Comprehensive
Income (Loss)
Comprehensive income (loss) presents a measure of all changes in
shareholders’ equity except for changes resulting from
transactions with shareholders in their capacity as
shareholders. Our total
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
comprehensive income (loss) presently consists of net earnings,
currency translation adjustments associated with foreign
operations that use the local currency as their functional
currency, adjustments for derivative instruments accounted for
as cash flow hedges and various pension and other postretirement
benefits related items.
Recent
Accounting Pronouncements
In September 2009, the Financial Accounting Standards Board
(FASB) issued accounting guidance which amends the criteria for
allocating a contract’s consideration to individual
services or products in multiple-deliverable arrangements. The
guidance requires that the best estimate of selling price be
used when vendor specific objective or third-party evidence for
deliverables cannot be determined. This guidance is effective
for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010, with
early adoption permitted. We do not expect this guidance to have
a significant impact on our consolidated financial position,
results of operations or cash flows.
| 2. | ACCOUNTING CHANGES |
Transfers
of Financial Assets
In June 2009, the FASB issued accounting guidance which
addresses the accounting and disclosure requirements for
transfers of financial assets. The guidance is effective for new
transfers of financial assets occurring on or after
January 1, 2010. The adoption of this accounting guidance
did not have a material impact on our consolidated financial
position, results of operations or cash flows.
Consolidation
for Variable Interest Entities
In June 2009, the FASB issued accounting guidance which amends
the consolidation principles for variable interest entities by
requiring consolidation of VIEs based on which party has control
of the entity. The guidance is effective for fiscal years
beginning after November 15, 2009, and interim periods
within those fiscal years. The adoption of this accounting
guidance did not have a material impact on our consolidated
financial position, results of operations or cash flows.
Business
Combinations
In December 2007, the FASB revised the accounting guidance for
recognizing and measuring assets acquired and liabilities
assumed in a business combination and requires, among other
things, that transaction costs in a business combination be
expensed as incurred. This guidance was effective for business
combinations closing after January 1, 2009. Effective
January 1, 2009, we adopted the accounting guidance without
a material impact to our consolidated financial position,
results of operations or cash flows.
Fair
Value Measurements
In September 2006, the FASB issued accounting guidance on fair
value measurements, which defines fair value, establishes a
framework for measuring fair value, and expands disclosures
about fair value measurements. We adopted the accounting
guidance on January 1, 2009 for all nonfinancial assets and
liabilities recognized or disclosed at fair value on a
nonrecurring basis, including our vehicles held for sale. The
adoption of this accounting guidance did not have a material
impact on our consolidated financial position, results of
operations or cash flows.
| 3. | ACQUISITIONS |
Total Logistic Control Acquisition —
On
December 31, 2010, we acquired all the common stock of
Total Logistic Control (TLC), a leading provider of
comprehensive supply chain solutions to food, beverage, and
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consumer packaged goods manufacturers in the U.S. TLC
provides customers a broad suite of
end-to-end
services, including distribution management, contract packaging
services and solutions engineering. This acquisition will
enhance our SCS capabilities and growth prospects in the areas
of packaging and warehousing, including temperature-controlled
facilities. The purchase price was $209 million, of which
$205 was paid in 2010. In addition, we incurred $4 million
of acquisition costs, all of which was included in
“Operating expense” in the Consolidated Statements of
Earnings. The purchase price excludes certain items to be
resolved post-closing with the seller, which may result in
additional adjustments to the final purchase price.
The following table provides the preliminary estimated fair
values of the assets and liabilities assumed at the acquisition
date. The preliminary purchase price allocations and resulting
impact on the December 31, 2010 Consolidated Balance Sheet
relating to the TLC acquisition were as follows:
| (In thousands) | ||||
|
Assets
|
||||
|
Current assets
|
$ | 24,249 | ||
|
Operating property and equipment
|
75,471 | |||
|
Goodwill
|
138,321 | |||
|
Customer relationships and other intangibles
|
35,380 | |||
|
Other assets
|
632 | |||
| 274,053 | ||||
|
Liabilities:
|
||||
|
Current liabilities
|
(26,575 | ) | ||
|
Deferred tax liabilities and other liabilities
|
(38,883 | ) | ||
| (65,458 | ) | |||
|
Net assets acquired
|
$ | 208,595 | ||
Edart Leasing LLC Acquisition
— On
February 2, 2009, we acquired the assets of Edart Leasing
LLC (“Edart”), which included Edart’s fleet of
approximately 1,600 vehicles and more than 340 contractual
customers from Edart’s five locations in Connecticut for a
purchase price of $85 million of which $81 million was
paid in 2009 and $2 million was paid in 2010. The purchase
price consisted mainly of revenue earning equipment and
operating property. The combined network operates under the
Ryder name, complementing our FMS business segment market
coverage in the Northeast. We also acquired approximately 525
vehicles for remarketing.
Transpacific Container Terminal Ltd. and CRSA Logistics Ltd.
Acquisition
— On December 19, 2008, we
acquired all of the assets of Transpacific Container Terminal
Ltd. and CRSA Logistics Ltd. (“CRSA”) located in Port
Coquitlam, British Columbia, as well as CRSA’s operations
in Hong Kong and Shanghai, China. The companies specialize in
trans-Pacific,
end-to-end
transportation management and supply chain services primarily
for Canadian retailers. This acquisition adds complementary
solutions to our capabilities including consolidation services
in key Asian hub and off-dock deconsolidation operations in
Canada. The purchase price was $15 million, of which
$12 million was paid in 2008 and $2 million was paid
in 2009.
Gordon Truck Leasing Acquisition
— On
August 29, 2008, we acquired the assets of Gordon Truck
Leasing (“Gordon”), which included Gordon’s fleet
of approximately 500 vehicles and nearly 130 contractual
customers for a purchase price of $24 million, of which
$23 million was paid in 2008 with remaining amounts paid in
subsequent years. The combined network operates under the Ryder
name, complementing our FMS market coverage and service network
in Pennsylvania.
Gator Leasing Acquisition
— On May 12,
2008, we acquired the assets of Gator Leasing, Inc.
(“Gator”), which included Gator’s fleet of
approximately 2,300 vehicles and nearly 300 contractual
customers for a
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
purchase price of $117 million, of which $114 million
was paid in 2008 and $3 million was paid in 2009. The
combined network operates under the Ryder name, complementing
our FMS market coverage and service network in Florida.
Lily Acquisition
— On January 11, 2008, we
completed an asset purchase agreement with Lily Transportation
Corporation (“Lily”), under which we acquired
Lily’s fleet of approximately 1,600 vehicles and over 200
contractual customers for a purchase price of $99 million,
of which $97 million was paid in 2008 and $2 million
was paid in 2009. The combined network operates under the Ryder
name, complementing our FMS market coverage and service network
in the Northeast United States.
All of the acquisitions were accounted for as an acquisition of
a business. Goodwill on these acquisitions represents the excess
of the purchase price over the fair value of the underlying
acquired net tangible and intangible assets. Factors that
contributed to the recognition of goodwill in our acquisitions
included (i) expected growth rates and profitability of the
acquired companies, (ii) securing buyer-specific synergies
that increase revenue and profits and are not otherwise
available to market participants, (iii) significant cost
savings opportunities, (iv) the experienced workforce and
(v) our strategies for growth in sales, income and cash
flows.
During the years ended December 31, 2010 and 2009, we paid
$5 million and $1 million, respectively, related to
other acquisitions including payments for acquisitions completed
in prior years.
Pro Forma Information
— The operating results
of the acquired companies have been included in our consolidated
financial statements from the dates of acquisitions. The
following table provides the unaudited pro forma revenue, net
earnings and earnings per diluted common share as if the results
of the 2010 acquisition had been included in operations
commencing January 1, 2009 and the 2008 acquisitions had
been included in operations commencing January 1, 2007.
This pro forma information is not necessarily indicative either
of the combined results of operations that actually would have
been realized had the acquisitions been consummated during the
periods for which the pro forma information is presented, or of
future results.
|
Unaudited Pro Forma
|
||||||||||||
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands, except per share amounts) | ||||||||||||
|
Revenue
|
$ | 5,389,841 | 5,145,959 | 6,049,390 | ||||||||
|
Net earnings
|
$ | 126,974 | 59,922 | 201,712 | ||||||||
|
Net earnings per common share:
|
||||||||||||
|
Basic
|
$ | 2.42 | 1.08 | 3.56 | ||||||||
|
Diluted
|
$ | 2.41 | 1.08 | 3.54 | ||||||||
Our reported results were as follows:
|
As Reported
|
||||||||||||
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Revenue
|
$ | 5,136,435 | 4,887,254 | 5,999,041 | ||||||||
|
Net earnings
|
$ | 118,170 | 61,945 | 199,881 | ||||||||
|
Net earnings per common share:
|
||||||||||||
|
Basic
|
$ | 2.25 | 1.11 | 3.52 | ||||||||
|
Diluted
|
$ | 2.25 | 1.11 | 3.50 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Subsequent
Events
On January 10, 2011, we acquired the assets of Carmenita
Leasing, Inc., a full service leasing and rental business
located in Santa Fe Springs, California, which included a
fleet of approximately 190 full service lease and rental units,
and 60 contractual customers. The asset purchase will be
accounted for as an acquisition of a business.
On January 28, 2011, we acquired The Scully Companies, Inc.
(“Scully”), which included Scully’s fleet of
approximately 1,800 full service lease units and 300 rental
vehicles, and approximately 200 contractual customers. The
purchase will be accounted for as an acquisition of a business.
| 4. | DISCONTINUED OPERATIONS |
In December 2008, we announced strategic initiatives to improve
our competitive advantage and drive long-term profitable growth.
As part of these initiatives, we decided to discontinue SCS
operations in South America and Europe. During the second
half of 2009, we ceased SCS service operations in Brazil,
Argentina, Chile and European markets. Accordingly, results of
these operations, financial position and cash flows are
separately reported as discontinued operations for all periods
presented either in the Consolidated Financial Statements or
notes thereto.
Summarized results of discontinued operations were as follows:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Total revenue
|
$ | — | 70,357 | 207,195 | ||||||||
|
Pre-tax loss from discontinued operations
|
$ | (7,525 | ) | (28,087 | ) | (59,367 | ) | |||||
|
Income tax benefit (expense)
|
1,087 | (85 | ) | 1,669 | ||||||||
|
Loss from discontinued operations, net of tax
|
$ | (6,438 | ) | (28,172 | ) | (57,698 | ) | |||||
Results of discontinued operations in 2010 included
$4 million of pre-tax losses related to adverse legal
developments, professional fees and administrative fees
associates with our discontinued South American operations.
Results of discontinued operations in 2010 also included a
$3 million charge related to the remaining contractual
lease payments of a SCS leased facility in Europe, which we are
no longer utilizing.
Results of discontinued operations included operating losses of
$11 million and $12 million in 2009 and 2008,
respectively. During 2009 and 2008, we incurred restructuring
and other charges (primarily exit-related) of $17 million
and $47 million, respectively. These charges included the
following:
| • | Net severance and employee-related costs of $1 million in 2009 and $15 million in 2008 related to approximately 2,500 employees associated with these operations. In 2009, we had severance and employee-related costs of $5 million offset by $4 million of non-cash reductions as we refined our prior year estimates. | |
| • | Termination costs of $1 million in 2009 and $4 million in 2008 representing the contractual penalty for terminating leases and customer contracts before the end of the contract term. In 2009, we incurred contract termination costs of $3 million as we continued to negotiate with our counterparties. The charges in 2009 were offset by $2 million of non-cash reductions as we refined our prior year estimates. | |
| • | Asset impairments totaled $18 million in 2008 in conjunction with our decision to discontinue operations in these regions. The review of assets for impairment was triggered by our restructuring initiatives. The asset impairments included $11 million of SCS U.K. goodwill which represented the |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| entire goodwill related to this reporting unit. The asset impairment charges also included $7 million primarily for revenue earning equipment and operating property and equipment. |
| • | Restructuring plan implementation costs of $2 million in 2009, mostly professional service fees. | |
| • | In the fourth quarter of 2009, we substantially liquidated our investment in several South American subsidiaries where we ceased operations. As a result, we recognized a charge of $14 million related to accumulated foreign currency translation losses. | |
| • | In the fourth quarter of 2008, a customer in the SCS business segment in the U.K. declared bankruptcy. A portion of our services to this customer included the long-term financing of assets used to support the operations. As a result of the bankruptcy, we determined that this finance lease receivable was not recoverable and recorded a $4 million pre-tax charge. During 2009, we recovered approximately $1 million of the receivable. | |
| • | In the second quarter of 2008, we recorded a pre-tax charge of $6.5 million ($6.8 million after-tax) for prior years’ adjustments associated with our Brazilian SCS operation. The charge was identified in the course of a detailed business and financial review in Brazil, which occurred following certain adverse tax and legal developments. We determined that accruals of $3.7 million, primarily for carrier transportation and loss contingencies related to tax and legal matters, were not established in the appropriate period; and deferrals of $3.1 million, primarily for indirect value-added taxes, were overstated. The charges related primarily to the period from 2004 to 2007. After considering the qualitative and quantitative effects of the charges, we determined the charges were not material to our consolidated financial statements in any individual prior period, and the cumulative amount was not material to 2008 results. Therefore, we recorded the adjustment for the cumulative amount in the second quarter of 2008. |
We are subject to various claims, tax assessments and
administrative proceedings associated with our discontinued
operations. We have established loss provisions for matters in
which losses are deemed probable and can be reasonably
estimated. However, at this time, it is not possible for us to
determine fully the ultimate effect of all unasserted claims and
assessments on our consolidated financial condition, results of
operations or liquidity. Additional adjustments and expenses may
be recorded through discontinued operations in future periods as
further relevant information becomes available. Although it is
not possible to predict the ultimate outcome of these matters,
we do not expect that any resulting liability will have a
material adverse effect upon our financial condition, results of
operations or liquidity.
The following is a summary of assets and liabilities of
discontinued operations:
|
December 31,
|
December 31,
|
|||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Assets:
|
||||||||
|
Total current assets, primarily other receivables
|
$ | 4,710 | $ | 3,671 | ||||
|
Total assets
|
$ | 6,346 | $ | 7,631 | ||||
|
Liabilities:
|
||||||||
|
Total current liabilities, primarily other payables
|
$ | 4,018 | $ | 7,713 | ||||
|
Total liabilities
|
$ | 7,882 | $ | 12,869 | ||||
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 5. | RESTRUCTURING AND OTHER CHARGES |
The components of restructuring and other charges, net in 2010,
2009 and 2008 were as follows:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Restructuring charges, net:
|
||||||||||||
|
Severance and employee-related costs
|
$ | — | 2,206 | 11,209 | ||||||||
|
Contract termination costs
|
— | — | 29 | |||||||||
| — | 2,206 | 11,238 | ||||||||||
|
Other charges:
|
||||||||||||
|
Early retirement of debt
|
— | 4,178 | — | |||||||||
|
Asset impairments
|
— | 22 | 10,242 | |||||||||
|
Total
|
$ | — | 6,406 | 21,480 | ||||||||
As mentioned in Note 29, “Segment Reporting,” our
primary measure of segment financial performance excludes, among
other items, restructuring and other charges, net. However, the
applicable portion of the restructuring and other charges, net
that related to each segment in 2010, 2009, and 2008 were as
follows:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Fleet Management Solutions
|
$ | — | 5,631 | 16,643 | ||||||||
|
Supply Chain Solutions
|
— | 618 | 2,820 | |||||||||
|
Dedicated Contract Carriage
|
— | 41 | 533 | |||||||||
|
Central Support Services
|
— | 116 | 1,484 | |||||||||
|
Total
|
$ | — | 6,406 | 21,480 | ||||||||
2009
Activity
In the first quarter of 2009, we eliminated approximately 30
positions as part of workforce reductions under cost containment
initiatives, which began in the fourth quarter of 2008.
Workforce reductions resulted in a pre-tax restructuring charge
of $3 million, and were offset by $1 million of
refinements in estimates from prior restructuring charges.
Other charges, net in 2009 consisted primarily of debt
extinguishment charges of $4 million incurred as part of a
$100 million debt tender offer completed in September 2009
and described in Note 16, “Debt.” The charge
consisted of $3 million premium paid on the purchase of the
$100 million outstanding and $1 million for the
write-off of unamortized original debt discount and issuance
costs and fees on the transaction.
2008
Activity
During the fourth quarter of 2008, we approved a plan to
eliminate approximately 700 positions, primarily in the
U.S. The workforce reduction resulted in a pre-tax
restructuring charge of $11 million in the fourth quarter
of 2008, all of which related to the payment of severance and
other termination benefits. These actions were substantially
completed in the first quarter of 2009.
In connection with the decision to transition out of European
supply chain contracts and a declining economic environment, we
performed an impairment analysis relating to our FMS U.K.
reporting unit. Based
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
on our analysis, given current market conditions and business
expectations, we concluded that the fair value of the reporting
unit was less than the carrying amount. In the fourth quarter of
2008, we recorded a non-cash pre-tax impairment charge of
$10 million related to the write-off of goodwill related to
this reporting unit as the implied fair value of the goodwill
was less than the carrying amount.
