RYDER SYSTEM INC
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2014
OR
|
¨
|
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)
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Florida
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59-0739250
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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11690 N.W. 105th Street
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|
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Miami, Florida 33178
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(305) 500-3726
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(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
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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
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
þ
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
¨
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(Do not check if a smaller reporting company)
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|||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
¨
YES
þ
NO
The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at
March 31, 2014
was
53,184,496
.
RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
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Page No.
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i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)
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|
Three months ended March 31,
|
|||||
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2014
|
2013
|
||||
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(In thousands, except per share amounts)
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|||||
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Lease and rental revenues
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$
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689,682
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659,708
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Services revenue
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709,699
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689,461
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Fuel services revenue
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211,356
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213,848
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||
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Total revenues
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1,610,737
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1,563,017
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Cost of lease and rental
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493,043
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473,077
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Cost of services
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606,229
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583,589
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Cost of fuel services
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207,205
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210,293
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Other operating expenses
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36,645
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37,599
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Selling, general and administrative expenses
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191,702
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189,073
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Gains on vehicle sales, net
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(28,818
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)
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(23,006
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)
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||
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Interest expense
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35,109
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34,454
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Miscellaneous income, net
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(5,382
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)
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(4,570
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)
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1,535,733
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1,500,509
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Earnings from continuing operations before income taxes
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75,004
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62,508
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Provision for income taxes
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25,906
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21,706
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Earnings from continuing operations
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49,098
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40,802
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|
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Loss from discontinued operations, net of tax
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(866
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)
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(878
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)
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||
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Net earnings
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$
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48,232
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39,924
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Earnings (loss) per common share — Basic
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||||||
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Continuing operations
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$
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0.93
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0.79
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Discontinued operations
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(0.02
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)
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(0.02
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)
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Net earnings
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$
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0.91
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0.77
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Earnings (loss) per common share — Diluted
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||||||
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Continuing operations
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$
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0.92
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0.79
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Discontinued operations
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(0.02
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)
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(0.02
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)
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||
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Net earnings
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$
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0.90
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0.77
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Cash dividends declared per common share
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$
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0.34
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0.31
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See accompanying notes to consolidated condensed financial statements.
1
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
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Three months ended March 31,
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2014
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2013
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||||
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(In thousands)
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|||||
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Net earnings
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$
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48,232
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39,924
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|
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Other comprehensive income:
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||||||
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Changes in cumulative translation adjustment and other, before and after tax
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(14,592
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)
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(33,704
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)
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Amortization of pension and postretirement items
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5,033
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8,354
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Income tax expense related to amortization of pension and postretirement items
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(1,906
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)
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(2,935
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)
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Amortization of pension and postretirement items, net of taxes
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3,127
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5,419
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|
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Other comprehensive loss, net of taxes
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(11,465
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)
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(28,285
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)
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Comprehensive income
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$
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36,767
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11,639
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See accompanying notes to consolidated condensed financial statements.