The following table presents a roll-forward of the activity and
balances of our restructuring reserves, including discontinued
operations for the years ended December 31, 2010 and 2009:
| Deductions |
Foreign
|
|||||||||||||||||||||||
|
Beginning
|
Cash
|
Non-Cash
|
Translation
|
Ending
|
||||||||||||||||||||
| Balance | Additions | Payments | Reductions (1) | Adjustment | Balance | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Year ended December 31, 2010:
|
||||||||||||||||||||||||
|
Employee severance and benefits
|
$ | 1,070 | 152 | 971 | 29 | 12 | 234 | |||||||||||||||||
|
Contract termination costs
|
172 | 3,150 | 303 | — | 21 | 3,040 | ||||||||||||||||||
|
Total
|
$ | 1,242 | 3,302 | 1,274 | 29 | 33 | 3,274 | |||||||||||||||||
|
Year ended December 31, 2009:
|
||||||||||||||||||||||||
|
Employee severance and benefits
|
$ | 26,541 | 8,162 | 29,668 | 4,790 | 825 | 1,070 | |||||||||||||||||
|
Contract termination costs
|
3,482 | 3,098 | 4,851 | 1,687 | 130 | 172 | ||||||||||||||||||
|
Total
|
$ | 30,023 | 11,260 | 34,519 | 6,477 | 955 | 1,242 | |||||||||||||||||
| (1) | Non-cash reductions represent adjustments to the restructuring reserve as actual costs were less than originally estimated. |
At December 31, 2010, outstanding restructuring obligations
are generally required to be paid over the next two years.
| 6. | RECEIVABLES |
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Trade
|
$ | 534,850 | 493,203 | |||||
|
Direct financing leases
|
63,304 | 68,296 | ||||||
|
Income tax
|
10,979 | 31,859 | ||||||
|
Insurance
|
5,154 | 6,830 | ||||||
|
Vendor rebates
|
3,537 | 2,464 | ||||||
|
Other
|
11,046 | 9,817 | ||||||
| 628,870 | 612,469 | |||||||
|
Allowance
|
(13,867 | ) | (13,808 | ) | ||||
|
Total
|
$ | 615,003 | 598,661 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 7. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Current deferred tax asset
|
$ | 16,713 | 12,790 | |||||
|
Restricted cash
|
21,472 | 21,365 | ||||||
|
Prepaid vehicle licenses
|
41,237 | 37,349 | ||||||
|
Prepaid operating taxes
|
11,476 | 10,999 | ||||||
|
Prepaid real estate rent
|
7,768 | 8,530 | ||||||
|
Prepaid contract incentives
|
6,861 | 7,668 | ||||||
|
Prepaid software maintenance costs
|
2,647 | 3,151 | ||||||
|
Prepaid benefits
|
2,260 | 8,633 | ||||||
|
Prepaid insurance
|
8,324 | 6,710 | ||||||
|
Prepaid sales commissions
|
4,421 | 3,807 | ||||||
|
Other
|
13,365 | 12,039 | ||||||
|
Total
|
$ | 136,544 | 133,041 | |||||
| 8. | REVENUE EARNING EQUIPMENT |
|
Estimated
|
December 31, 2010 | December 31, 2009 | ||||||||||||||||||||||||||
|
Useful
|
Accumulated
|
Net Book
|
Accumulated
|
Net Book
|
||||||||||||||||||||||||
| Lives | Cost | Depreciation | Value (1) | Cost | Depreciation | Value (1) | ||||||||||||||||||||||
| (In years) | (In thousands) | |||||||||||||||||||||||||||
|
Held for use:
|
||||||||||||||||||||||||||||
|
Full service lease
|
3 — 12 | $ | 5,639,410 | (2,408,126 | ) | 3,231,284 | 5,616,102 | (2,173,693 | ) | 3,442,409 | ||||||||||||||||||
|
Commercial rental
|
4.5 — 12 | 1,549,094 | (647,764 | ) | 901,330 | 1,235,404 | (577,839 | ) | 657,565 | |||||||||||||||||||
|
Held for sale
|
260,114 | (191,510 | ) | 68,604 | 340,332 | (261,647 | ) | 78,685 | ||||||||||||||||||||
|
Total
|
$ | 7,448,618 | (3,247,400 | ) | 4,201,218 | 7,191,838 | (3,013,179 | ) | 4,178,659 | |||||||||||||||||||
| (1) | Revenue earning equipment, net includes vehicles under capital leases of $12 million, less accumulated amortization of $5 million at December 31, 2010, and $20 million, less accumulated amortization of $7 million at December 31, 2009. Amortization expense attributed to vehicles under capital leases is combined with depreciation expense. |
Revenue earning equipment captioned as “Full service
lease” and “Commercial rental” is differentiated
exclusively by the service line in which the equipment is
employed. Two core service offerings of our FMS business segment
are full service leasing and short-term commercial rental. Under
a full service lease, we provide customers with vehicles,
maintenance, supplies (including fuel), ancillary services and
related equipment necessary for operation, while our customers
exercise control of the related vehicles over the lease term
(generally three to seven years for trucks and tractors and up
to ten years for trailers). We also provide short-term rentals,
which tend to be seasonal, to customers to supplement their
fleets during peak business periods.
At the end of 2009, 2008 and 2007, we completed our annual
review of residual values and useful lives of revenue earning
equipment. Based on the results of our 2009 analysis, we
adjusted the residual values of certain classes of our revenue
earning equipment effective January 1, 2010. The residual
value change decreased pre-tax earnings in 2010 by approximately
$14 million compared with 2009. Based on the results of the
review, the adjustment to depreciation was not significant for
2009 and 2008.
In 2010, based on current and expected market conditions, we
recognized $5 million of accelerated depreciation on
certain classes of vehicles expected to be held for sale through
2011. In 2009, we recognized
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$10 million of accelerated depreciation on certain classes
of vehicles expected to be held for sale through 2010.
| 9. | OPERATING PROPERTY AND EQUIPMENT |
|
Estimated
|
December 31 | |||||||||
| Useful Lives | 2010 | 2009 | ||||||||
| (In years) | (In thousands) | |||||||||
|
Land
|
— | $ | 175,844 | 161,300 | ||||||
|
Buildings and improvements
|
10 — 40 | 695,806 | 647,128 | |||||||
|
Machinery and equipment
|
3 — 10 | 508,736 | 481,603 | |||||||
|
Other
|
3 — 10 | 107,214 | 109,536 | |||||||
| 1,487,600 | 1,399,567 | |||||||||
|
Accumulated depreciation
|
(880,757 | ) | (855,657 | ) | ||||||
|
Total
|
$ | 606,843 | 543,910 | |||||||
| 10. | GOODWILL |
The carrying amount of goodwill attributable to each reportable
business segment with changes therein was as follows:
|
Fleet
|
Supply
|
Dedicated
|
||||||||||||||
|
Management
|
Chain
|
Contract
|
||||||||||||||
| Solutions | Solutions | Carriage | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Balance at January 1, 2009
|
||||||||||||||||
|
Goodwill
|
$ | 186,563 | 46,949 | 4,900 | 238,412 | |||||||||||
|
Accumulated impairment losses
|
(10,322 | ) | (29,837 | ) | — | (40,159 | ) | |||||||||
| 176,241 | 17,112 | 4,900 | 198,253 | |||||||||||||
|
Acquisition
(1)
|
14,871 | 1,365 | — | 16,236 | ||||||||||||
|
Foreign currency translation adjustment
|
874 | 1,081 | — | 1,955 | ||||||||||||
|
Balance at December 31,
2009
(2)
|
||||||||||||||||
|
Goodwill
|
202,308 | 38,457 | 4,900 | 245,665 | ||||||||||||
|
Accumulated impairment losses
|
(10,322 | ) | (18,899 | ) | — | (29,221 | ) | |||||||||
| 191,986 | 19,558 | 4,900 | 216,444 | |||||||||||||
|
Acquisitions
(1)
|
287 | 138,321 | — | 138,608 | ||||||||||||
|
Foreign currency translation adjustment
|
346 | 444 | — | 790 | ||||||||||||
|
Balance at December 31,
2010
(2)
|
||||||||||||||||
|
Goodwill
|
202,941 | 177,222 | 4,900 | 385,063 | ||||||||||||
|
Accumulated impairment losses
|
(10,322 | ) | (18,899 | ) | — | (29,221 | ) | |||||||||
| $ | 192,619 | 158,323 | 4,900 | 355,842 | ||||||||||||
| (1) | See Note 3, “Acquisitions,” for additional information on acquisitions. | |
| (2) | Adjusted for write-off of SCS UK goodwill and accumulated impairment loss upon discontinuance of operations in 2009. |
On April 1st of this year, we completed our annual
goodwill impairment test and determined there was no impairment.
On December 31, 2008, we performed an interim impairment
test for our reporting units in the
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
U.K. based on market conditions in the fourth quarter of 2008
and our decision to exit certain SCS contracts in Europe. We
determined that goodwill associated with our U.K. reporting
units was impaired and we recorded an impairment charge of
$21 million for all goodwill in the U.K. as of
December 31, 2008. The impairment charge for the FMS U.K.
goodwill was recorded within “Restructuring and other
charges, net” in our Consolidated Statements of Earnings
and the impairment charge for the SCS U.K. goodwill was recorded
within “Loss from discontinued operations, net of tax”
in our Consolidated Statements of Earnings.
| 11. | INTANGIBLE ASSETS |
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Indefinite lived intangible assets — Trade name
|
$ | 9,084 | 9,084 | |||||
|
Finite lived intangible assets:
|
||||||||
|
Customer relationship intangibles
|
73,237 | 37,497 | ||||||
|
Accumulated amortization
|
(11,415 | ) | (8,252 | ) | ||||
| 61,822 | 29,245 | |||||||
|
Foreign currency translation adjustment
|
1,363 | 791 | ||||||
|
Total
|
$ | 72,269 | 39,120 | |||||
The Ryder trade name has been identified as having an indefinite
useful life. Customer relationship intangibles are being
amortized on a straight-line basis over their estimated useful
lives, generally
10-16 years.
We recorded amortization expense associated with finite lived
intangible assets of approximately $3 million in 2010 and
2009, and $2 million in 2008. The future amortization
expense for each of the five succeeding years related to all
intangible assets that are currently recorded in the
Consolidated Balance Sheets is estimated to be as follows at
December 31, 2010:
| (In thousands) | ||||
|
2011
|
$ | 5,978 | ||
|
2012
|
5,178 | |||
|
2013
|
5,178 | |||
|
2014
|
4,375 | |||
|
2015
|
4,257 | |||
|
Total
|
$ | 24,966 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 12. | DIRECT FINANCING LEASES AND OTHER ASSETS |
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Direct financing leases, net
|
$ | 274,631 | 285,273 | |||||
|
Investments held in Rabbi Trusts
|
17,404 | 19,686 | ||||||
|
Insurance receivables
|
11,075 | 13,300 | ||||||
|
Debt issuance costs
|
13,075 | 17,009 | ||||||
|
Prepaid pension asset
|
20,609 | 10,588 | ||||||
|
Contract incentives
|
18,638 | 21,776 | ||||||
|
Interest rate swap agreement
|
15,429 | 12,101 | ||||||
|
Other
|
22,040 | 21,591 | ||||||
|
Total
|
$ | 392,901 | 401,324 | |||||
| 13. | ACCRUED EXPENSES AND OTHER LIABILITIES |
| December 31, 2010 | December 31, 2009 | |||||||||||||||||||||||
|
Accrued
|
Non-Current
|
Accrued
|
Non-Current
|
|||||||||||||||||||||
| Expenses | Liabilities | Total | Expenses | Liabilities | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Salaries and wages
|
$ | 81,037 | — | 81,037 | 45,349 | — | 45,349 | |||||||||||||||||
|
Deferred compensation
|
1,965 | 21,258 | 23,223 | 5,068 | 16,970 | 22,038 | ||||||||||||||||||
|
Pension benefits
|
2,984 | 333,074 | 336,058 | 2,695 | 328,571 | 331,266 | ||||||||||||||||||
|
Other postretirement benefits
|
3,382 | 43,787 | 47,169 | 3,214 | 46,115 | 49,329 | ||||||||||||||||||
|
Employee benefits
|
2,251 | — | 2,251 | 2,346 | — | 2,346 | ||||||||||||||||||
|
Insurance obligations, primarily self-insurance
|
110,697 | 148,639 | 259,336 | 111,144 | 151,045 | 262,189 | ||||||||||||||||||
|
Residual value guarantees
|
2,301 | 2,196 | 4,497 | 2,177 | 1,872 | 4,049 | ||||||||||||||||||
|
Deferred rent
|
2,397 | 16,787 | 19,184 | 1,995 | 16,302 | 18,297 | ||||||||||||||||||
|
Deferred vehicle gains
|
473 | 1,374 | 1,847 | 790 | 2,259 | 3,049 | ||||||||||||||||||
|
Environmental liabilities
|
5,145 | 8,908 | 14,053 | 5,285 | 9,578 | 14,863 | ||||||||||||||||||
|
Asset retirement obligations
|
3,868 | 12,319 | 16,187 | 4,881 | 11,435 | 16,316 | ||||||||||||||||||
|
Operating taxes
|
73,095 | — | 73,095 | 70,370 | — | 70,370 | ||||||||||||||||||
|
Income taxes
|
2,559 | 73,849 | 76,408 | 459 | 73,311 | 73,770 | ||||||||||||||||||
|
Interest
|
30,478 | — | 30,478 | 29,123 | — | 29,123 | ||||||||||||||||||
|
Deposits, mainly from customers
|
31,755 | 7,538 | 39,293 | 29,511 | 7,527 | 37,038 | ||||||||||||||||||
|
Deferred revenue
|
15,956 | 4,646 | 20,602 | 9,136 | 5,578 | 14,714 | ||||||||||||||||||
|
Other
|
46,672 | 6,433 | 53,105 | 31,402 | 11,050 | 42,452 | ||||||||||||||||||
|
Total
|
$ | 417,015 | 680,808 | 1,097,823 | 354,945 | 681,613 | 1,036,558 | |||||||||||||||||
We retain a portion of the accident risk under vehicle liability
and workers’ compensation insurance programs.
Self-insurance accruals are based primarily on actuarially
estimated, undiscounted cost of claims, and include claims
incurred but not reported. Such liabilities are based on
estimates. Historical loss development factors are utilized to
project the future development of incurred losses, and these
amounts are adjusted based upon actual claim experience and
settlements. While we believe the amounts are adequate,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
there can be no assurance that changes to our estimates may not
occur due to limitations inherent in the estimation process.
During 2010, 2009 and 2008, we recorded a (charge) benefit of
$(3) million, $1 million, and $23 million,
respectively, within “Operating expense” in our
Consolidated Statements of Earnings, from development in
estimated prior years’ self-insured loss reserves for the
reasons noted above.
| 14. | INCOME TAXES |
The components of earnings from continuing operations before
income taxes and the provision for income taxes from continuing
operations were as follows:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Earnings from continuing operations before income taxes:
|
||||||||||||
|
United States
|
$ | 156,123 | 132,235 | 352,180 | ||||||||
|
Foreign
|
30,182 | 11,534 | 57,108 | |||||||||
|
Total
|
$ | 186,305 | 143,769 | 409,288 | ||||||||
|
Current tax expense (benefit) from continuing operations:
|
||||||||||||
|
Federal
(1)
|
$ | 4,536 | (44,832 | ) | 1,084 | |||||||
|
State
(1)
|
4,468 | 6,037 | 4,444 | |||||||||
|
Foreign
|
11,596 | (236 | ) | 17,381 | ||||||||
| 20,600 | (39,031 | ) | 22,909 | |||||||||
|
Deferred tax expense (benefit) from continuing operations:
|
||||||||||||
|
Federal
|
38,179 | 90,433 | 114,778 | |||||||||
|
State
|
7,198 | 2,736 | 11,776 | |||||||||
|
Foreign
|
(4,280 | ) | (486 | ) | 2,246 | |||||||
| 41,097 | 92,683 | 128,800 | ||||||||||
|
Provision for income taxes from continuing operations
|
$ | 61,697 | 53,652 | 151,709 | ||||||||
| (1) | Excludes federal and state tax benefits resulting from the exercise of stock options and vesting of restricted stock awards, which were credited directly to “Additional paid-in capital.” |
A reconciliation of the federal statutory tax rate with the
effective tax rate from continuing operations follows:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (Percentage of pre-tax earnings) | ||||||||||||
|
Federal statutory tax rate
|
35.0 | 35.0 | 35.0 | |||||||||
|
Impact on deferred taxes for changes in tax rates
|
0.4 | (3.7 | ) | (0.6 | ) | |||||||
|
State income taxes, net of federal income tax benefit
|
4.6 | 6.0 | 4.0 | |||||||||
|
Tax reviews and audits
|
(7.0 | ) | (2.8 | ) | (2.7 | ) | ||||||
|
Restructuring and other charges, net
|
— | 1.7 | 1.1 | |||||||||
|
Miscellaneous items, net
|
0.1 | 1.1 | 0.3 | |||||||||
|
Effective tax rate
|
33.1 | 37.3 | 37.1 | |||||||||
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The 2010 effective income tax rate benefited from the favorable
settlement of domestic tax audits in 2010 and the reversal of
reserves for uncertain tax positions due to the expiration of a
statute of limitation. In the aggregate, these items reduced the
effective rate by 5.7% of pre-tax earnings from continuing
operations. The 2009 effective income tax rate benefited from
enacted tax law changes in Ontario, Canada, the favorable
settlement of a foreign tax audit and reversal of reserves for
uncertain tax positions for which the statute of limitation in
various jurisdictions had expired. In the aggregate, these items
reduced the effective rate by 6.5% of pre-tax earnings. The
benefits in 2009 were partially offset by the impact of
non-deductible expenses on lower pre-tax earnings from
continuing operations. The 2008 effective income tax rate
benefited from enacted tax law changes in Massachusetts and the
reversal of reserves for uncertain tax positions, for which the
statute of limitation in various jurisdictions had expired
which, in the aggregate, totaled 3.3% of pre-tax earnings. The
benefits in 2008 were partially offset by the adverse impact of
non-deductible restructuring and other charges.
Tax Law
Changes
The effects of changes in tax laws on deferred tax balances are
recognized in the period the new legislation is enacted. The
following provides a summary of the impact of changes in tax
laws on net earnings from continuing operations and net earnings
per diluted common share from continuing operations by tax
jurisdiction:
|
Diluted Earnings Per
|
||||||||||
| Tax Jurisdiction | Enactment Date | Net Earnings | Share | |||||||
| (In thousands) | ||||||||||
|
2010
|
||||||||||
|
United Kingdom
|
July 27, 2010 | $ | 400 | $ | 0.01 | |||||
|
2009
|
||||||||||
|
Ontario, Canada
|
December 15, 2009 | $ | 4,100 | $ | 0.07 | |||||
|
State of Wisconsin
|
February 19, 2009 | $ | 513 | $ | 0.01 | |||||
|
2008
|
||||||||||
|
State of Massachusetts
|
July 2, 2008 | $ | 1,759 | $ | 0.03 | |||||
On March 23, 2010, the U.S. enacted the Patient
Protection and Affordable Care Act and on March 30, 2010,
the U.S. enacted the Health Care and Education
Reconciliation Act of 2010 (collectively, the “Act”).
The Act will reduce certain tax benefits available to employers
for providing prescription coverage to retirees among other tax
law changes. We do not provide prescription coverage for our
retirees; therefore the Act had no impact on our deferred income
taxes or net earnings.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Deferred Income Taxes |
The components of the net deferred income tax liability were as
follows:
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Deferred income tax assets:
|
||||||||
|
Self-insurance accruals
|
$ | 34,554 | 33,139 | |||||
|
Net operating loss carryforwards
|
97,084 | 69,807 | ||||||
|
Alternative minimum taxes
|
9,679 | 9,679 | ||||||
|
Accrued compensation and benefits
|
54,666 | 38,024 | ||||||
|
Federal benefit on state tax positions
|
18,238 | 17,987 | ||||||
|
Pension benefits
|
118,710 | 121,115 | ||||||
|
Miscellaneous other accruals
|
32,147 | 30,143 | ||||||
| 365,078 | 319,894 | |||||||
|
Valuation allowance
|
(39,216 | ) | (36,573 | ) | ||||
| 325,862 | 283,321 | |||||||
|
Deferred income tax liabilities:
|
||||||||
|
Property and equipment bases difference
|
(1,398,642 | ) | (1,292,691 | ) | ||||
|
Other items
|
(19,363 | ) | (13,714 | ) | ||||
| (1,418,005 | ) | (1,306,405 | ) | |||||
|
Net deferred income tax
liability
(1)
|
$ | (1,092,143 | ) | (1,023,084 | ) | |||
| (1) | Deferred tax assets of $17 million and $13 million have been included in “Prepaid expenses and other current assets” at December 31, 2010 and 2009, respectively. |
We do not provide for U.S. deferred income taxes on
temporary differences related to our foreign investments that
are considered permanent in duration. These temporary
differences consist primarily of undistributed foreign earnings
of $451 million at December 31, 2010. A full foreign
tax provision has been made on these undistributed foreign
earnings. Determination of the amount of deferred taxes on these
temporary differences is not practicable due to foreign tax
credits and exclusions.
At December 31, 2010, we had U.S. federal net
operating loss carryforwards of $21 million and various
U.S. subsidiaries had state net operating loss
carryforwards of $41 million both expiring through tax year
2029. We also had foreign net operating losses of
$35 million that are available to reduce future income tax
payments in several countries, subject to varying expiration
rules. A valuation allowance has been established to reduce
deferred income tax assets, principally foreign tax loss
carryforwards to amounts more likely than not to be realized. We
had unused alternative minimum tax credits, for tax purposes, of
$10 million at December 31, 2010 available to reduce
future income tax liabilities. The alternative minimum tax
credits may be carried forward indefinitely.
| Uncertain Tax Positions |
We are subject to tax audits in numerous jurisdictions in the
U.S. and foreign countries. Tax audits by their very nature
are often complex and can require several years to complete. In
the normal course of business, we are subject to challenges from
the Internal Revenue Service (IRS) and other tax authorities
regarding amounts of taxes due. These challenges may alter the
timing or amount of taxable income or deductions, or the
allocation of income among tax jurisdictions. As part of our
calculation of the provision for income taxes on earnings, we
recognize the tax benefit from uncertain tax positions that are
at least more
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
likely than not of being sustained upon audit based on the
technical merits of the tax position. The tax benefit to be
recognized is measured as the largest amount of benefit that is
greater than fifty percent likely of being realized upon
ultimate settlement. Such calculations require management to
make estimates and judgments with respect to the ultimate
outcome of a tax audit. Actual results could vary materially
from these estimates.
The following is a summary of tax years that are no longer
subject to examination:
Federal —
audits of our U.S. federal
income tax returns are closed through fiscal year 2006.
State
— for the majority of states, we are no
longer subject to tax examinations by tax authorities for tax
years before 2007.
Foreign
— we are no longer subject to foreign
tax examinations by tax authorities for tax years before 2003 in
Canada, 2001 in Brazil, 2005 in Mexico and 2007 in the U.K.,
which are our major foreign tax jurisdictions. In Brazil, we
were assessed $17 million, including penalties and
interest, related to the tax due on the sale of our outbound
auto carriage business in 2001. On November 11, 2010, the
Administrative Tax Court dismissed the assessment. The period
for the tax authority to appeal the decision has not yet closed.
We believe it is more likely than not that our tax position will
ultimately be sustained and no amounts have been reserved for
this matter.
The following table summarizes the activity related to
unrecognized tax benefits (excluding the federal benefit
received from state positions):
| December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Balance at January 1
|
$ | 69,494 | 51,741 | 65,306 | ||||||||
|
Additions based on tax positions related to the current year
|
4,233 | 12,422 | 6,840 | |||||||||
|
Additions for tax positions of prior years
|
— | 9,615 | — | |||||||||
|
Reductions for tax positions of prior years
|
— | — | (11,296 | ) | ||||||||
|
Settlements
|
(8,280 | ) | (1,995 | ) | (1,664 | ) | ||||||
|
Reductions due to lapse of applicable statute of limitation
|
(4,211 | ) | (2,289 | ) | (7,445 | ) | ||||||
|
Gross balance at December 31
|
61,236 | 69,494 | 51,741 | |||||||||
|
Interest and penalties
|
5,858 | 6,709 | 3,996 | |||||||||
|
Balance at December 31
|
$ | 67,094 | 76,203 | 55,737 | ||||||||
Of the total unrecognized tax benefits, $49 million (net of
the federal benefit on state issues) represents the amount of
unrecognized tax benefits that, if recognized, would favorably
affect the effective tax rate in future periods. The total
amount of accrued interest and penalties, net of the federal
benefit on state issues, resulting from such unrecognized tax
benefits was $5 million and $6 million at
December 31, 2010 and 2009, respectively. For the years
ended December 31, 2010, 2009 and 2008, we recognized an
income tax benefit related to interest and penalties of
$2 million, $0.6 million, and $2 million,
respectively, within “Provision for income taxes” in
our Consolidated Statements of Earnings. Unrecognized tax
benefits related to federal, state and foreign tax positions may
decrease by $2 million by December 31, 2011, if audits
are completed or tax years close during 2011.
| Like-Kind Exchange Program |
We have a like-kind exchange program for certain of our revenue
earning equipment operating in the U.S. Pursuant to the
program, we dispose of vehicles and acquire replacement vehicles
in a form whereby tax gains on disposal of eligible vehicles are
deferred. To qualify for like-kind exchange treatment, we
exchange, through a qualified intermediary, eligible vehicles
being disposed of with vehicles being acquired allowing us
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
to generally carryover the tax basis of the vehicles sold
(“like-kind exchanges”). The program results in a
material deferral of federal and state income taxes. As part of
the program, the proceeds from the sale of eligible vehicles are
restricted for the acquisition of replacement vehicles and other
specified applications. Due to the structure utilized to
facilitate the like-kind exchanges, the qualified intermediary
that holds the proceeds from the sales of eligible vehicles and
the entity that holds the vehicles to be acquired under the
program are required to be consolidated in the accompanying
Consolidated Financial Statements in accordance with
U.S. GAAP. At December 31, 2010 and 2009, these
consolidated entities had total assets, primarily revenue
earning equipment, and total liabilities, primarily accounts
payable, of $50 million and $29 million, respectively.
| 15. | LEASES |
| Leases as Lessor |
We lease revenue earning equipment to customers for periods
ranging from three to seven years for trucks and tractors and up
to ten years for trailers. From time to time, we may also lease
facilities to third parties. The majority of our leases are
classified as operating leases. However, some of our revenue
earning equipment leases are classified as direct financing
leases and, to a lesser extent, sales-type leases. The net
investment in direct financing and sales-type leases consisted
of:
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Total minimum lease payments receivable
|
$ | 548,419 | 582,532 | |||||
|
Less: Executory costs
|
(171,076 | ) | (189,057 | ) | ||||
|
Minimum lease payments receivable
|
377,343 | 393,475 | ||||||
|
Less: Allowance for uncollectibles
|
(784 | ) | (813 | ) | ||||
|
Net minimum lease payments receivable
|
376,559 | 392,662 | ||||||
|
Unguaranteed residuals
|
57,898 | 59,049 | ||||||
|
Less: Unearned income
|
(96,522 | ) | (98,142 | ) | ||||
|
Net investment in direct financing and sales-type leases
|
337,935 | 353,569 | ||||||
|
Current portion
|
(63,304 | ) | (68,296 | ) | ||||
|
Non-current portion
|
$ | 274,631 | 285,273 | |||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Our direct financing lease customers operate in a wide variety
of industries, and we have no significant customer
concentrations in any one industry. We assess credit risk for
all of our customers including those who lease equipment under
direct financing leases. Credit risk is assessed using an
internally developed model which incorporates credit scores from
third party providers and our own custom risk ratings and is
updated on a monthly basis. The external credit scores are
developed based on the customer’s historical payment
patterns and an overall assessment of the likelihood of
delinquent payments. Our internal ratings are weighted based on
the industry that the customer operates, company size, years in
business, and other credit-related indicators (i.e.
profitability, cash flow, liquidity, tangible net worth, etc.).
Any one of the following factors may result in a customer being
classified as high risk: i) the customer has a history of
late payments; ii) the customer has open lawsuits, liens or
judgments; iii) the customer has been in business less that
3 years; and iv) the customer operates in an industry
with low barriers to entry. For those customers who are
designated as high risk, we typically require deposits to be
paid in advance in order to mitigate our credit risk.
Additionally, our receivables are collateralized by the
vehicle’s fair value, which further mitigates our credit
risk. The following table presents the credit risk profile by
creditworthiness category of our direct financing lease
receivables at December 31, 2010:
| (In thousands) | ||||
|
Very low risk
|
$ | 41,942 | ||
|
Low risk
|
39,369 | |||
|
Moderate risk
|
198,195 | |||
|
Moderately high risk
|
43,012 | |||
|
High risk
|
15,417 | |||
| $ | 337,935 | |||
The balance of the allowance for uncollectible accounts for our
direct financing lease receivables was $0.8 million as of
December 31, 2010. We determine the adequacy of our
allowance for uncollectible accounts for our direct financing
lease receivables based on an analysis of historical write-offs
to receivable and reserve levels on a monthly basis as well as
declines in the value of the underlying vehicle. As of
December 31, 2010, the amount of direct financing lease
receivables which were past due was not significant and there
were no impaired receivables. Accordingly, there was no material
risk of default with respect to the direct financing lease
receivables as of December 31, 2010.
| Leases as Lessee |
We lease vehicles, facilities and office equipment under
operating lease agreements. Rental payments on certain vehicle
lease agreements vary based on the number of miles run during
the period. Generally, vehicle lease agreements specify that
rental payments be adjusted periodically based on changes in
interest rates and provide for early termination at stipulated
values. None of our leasing arrangements contain restrictive
financial covenants.
We periodically enter into sale and leaseback transactions in
order to lower the total cost of funding our operations, to
diversify our funding among different classes of investors
(e.g., regional banks, pension plans, insurance companies, etc.)
and to diversify our funding among different types of funding
instruments. These sale-leaseback transactions are often
executed with third-party financial institutions. In general,
these sale-leaseback transactions result in a reduction in
revenue earning equipment and debt on the balance sheet, as
proceeds from the sale of revenue earning equipment are used
primarily to repay debt. Sale-leaseback transactions will result
in reduced depreciation and interest expense and increased
equipment rental expense.
Certain leases contain purchase
and/or
renewal options, as well as limited guarantees for a portion of
the lessor’s residual value. The residual value guarantees
are conditional on termination of the lease prior to its
contractual lease term. The amount of residual value guarantees
expected to be paid is recognized as rent expense over the
expected remaining term of the lease. Facts and circumstances
that impact management’s
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
estimates of residual value guarantees include the market for
used equipment, the condition of the equipment at the end of the
lease and inherent limitations in the estimation process. See
Note 19, “Guarantees,” for additional information.
During 2010, 2009 and 2008, rent expense (including rent of
facilities classified within “Operating expense,” in
our Consolidated Statements of Earnings but excluding contingent
rentals) was $156 million, $163 million and
$171 million, respectively. During 2010, 2009 and 2008,
contingent rental income comprised of residual value guarantees,
payments based on miles run and adjustments to rental payments
for changes in interest rates on all other leased vehicles were
$2 million, $2 million and $1 million,
respectively.
| Lease Payments |
Future minimum payments for leases in effect at
December 31, 2010 were as follows:
| As Lessor (1) | As Lessee | |||||||||||
|
Direct
|
||||||||||||
|
Operating
|
Financing
|
Operating
|
||||||||||
| Leases | Leases | Leases | ||||||||||
| (In thousands) | ||||||||||||
|
2011
|
$ | 1,208,567 | 126,156 | 100,156 | ||||||||
|
2012
|
873,190 | 110,155 | 68,669 | |||||||||
|
2013
|
560,183 | 93,169 | 48,170 | |||||||||
|
2014
|
334,379 | 77,852 | 49,369 | |||||||||
|
2015
|
191,275 | 59,584 | 13,470 | |||||||||
|
Thereafter
|
137,329 | 81,503 | 27,230 | |||||||||
|
Total
|
$ | 3,304,923 | 548,419 | 307,064 | ||||||||
| (1) | Amounts do not include contingent rentals, which may be received under certain leases on the basis of miles of use or changes in the Consumer Price Index. Contingent rentals from operating leases included in revenue during 2010, 2009 and 2008 were $294 million, $326 million, and $354 million, respectively. Contingent rentals from direct financing leases included in revenue during 2010, 2009, and 2008 were $12 million, $13 million, and $14 million, respectively. |
The amounts in the previous table related to the lease of
revenue earning equipment are based upon the general assumption
that revenue earning equipment will remain on lease for the
length of time specified by the respective lease agreements. The
future minimum payments presented above related to the lease of
revenue earning equipment are not a projection of future lease
revenue or expense; no effect has been given to renewals, new
business, cancellations, contingent rentals or future rate
changes. Total future sublease rentals from revenue earning
equipment under operating leases as lessee of $87 million
are included within the future minimum rental payments for
operating leases as lessor.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 16. | DEBT |
|
Weighted-Average
|
||||||||||||||||||
|
Interest Rate
|
||||||||||||||||||
| December 31 | December 31 | |||||||||||||||||
| 2010 | 2009 | Maturities | 2010 | 2009 | ||||||||||||||
| (In thousands) | ||||||||||||||||||
|
Short-term debt and current portion of long-term debt:
|
||||||||||||||||||
|
Unsecured foreign obligations
|
4.56 | % | 6.98 | % | 2011 | $ | 42,968 | 5,369 | ||||||||||
|
Current portion of long-term debt, including capital leases
|
377,156 | 227,248 | ||||||||||||||||
|
Total short-term debt and current portion of long-term debt
|
420,124 | 232,617 | ||||||||||||||||
|
Long-term debt:
|
||||||||||||||||||
|
U.S. commercial
paper
(1)
|
0.42 | % | 0.43 | % | 2012 | 367,880 | 191,934 | |||||||||||
|
Unsecured U.S. notes — Medium-term
notes
(1)
|
5.28 | % | 5.89 | % | 2011-2025 | 2,158,647 | 2,032,344 | |||||||||||
|
Unsecured U.S. obligations, principally bank term loans
|
1.54 | % | 1.45 | % | 2012-2013 | 105,600 | 132,150 | |||||||||||
|
Unsecured foreign obligations
|
5.14 | % | 5.22 | % | 2012 | 45,109 | 112,782 | |||||||||||
|
Capital lease obligations
|
7.86 | % | 8.26 | % | 2011-2017 | 11,369 | 11,011 | |||||||||||
|
Total before fair market value adjustment
|
2,688,605 | 2,480,221 | ||||||||||||||||
|
Fair market value adjustment on note subject to
hedging
(2)
|
15,429 | 12,101 | ||||||||||||||||
| 2,704,034 | 2,492,322 | |||||||||||||||||
|
Current portion of long-term debt, including capital leases
|
(377,156 | ) | (227,248 | ) | ||||||||||||||
|
Long-term debt
|
2,326,878 | 2,265,074 | ||||||||||||||||
|
Total debt
|
$ | 2,747,002 | 2,497,691 | |||||||||||||||
| (1) | We had unamortized original issue discounts of $10 million and $12 million at December 31, 2010 and 2009, respectively. |
| (2) | The notional amount of the executed interest rate swap designated as a fair value hedge was $250 million at December 31, 2010 and 2009. |
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Maturities of debt were as follows:
| Capital Leases | Debt | |||||||
| (In thousands) | ||||||||
|
2011
|
$ | 2,930 | 417,932 | |||||
|
2012
|
2,760 | 631,037 | ||||||
|
2013
|
2,520 | 349,777 | ||||||
|
2014
|
2,503 | 249,984 | ||||||
|
2015
|
1,845 | 308,289 | ||||||
|
Thereafter
|
1,103 | 763,185 | ||||||
|
Total
|
13,661 | 2,720,204 | ||||||
|
Imputed interest
|
(2,292 | ) | ||||||
|
Present value of minimum capitalized lease payments
|
11,369 | |||||||
|
Current portion
|
(2,192 | ) | ||||||
|
Long-term capitalized lease obligation
|
$ | 9,177 | ||||||
Debt
Facilities
We can borrow up to $875 million under a global revolving
credit facility with a syndicate of thirteen lending
institutions led by Bank of America N.A., Bank of
Tokyo-Mitsubishi UFJ, Ltd., Mizuho Corporate Bank, Ltd., Royal
Bank of Scotland Plc and Wells Fargo N.A. The global credit
facility matures in April 2012 and is used primarily to finance
working capital and provide support for the issuance of
unsecured commercial paper in the U.S. and Canada. This
facility can also be used to issue up to $75 million in
letters of credit (there were no letters of credit outstanding
against the facility at December 31, 2010). At our option,
the interest rate on borrowings under the credit facility is
based on LIBOR, prime, federal funds or local equivalent rates.
The agreement provides for annual facility fees, which range
from 22.5 basis points to 62.5 basis points, and are
based on Ryder’s long-term credit ratings. The current
annual facility fee is 37.5 basis points, which applies to
the total facility size of $875 million. The credit
facility contains no provisions limiting its availability in the
event of a material adverse change to Ryder’s business
operations; however, the credit facility does contain standard
representations and warranties, events of default, cross-default
provisions, and certain affirmative and negative covenants. In
order to maintain availability of funding, we must maintain a
ratio of debt to consolidated tangible net worth, of less than
or equal to 300%. Tangible net worth, as defined in the credit
facility, includes 50% of our deferred federal income tax
liability and excludes the book value of our intangibles. The
ratio at December 31, 2010 was 189%. At December 31,
2010, $506 million was available under the credit facility,
net of the support for commercial paper borrowings.
Our global revolving credit facility permits us to refinance
short-term commercial paper obligations on a long-term basis.
Settlement of short-term commercial paper obligations not
expected to require the use of working capital are classified as
long-term as we have both the intent and ability to refinance on
a long-term basis. At December 31, 2010 and 2009, we
classified $368 million and $192 million,
respectively, of short-term commercial paper as long-term.
In September 2010, we issued $300 million of unsecured
medium-term notes maturing in March 2016. If the notes are
downgraded following, and as a result of, a change of control,
the note holder can require us to repurchase all or a portion of
the notes at a purchase price equal to 101% of the principal
amount plus accrued and unpaid interest. The medium-term notes
were issued to take advantage of historically low interest rates
and fund capital expenditures and debt maturities.
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We have a trade receivables purchase and sale program, pursuant
to which we sell certain of our domestic trade accounts
receivable to a bankruptcy remote, consolidated subsidiary of
Ryder, that in turn sells, on a revolving basis, an ownership
interest in certain of these accounts receivable to a
receivables conduit or committed purchasers. The subsidiary is
considered a VIE and is consolidated based on our control of the
entity’s activities. We use this program to provide
additional liquidity to fund our operations, particularly when
it is cost effective to do so. The costs under the program may
vary based on changes in interest rates. The available proceeds
that may be received under the program are limited to
$175 million. If no event occurs which causes early
termination, the
364-day
program will expire on October 28, 2011. The program
contains provisions restricting its availability in the event of
a material adverse change to our business operations or the
collectibility of the collateralized receivables. At
December 31, 2010 and December 31, 2009, no amounts
were outstanding under the program. Sales of receivables under
this program will be accounted for as secured borrowings based
on our continuing involvement in the transferred assets.