2
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
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March 31,
2014 |
December 31,
2013 |
|||||
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(Dollars in thousands, except per
share amount)
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|||||
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Assets:
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||||||
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Current assets:
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||||||
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Cash and cash equivalents
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$
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72,786
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61,562
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Receivables, net
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822,010
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777,370
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Inventories
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64,758
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64,298
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Prepaid expenses and other current assets
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157,562
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159,263
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Total current assets
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1,117,116
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1,062,493
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Revenue earning equipment, net of accumulated depreciation of $3,587,031 and
$3,596,102, respectively
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6,687,976
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6,490,837
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Operating property and equipment, net of accumulated depreciation of $1,006,105 and $991,117, respectively
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636,632
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633,826
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Goodwill
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383,200
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383,719
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Intangible assets
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70,411
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72,406
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Direct financing leases and other assets
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472,148
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460,501
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Total assets
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$
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9,367,483
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9,103,782
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Liabilities and shareholders’ equity:
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||||||
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Current liabilities:
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||||||
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Short-term debt and current portion of long-term debt
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$
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400,846
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259,438
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Accounts payable
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505,779
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475,364
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Accrued expenses and other current liabilities
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465,997
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496,337
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Total current liabilities
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1,372,622
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1,231,139
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Long-term debt
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4,045,751
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3,929,987
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Other non-current liabilities
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617,281
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616,305
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Deferred income taxes
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1,433,288
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1,429,637
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Total liabilities
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7,468,942
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7,207,068
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Shareholders’ equity:
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||||||
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Preferred stock of no par value per share — authorized, 3,800,917; none outstanding,
March 31, 2014 or December 31, 2013
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—
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—
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Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding,
March 31, 2014 — 53,184,496; December 31, 2013 — 53,335,386
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26,591
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26,667
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Additional paid-in capital
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931,353
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917,539
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||
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Retained earnings
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1,390,310
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1,390,756
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||
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Accumulated other comprehensive loss
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(449,713
|
)
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(438,248
|
)
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||
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Total shareholders’ equity
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1,898,541
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1,896,714
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Total liabilities and shareholders’ equity
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$
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9,367,483
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|
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9,103,782
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See accompanying notes to consolidated condensed financial statements.
3
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Three months ended March 31,
|
|||||
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2014
|
2013
|
||||
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(In thousands)
|
|||||
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Cash flows from operating activities from continuing operations:
|
||||||
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Net earnings
|
48,232
|
|
39,924
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|
||
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Less: Loss from discontinued operations, net of tax
|
(866
|
)
|
(878
|
)
|
||
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Earnings from continuing operations
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49,098
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|
40,802
|
|
||
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Depreciation expense
|
248,815
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|
231,541
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||
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Gains on vehicle sales, net
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(28,818
|
)
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(23,006
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)
|
||
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Share-based compensation expense
|
4,858
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|
4,609
|
|
||
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Amortization expense and other non-cash charges, net
|
14,097
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|
13,432
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||
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Deferred income tax expense
|
21,653
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18,593
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||
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Changes in operating assets and liabilities:
|
||||||
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Receivables
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(41,526
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)
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(8,677
|
)
|
||
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Inventories
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(629
|
)
|
902
|
|
||
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Prepaid expenses and other assets
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(14,410
|
)
|
(17,353
|
)
|
||
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Accounts payable
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14,423
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|
36,405
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|
||
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Accrued expenses and other non-current liabilities
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(29,901
|
)
|
(48,320
|
)
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||
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Net cash provided by operating activities from continuing operations
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237,660
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|
248,928
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|
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Cash flows from financing activities from continuing operations:
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||||||
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Net change in commercial paper borrowings
|
142,834
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|
112,938
|
|
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Debt proceeds
|
366,612
|
|
|
249,723
|
|
|
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Debt repaid, including capital lease obligations
|
(252,845
|
)
|
|
(317,344
|
)
|
|
|
Dividends on common stock
|
(18,005
|
)
|
(15,980
|
)
|
||
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Common stock issued
|
18,526
|
|
22,529
|
|
||
|
Common stock repurchased
|
(40,437
|
)
|
(104
|
)
|
||
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Excess tax benefits from share-based compensation
|
293
|
|
1,575
|
|
||
|
Debt issuance costs
|
(1,809
|
)
|
(1,767
|
)
|
||
|
Net cash provided by financing activities from continuing operations
|
215,169
|
|
51,570
|
|
||
|
Cash flows from investing activities from continuing operations:
|
||||||
|
Purchases of property and revenue earning equipment
|
(578,722
|
)
|
(420,054
|
)
|
||
|
Sales of revenue earning equipment
|
125,673
|
|
112,425
|
|
||
|
Sales of operating property and equipment
|
2,004
|
|
916
|
|
||
|
Acquisitions
|
(1,649
|
)
|
(1,420
|
)
|
||
|
Collections on direct finance leases
|
16,184
|
|
27,411
|
|
||
|
Changes in restricted cash
|
(4,087
|
)
|
(18,979
|
)
|
||
|
Insurance recoveries and other
|
(1,250
|
)
|
3,767
|
|
||
|
Net cash used in investing activities from continuing operations
|
(441,847
|
)
|
(295,934
|
)
|
||
|
Effect of exchange rate changes on cash
|
1,369
|
|
6,257
|
|
||
|
Increase in cash and cash equivalents from continuing operations
|
12,351
|
|
10,821
|
|
||
|
Cash flows from discontinued operations:
|
||||||
|
Operating cash flows
|
(906
|
)
|
(726
|
)
|
||
|
Effect of exchange rate changes on cash
|
(221
|
)
|
2
|
|
||
|
Decrease in cash and cash equivalents from discontinued operations
|
(1,127
|
)
|
(724
|
)
|
||
|
Increase in cash and cash equivalents
|
11,224
|
|
10,097
|
|
||
|
Cash and cash equivalents at January 1
|
61,562
|
|
66,392
|
|
||
|
Cash and cash equivalents at March 31
|
$
|
72,786
|
|
76,489
|
|
|
See accompanying notes to consolidated condensed financial statements.
4
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
|
|
Preferred
Stock
|
Common Stock
|
Additional
Paid-In
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss
|
Total
|
||||||||||||||||
|
|
Amount
|
Shares
|
Par
|
|||||||||||||||||||
|
|
(Dollars in thousands, except per share amount)
|
|||||||||||||||||||||
|
Balance at December 31, 2013
|
$
|
—
|
|
53,335,386
|
|
$
|
26,667
|
|
917,539
|
|
1,390,756
|
|
(438,248
|
)
|
1,896,714
|
|
||||||
|
Net earnings
|
—
|
|
—
|
|
—
|
|
—
|
|
48,232
|
|
—
|
|
48,232
|
|
||||||||
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(11,465
|
)
|
(11,465
|
)
|
||||||||
|
Comprehensive income
|
36,767
|
|
||||||||||||||||||||
|
Common stock dividends declared — $0.34 per share
|
—
|
|
—
|
|
—
|
|
—
|
|
(18,124
|
)
|
—
|
|
(18,124
|
)
|
||||||||
|
Common stock issued under employee stock option and stock purchase plans
(1)
|
—
|
|
409,203
|
|
204
|
|
18,125
|
|
—
|
|
—
|
|
18,329
|
|
||||||||
|
Benefit plan stock sales
(2)
|
—
|
|
2,590
|
|
1
|
|
196
|
|
—
|
|
—
|
|
197
|
|
||||||||
|
Common stock repurchases
|
—
|
|
(562,683
|
)
|
(281
|
)
|
(9,602
|
)
|
(30,554
|
)
|
—
|
|
(40,437
|
)
|
||||||||
|
Share-based compensation
|
—
|
|
—
|
|
—
|
|
4,858
|
|
—
|
|
—
|
|
4,858
|
|
||||||||
|
Tax benefits from share-based compensation
|
—
|
|
—
|
|
—
|
|
237
|
|
—
|
|
—
|
|
237
|
|
||||||||
|
Balance at March 31, 2014
|
$
|
—
|
|
53,184,496
|
|
$
|
26,591
|
|
931,353
|
|
1,390,310
|
|
(449,713
|
)
|
1,898,541
|
|
||||||
————————————
(1)
Net of common shares delivered as payment for the exercise price or to satisfy the option 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 condensed financial statements.
5
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(A) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited Consolidated Condensed 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) required to be consolidated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with the accounting policies described in our
2013
Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. These financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included and the disclosures herein are adequate. The operating results for interim periods are unaudited and are not necessarily indicative of the results that can be expected for a full year.
Prior year amounts have been reclassified to conform to the current period presentation. These reclassifications were immaterial to the financial statements taken as a whole.
Prior year amounts related to intercompany profit allocations between Fleet Management Solutions (FMS) and Supply Chain Solutions (SCS) have been reclassified to conform to the current period presentation. These reclassifications were immaterial to the financial statements taken as a whole.