On February 25, 2010, we filed an automatic shelf
registration statement on
Form S-3
with the Securities and Exchange Commission. The registration is
for an indeterminate number of securities and is effective for
three years. Under this universal shelf registration statement,
we have the capacity to offer and sell from time to time various
types of securities, including common stock, preferred stock and
debt securities, subject to market demand and ratings status.
Debt
Retirements
In September 2009, we completed a $100 million debt tender
offer at a total cost of $104 million. We purchased
$50 million aggregate principal amount of outstanding 5.95%
medium-term notes maturing May 2011 and $50 million
aggregate principal amount of outstanding 4.625% medium-term
notes maturing April 2010. We recorded a pre-tax debt
extinguishment charge of $4 million which included
$3 million for the premium paid and $1 million for the
write-off of unamortized original debt discount and issuance
costs and fees on the transaction. These charges have been
included within “Restructuring and other charges, net.”
| 17. | FAIR VALUE MEASUREMENTS |
The following tables present our assets and liabilities that are
measured at fair value on a recurring basis and the levels of
inputs used to measure fair value:
|
Fair Value Measurements
|
||||||||||||||||||
| At December 31, 2010 Using | ||||||||||||||||||
| Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
| (In thousands) | ||||||||||||||||||
|
Assets:
|
||||||||||||||||||
|
Investments held in Rabbi Trusts:
|
||||||||||||||||||
|
Cash and cash equivalents
|
$ | 2,348 | — | — | $ | 2,348 | ||||||||||||
|
U.S. equity mutual funds
|
8,409 | — | — | 8,409 | ||||||||||||||
|
Foreign equity mutual funds
|
5,188 | — | — | 5,188 | ||||||||||||||
|
Fixed income mutual funds
|
1,459 | — | — | 1,459 | ||||||||||||||
|
Investments held in Rabbi Trusts
|
DFL and other assets | 17,404 | — | — | 17,404 | |||||||||||||
|
Interest rate swap
|
DFL and other assets | — | 15,429 | — | 15,429 | |||||||||||||
|
Total assets at fair value
|
$ | 17,404 | 15,429 | — | $ | 32,833 | ||||||||||||
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
Fair Value Measurements
|
||||||||||||||||||
| At December 31, 2009 Using | ||||||||||||||||||
| Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
| (In thousands) | ||||||||||||||||||
|
Assets:
|
||||||||||||||||||
|
Investments held in Rabbi Trusts
|
DFL and other assets | $ | 19,686 | — | — | 19,686 | ||||||||||||
|
Interest rate swap
|
DFL and other assets | — | 12,101 | — | 12,101 | |||||||||||||
|
Total assets at fair value
|
$ | 19,686 | 12,101 | — | 31,787 | |||||||||||||
The following table presents our assets that are measured at
fair value on a nonrecurring basis and the levels of inputs used
to measure fair value:
|
Fair Value Measurements
|
||||||||||||||||
| At December 31, 2010 Using | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Losses (2) | |||||||||||||
|
Assets held for sale:
|
||||||||||||||||
|
Revenue earning
equipment:
(1)
|
||||||||||||||||
|
Trucks
|
$ | — | — | 11,796 | $ | 13,014 | ||||||||||
|
Tractors
|
— | — | 8,818 | 9,432 | ||||||||||||
|
Trailers
|
— | — | 1,437 | 3,812 | ||||||||||||
|
Total assets at fair value
|
$ | — | — | 22,051 | $ | 26,258 | ||||||||||
|
Fair Value Measurements
|
||||||||||||||||
| At December 31, 2009 Using | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Losses (2) | |||||||||||||
|
Assets held for sale:
|
||||||||||||||||
|
Revenue earning
equipment
(1)
|
$ | — | — | 44,276 | $ | 52,284 | ||||||||||
|
Operating property and equipment
|
— | — | 8,753 | 6,676 | ||||||||||||
|
Total assets at fair value
|
$ | — | — | 53,029 | $ | 58,960 | ||||||||||
| (1) | Represents the portion of all revenue earning equipment held for sale that is recorded at fair value, less costs to sell. |
| (2) | Total losses represent fair value adjustments for all vehicles held for sale throughout the period for which fair value less costs to sell was less than carrying value. |
Revenue earning equipment held for sale is stated at the lower
of carrying amount or fair value less costs to sell. Losses to
reflect changes in fair value are presented within
“Depreciation expense” in the Consolidated Statements
of Earnings. For revenue earning equipment held for sale, we
stratify our fleet by vehicle type (tractors, trucks and
trailers), weight class, age and other relevant characteristics
and create classes of similar assets for analysis purposes. Fair
value was determined based upon recent market prices obtained
from our own sales experience for sales of each class of similar
assets and vehicle condition. Therefore, our revenue earning
equipment held for sale was classified within Level 3 of
the fair value hierarchy. During the years ended
December 31, 2010, 2009, and 2008, we recorded a loss to
reflect changes in fair value of $26 million,
$52 million and $29 million, respectively.
Operating property and equipment held for sale represented a SCS
facility in Singapore for which the carrying amount was required
to be written down to fair value of $9 million, resulting
in an impairment loss of $7 million in 2009. Fair value was
based on an appraisal of the facility determined using
observable market data and adjusted for recent offers.
Therefore, our operating property and equipment held for sale
was classified within Level 3 of the fair value hierarchy.
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Total fair value of debt (excluding capital lease obligations)
at December 31, 2010 and 2009 was $2.86 billion and
$2.60 billion, respectively. For publicly-traded debt,
estimates of fair value are based on market prices. For other
debt, fair value is estimated based on rates currently available
to us for debt with similar terms and remaining maturities. The
carrying amounts reported in the Consolidated Balance Sheets for
cash and cash equivalents, accounts receivable and accounts
payable approximate fair value because of the immediate or
short-term maturities of these financial instruments.
| 18. | DERIVATIVES |
From time to time, we enter into interest rate swap and cap
agreements to manage our fixed and variable interest rate
exposure and to better match the repricing of debt instruments
to that of our portfolio of assets. We assess the risk that
changes in interest rates will have either on the fair value of
debt obligations or on the amount of future interest payments by
monitoring changes in interest rate exposures and by evaluating
hedging opportunities. We regularly monitor interest rate risk
attributable to both our outstanding or forecasted debt
obligations as well as our offsetting hedge positions. This risk
management process involves the use of analytical techniques,
including cash flow sensitivity analysis, to estimate the
expected impact of changes in interest rates on our future cash
flows.
In February 2008, we entered into an interest rate swap with a
notional amount of $250 million maturing in March 2013. The
swap was designated as a fair value hedge whereby we receive
fixed interest rate payments in exchange for making variable
interest rate payments. The differential to be paid or received
is accrued and recognized as interest expense. The interest rate
swap agreement effectively changed $250 million of
fixed-rate debt with an interest rate of 6.00% to LIBOR-based
floating-rate debt at a rate of 2.63% and 2.90% at
December 31, 2010 and 2009, respectively. Changes in the
fair value of the interest rate swap are offset by changes in
the fair value of the debt instrument. Accordingly, there is no
ineffectiveness related to the interest rate swap.
The location and amount of gains (losses) on derivative
instruments and related hedged items reported in the
Consolidated Statements of Earnings were as follows:
|
Location of Gain
|
||||||||||||||
|
(Loss) Recognized
|
December 31 | |||||||||||||
| Fair Value Hedging Relationship | in Income | 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||||
|
Derivative: Interest rate swap
|
Interest expense | $ | 3,328 | (6,290 | ) | 18,391 | ||||||||
|
Hedged item: Fixed-rate debt
|
Interest expense | (3,328 | ) | 6,290 | (18,391 | ) | ||||||||
|
Total
|
$ | — | — | — | ||||||||||
| 19. | GUARANTEES |
We have executed various agreements with third parties that
contain standard indemnifications that may require us to
indemnify a third party against losses arising from a variety of
matters such as lease obligations, financing agreements,
environmental matters, and agreements to sell business assets.
In each of these instances, payment by Ryder is contingent on
the other party bringing about a claim under the procedures
outlined in the specific agreement. Normally, these procedures
allow us to dispute the other party’s claim. Additionally,
our obligations under these agreements may be limited in terms
of the amount
and/or
timing of any claim. We have entered into individual
indemnification agreements with each of our independent
directors, through which we will indemnify such director acting
in good faith against any and all losses, expenses and
liabilities arising out of such director’s service as a
director of Ryder. The maximum amount of potential future
payments under these agreements is generally unlimited.
We cannot predict the maximum potential amount of future
payments under certain of these agreements, including the
indemnification agreements, due to the contingent nature of the
potential obligations and the
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
distinctive provisions that are involved in each individual
agreement. Historically, no such payments made by us have had a
material adverse effect on our business. We believe that if a
loss were incurred in any of these matters, the loss would not
have a material adverse impact on our consolidated results of
operations or financial position.
At December 31, 2010 and 2009, the maximum determinable
exposure of each type of guarantee and the corresponding
liability, if any, recorded on the Consolidated Balance Sheets
were as follows:
| December 31, 2010 | December 31, 2009 | |||||||||||||||
|
Maximum
|
Carrying
|
Maximum
|
Carrying
|
|||||||||||||
|
Exposure of
|
Amount of
|
Exposure of
|
Amount of
|
|||||||||||||
| Guarantee | Guarantee | Liability | Guarantee | Liability | ||||||||||||
| (In thousands) | ||||||||||||||||
|
Vehicle residual value guarantees — finance lease
programs
(1)
|
$ | 1,787 | 1,350 | 2,285 | 1,255 | |||||||||||
|
Used vehicle financing
|
— | — | 1,595 | 104 | ||||||||||||
|
Standby letters of credit
|
6,774 | 6,774 | 7,506 | 7,527 | ||||||||||||
|
Total
|
$ | 8,561 | 8,124 | 11,386 | 8,886 | |||||||||||
| (1) | Amounts exclude contingent rentals associated with residual value guarantees on certain vehicles held under operating leases for which the guarantees are conditioned upon disposal of the leased vehicles prior to the end of their lease term. At December 31, 2010 and 2009, our maximum exposure for such guarantees was approximately $113 million and $159 million, respectively, with $4 million recorded as a liability at 2010 and 2009. |
We have provided vehicle residual value guarantees to
independent third parties for certain finance lease programs
made available to customers. If the sales proceeds from the
final disposition of the assets are less than the residual value
guarantee, we are required to pay the difference to the
independent third party. The individual customer finance leases
expire periodically through 2014 but may be extended at the end
of each lease term. At both December 31, 2010 and 2009, our
maximum exposure for such guarantees was approximately
$2 million with $1 million recorded as a liability.
We maintain agreements with independent third parties for the
financing of used vehicle purchases by customers. Certain
agreements require that we provide financial guarantees on
defaulted customer contracts up to a maximum exposure amount. At
December 31, 2010, the majority of these financing
contracts had been repaid and our remaining exposure for such
guarantees was not significant. At December 31, 2009, our
maximum exposure for such guarantees was approximately
$2 million with $0.1 million recorded as a liability.
At December 31, 2010 and 2009, we had letters of credit and
surety bonds outstanding, which primarily guarantee various
insurance activities as noted in the following table:
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Letters of credit
|
$ | 188,499 | 179,507 | |||||
|
Surety bonds
|
76,273 | 83,231 | ||||||
Certain of these letters of credit and surety bonds guarantee
insurance activities associated with insurance claim liabilities
transferred in conjunction with the sale of our automotive
transport business, reported as discontinued operations in
previous years. To date, the insurance claims representing
per-claim deductibles payable under third-party insurance
policies have been paid and continue to be paid by the company
that assumed such liabilities. However, if all or a portion of
the estimated outstanding assumed claims of approximately
$7 million at December 31, 2010 are unable to be paid,
the third-party insurers may have recourse against certain of
the outstanding letters of credit provided by Ryder in order to
satisfy the unpaid claim deductibles. In 2009, in order to
reduce our potential exposure to these claims, we drew upon an
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RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
outstanding letter of credit provided by the purchaser and have
a deposit and corresponding liability, both of which are
outstanding at December 31, 2010. Periodically, an
actuarial valuation will be made in order to better estimate the
amount of outstanding insurance claim liabilities.
| 20. | SHARE REPURCHASE PROGRAMS |
In February 2010, our Board of Directors authorized a
$100 million discretionary share repurchase program over a
period not to exceed two years. In 2010, we completed this
program and repurchased and retired 2,420,390 shares at an
aggregate cost of $100 million.
In December 2009, our Board of Directors authorized a share
repurchase program intended to mitigate the dilutive impact of
shares issued under our various employee stock, stock option and
employee stock purchase plans. Under the December 2009 program,
management is authorized to repurchase shares of common stock in
an amount not to exceed the number of shares issued to employees
under the Company’s various employee stock, stock option
and employee stock purchase plans from December 1, 2009
through December 15, 2011. The December 2009 program limits
aggregate share repurchases to no more than 2 million
shares of Ryder common stock. Share repurchases of common stock
are made periodically in open-market transactions and are
subject to market conditions, legal requirements and other
factors. Management may establish a prearranged written plan
under
Rule 10b5-1
of the Securities Exchange Act of 1934 as part of the December
2009 program, which allow for share repurchases during
Ryder’s quarterly blackout periods as set forth in the
trading plan. During 2010, we repurchased and retired
561,656 shares under this program at an aggregate cost of
$23 million. No shares were repurchased under this program
during 2009.
In December 2007, our Board of Directors authorized a
$300 million discretionary share repurchase program over a
period not to exceed two years. Additionally, our Board of
Directors authorized a separate two-year anti-dilutive
repurchase program. The anti-dilutive program limited aggregate
share repurchases to no more than 2 million shares of our
common stock. In 2009 and 2008, we repurchased and retired
2,348,909 shares and 2,615,000 shares, respectively,
under the $300 million program at an aggregate cost of
$100 million and $170 million, respectively. In 2009
and 2008, we repurchased and retired 377,372 shares and
1,363,436 shares, respectively, under the anti-dilutive
program at an aggregate cost of $16 million and
$86 million, respectively.
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 21. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The following summary sets forth the components of accumulated
other comprehensive loss, net of tax:
|
Accumulated
|
||||||||||||||||||||||||
|
Currency
|
Unrealized
|
Other
|
||||||||||||||||||||||
|
Translation
|
Net Actuarial
|
Prior Service
|
Transition
|
Gain (Loss)
|
Comprehensive
|
|||||||||||||||||||
| Adjustments | Loss (1) | Credit (1) | Obligation (1) | on Derivatives | Loss | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
January 1, 2008
|
$ | 116,898 | (160,841 | ) | 12,991 | 91 | (16 | ) | (30,877 | ) | ||||||||||||||
|
Amortization
|
— | 4,350 | (1,765 | ) | (21 | ) | — | 2,564 | ||||||||||||||||
|
Pension curtailment
|
— | 1,031 | (2,318 | ) | — | — | (1,287 | ) | ||||||||||||||||
|
Current period change
|
(180,819 | ) | (333,689 | ) | — | — | (119 | ) | (514,627 | ) | ||||||||||||||
|
December 31, 2008
|
(63,921 | ) | (489,149 | ) | 8,908 | 70 | (135 | ) | (544,227 | ) | ||||||||||||||
|
Amortization
|
— | 15,855 | (1,550 | ) | (18 | ) | — | 14,287 | ||||||||||||||||
|
Pension curtailment
|
— | (12,182 | ) | 124 | — | — | (12,058 | ) | ||||||||||||||||
|
Realized currency translation loss,
net
(2)
|
14,212 | — | — | — | — | 14,212 | ||||||||||||||||||
|
Current period change
|
82,687 | 66,031 | — | — | 149 | 148,867 | ||||||||||||||||||
|
December 31, 2009
|
32,978 | (419,445 | ) | 7,482 | 52 | 14 | (378,919 | ) | ||||||||||||||||
|
Amortization
|
— | 12,416 | (1,570 | ) | (18 | ) | — | 10,828 | ||||||||||||||||
|
Pension settlement
|
— | 1,074 | — | — | — | 1,074 | ||||||||||||||||||
|
Current period change
|
13,009 | (22,577 | ) | — | — | (14 | ) | (9,582 | ) | |||||||||||||||
|
December 31, 2010
|
$ | 45,987 | (428,532 | ) | 5,912 | 34 | — | (376,599 | ) | |||||||||||||||
| (1) | Amounts pertain to our pension and/or postretirement benefit plans. | |
| (2) | Amounts pertain to liquidation of our investments in several discontinued operations. |
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 22. | EARNINGS PER SHARE INFORMATION |
The following table presents the calculation of basic and
diluted earnings per common share from continuing operations:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
(In thousands, except
|
||||||||||||
| per share amounts) | ||||||||||||
|
Earnings per share — Basic:
|
||||||||||||
|
Earnings from continuing operations
|
$ | 124,608 | 90,117 | 257,579 | ||||||||
|
Less: Distributed and undistributed earnings allocated to
nonvested stock
|
(1,759 | ) | (964 | ) | (2,353 | ) | ||||||
|
Earnings from continuing operations available to common
shareholders — Basic
|
$ | 122,849 | 89,153 | 255,226 | ||||||||
|
Weighted average common shares outstanding — Basic
|
51,717 | 55,035 | 56,204 | |||||||||
|
Earnings from continuing operations per common share —
Basic
|
$ | 2.38 | 1.62 | 4.54 | ||||||||
|
Earnings per share — Diluted:
|
||||||||||||
|
Earnings from continuing operations
|
$ | 124,608 | 90,117 | 257,579 | ||||||||
|
Less: Distributed and undistributed earnings allocated to
nonvested stock
|
(1,756 | ) | (964 | ) | (2,341 | ) | ||||||
|
Earnings from continuing operations available to common
shareholders — Diluted
|
$ | 122,852 | 89,153 | 255,238 | ||||||||
|
Weighted average common shares outstanding — Basic
|
51,717 | 55,035 | 56,204 | |||||||||
|
Effect of dilutive options
|
167 | 59 | 335 | |||||||||
|
Weighted average common shares outstanding — Diluted
|
51,884 | 55,094 | 56,539 | |||||||||
|
Earnings from continuing operations per common share —
Diluted
|
$ | 2.37 | 1.62 | 4.51 | ||||||||
|
Anti-dilutive options not included above
|
1,654 | 2,632 | 1,109 | |||||||||
| 23. | SHARE-BASED COMPENSATION PLANS |
The following table provides information on share-based
compensation expense and income tax benefits recognized in 2010,
2009 and 2008:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Stock option and stock purchase plans
|
$ | 9,069 | 9,887 | 10,617 | ||||||||
|
Nonvested stock
|
7,474 | 6,517 | 6,459 | |||||||||
|
Share-based compensation expense
|
16,543 | 16,404 | 17,076 | |||||||||
|
Income tax benefit
|
(5,572 | ) | (5,412 | ) | (5,673 | ) | ||||||
|
Share-based compensation expense, net of tax
|
$ | 10,971 | 10,992 | 11,403 | ||||||||
Total unrecognized pre-tax compensation expense related to
share-based compensation arrangements at December 31, 2010
was $20 million and is expected to be recognized over a
weighted-average period of approximately 1.5 years. The
total fair value of equity awards vested during the years ended
December 31, 2010, 2009, and 2008 were $11 million,
$14 million, and $14 million, respectively.