(B) ACCOUNTING CHANGES
In July 2013, the Financial Accounting Standards Board issued accounting guidance on the balance sheet presentation of an unrecognized tax benefit when a net operating loss carryforward exists. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward. This guidance became effective for us on January 1, 2014 and resulted in a reclassification of
$38.8 million
from other non-current liabilities to deferred income taxes in our December 31, 2013 balance sheet. Prior year amounts have been reclassified to conform to the current period presentation. Other than the change in presentation within the Consolidated Condensed Balance Sheets, this accounting guidance did not have an impact on our consolidated financial position, results of operations or cash flows.
(C) DISCONTINUED OPERATIONS
In 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 Condensed Financial Statements or notes thereto.
Summarized results of discontinued operations were as follows:
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Pre-tax loss from discontinued operations
|
$
|
(955
|
)
|
(901
|
)
|
|
|
Income tax benefit
|
89
|
|
23
|
|
||
|
Loss from discontinued operations, net of tax
|
$
|
(866
|
)
|
(878
|
)
|
|
Results of discontinued operations in
2014
and
2013
reflected losses related to adverse legal developments and professional and administrative fees associated with our discontinued South American operations.
The following is a summary of assets and liabilities of discontinued operations:
|
March 31,
2014 |
December 31,
2013 |
|||||
|
|
(In thousands)
|
|||||
|
Total assets, primarily deposits
|
$
|
3,541
|
|
3,627
|
|
|
|
Total liabilities, primarily contingent accruals
|
$
|
4,477
|
|
4,501
|
|
|
6
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Although we discontinued our South American operations in 2009, we continue to be party to various federal, state and local legal proceedings involving labor matters, tort claims and tax assessments. We have established loss provisions for any matters where we believe a loss is probable and can be reasonably estimated. For matters where a reserve has not been established and for which we believe a loss is reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, we believe that such losses will not have a material effect on our consolidated financial statements.
In Brazil, we were assessed
$5.0 million
(before and after tax) in prior years for various federal income taxes and social contribution taxes for the 1997 and 1998 tax years. We have successfully overturned these federal tax assessments in the lower courts; however, there is a reasonable possibility that these rulings could be reversed and we would be required to pay the assessments. We believe it is more likely than not that our position will ultimately be sustained if appealed and no amounts have been reserved for these matters. We are entitled to indemnification for a portion of any resulting liability on these federal tax claims which, if honored, would reduce the estimated loss.
(D) SHARE-BASED COMPENSATION PLANS
Share-based incentive awards are provided to employees under the terms of various 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, nonvested stock and cash awards. Nonvested stock awards include grants of market-based, performance-based, and time-vested restricted stock rights. Under the terms of our Plans, dividends may be paid on our stock options and nonvested stock awards. We have historically paid dividends on nonvested stock awards but not on our stock option awards. Dividends on nonvested stock granted after 2011 are not paid unless the award vests. Upon vesting, the amount of the dividends paid is equal to the aggregate dividends declared on common shares during the period from the date of grant of the award until the date the shares underlying the award are delivered.
The following table provides information on share-based compensation expense and income tax benefits recognized during the periods:
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Stock option and stock purchase plans
|
$
|
2,237
|
|
2,110
|
|
|
|
Nonvested stock
|
2,621
|
|
2,499
|
|
||
|
Share-based compensation expense
|
4,858
|
|
4,609
|
|
||
|
Income tax benefit
|
(1,676
|
)
|
(1,687
|
)
|
||
|
Share-based compensation expense, net of tax
|
$
|
3,182
|
|
2,922
|
|
|
During the
three months ended
March 31, 2014
and
2013
, approximately
405,000
and
377,000
stock options, respectively, were granted under the Plans. These awards generally vest evenly over a
three
year period beginning on the date of grant. The stock options have contractual terms of
ten years
. The fair value of each option award at the date of grant was estimated using a Black-Scholes-Merton option-pricing valuation model. Share-based compensation expense is recognized on a straight-line basis over the vesting period. The weighted-average fair value per option granted during the
three months ended
March 31, 2014
and
2013
was
$14.99
and
$13.99
, respectively.