103
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RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Share-Based
Incentive Awards
Share-based incentive awards are provided to employees under the
terms of six share-based compensation plans (collectively, the
“Plans”). The Plans are administered by the
Compensation Committee of the Board of Directors. Awards under
the Plans principally include
at-the-money
stock options and nonvested stock at December 31, 2010.
There are 8.0 million shares authorized to be issued under
the Plans at December 31, 2010. There were 3.1 million
unused shares available to be granted under the Plans as of
December 31, 2010.
A majority of share-based compensation expense is generated from
stock options. Stock options are awards which allow employees to
purchase shares of our stock at a fixed price. Stock option
awards are granted at an exercise price equal to the market
price of our stock at the time of grant. These awards, which
generally vest one-third each year, are fully vested three years
from the grant date and generally have contractual terms of
seven years.
Restricted stock awards are nonvested stock rights that are
granted to employees and entitle the holder to shares of common
stock as the award vests. Participants are entitled to
non-forfeitable dividend equivalents on such awarded shares, but
the sale or transfer of these shares is restricted during the
vesting period. Time-vested restricted stock rights typically
vest in three years regardless of company performance. The fair
value of the time-vested awards is determined and fixed on the
grant date based on Ryder’s stock price on the date of
grant. Market-based restricted stock awards include a
market-based vesting provision. For grants issued subsequent to
2008, employees only receive the grant of stock if Ryder’s
cumulative average total shareholder return (TSR) at least meets
the S&P 500 cumulative average TSR for the applicable
three-year period. For the grants issued prior to 2009,
employees only receive the grant of stock if Ryder’s total
shareholder return (TSR) at least meets the S&P 500 TSR
over the applicable three-year period. The fair value of the
market-based awards is determined on the date of grant and is
based on the likelihood of Ryder achieving the market-based
condition. Expense on the market-based restricted stock awards
is recognized regardless of whether the awards vest.
Employees granted market-based restricted stock rights also
received market-based cash awards. The cash awards granted
during 2010, 2009 and 2008 have the same vesting provisions as
the market-based restricted stock rights except that
Ryder’s TSR must at least meet the TSR of the
33rd percentile of the S&P 500. The cash awards are
accounted for as liability awards under the share-based
compensation accounting guidance as the awards are based upon
the performance of our common stock and are settled in cash. As
a result, the liability is adjusted to reflect fair value at the
end of each reporting period. The fair value of the cash awards
was estimated using a lattice-based option pricing valuation
model that incorporates a Monte-Carlo simulation. The liability
related to the cash awards was $4 million at
December 31, 2010 and 2009.
The following table is a summary of compensation expense
recognized related to cash awards in addition to share-based
compensation expense reported in the previous table.
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Cash awards
|
$ | 2,052 | 2,456 | 3,333 | ||||||||
We grant restricted stock units (RSUs) to non-management members
of the Board of Directors. Once granted, RSUs are eligible for
non-forfeitable dividend equivalents but have no voting rights.
The fair value of the awards is determined and fixed on the
grant date based on Ryder’s stock price on the date of
grant. The board member receives the RSUs upon their departure
from the Board. The initial grant of RSUs will not vest unless
the director has served a minimum of one year. When the board
member receives the RSUs, they are redeemed for an equivalent
number of shares of our common stock. Share-based compensation
expense is recognized for RSUs in the year the RSUs are granted.
104
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RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Option
Awards
The following is a summary of option activity under our stock
option plans as of December 31, 2010, and changes during
the year ended December 31, 2010:
|
Weighted-
|
||||||||||||||||
|
Weighted-
|
Average
|
|||||||||||||||
|
Average
|
Remaining
|
|||||||||||||||
|
Exercise
|
Contractual
|
Aggregate
|
||||||||||||||
| Shares | Price | Term | Intrinsic Value | |||||||||||||
| (In thousands) | (In years) | (In thousands) | ||||||||||||||
|
Options outstanding at January 1
|
3,029 | $ | 43.70 | |||||||||||||
|
Granted
|
897 | 32.99 | ||||||||||||||
|
Exercised
|
(354 | ) | 32.04 | |||||||||||||
|
Forfeited or expired
|
(89 | ) | 42.47 | |||||||||||||
|
Options outstanding at December 31
|
3,483 | $ | 42.16 | 4.2 | $ | 39,904 | ||||||||||
|
Vested and expected to vest at December 31
|
3,357 | $ | 42.50 | 4.1 | $ | 37,423 | ||||||||||
|
Exercisable at December 31
|
1,869 | $ | 47.70 | 3.0 | $ | 11,519 | ||||||||||
The aggregate intrinsic values in the table above represent the
total pre-tax intrinsic value (the difference between the market
price of our stock on the last trading day of the year and the
exercise price, multiplied by the number of
in-the-money
options) that would have been received by the option holders had
all option holders exercised their options at year-end. The
amount changes based on the fair market value of our stock.
Information about options in various price ranges at
December 31, 2010 follows:
| Options Outstanding | Options Exercisable | |||||||||||||||||||
|
Weighted-
|
||||||||||||||||||||
|
Average
|
Weighted-
|
Weighted-
|
||||||||||||||||||
|
Remaining
|
Average Exercise
|
Average Exercise
|
||||||||||||||||||
| Price Ranges | Shares | Contractual Term | Price | Shares | Price | |||||||||||||||
| (In thousands) | (In years) | (In thousands) | ||||||||||||||||||
|
Less than $35.00
|
1,651 | 5.6 | $ | 32.76 | 219 | $ | 32.12 | |||||||||||||
|
35.00-40.00
|
52 | 1.9 | 37.36 | 52 | 37.36 | |||||||||||||||
|
40.00-45.00
|
674 | 1.8 | 43.48 | 668 | 43.50 | |||||||||||||||
|
45.00 and over
|
1,106 | 3.6 | 55.59 | 930 | 54.96 | |||||||||||||||
|
Total
|
3,483 | 4.2 | $ | 42.16 | 1,869 | $ | 47.70 | |||||||||||||
105
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RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock
Awards
The following is a summary of the status of Ryder’s
nonvested stock awards as of December 31, 2010 and changes
during the year ended December 31, 2010:
| Time-Vested | Market-Based Vested | |||||||||||||||
|
Weighted-
|
Weighted-
|
|||||||||||||||
|
Average
|
Average
|
|||||||||||||||
|
Grant Date
|
Grant Date
|
|||||||||||||||
| Shares | Fair Value | Shares | Fair Value | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
|
Nonvested stock outstanding at January 1
|
258 | $ | 49.32 | 364 | $ | 28.56 | ||||||||||
|
Granted
|
76 | 39.87 | 188 | 15.50 | ||||||||||||
|
Vested
|
(1 | ) | 41.61 | (68 | ) | 30.13 | ||||||||||
|
Forfeited
|
(3 | ) | 58.48 | (15 | ) | 24.26 | ||||||||||
|
Nonvested stock outstanding at December 31
|
330 | $ | 47.05 | 469 | $ | 23.23 | ||||||||||
Stock
Purchase Plan
We maintain an Employee Stock Purchase Plan (ESPP), which
enables eligible participants in the U.S. and Canada to
purchase full or fractional shares of Ryder common stock through
payroll deductions of up to 15% of eligible compensation. The
ESPP provides for quarterly offering periods during which shares
may be purchased at 85% of the fair market value on either the
first or the last trading day of the quarter, whichever is less.
Stock purchased under the ESPP must generally be held for
90 days. The amount of shares authorized to be issued under
the existing ESPP was 5.0 million at December 31,
2010. There were 1.1 million unused shares available to be
purchased under the ESPP at December 31, 2010.
The following table summarizes the status of Ryder’s ESPP:
|
Weighted-
|
||||||||||||||||
|
Weighted-
|
Average
|
|||||||||||||||
|
Average
|
Remaining
|
|||||||||||||||
|
Exercise
|
Contractual
|
Aggregate
|
||||||||||||||
| Shares | Price | Term | Intrinsic Value | |||||||||||||
| (In thousands) | (In years) | (In thousands) | ||||||||||||||
|
Outstanding at January 1
|
— | $ | — | |||||||||||||
|
Granted
|
179 | 34.10 | ||||||||||||||
|
Exercised
|
(179 | ) | 34.10 | |||||||||||||
|
Forfeited or expired
|
— | — | ||||||||||||||
|
Outstanding at December 31
|
— | $ | — | — | $ | — | ||||||||||
|
Exercisable at December 31
|
— | $ | — | — | $ | — | ||||||||||
Share-Based
Compensation Fair Value Assumptions
The fair value of each option award is estimated on the date of
grant using a Black-Scholes-Merton option-pricing valuation
model that uses the weighted-average assumptions noted in the
table below. Expected volatility is based on historical
volatility of our stock and implied volatility from traded
options on our stock. The risk-free rate for periods within the
contractual life of the stock option award is based on the yield
curve of a zero-coupon U.S. Treasury bond on the date the
stock option award is granted with a maturity equal to the
expected term of the stock option award. We use historical data
to estimate stock option exercises and forfeitures within the
valuation model. The expected term of stock option awards
granted is derived from historical exercise experience under the
share-based employee compensation arrangements and represents
the period of time that stock option awards granted are expected
to be outstanding. The fair value of market-based
106
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RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
stock awards is estimated using a lattice-based option-pricing
valuation model that incorporates a Monte-Carlo simulation.
Estimates of fair value are not intended to predict actual
future events or the value ultimately realized by employees who
receive equity awards, and subsequent events are not indicative
of the reasonableness of the original estimates of fair value
made by Ryder.
The following table presents the weighted-average assumptions
used for options granted:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Option plans:
|
||||||||||||
|
Expected dividends
|
3.0% | 2.8% | 1.6% | |||||||||
|
Expected volatility
|
43.9% | 46.4% | 31.9% | |||||||||
|
Risk-free rate
|
1.7% | 1.5% | 2.4% | |||||||||
|
Expected term
|
3.4 years | 3.1 years | 3.7 years | |||||||||
|
Grant-date fair value
|
$ | 8.93 | $ | 9.26 | $ | 14.00 | ||||||
|
Purchase plan:
|
||||||||||||
|
Expected dividends
|
2.5% | 2.8% | 1.6% | |||||||||
|
Expected volatility
|
35.6% | 67.6% | 45.7% | |||||||||
|
Risk-free rate
|
0.2% | 0.2% | 1.9% | |||||||||
|
Expected term
|
0.25 years | 0.25 years | 0.25 years | |||||||||
|
Grant-date fair value
|
$ | 8.95 | $ | 9.43 | $ | 14.00 | ||||||
Exercise
of Employee Stock Options and Purchase Plans
The total intrinsic value of options exercised during the years
ended December 31, 2010, 2009 and 2008 was $4 million,
$2 million and $29 million, respectively. The total
cash received from employees as a result of exercises under all
share-based employee compensation arrangements for the years
ended December 31, 2010, 2009 and 2008 was
$17 million, $7 million and $55 million,
respectively. In connection with these exercises, the tax
benefits realized from share-based employee compensation
arrangements were $1.0 million, $0.4 million and
$8 million for the years ended December 31, 2010, 2009
and 2008, respectively.
| 24. | EMPLOYEE BENEFIT PLANS |
Pension
Plans
We historically sponsored several defined benefit pension plans
covering most employees not covered by union-administered plans,
including certain employees in foreign countries. These plans
generally provided participants with benefits based on years of
service and career-average compensation levels. The funding
policy for these plans is to make contributions based on annual
service costs plus amortization of unfunded past service
liability, but not greater than the maximum allowable
contribution deductible for federal income tax purposes. We may,
from time to time, make voluntary contributions to our pension
plans, which exceed the amount required by statute. The majority
of the plans’ assets are invested in a master trust that,
in turn, is invested primarily in listed stocks and bonds. As
discussed under Pension Curtailments and Settlements, we have
frozen all of our major defined benefit pension plans.
We have a non-qualified supplemental pension plan covering
certain U.S. employees, which provides for incremental
pension payments from our funds so that total pension payments
equal the amounts that would have been payable from our
principal pension plans if it were not for limitations imposed
by income tax regulations. The accrued pension liability related
to this plan was $40 million and $37 million at
December 31, 2010 and 2009, respectively.
107
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RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We also participate in multi-employer plans that provide defined
benefits to certain employees covered by collective-bargaining
agreements. Such plans are usually administered by a board of
trustees comprised of the management of the participating
companies and labor representatives. The net pension cost of
these plans is equal to the annual contribution determined in
accordance with the provisions of negotiated labor contracts.
Assets contributed to such plans are not segregated or otherwise
restricted to provide benefits only to our employees.
Pension
Expense
Pension expense from continuing operations was as follows:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Company-administered plans:
|
||||||||||||
|
Service cost
|
$ | 15,239 | 21,022 | 25,162 | ||||||||
|
Interest cost
|
96,125 | 93,008 | 92,468 | |||||||||
|
Expected return on plan assets
|
(93,135 | ) | (74,925 | ) | (120,627 | ) | ||||||
|
Settlement/curtailment loss (gain)
|
1,487 | 58 | (3,607 | ) | ||||||||
|
Amortization of:
|
||||||||||||
|
Transition obligation
|
(25 | ) | (25 | ) | (29 | ) | ||||||
|
Net actuarial loss
|
19,025 | 24,028 | 5,947 | |||||||||
|
Prior service credit
|
(2,256 | ) | (2,192 | ) | (2,524 | ) | ||||||
| 36,460 | 60,974 | (3,210 | ) | |||||||||
|
Union-administered plans
|
5,199 | 5,256 | 4,886 | |||||||||
|
Net pension expense
|
$ | 41,659 | 66,230 | 1,676 | ||||||||
|
Company-administered plans:
|
||||||||||||
|
U.S.
|
$ | 33,733 | 50,863 | (5,568 | ) | |||||||
|
Foreign
|
2,727 | 10,111 | 2,358 | |||||||||
| 36,460 | 60,974 | (3,210 | ) | |||||||||
|
Union-administered plans
|
5,199 | 5,256 | 4,886 | |||||||||
| $ | 41,659 | 66,230 | 1,676 | |||||||||
The following table sets forth the weighted-average actuarial
assumptions used in determining annual pension expense:
|
U.S. Plans
|
Foreign Plans
|
|||||||||||||||||||||||
| Years ended December 31 | Years ended December 31 | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Discount rate
|
6.20% | 6.25% | 6.35% | 5.93% | 6.81% | 5.66% | ||||||||||||||||||
|
Rate of increase in compensation levels
|
4.00% | 4.00% | 4.00% | 3.54% | 4.24% | 4.13% | ||||||||||||||||||
|
Expected long-term rate of return on plan assets
|
7.65% | 7.90% | 8.40% | 7.04% | 7.15% | 7.50% | ||||||||||||||||||
|
Transition amortization in years
|
— | — | — | 2 | 2 | 4 | ||||||||||||||||||
|
Gain and loss amortization in years
|
26 | 27 | 28 | 28 | 17 | 11 | ||||||||||||||||||
The return on plan assets assumption reflects the
weighted-average of the expected long-term rates of return for
the broad categories of investments held in the plans. The
expected long-term rate of return is
108
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RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
adjusted when there are fundamental changes in expected returns
or in asset allocation strategies of the plan assets.
Pension
Curtailments and Settlements
Over the past few years we have made the following major
amendments to our defined benefit retirement plans:
| • | In July 2009, our Board of Directors approved an amendment to freeze our United Kingdom (UK) retirement plan for all participants effective March 31, 2010. | |
| • | In July 2008, our Board of Directors approved an amendment to freeze the defined benefit portion of our Canadian retirement plan effective January 1, 2010 for current participants who did not meet certain grandfathering criteria. | |
| • | In January 2007, our Board of Directors approved the amendment to freeze the U.S. pension plans effective December 31, 2007 for current participants who did not meet certain grandfathering criteria. |
As a result of these amendments, non-grandfathered plan
participants ceased accruing benefits under the plan as of the
respective amendment effective date and began receiving an
enhanced benefit under a defined contribution plan. All
retirement benefits earned as of the amendment effective date
will be fully preserved and will be paid in accordance with the
plan and legal requirements. The freeze of the Canadian defined
benefit plan created a pre-tax curtailment gain in 2008 of
$4 million. There was no material impact to our financial
condition and operating results from the other plan amendments.
During 2010, a number of employees in our Canadian pension plan
elected to receive a lump-sum payment under the plan which
resulted in a partial settlement of our benefit plan obligation.
Accounting guidance requires that when a partial settlement
occurs, the employer should recognize a pro rata portion of the
unamortized net loss as pension expense. Accordingly, we
recognized a pre-tax settlement loss during 2010 of
$1.5 million, which reflects the partial reduction in the
projected benefit obligation due to the partial settlement.