During each of the
three months ended
March 31, 2014
and
2013
, approximately
22,000
market-based restricted stock rights were granted under the Plans. The awards are segmented into
three
performance periods of one, two and three years. At the end of each performance period,
25%
-
125%
of the award may be earned based on Ryder's total shareholder return (TSR) compared to the TSR of a custom peer group over the applicable performance period. If earned, employees will receive the grant of stock at the end of the relevant three year performance period provided they continue to be employed with Ryder, subject to Compensation Committee approval. The fair value of the market-based restricted stock rights was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. The fair value of the market-based awards was determined on the grant date and considers the likelihood of Ryder achieving the market-based condition. Share-based compensation expense is recognized on a straight-line basis over the vesting period. The weighted-average fair value per market-based restricted stock right granted during the
three months ended
March 31, 2014
and
2013
was
$61.07
and
$53.32
, respectively.
7
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
During the
three months ended
March 31, 2014
and
2013
, approximately
42,000
and
45,000
performance-based restricted stock rights (PBRSRs), respectively, were awarded under the Plans. The awards are segmented into three one-year performance periods. For these awards,
25%
-
125%
of the awards may be earned based on Ryder's one-year adjusted return on capital (ROC) measured against an annual ROC target. If earned, employees will receive the grant of stock three years after the grant date, provided they continue to be employed with Ryder, subject to Compensation Committee approval. For accounting purposes, these awards are not considered granted until the Compensation Committee approves the annual ROC target. During the
three months ended
March 31, 2014
and
2013
, approximately
30,000
and
15,000
PBRSRs, respectively, were considered granted for accounting purposes. The fair value of the PBRSRs is determined and fixed on the grant date based on Ryder's stock price on the date of grant. Share-based compensation expense is recognized on a straight-line basis over the vesting period, based upon the probability that the performance target will be met. The weighted-average fair value per PBRSR granted during the
three months ended
March 31, 2014
and
2013
was
$71.43
and
$58.21
, respectively.
During the
three months ended
March 31, 2014
and
2013
, approximately
87,000
and
127,000
time-vested restricted stock rights, respectively, were granted under the Plans. The time-vested restricted stock rights entitle the holder to shares of common stock when the awards generally vest at the end of the
three
-year period after the grant date. The fair value of the time-vested awards is determined and fixed on the date of grant based on Ryder’s stock price on the date of grant. Share-based compensation expense is recognized on a straight-line basis over the vesting period. The weighted-average fair value per time-vested restricted stock right granted during the
three months ended
March 31, 2014
and
2013
was
$71.40
and
$58.00
, respectively.
During the
three months ended
March 31, 2014
and
2013
, employees who received market-based restricted stock rights also received market-based cash awards. The cash awards have the same vesting provisions as the market-based restricted stock rights. 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. Share-based compensation expense is recognized on a straight-line basis over the vesting period.
The following table is a summary of compensation expense recognized for market-based cash awards in addition to the share-based compensation expense reported in the previous table:
|
|
Three months ended March 31,
|
||
|
|
2014
|
2013
|
|
|
|
(In thousands)
|
||
|
Cash awards
|
$523
|
1,274
|
|
Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at
March 31, 2014
was
$34.4 million
and is expected to be recognized over a weighted-average period of
2.0 years
.
8
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(E) EARNINGS PER SHARE
We compute earnings per share 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 granted prior to 2012 and restricted stock units granted to our Board of Directors are considered participating securities since the share-based awards contain a non-forfeitable right to dividend cash payments prior to vesting. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings 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.