109
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RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Obligations
and Funded Status
The following table sets forth the benefit obligations, assets
and funded status associated with our pension plans:
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Change in benefit obligations:
|
||||||||
|
Benefit obligations at January 1
|
$ | 1,603,560 | 1,477,485 | |||||
|
Service cost, including discontinued operations
|
15,239 | 21,405 | ||||||
|
Interest cost
|
96,125 | 93,008 | ||||||
|
Actuarial loss
|
104,893 | 58,236 | ||||||
|
Benefits paid
|
(65,377 | ) | (67,335 | ) | ||||
|
Settlement/curtailment
|
(4,635 | ) | (7,677 | ) | ||||
|
Foreign currency exchange rate changes
|
(5,572 | ) | 28,438 | |||||
|
Benefit obligations at December 31
|
1,744,233 | 1,603,560 | ||||||
|
Change in plan assets:
|
||||||||
|
Fair value of plan assets at January 1
|
1,282,882 | 975,540 | ||||||
|
Actual return on plan assets
|
157,567 | 213,768 | ||||||
|
Employer contribution
|
63,793 | 130,931 | ||||||
|
Participants’ contributions
|
372 | 1,303 | ||||||
|
Benefits paid
|
(65,377 | ) | (67,335 | ) | ||||
|
Settlement
|
(4,635 | ) | — | |||||
|
Foreign currency exchange rate changes
|
(5,818 | ) | 28,675 | |||||
|
Fair value of plan assets at December 31
|
1,428,784 | 1,282,882 | ||||||
|
Funded status
|
$ | (315,449 | ) | (320,678 | ) | |||
Amounts recognized in the Consolidated Balance Sheets consisted
of:
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Noncurrent asset
|
$ | 20,609 | 10,588 | |||||
|
Current liability
|
(2,984 | ) | (2,695 | ) | ||||
|
Noncurrent liability
|
(333,074 | ) | (328,571 | ) | ||||
|
Net amount recognized
|
$ | (315,449 | ) | (320,678 | ) | |||
Amounts recognized in accumulated other comprehensive loss
(pre-tax) consisted of:
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Transition obligation
|
$ | (51 | ) | (76 | ) | |||
|
Prior service credit
|
(7,630 | ) | (9,886 | ) | ||||
|
Net actuarial loss
|
658,486 | 638,385 | ||||||
|
Net amount recognized
|
$ | 650,805 | 628,423 | |||||
110
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RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In 2011, we expect to recognize approximately $2 million of
the prior service credit and $20 million of the net
actuarial loss as a component of pension expense.
The following table sets forth the weighted-average actuarial
assumptions used in determining funded status:
|
U.S. Plans
|
Foreign Plans
|
|||||||||||||||
| December 31 | December 31 | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Discount rate
|
5.70 | % | 6.20 | % | 5.55 | % | 5.93 | % | ||||||||
|
Rate of increase in compensation levels
|
4.00 | % | 4.00 | % | 3.55 | % | 3.54 | % | ||||||||
At December 31, 2010 and 2009, our pension obligations
(accumulated benefit obligations (ABO) and projected benefit
obligations (PBO) greater than the fair value of related plan
assets for our U.S. and foreign plans were as follows:
|
U.S. Plans
|
Foreign Plans
|
Total
|
||||||||||||||||||||||
| December 31 | December 31 | December 31 | ||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Accumulated benefit obligations
|
$ | 1,373,145 | 1,254,161 | 335,563 | 313,470 | 1,708,708 | 1,567,631 | |||||||||||||||||
|
Plans with ABO in excess of plan assets:
|
||||||||||||||||||||||||
|
PBO
|
$ | 1,405,691 | 1,287,929 | 8,198 | 6,406 | 1,413,889 | 1,294,335 | |||||||||||||||||
|
ABO
|
$ | 1,373,145 | 1,254,161 | 6,888 | 5,664 | 1,380,033 | 1,259,825 | |||||||||||||||||
|
Fair value of plan assets
|
$ | 1,077,831 | 963,068 | — | — | 1,077,831 | 963,068 | |||||||||||||||||
|
Plans with PBO in excess of plan assets:
|
||||||||||||||||||||||||
|
PBO
|
$ | 1,405,691 | 1,287,929 | 8,198 | 6,406 | 1,413,889 | 1,294,335 | |||||||||||||||||
|
ABO
|
$ | 1,373,145 | 1,254,161 | 6,888 | 5,664 | 1,380,033 | 1,259,825 | |||||||||||||||||
|
Fair value of plan assets
|
$ | 1,077,831 | 963,068 | — | — | 1,077,831 | 963,068 | |||||||||||||||||
Plan
Assets
Our pension investment strategy is to maximize the long-term
rate of return on plan assets within an acceptable level of risk
in order to minimize the cost of providing pension benefits. The
plans utilize several investment strategies, including actively
and passively managed equity and fixed income strategies. The
investment policy establishes a target allocation for each asset
class. Deviations between actual pension plan asset allocations
and targeted asset allocations may occur as a result of
investment performance during a month. Rebalancing of our
pension plan asset portfolios is evaluated each month based on
the prior month’s ending balances and rebalanced if actual
allocations exceed an acceptable range. U.S. plans account
for approximately 75% of our total pension plan assets. The
target allocations for our U.S. plans during 2010 were 65%
equity securities, 30% fixed income and 5% to all other types of
investments. Equity securities primarily include investments in
both domestic and international mutual funds. Fixed income
securities include corporate bonds, U.S. Treasuries, mutual
funds and other fixed income investments, primarily
mortgage-backed securities. Other types of investments include
private equity funds. The target allocations for our
international plans are 67% equity securities and 33% fixed
income. Equity and fixed income securities in our international
plans include actively and passively managed mutual funds.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents the fair value of each major
category of pension plan assets and the level of inputs used to
measure fair value as of December 31, 2010 and 2009:
|
Fair Value Measurements at
|
||||||||||||||||
| December 31, 2010 | ||||||||||||||||
| Asset Category | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| (In thousands) | ||||||||||||||||
|
Cash and cash
equivalents
(1)
|
$ | 53,462 | 53,462 | |||||||||||||
|
Equity securities:
|
||||||||||||||||
|
U.S. companies
|
82,999 | 82,999 | — | — | ||||||||||||
|
U.S. mutual funds
|
452,390 | — | 452,390 | — | ||||||||||||
|
Foreign mutual funds
|
428,358 | — | 428,358 | — | ||||||||||||
|
Fixed income securities:
|
||||||||||||||||
|
Corporate bonds
|
45,434 | 45,434 | — | — | ||||||||||||
|
Mutual funds
|
346,614 | — | 346,614 | — | ||||||||||||
|
Other (primarily mortgage-backed securities)
|
1,782 | — | 1,782 | — | ||||||||||||
|
Private equity funds
|
17,745 | — | — | 17,745 | ||||||||||||
|
Total
|
$ | 1,428,784 | 181,895 | 1,229,144 | 17,745 | |||||||||||
| (1) | We made voluntary pension contributions at the end of December 2010 of $50 million, which had not yet been invested in target asset classes. |
|
Fair Value Measurements at
|
||||||||||||||||
| December 31, 2009 | ||||||||||||||||
| Asset Category | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| (In thousands) | ||||||||||||||||
|
Cash and cash
equivalents
(1)
|
$ | 102,389 | 102,389 | — | — | |||||||||||
|
Equity securities:
|
||||||||||||||||
|
U.S. companies
|
72,881 | 72,881 | — | — | ||||||||||||
|
U.S. mutual funds
|
412,386 | — | 412,386 | — | ||||||||||||
|
Foreign mutual funds
|
321,633 | — | 321,633 | — | ||||||||||||
|
Fixed income securities:
|
||||||||||||||||
|
Corporate bonds
|
38,726 | 38,726 | — | — | ||||||||||||
|
Mutual funds
|
306,355 | — | 306,355 | — | ||||||||||||
|
Other (primarily mortgage-backed securities)
|
9,321 | — | 9,321 | — | ||||||||||||
|
Private equity funds
|
19,191 | — | — | 19,191 | ||||||||||||
|
Total
|
$ | 1,282,882 | 213,996 | 1,049,695 | 19,191 | |||||||||||
| (1) | We made voluntary pension contributions at the end of December 2009 of $102 million, which had not yet been invested in target asset classes. |
The following is a description of the valuation methodologies
used for our pension assets as well as the level of input used
to measure fair value:
Cash and cash equivalents
— These investments
are short term investment funds that invest in government
securities that have an original maturity of 90 days or
less. Fair values for these investments were based on quoted
prices in active markets and were therefore classified within
Level 1 of the fair value hierarchy.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Equity securities
— These investments include
common and preferred stocks and index mutual funds that track
U.S. and foreign indices. Fair values for the common and
preferred stocks were based on quoted prices in active markets
and were therefore classified within Level 1 of the fair
value hierarchy. The mutual funds were valued at the unit prices
established by the funds’ sponsors based on the fair value
of the assets underlying the funds. Since the units of the funds
are not actively traded, the fair value measurements have been
classified within Level 2 of the fair value hierarchy.
Fixed income securities
— These investments
include investment grade bonds of U.S. issuers from diverse
industries, index mutual funds that track the Barclays Aggregate
Index and other fixed income investments (primarily
mortgage-backed securities). Fair values for the corporate bonds
were based on quoted prices in active markets and were therefore
classified within Level 1 of the fair value hierarchy. The
mutual funds were valued at the unit prices established by the
funds’ sponsors based on the fair value of the assets
underlying the funds. Since the units of the funds are not
actively traded, the fair value measurements have been
classified within Level 2 of the fair value hierarchy. The
other investments are not actively traded and fair values are
estimated using bids provided by brokers, dealers or quoted
prices of similar securities with similar characteristics or
pricing models. Therefore, the other investments have been
classified within Level 2 of the fair value hierarchy.
Private equity funds
— These investments
represent limited partnership interests in private equity funds.
The partnership interests are valued by the general partners
based on the underlying assets in each fund. The limited
partnership interests are valued using unobservable inputs and
have been classified within Level 3 of the fair value
hierarchy.
The following table presents a summary of changes in the fair
value of the pension plans’ Level 3 assets for the
years ended December 31, 2010 and 2009:
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Beginning balance at January 1
|
$ | 19,191 | 24,333 | |||||
|
Return on plan assets:
|
||||||||
|
Relating to assets still held at the reporting date
|
1,079 | (6,265 | ) | |||||
|
Relating to assets sold during the period
|
1,925 | 2,420 | ||||||
|
Purchases, sales, settlements and expenses
|
(4,450 | ) | (1,297 | ) | ||||
|
Ending balance at December 31
|
$ | 17,745 | $ | 19,191 | ||||
The following table details pension benefits expected to be paid
in each of the next five fiscal years and in aggregate for the
five fiscal years thereafter:
| (In thousands) | ||||
|
2011
|
$ | 78,202 | ||
|
2012
|
82,522 | |||
|
2013
|
87,116 | |||
|
2014
|
91,999 | |||
|
2015
|
96,864 | |||
|
2016-2020
|
561,957 | |||
For 2011, required pension contributions to our pension plans
are estimated to be $15 million.
Savings
Plans
Employees who do not actively participate in pension plans and
are not covered by union-administered plans are generally
eligible to participate in enhanced savings plans. Plans provide
for (i) a company
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
contribution even if employees do not make contributions,
(ii) a company match of employee contributions of eligible
pay, subject to tax limits and (iii) a discretionary
company match based on our performance. Savings plan costs
totaled $27 million in 2010, $22 million in 2009, and
$29 million in 2008.
Deferred
Compensation and Long-Term Compensation Plans
We have deferred compensation plans that permit eligible
U.S. employees, officers and directors to defer a portion
of their compensation. The deferred compensation liability,
including Ryder matching amounts and accumulated earnings,
totaled $23 million and $22 million at
December 31, 2010 and 2009, respectively.
We have established grantor trusts (Rabbi Trusts) to provide
funding for benefits payable under the supplemental pension
plan, deferred compensation plans and long-term incentive
compensation plans. The assets held in the trusts at
December 31, 2010 and 2009 amounted to $21 million and
$22 million, respectively. The Rabbi Trusts’ assets
consist of short-term cash investments and a managed portfolio
of equity securities, including our common stock. These assets,
except for the investment in our common stock, are included in
“Direct financing leases and other assets” because
they are available to our general creditors in the event of
insolvency. The equity securities are classified as trading
securities and stated at fair value. Both realized and
unrealized gains and losses are included in “Miscellaneous
(income) expense, net.” The Rabbi Trusts’ investment
of $3 million and $2 million in our common stock at
December 31, 2010 and 2009, respectively, is reflected at
historical cost and recorded against shareholders’ equity.
Other
Postretirement Benefits
We sponsor plans that provide retired U.S. and Canadian
employees with certain healthcare and life insurance benefits.
Substantially all U.S. and Canadian employees not covered
by union-administered health and welfare plans are eligible for
the healthcare benefits. Healthcare benefits for our principal
plan are generally provided to qualified retirees under
age 65 and eligible dependents. Generally, this plan
requires employee contributions that vary based on years of
service and include provisions that limit our contributions.
Total postretirement benefit expense was as follows:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Service cost
|
$ | 1,374 | 1,455 | 1,437 | ||||||||
|
Interest cost
|
2,722 | 2,828 | 2,727 | |||||||||
|
Amortization of:
|
||||||||||||
|
Net actuarial loss
|
352 | 637 | 743 | |||||||||
|
Prior service credit
|
(231 | ) | (231 | ) | (231 | ) | ||||||
|
Postretirement benefit expense
|
$ | 4,217 | 4,689 | 4,676 | ||||||||
|
U.S.
|
$ | 3,134 | 3,537 | 3,776 | ||||||||
|
Foreign
|
1,083 | 1,152 | 900 | |||||||||
| $ | 4,217 | 4,689 | 4,676 | |||||||||
The following table sets forth the weighted-average discount
rates used in determining annual postretirement benefit expense:
|
U.S. Plan
|
Foreign Plan
|
|||||||||||||||||||||||
| Years ended December 31 | Years ended December 31 | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Discount rate
|
6.20 | % | 6.25 | % | 6.35 | % | 6.00 | % | 6.75 | % | 5.25 | % | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Our postretirement benefit plans are not funded. The following
table sets forth the benefit obligations associated with our
postretirement benefit plans:
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Benefit obligations at January 1
|
$ | 49,329 | 46,377 | |||||
|
Service cost
|
1,374 | 1,455 | ||||||
|
Interest cost
|
2,722 | 2,828 | ||||||
|
Actuarial gain
|
(4,741 | ) | (171 | ) | ||||
|
Benefits paid
|
(1,894 | ) | (2,292 | ) | ||||
|
Foreign currency exchange rate changes
|
379 | 1,132 | ||||||
|
Benefit obligations at December 31
|
$ | 47,169 | 49,329 | |||||
Amounts recognized in the Consolidated Balance Sheets consisted
of:
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Current liability
|
$ | (3,382 | ) | (3,214 | ) | |||
|
Noncurrent liability
|
(43,787 | ) | (46,115 | ) | ||||
|
Amount recognized
|
$ | (47,169 | ) | (49,329 | ) | |||
Amounts recognized in accumulated other comprehensive loss
(pre-tax) consisted of:
| December 31 | ||||||||
| 2010 | 2009 | |||||||
| (In thousands) | ||||||||
|
Prior service credit
|
$ | (1,769 | ) | (2,000 | ) | |||
|
Net actuarial loss
|
6,901 | 12,074 | ||||||
|
Net amount recognized
|
$ | 5,132 | 10,074 | |||||
In 2011, we expect to recognize approximately $0.2 million
of the prior service credit and $0.4 million of the net
actuarial loss as a component of total postretirement benefit
expense.
Our annual measurement date is December 31 for both
U.S. and foreign postretirement benefit plans. Assumptions
used in determining accrued postretirement benefit obligations
were as follows:
|
U.S. Plan
|
Foreign Plan
|
|||||||||||||||
| December 31 | December 31 | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Discount rate
|
5.70 | % | 6.20 | % | 5.25 | % | 6.00 | % | ||||||||
|
Rate of increase in compensation levels
|
4.00 | % | 4.00 | % | 3.50 | % | 3.50 | % | ||||||||
|
Healthcare cost trend rate assumed for next year
|
8.00 | % | 8.00 | % | 8.00 | % | 8.50 | % | ||||||||
|
Rate to which the cost trend rate is assumed to decline
(ultimate trend rate)
|
5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | ||||||||
|
Year that the rate reaches the ultimate trend rate
|
2017 | 2016 | 2017 | 2017 | ||||||||||||
Changing the assumed healthcare cost trend rates by 1% in each
year would not have a material effect on the accumulated
postretirement benefit obligation at December 31, 2010 or
annual postretirement benefit expense for 2010.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table details other postretirement benefits
expected to be paid in each of the next five fiscal years and in
aggregate for the five fiscal years thereafter:
| (In thousands) | ||||
|
2011
|
$ | 3,382 | ||
|
2012
|
3,535 | |||
|
2013
|
3,844 | |||
|
2014
|
4,054 | |||
|
2015
|
4,233 | |||
|
2016-2020
|
21,480 | |||
| 25. | ENVIRONMENTAL MATTERS |
Our operations involve storing and dispensing petroleum
products, primarily diesel fuel, regulated under environmental
protection laws. These laws require us to eliminate or mitigate
the effect of such substances on the environment. In response to
these requirements, we continually upgrade our operating
facilities and implement various programs to detect and minimize
contamination. In addition, we have received notices from the
Environmental Protection Agency (EPA) and others that we have
been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability
Act, the Superfund Amendments and Reauthorization Act and
similar state statutes and may be required to share in the cost
of cleanup of 17 identified disposal sites.
Our environmental expenses which are presented within
“Operating expense” in our Consolidated Statements of
Earnings, consist of remediation costs as well as normal
recurring expenses such as licensing, testing and waste disposal
fees. These expenses totaled $7 million, $8 million,
and $9 million, in 2010, 2009 and 2008, respectively. The
carrying amount of our environmental liabilities was
$14 million and $15 million at December 31, 2010
and 2009, respectively. Capital expenditures related to our
environmental programs totaled approximately $2 million,
$4 million, and $3 million, in 2010, 2009, and 2008,
respectively. Our asset retirement obligations related to fuel
tanks to be removed are not included above and are recorded
within “Accrued expenses” and “Other non-current
liabilities” in our Consolidated Balance Sheets.
The ultimate cost of our environmental liabilities cannot
presently be projected with certainty due to the presence of
several unknown factors, primarily the level of contamination,
the effectiveness of selected remediation methods, the stage of
investigation at individual sites, the determination of our
liability in proportion to other responsible parties and the
recoverability of such costs from third parties. Based on
information presently available, we believe that the ultimate
disposition of these matters, although potentially material to
the results of operations in any one year, will not have a
material adverse effect on our financial condition or liquidity.
| 26. | OTHER ITEMS IMPACTING COMPARABILITY |
Our primary measure of segment performance excludes certain
items we do not believe are representative of the ongoing
operations of the segment. Excluding these items from our
segment measure of performance allows for better year over year
comparison.
Sale of
International Facility
In the fourth quarter of 2008, we were notified that a
significant customer in Singapore would not renew their
contract, which was set to expire in 2009. The notification
required us to assess the recoverability of the facility used in
this customer’s operation. We concluded that the carrying
value of the facility was not recoverable and that the carrying
value exceeded the fair value. Consequently, we recorded a
pre-tax impairment charge of $2 million in 2008 to
write-down the facility to its estimated fair value. Conditions
in
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
the real estate market in Singapore continued to deteriorate
during 2009. As a result, we recorded an additional pre-tax
impairment charge during 2009 of $7 million to write-down
the facility to its estimated fair value. These charges were
recorded within “Depreciation expense” in our
Consolidated Statements of Earnings.
During 2010, real estate conditions improved and in the fourth
quarter of 2010, we completed the sale of the facility and
recognized a pre-tax gain of $1 million. The gain was
included within “Miscellaneous (income) expense” in
our Consolidated Statements of Earnings.