The following table presents the calculation of basic and diluted earnings per common share from continuing operations:
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands, except per share amounts)
|
|||||
|
Earnings per share — Basic:
|
||||||
|
Earnings from continuing operations
|
$
|
49,098
|
|
40,802
|
|
|
|
Less: Distributed and undistributed earnings allocated to nonvested stock
|
(255
|
)
|
(403
|
)
|
||
|
Earnings from continuing operations available to common shareholders — Basic
|
$
|
48,843
|
|
40,399
|
|
|
|
Weighted average common shares outstanding — Basic
|
52,660
|
|
50,958
|
|
||
|
Earnings from continuing operations per common share — Basic
|
$
|
0.93
|
|
0.79
|
|
|
|
Earnings per share — Diluted:
|
||||||
|
Earnings from continuing operations
|
$
|
49,098
|
|
40,802
|
|
|
|
Less: Distributed and undistributed earnings allocated to nonvested stock
|
(255
|
)
|
(403
|
)
|
||
|
Earnings from continuing operations available to common shareholders — Diluted
|
$
|
48,843
|
|
40,399
|
|
|
|
Weighted average common shares outstanding — Basic
|
52,660
|
|
50,958
|
|
||
|
Effect of dilutive equity awards
|
463
|
|
435
|
|
||
|
Weighted average common shares outstanding — Diluted
|
53,123
|
|
51,393
|
|
||
|
Earnings from continuing operations per common share — Diluted
|
$
|
0.92
|
|
0.79
|
|
|
|
Anti-dilutive equity awards not included above
|
215
|
|
1,413
|
|
||
9
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(F) REVENUE EARNING EQUIPMENT
|
|
March 31, 2014
|
December 31, 2013
|
|||||||||||||||||
|
|
Cost
|
Accumulated
Depreciation
|
Net Book
Value
(1)
|
Cost
|
Accumulated
Depreciation
|
Net Book
Value
(1)
|
|||||||||||||
|
|
(In thousands)
|
||||||||||||||||||
|
Held for use:
|
|||||||||||||||||||
|
Full service lease
|
$
|
7,579,461
|
|
(2,531,559
|
)
|
5,047,902
|
|
$
|
7,436,093
|
|
(2,537,077
|
)
|
4,899,016
|
|
|||||
|
Commercial rental
|
2,309,828
|
|
(781,005
|
)
|
1,528,823
|
|
2,210,863
|
|
(747,283
|
)
|
1,463,580
|
|
|||||||
|
Held for sale
|
385,718
|
|
(274,467
|
)
|
111,251
|
|
439,983
|
|
(311,742
|
)
|
128,241
|
|
|||||||
|
Total
|
$
|
10,275,007
|
|
(3,587,031
|
)
|
6,687,976
|
|
$
|
10,086,939
|
|
(3,596,102
|
)
|
6,490,837
|
|
|||||
————————————
|
(1)
|
Revenue earning equipment, net includes vehicles acquired under capital leases of
$53.9 million
, less accumulated depreciation of
$22.7 million
, at
March 31, 2014
, and
$54.2 million
, less accumulated depreciation of
$22.0 million
, at
December 31, 2013
.
|
At the end of 2013, we completed our annual review of residual values and useful lives of revenue earning equipment. Based on the results of our analysis, we adjusted the estimated residual values of certain classes of revenue earning equipment effective January 1, 2014. The change in estimated residual values and useful lives increased pre-tax earnings for the
three months ended
March 31, 2014
by approximately
$6.3 million
.
We lease revenue earning equipment to customers for periods typically ranging from
three
to
seven
years for trucks and tractors and up to
ten
years for trailers. 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. As of
March 31, 2014
and
December 31, 2013
, the net investment in direct financing and sales-type leases was
$407.8 million
and
$400.1 million
, respectively. 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 upon signing of a full service lease contract. 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.
As of
March 31, 2014
and
December 31, 2013
, the amount of direct financing lease receivables which were past due was not significant, and there were no impaired receivables. Accordingly, we do not believe there is a material risk of default with respect to the direct financing lease receivables. The allowance for credit losses was
$0.4 million
and
$0.5 million
as of
March 31, 2014
and
December 31, 2013
, respectively.