Transaction
Costs
During 2010, we incurred $4 million of transaction costs
related to the acquisition of TLC. These charges were recorded
within “Operating expense” in our Consolidated
Statements of Earnings.
| 27. | OTHER MATTERS |
We are a party to various claims, complaints and proceedings
arising in the ordinary course of business including but not
limited to those relating to litigation matters, environmental
matters, risk management matters (e.g. vehicle liability,
workers’ compensation, etc.) and administrative assessments
primarily associated with operating taxes. We have established
loss provisions for matters in which losses are probable and can
be reasonably estimated. It is not possible at this time for us
to determine fully the effect of all unasserted claims and
assessments on our consolidated financial condition, results of
operations or liquidity; however, to the extent possible, where
unasserted claims can be estimated and where such claims are
considered probable we have recorded a liability. Litigation is
subject to many uncertainties, and the outcome of any individual
litigated matter is not predictable with assurance. It is
possible that certain of the actions, claims, inquiries or
proceedings could be decided unfavorably to Ryder. Although the
final resolution of any such matters could have a material
effect on our consolidated operating results for the particular
reporting period in which an adjustment of the estimated
liability is recorded, we believe that any resulting liability
should not materially affect our consolidated financial position.
| 28. | SUPPLEMENTAL CASH FLOW INFORMATION |
Supplemental cash flow information was as follows:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Interest paid
|
$ | 120,184 | 144,998 | 141,406 | ||||||||
|
Income taxes paid (refunded)
|
4,906 | (15,452 | ) | 26,142 | ||||||||
|
Changes in accounts payable related to purchases of revenue
earning equipment
|
17,559 | (40,551 | ) | 34,935 | ||||||||
|
Revenue earning equipment acquired under capital leases
|
137 | 1,949 | 1,430 | |||||||||
| 29. | SEGMENT REPORTING |
Our operating segments are aggregated into reportable business
segments based upon similar economic characteristics, products,
services, customers and delivery methods. We operate in three
reportable business segments: (1) FMS, which provides full
service leasing, contract maintenance, contract-related
maintenance and commercial rental of trucks, tractors and
trailers to customers, principally in the U.S., Canada and the
U.K.; (2) SCS, which provides comprehensive supply chain
consulting including distribution and transportation services
throughout North America and in Asia; and (3) DCC, which
provides vehicles and drivers as part of a dedicated
transportation solution in the U.S.
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SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Our primary measurement of segment financial performance,
defined as “Net Before Taxes” (NBT) from continuing
operations, includes an allocation of CSS and excludes
restructuring and other charges, net described in Note 5,
“Restructuring and Other Charges” and excludes the
items discussed in Note 26, “Other
Items Impacting Comparability.” CSS represents those
costs incurred to support all business segments, including human
resources, finance, corporate services, public affairs,
information technology, health and safety, legal and corporate
communications. The objective of the NBT measurement is to
provide clarity on the profitability of each business segment
and, ultimately, to hold leadership of each business segment and
each operating segment within each business segment accountable
for their allocated share of CSS costs. Certain costs are
considered to be overhead not attributable to any segment and
remain unallocated in CSS. Included among the unallocated
overhead remaining within CSS are the costs for investor
relations, public affairs and certain executive compensation.
CSS costs attributable to the business segments are
predominantly allocated to FMS, SCS and DCC as follows:
| • | Finance, corporate services, and health and safety — allocated based upon estimated and planned resource utilization; | |
| • | Human resources — individual costs within this category are allocated in several ways, including allocation based on estimated utilization and number of personnel supported; | |
| • | Information technology — principally allocated based upon utilization-related metrics such as number of users or minutes of CPU time. Customer-related project costs and expenses are allocated to the business segment responsible for the project; and | |
| • | Other — represents legal and other centralized costs and expenses including certain share-based incentive compensation costs. Expenses, where allocated, are based primarily on the number of personnel supported. |
Our FMS segment leases revenue earning equipment and provides
fuel, maintenance and other ancillary services to the SCS and
DCC segments. Inter-segment revenue and NBT are accounted for at
rates similar to those executed with third parties. NBT related
to inter-segment equipment and services billed to customers
(equipment contribution) is included in both FMS and the
business segment which served the customer and then eliminated
(presented as “Eliminations”).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Segment results are not necessarily indicative of the results of
operations that would have occurred had each segment been an
independent, stand-alone entity during the periods presented.
Each business segment follows the same accounting policies as
described in Note 1, “Summary of Significant
Accounting Policies.” Business segment revenue and NBT from
continuing operations is as follows:
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Revenue:
|
||||||||||||
|
Fleet Management Solutions:
|
||||||||||||
|
Full service lease
|
$ | 1,804,420 | 1,851,713 | 1,891,138 | ||||||||
|
Contract maintenance
|
147,332 | 155,638 | 153,981 | |||||||||
|
Contractual revenue
|
1,951,752 | 2,007,351 | 2,045,119 | |||||||||
|
Contract-related maintenance
|
160,134 | 162,499 | 192,763 | |||||||||
|
Commercial rental
|
505,396 | 414,144 | 530,072 | |||||||||
|
Other
|
67,448 | 66,511 | 77,849 | |||||||||
|
Fuel services revenue
|
716,871 | 625,882 | 1,175,855 | |||||||||
|
Total Fleet Management Solutions from external customers
|
3,401,601 | 3,276,387 | 4,021,658 | |||||||||
|
Inter-segment revenue
|
310,552 | 291,449 | 432,593 | |||||||||
|
Fleet Management Solutions
|
3,712,153 | 3,567,836 | 4,454,251 | |||||||||
|
Supply Chain Solutions from external customers
|
1,252,251 | 1,139,911 | 1,429,632 | |||||||||
|
Dedicated Contract Carriage from external customers
|
482,583 | 470,956 | 547,751 | |||||||||
|
Eliminations
|
(310,552 | ) | (291,449 | ) | (432,593 | ) | ||||||
|
Total revenue
|
$ | 5,136,435 | 4,887,254 | 5,999,041 | ||||||||
|
NBT:
|
||||||||||||
|
Fleet Management Solutions
|
$ | 172,185 | 140,400 | 395,909 | ||||||||
|
Supply Chain Solutions
|
47,111 | 35,700 | 56,953 | |||||||||
|
Dedicated Contract Carriage
|
30,966 | 37,643 | 49,628 | |||||||||
|
Eliminations
|
(19,275 | ) | (21,058 | ) | (31,803 | ) | ||||||
| 230,987 | 192,685 | 470,687 | ||||||||||
|
Unallocated Central Support Services
|
(41,531 | ) | (35,834 | ) | (38,302 | ) | ||||||
|
Restructuring and other charges, net and other
items
(1)
|
(3,151 | ) | (13,082 | ) | (23,097 | ) | ||||||
|
Earnings before income taxes from continuing operations
|
$ | 186,305 | 143,769 | 409,288 | ||||||||
| (1) | See Note 26, “Other Items Impacting Comparability,” for a discussion of items, in addition to restructuring and other charges, net that are excluded from our primary measure of segment performance. |
119
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table sets forth share-based compensation,
depreciation expense, gains on vehicle sales, net, other
non-cash charges (credits), net, interest expense (income),
capital expenditures and total assets for the years ended
December 31, 2010, 2009 and 2008 as provided to the chief
operating decision-maker for each of Ryder’s reportable
business segments:
| FMS | SCS | DCC | CSS | Eliminations | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||
|
Share-based compensation expense
|
$ | 5,011 | 2,927 | 503 | 8,102 | — | 16,543 | |||||||||||||||||
|
Depreciation
expense
(1)
|
$ | 812,588 | 18,476 | 1,809 | 968 | — | 833,841 | |||||||||||||||||
|
(Gains) Losses on vehicles sales, net
|
$ | (28,765 | ) | 38 | — | — | — | (28,727 | ) | |||||||||||||||
|
Other non-cash charges,
net
(2)
|
$ | 31,418 | 1,006 | 15 | 8,461 | — | 40,900 | |||||||||||||||||
|
Interest expense
(income)
(3)
|
$ | 130,742 | 1,062 | (1,821 | ) | 11 | — | 129,994 | ||||||||||||||||
|
Capital expenditures
paid
(4)
|
$ | 1,043,280 | 14,222 | 2,123 | 10,467 | — | 1,070,092 | |||||||||||||||||
|
Total assets
|
$ | 5,944,971 | 674,196 | 117,595 | 106,906 | (191,294 | ) | 6,652,374 | ||||||||||||||||
|
2009
|
||||||||||||||||||||||||
|
Share-based compensation expense
|
$ | 4,692 | 3,295 | 480 | 7,937 | — | 16,404 | |||||||||||||||||
|
Depreciation
expense
(1)
|
$ | 850,214 | 28,692 | 1,335 | 975 | — | 881,216 | |||||||||||||||||
|
Gains on vehicles sales, net
|
$ | (12,282 | ) | (10 | ) | — | — | — | (12,292 | ) | ||||||||||||||
|
Other non-cash charges,
net
(2)
|
$ | 33,202 | 710 | 15 | 7,374 | — | 41,301 | |||||||||||||||||
|
Interest expense
(income)
(3)
|
$ | 144,605 | 1,707 | (2,085 | ) | 115 | — | 144,342 | ||||||||||||||||
|
Capital expenditures
paid
(4)
|
$ | 635,135 | 8,550 | 1,436 | 6,832 | — | 651,953 | |||||||||||||||||
|
Total assets
|
$ | 5,809,086 | 366,920 | 105,484 | 116,632 | (138,292 | ) | 6,259,830 | ||||||||||||||||
|
2008
|
||||||||||||||||||||||||
|
Share-based compensation expense
|
$ | 5,749 | 3,011 | 432 | 7,884 | — | 17,076 | |||||||||||||||||
|
Depreciation
expense
(1)
|
$ | 809,681 | 24,101 | 1,619 | 748 | — | 836,149 | |||||||||||||||||
|
Gains on vehicle sales, net
|
$ | (38,974 | ) | (46 | ) | — | — | — | (39,020 | ) | ||||||||||||||
|
Other non-cash charges (credits),
net
(2)
|
$ | 16,710 | 2,243 | (3 | ) | 6,313 | — | 25,263 | ||||||||||||||||
|
Interest expense
(income)
(3)
|
$ | 155,436 | 12 | (2,914 | ) | (86 | ) | — | 152,448 | |||||||||||||||
|
Capital expenditures
paid
(4)
|
$ | 1,181,006 | 33,177 | 3,476 | 12,742 | — | 1,230,401 | |||||||||||||||||
|
Total assets
|
$ | 6,204,130 | 421,572 | 110,552 | 136,396 | (183,142 | ) | 6,689,508 | ||||||||||||||||
| (1) | Depreciation expense associated with CSS assets was allocated to business segments based upon estimated and planned asset utilization. Depreciation expense totaling $9 million, $12 million and $13 million during 2010, 2009 and 2008, respectively, associated with CSS assets was allocated to other business segments. | |
| (2) | Includes amortization expense and impairment of goodwill (only in 2008). | |
| (3) | Interest expense was primarily allocated to the FMS segment since such borrowings were used principally to fund the purchase of revenue earning equipment used in FMS; however, interest expense (income) was also reflected in SCS and DCC based on targeted segment leverage ratios. | |
| (4) | Excludes FMS and SCS acquisition payments of $212 million, $89 million and $247 million in 2010, 2009 and 2008, respectively, comprised primarily of long-lived assets. See Note 3, “Acquisitions,” for additional information. |
120
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Geographic
Information
| Years ended December 31 | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
Revenue:
|
||||||||||||
|
United States
|
$ | 4,313,483 | 4,126,973 | 5,058,954 | ||||||||
|
Foreign:
|
||||||||||||
|
Canada
|
466,405 | 424,148 | 485,219 | |||||||||
|
Europe
|
219,508 | 223,879 | 290,697 | |||||||||
|
Mexico
|
122,312 | 97,649 | 140,543 | |||||||||
|
Asia
|
14,727 | 14,605 | 23,628 | |||||||||
| 822,952 | 760,281 | 940,087 | ||||||||||
|
Total
|
$ | 5,136,435 | 4,887,254 | 5,999,041 | ||||||||
|
Long-lived assets:
|
||||||||||||
|
United States
|
$ | 4,098,735 | 3,985,166 | 4,343,687 | ||||||||
|
Foreign:
|
||||||||||||
|
Canada
|
468,062 | 478,091 | 462,140 | |||||||||
|
Europe
|
219,178 | 232,320 | 256,563 | |||||||||
|
Mexico
|
21,194 | 16,832 | 18,497 | |||||||||
|
South America
|
— | 531 | 14,147 | |||||||||
|
Asia
|
892 | 9,629 | 17,006 | |||||||||
| 709,326 | 737,403 | 768,353 | ||||||||||
|
Total
|
$ | 4,808,061 | 4,722,569 | 5,112,040 | ||||||||
Certain
Concentrations
We have a diversified portfolio of customers across a full array
of transportation and logistics solutions and across many
industries. We believe this will help to mitigate the impact of
adverse downturns in specific sectors of the economy. Our
portfolio of full service lease and commercial rental customers
is not concentrated in any one particular industry or geographic
region. We derive a significant portion of our SCS revenue from
the automotive industry, mostly from manufacturers and suppliers
of original equipment parts. During 2010, 2009 and 2008, the
automotive industry accounted for approximately 43%, 42% and
47%, respectively, of SCS total revenue.
121
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 30. | QUARTERLY INFORMATION (UNAUDITED) |
|
Earnings from
|
||||||||||||||||||||||||||||
|
Continuing
|
||||||||||||||||||||||||||||
|
Earnings from
|
Operations per
|
Net Earnings per
|
||||||||||||||||||||||||||
|
Continuing
|
Common Share | Common Share | ||||||||||||||||||||||||||
| Revenue | Operations | Net Earnings | Basic | Diluted | Basic | Diluted | ||||||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||||||||
|
2010
|
||||||||||||||||||||||||||||
|
First quarter
|
$ | 1,219,938 | 12,872 | 12,373 | 0.24 | 0.24 | 0.23 | 0.23 | ||||||||||||||||||||
|
Second quarter
|
1,286,123 | 30,600 | 29,841 | 0.58 | 0.58 | 0.57 | 0.56 | |||||||||||||||||||||
|
Third quarter
|
1,316,948 | 39,674 | 38,835 | 0.76 | 0.76 | 0.74 | 0.74 | |||||||||||||||||||||
|
Fourth quarter
|
1,313,426 | 41,462 | 37,121 | 0.80 | 0.80 | 0.72 | 0.72 | |||||||||||||||||||||
|
Full year
|
$ | 5,136,435 | 124,608 | 118,170 | 2.38 | 2.37 | 2.25 | 2.25 | ||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||
|
First quarter
|
$ | 1,174,396 | 10,938 | 6,838 | 0.20 | 0.20 | 0.12 | 0.12 | ||||||||||||||||||||
|
Second quarter
|
1,212,036 | 27,070 | 22,888 | 0.48 | 0.48 | 0.41 | 0.41 | |||||||||||||||||||||
|
Third quarter
|
1,253,854 | 28,439 | 23,971 | 0.51 | 0.51 | 0.43 | 0.43 | |||||||||||||||||||||
|
Fourth quarter
|
1,246,968 | 23,670 | 8,248 | 0.43 | 0.43 | 0.15 | 0.15 | |||||||||||||||||||||
|
Full year
|
$ | 4,887,254 | 90,117 | 61,945 | 1.62 | 1.62 | 1.11 | 1.11 | ||||||||||||||||||||
Quarterly and
year-to-date
computations of per share amounts are made independently;
therefore, the sum of per-share amounts for the quarters may not
equal per-share amounts for the year.
See Note 4, “Discontinued Operations,”
Note 5, “Restructuring and Other Charges,” and
Note 26, “Other Items Impacting
Comparability,” for items included in earnings during 2010
and 2009.
Earnings in the fourth quarter of 2010 included an income tax
benefit of $11 million, or $0.21 per diluted common share,
related to the favorable settlement of prior tax years as well
as the expiration of a statute of limitation. Earnings in the
fourth quarter of 2009 included an income tax benefit of
$4 million, or $0.07 per diluted common share, associated
with the reduction of deferred income taxes due to enacted
changes in Ontario tax laws.
122
Table of Contents
RYDER
SYSTEM, INC. AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
|
Column A
|
Column B
|
Column C
|
Column D
|
Column E
|
||||||||||||||||
| Additions | ||||||||||||||||||||
|
Balance at
|
Transferred
|
Balance
|
||||||||||||||||||
|
Beginning
|
Charged to
|
from (to) Other
|
at End
|
|||||||||||||||||
| Description | of Period | Earnings | Accounts (1) | Deductions (2) | of Period | |||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
2010
|
||||||||||||||||||||
|
Accounts receivable allowance
|
$ | 13,808 | 4,757 | — | 4,698 | 13,867 | ||||||||||||||
|
Direct finance lease allowance
|
$ | 813 | 399 | — | 428 | 784 | ||||||||||||||
|
Self-insurance
accruals
(3)
|
$ | 242,905 | 201,236 | 45,470 | 246,363 | 243,248 | ||||||||||||||
|
Reserve for residual value guarantees
|
$ | 4,049 | 1,643 | — | 1,195 | 4,497 | ||||||||||||||
|
Valuation allowance on deferred tax assets
|
$ | 36,573 | 978 | — | (1,665 | ) | 39,216 | |||||||||||||
|
2009
|
||||||||||||||||||||
|
Accounts receivable allowance
|
$ | 15,477 | 13,703 | — | 15,372 | 13,808 | ||||||||||||||
|
Direct finance lease allowance
|
$ | 4,724 | 1,011 | — | 4,922 | 813 | ||||||||||||||
|
Self-insurance
accruals
(3)
|
$ | 256,002 | 201,273 | 47,726 | 262,096 | 242,905 | ||||||||||||||
|
Reserve for residual value guarantees
|
$ | 2,389 | 3,015 | — | 1,355 | 4,049 | ||||||||||||||
|
Valuation allowance on deferred tax assets
|
$ | 34,549 | 4,443 | — | 2,419 | 36,573 | ||||||||||||||
|
2008
|
||||||||||||||||||||
|
Accounts receivable allowance
|
$ | 16,954 | 15,934 | — | 17,411 | 15,477 | ||||||||||||||
|
Direct finance lease allowance
|
$ | 1,327 | 3,870 | — | 473 | 4,724 | ||||||||||||||
|
Self-insurance
accruals
(3)
|
$ | 277,815 | 201,145 | 47,034 | 269,992 | 256,002 | ||||||||||||||
|
Reserve for residual value guarantees
|
$ | 2,425 | 244 | — | 280 | 2,389 | ||||||||||||||
|
Valuation allowance on deferred tax assets
|
$ | 21,741 | 12,903 | — | 95 | 34,549 | ||||||||||||||
| (1) | Transferred from (to) other accounts includes employee contributions made to the medical and dental self-insurance plans. | |
| (2) | Deductions represent receivables written-off, lease termination payments, insurance claim payments during the period and net foreign currency translation adjustments. | |
| (3) | Self-insurance accruals include vehicle liability, workers’ compensation, property damage, cargo and medical and dental, which comprise our self-insurance programs. Amount charged to earnings include development in prior year selected loss development factors which reduced earnings by $3 million in 2010 and benefited earnings by $1 million and $23 million in 2009 and 2008, respectively. |
123
Table of Contents
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the
participation of management, including Ryder’s Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of Ryder’s
disclosure controls and procedures (as defined in
Rule 13a-15(e)
under the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that at December 31, 2010, Ryder’s
disclosure controls and procedures (as defined in
Rule 13a-15(e)
under the Securities Exchange Act of 1934) were effective.
Management’s
Report on Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial
Reporting and the Report of Independent Registered Certified
Public Accounting Firm thereon are set out in Item 8 of
Part II of this
Form 10-K
Annual Report.
Changes
in Internal Controls over Financial Reporting
During the three months ended December 31, 2010, there were
no changes in Ryder’s internal control over financial
reporting that has materially affected or is reasonably likely
to materially affect such internal control over financial
reporting.
ITEM 9B. OTHER
INFORMATION
On December 16, 2010, the Company entered into a severance
agreement with Art A. Garcia, the Company’s Executive Vice
President and Chief Financial Officer that provides for certain
severance benefits if the executive’s employment is
terminated due to death, disability, without cause or after a
change in control (as each term is defined in the severance
agreement). The benefits provide by Mr. Garcia’s
agreement are substantially the same benefits as those set forth
in the Form of Severance Agreement that was filed with the SEC
on February 11, 2009 and which is described under
“Potential Payments Upon Termination or Change of
Control” in our Schedule 14A filed with the SEC on
March 29, 2010 (the “2010 Schedule 14A”);
provided, however, that rather than provide for a gross-up of
payments in the case that any payment under the agreement would
constitute an “excess parachute payment” within the
meaning of Section 280G of the Internal Revenue Code of
1986 as amended (the “Code”), our severance agreement
with Mr. Garcia provides that the Company shall reduce (but
not below zero) the aggregate present value of the payments
under the agreement to an amount which does not cause any
payment to be subject to the excise tax under Section 4999
of the Code, if reducing the payments under the agreement would
provide the executive with a greater net after-tax amount than
would be the case if no reduction was made. The description of
the form severance agreement set forth under “Potential
Payments Upon Termination or Change of Control” in our 2010
Schedule 14A is incorporated by reference herein.
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 with respect to
executive officers is included within Item 1 in Part I
under the caption “Executive Officers of the
Registrant” of this
Form 10-K
Annual Report.
124
Table of Contents
The information required by Item 10 with respect to
directors, audit committee, audit committee financial experts
and Section 16(a) beneficial ownership reporting compliance
is included under the captions “Election of
Directors,” “Audit Committee” and
“Section 16(a) Beneficial Ownership Reporting
Compliance” in our definitive proxy statement, which will
be filed with the Commission within 120 days after the
close of the fiscal year, and is incorporated herein by
reference.
Ryder has adopted a code of ethics applicable to its Chief
Executive Officer, Chief Financial Officer, Controller and
Senior Financial Management. The Code of Ethics forms part of
Ryder’s Principles of Business Conduct which are posted on
the Corporate Governance page of Ryder’s website at
www.ryder.com.
ITEM 11. EXECUTIVE
COMPENSATION
The information required by Item 11 is included under the
captions “Compensation Discussion and Analysis,”
“Executive Compensation,” “Compensation
Committee,” “Compensation Committee Report on
Executive Compensation” and “Director
Compensation” in our definitive proxy statement, which will
be filed with the Commission within 120 days after the
close of the fiscal year, and is incorporated herein by
reference.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 with respect to
security ownership of certain beneficial owners and management
is included under the captions “Security Ownership of
Officers and Directors” and “Security Ownership of
Certain Beneficial Owners” in our definitive proxy
statement, which will be filed with the Commission within
120 days after the close of the fiscal year, and is
incorporated herein by reference.
The information required by Item 12 with respect to related
stockholder matters is included within Item 5 in
Part I under the caption “Securities Authorized for
Issuance under Equity Compensation Plans” of this
Form 10-K
Annual Report.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
AND DIRECTOR INDEPENDENCE
The information required by Item 13 is included under the
captions “Board of Directors” and “Related Person
Transactions” in our definitive proxy statement, which will
be filed with the Commission within 120 days after the
close of the fiscal year, and is incorporated herein by
reference.
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is included under the
caption “Ratification of Independent Registered Certified
Public Accounting Firm” in our definitive proxy statement,
which will be filed with the Commission within 120 days
after the close of the fiscal year, and is incorporated herein
by reference.
125
Table of Contents
PART IV
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
(a) Items A through G and Schedule II are
presented on the following pages of this
Form 10-K
Annual Report:
| Page No. | ||||||||
|
1. Financial
Statements for Ryder System, Inc. and Consolidated Subsidiaries:
|
||||||||
| A) | Management’s Report on Internal Control over Financial Reporting | 61 | ||||||
| B) | Report of Independent Registered Certified Public Accounting Firm | 62 | ||||||
| C) | Consolidated Statements of Earnings | 63 | ||||||
| D) | Consolidated Balance Sheets | 64 | ||||||
| E) | Consolidated Statements of Cash Flows | 65 | ||||||
| F) | Consolidated Statements of Shareholders’ Equity | 66 | ||||||
| G) | Notes to Consolidated Financial Statements | 67 | ||||||
|
2. Consolidated
Financial Statement Schedule for the Years Ended
December 31, 2010, 2009 and 2008:
|
||||||||
| Schedule II — Valuation and Qualifying Accounts | 123 | |||||||
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
Supplementary Financial Information consisting of selected
quarterly financial data is included in Item 8 of this
report.
| 3. | Exhibits: |
The following exhibits are filed with this report or, where
indicated, incorporated by reference
(Forms 10-K,
10-Q
and
8-K
referenced herein have been filed under the Commission’s
file
No. 1-4364).
Ryder will provide a copy of the exhibits filed with this report
at a nominal charge to those parties requesting them.
126
Table of Contents
EXHIBIT INDEX
|
Exhibit
|
||||
| Number | Description | |||
| 3 | .1(a) | The Ryder System, Inc. Restated Articles of Incorporation, dated November 8, 1985, as amended through May 18, 1990, previously filed with the Commission as an exhibit to Ryder’s Annual Report on Form 10-K for the year ended December 31, 1990, are incorporated by reference into this report. | ||
| 3 | .1(b) | Articles of Amendment to Ryder System, Inc. Restated Articles of Incorporation, dated November 8, 1985, as amended, previously filed with the Commission on April 3, 1996 as an exhibit to Ryder’s Form 8-A are incorporated by reference into this report. | ||
| 3 | .2 | The Ryder System, Inc. By-Laws, as amended through December 15, 2009, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on December 21, 2009, are incorporated by reference into this report. | ||
| 4 | .1 | Ryder hereby agrees, pursuant to paragraph(b)(4)(iii) of Item 601 of Regulation S-K, to furnish the Commission with a copy of any instrument defining the rights of holders of long-term debt of Ryder, where such instrument has not been filed as an exhibit hereto and the total amount of securities authorized thereunder does not exceed 10% of the total assets of Ryder and its subsidiaries on a consolidated basis. | ||
| 4 | .2(a) | The Form of Indenture between Ryder System, Inc. and The Chase Manhattan Bank (National Association) dated as of June 1, 1984, filed with the Commission on November 19, 1985 as an exhibit to Ryder’s Registration Statement on Form S-3 (No. 33-1632), is incorporated by reference into this report. | ||
| 4 | .2(b) | The First Supplemental Indenture between Ryder System, Inc. and The Chase Manhattan Bank (National Association) dated October 1, 1987, previously filed with the Commission as an exhibit to Ryder’s Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated by reference into this report. | ||
| 4 | .3 | The Form of Indenture between Ryder System, Inc. and The Chase Manhattan Bank (National Association) dated as of May 1, 1987, and supplemented as of November 15, 1990 and June 24, 1992, filed with the Commission on July 30, 1992 as an exhibit to Ryder’s Registration Statement on Form S-3 (No. 33-50232), is incorporated by reference into this report. | ||
| 4 | .4 | The Form of Indenture between Ryder System, Inc. and J.P. Morgan Trust Company (National Association) dated as of October 3, 2003 filed with the Commission on August 29, 2003 as an exhibit to Ryder’s Registration Statement on Form S-3 (No. 333-108391), is incorporated by reference into this report. | ||
| 10 | .1(a) | Separation Agreement and Release, dated as of August 23, 2010, between Ryder Truck Rental, Inc. and Anthony G. Tegnelia previously filed with the Commission as an exhibit to Ryder’s Quarterly Report on Form 10-Q file with the Commission for the quarter ended September 30, 2010 is incorporated by reference into this report. | ||
| 10 | .1(b) | Severance Agreement, dated December 16, 2010, between Ryder System, Inc. and Art A. Garcia. | ||
| 10 | .1(c) | The Ryder System, Inc. Executive Severance Plan, amended and restated effective as of January 1, 2009, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 11, 2009, is incorporated by reference into this report. | ||
| 10 | .1(d) | The form of Amended and Restated Severance Agreement for executive officers, effective as of December 19, 2008, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 11, 2009, is incorporated by reference into this report. | ||
| 10 | .4(a) | The Ryder System, Inc. 1980 Stock Incentive Plan, as amended and restated as of August 15, 1996, previously filed with the Commission as an exhibit to Ryder’s Annual Report on Form 10-K for the year ended December 31, 1997, is incorporated by reference into this report. | ||
| 10 | .4(b) | The form of Ryder System, Inc. 1980 Stock Incentive Plan, United Kingdom Section, dated May 4, 1995, previously filed with the Commission as an exhibit to Ryder’s Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated by reference into this report. | ||
| 10 | .4(c) | The form of Ryder System, Inc. 1980 Stock Incentive Plan, United Kingdom Section, dated October 3, 1995, previously filed with the Commission as an exhibit to Ryder’s Annual Report on Form 10-K for the year ended December 31, 1995, is incorporated by reference into this report. | ||
127
Table of Contents
|
Exhibit
|
||||
| Number | Description | |||
| 10 | .4(f) | The Ryder System, Inc. 1995 Stock Incentive Plan, as amended and restated at May 4, 2001, previously filed with the Commission as an exhibit to Ryder’s report on Form 10-Q for the quarter ended September 30, 2001, is incorporated by reference into this report. | ||
| 10 | .4(g) | The Ryder System, Inc. 1995 Stock Incentive Plan, as amended and restated as of July 25, 2002, previously filed with the Commission as an exhibit to Ryder’s Annual Report on Form 10-K for the year ended December 31, 2003, is incorporated by reference into this report. | ||
| 10 | .4(h) | The Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission on March 30, 2005 as Appendix A to the Proxy Statement for the 2005 Annual Meeting of Shareholders of the Company is incorporated by reference into this report. | ||
| 10 | .4(i) | Terms and Conditions applicable to non-qualified stock options granted under the Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 14, 2007, are incorporated by reference into this report. | ||
| 10 | .4(j) | Terms and Conditions applicable to restricted stock rights granted under the Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on May 11, 2005, are incorporated by reference into this report. | ||
| 10 | .4(k) | Terms and Conditions applicable to restricted stock units granted under the Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on May 11, 2005, are incorporated by reference into this report. | ||
| 10 | .4(p) | Terms and Conditions applicable to performance-based restricted stock rights and related cash awards granted in 2007 under the Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 14, 2007, are incorporated by reference into this report. | ||
| 10 | .4(q) | Terms and Conditions applicable to performance-based restricted stock rights granted in 2008 under the Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 14, 2008, are incorporated by reference into this report. | ||
| 10 | .4(r) | Terms and Conditions applicable to annual incentive cash awards granted in 2009 under the Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 11, 2009, are incorporated by reference into this report. | ||
| 10 | .4(s) | Terms and Conditions applicable to performance-based restricted stock rights granted in 2009 under the Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 11, 2009, are incorporated by reference into this report. | ||
| 10 | .4(t) | Terms and Conditions applicable to performance-based cash awards granted in 2009 under the Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 11, 2009, are incorporated by reference into this report. | ||
| 10 | .4(u) | Terms and Conditions applicable to the 2010 Performance Incentive Plan financial metric program granted under the Ryder System, Inc. 2005 Equity Compensation Plan for the period January 1, 2010 through June 30, 2010, previously filed with the Commission as an exhibit to Ryder’s current Report on Form 8-K filed with the Commission on February 17, 2010, are incorporated by reference into this report. | ||
| 10 | .4(v) | Terms and Conditions applicable to the 2010 Performance Incentive Plan individual performance program granted under the Ryder System, Inc. 2005 Equity Compensation Plan for the period January 1, 2010 through June 30, 2010, previously filed with the Commission as an exhibit to Ryder’s current Report on Form 8-K filed with the Commission on February 17, 2010, are incorporated by reference into this report. | ||
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|
Exhibit
|
||||
| Number | Description | |||
| 10 | .4(w) | Terms and Conditions applicable to the 2010 Performance Incentive Plan financial metric program granted under the Ryder System, Inc. 2005 Equity Compensation Plan for the period July 1, 2010 through December 31, 2010, previously filed with the Commission as an exhibit to Ryder’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, are incorporated by reference into this report. | ||
| 10 | .4(x) | Terms and Conditions applicable to the 2010 Performance Incentive Plan individual performance program granted under the Ryder System, Inc. 2005 Equity Compensation Plan for the period July 1, 2010 through December 31, 2010, previously filed with the Commission as an exhibit to Ryder’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, are incorporated by reference into this report. | ||
| 10 | .5(b) | The Ryder System, Inc. Directors Stock Award Plan, as amended and restated at February 10, 2005, previously filed with the Commission as an exhibit to Ryder’s Annual Report on Form 10-K for the year ended December 31, 2004, is incorporated by reference into this report. | ||
| 10 | .5(c) | The Ryder System, Inc. Directors Stock Plan, as amended and restated at May 7, 2004, previously filed with the Commission as an exhibit to Ryder’s Annual Report on Form 10-K for the year ended December 31, 2004, is incorporated by reference into this report. | ||
| 10 | .6(a) | The Ryder System Benefit Restoration Plan, amended and restated effective January 2, 2005, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 11, 2009, is incorporated by reference into this report. | ||
| 10 | .10 | The Ryder System, Inc. Deferred Compensation Plan, effective as of January 1, 2009, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on February 11, 2009, is incorporated by reference to this report. | ||
| 10 | .14 | Global Revolving Credit Agreement dated as of April 30, 2009, by and among, Ryder System, Inc., certain subsidiaries of Ryder System, Inc., and the lenders and agents named therein, previously filed with the Commission as an exhibit to Ryder’s Current Report on Form 8-K filed with the Commission on May 1, 2009, is incorporated by reference into this report. | ||
| 21 | .1 | List of subsidiaries of the registrant, with the state or other jurisdiction of incorporation or organization of each, and the name under which each subsidiary does business. | ||
| 23 | .1 | PricewaterhouseCoopers LLP consent to incorporation by reference in certain Registration Statements on Forms S-3 and S-8 of their report on Consolidated Financial Statements financial statement schedule and effectiveness of internal controls over financial reporting of Ryder System, Inc. | ||
| 24 | .1 | Manually executed powers of attorney for each of: | ||
| James S. Beard | John M. Berra | |
|
David I. Fuente
|
L. Patrick Hassey | |
|
Lynn M. Martin
|
Luis P. Nieto, Jr. | |
|
Eugene A. Renna
|
Abbie J. Smith | |
|
E. Follin Smith
|
Hansel E. Tookes, II |
| 31 | .1 | Certification of Gregory T. Swienton pursuant to Rule 13a-14(a) or Rule 15d-14(a). | ||
| 31 | .2 | Certification of Art A. Garcia pursuant to Rule 13a-14(a) or Rule 15d-14(a). | ||
| 32 |
Certification of Gregory T.
Swienton and Art A. Garcia pursuant to Rule 13a-14(b) or
Rule 15d-14(b) and 18 U.S.C. Section 1350. |
(b) Executive Compensation Plans and Arrangements:
Please refer to the description of Exhibits 10.1 through
10.10 set forth under Item 15(a)3 of this report for a
listing of all management contracts and compensation plans and
arrangements filed with this report pursuant to
Item 601(b)(10) of
Regulation S-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
Date: February 14, 2011
|
RYDER SYSTEM, INC. | |
|
By:
/s/
Gregory
T. Swienton
Chairman of the Board and Chief Executive Officer |
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.
|
Date: February 14, 2011
|
By:
/s/
Gregory
T. Swienton
|
|
|
Gregory T. Swienton
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
||
|
Date: February 14, 2011
|
By:
/s/
Art
A. Garcia
|
|
|
Art A. Garcia
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
||
|
Date: February 14, 2011
|
By:
/s/
Cristina
A. Gallo-Aquino
|
|
|
Cristina A. Gallo-Aquino
Vice President and Controller (Principal Accounting Officer) |
||
|
Date: February 14, 2011
|
By:
James
S. Beard*
|
|
|
James S. Beard
Director |
||
|
Date: February 14, 2011
|
By:
John
M. Berra*
|
|
|
John M. Berra
Director |
||
|
Date: February 14, 2011
|
By:
David
I. Fuente*
|
|
|
David I. Fuente
Director |
||
|
Date: February 14, 2011
|
By:
L.
Patrick Hassey*
|
|
|
L. Patrick Hassey
Director |
||
|
Date: February 14, 2011
|
By:
Lynn
M. Martin*
|
|
|
Lynn M. Martin
Director |
||
|
Date: February 14, 2011
|
By:
Luis
P. Nieto, Jr.*
|
|
|
Luis P. Nieto, Jr.
Director |
130
Table of Contents
|
Date: February 14, 2011
|
By:
Eugene
A. Renna*
|
|
|
Eugene A. Renna
Director |
||
|
Date: February 14, 2011
|
By:
Abbie
J. Smith*
|
|
|
Abbie J. Smith
Director |
||
|
Date: February 14, 2011
|
By:
E.
Follin Smith*
|
|
|
E. Follin Smith
Director |
||
|
Date: February 14, 2011
|
By:
Hansel
E. Tookes, II*
|
|
|
Hansel E. Tookes, II
Director |
||
|
Date: February 14, 2011
|
*By:
/s/
David
Beilin
|
|
|
David Beilin
Attorney-in-Fact |
131
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Removed and ReservedprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of Operations (continued)printItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accountant Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement Schedulesprint