(G) GOODWILL
The carrying amount of goodwill attributable to each reportable business segment with changes therein was as follows:
|
Fleet
Management
Solutions
|
Supply
Chain
Solutions
|
Total
|
|||||||
|
|
(In thousands)
|
||||||||
|
Balance at January 1, 2014:
|
|||||||||
|
Goodwill
|
$
|
223,204
|
|
189,736
|
|
412,940
|
|
||
|
Accumulated impairment losses
|
(10,322
|
)
|
(18,899
|
)
|
(29,221
|
)
|
|||
|
212,882
|
|
170,837
|
|
383,719
|
|
||||
|
Foreign currency translation adjustments
|
(202
|
)
|
(317
|
)
|
(519
|
)
|
|||
|
Balance at March 31, 2014:
|
|||||||||
|
Goodwill
|
223,002
|
|
189,419
|
|
412,421
|
|
|||
|
Accumulated impairment losses
|
(10,322
|
)
|
(18,899
|
)
|
(29,221
|
)
|
|||
|
$
|
212,680
|
|
170,520
|
|
383,200
|
|
|||
10
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(H) ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
March 31, 2014
|
December 31, 2013
|
||||||||||||||||
|
|
Accrued
Expenses
|
Non-Current
Liabilities
|
Total
|
Accrued
Expenses
|
Non-Current
Liabilities
|
Total
|
||||||||||||
|
|
(In thousands)
|
|||||||||||||||||
|
Salaries and wages
|
$
|
69,064
|
|
—
|
|
69,064
|
|
106,281
|
|
—
|
|
106,281
|
|
|||||
|
Deferred compensation
|
2,790
|
|
32,097
|
|
34,887
|
|
2,505
|
|
31,896
|
|
34,401
|
|
||||||
|
Other employee benefits
|
4,646
|
|
4,200
|
|
8,846
|
|
3,809
|
|
6,712
|
|
10,521
|
|
||||||
|
Pension benefits
|
3,582
|
|
293,074
|
|
296,656
|
|
3,660
|
|
292,155
|
|
295,815
|
|
||||||
|
Other postretirement benefits
|
2,405
|
|
28,200
|
|
30,605
|
|
2,414
|
|
28,374
|
|
30,788
|
|
||||||
|
Insurance obligations
(1)
|
130,734
|
|
187,307
|
|
318,041
|
|
125,835
|
|
186,700
|
|
312,535
|
|
||||||
|
Accrued rent
|
7,198
|
|
2,721
|
|
9,919
|
|
4,373
|
|
3,372
|
|
7,745
|
|
||||||
|
Environmental liabilities
|
4,416
|
|
8,853
|
|
13,269
|
|
4,515
|
|
8,548
|
|
13,063
|
|
||||||
|
Asset retirement obligations
|
5,851
|
|
19,834
|
|
25,685
|
|
6,144
|
|
19,403
|
|
25,547
|
|
||||||
|
Operating taxes
|
100,519
|
|
—
|
|
100,519
|
|
94,188
|
|
—
|
|
94,188
|
|
||||||
|
Income taxes
|
2,566
|
|
24,682
|
|
27,248
|
|
2,623
|
|
23,813
|
|
26,436
|
|
||||||
|
Interest
|
25,600
|
|
—
|
|
25,600
|
|
33,654
|
|
—
|
|
33,654
|
|
||||||
|
Deposits, mainly from customers
|
56,156
|
|
6,240
|
|
62,396
|
|
55,854
|
|
6,239
|
|
62,093
|
|
||||||
|
Deferred revenue
|
15,013
|
|
—
|
|
15,013
|
|
15,123
|
|
—
|
|
15,123
|
|
||||||
|
Other
|
35,457
|
|
10,073
|
|
45,530
|
|
35,359
|
|
9,093
|
|
44,452
|
|
||||||
|
Total
|
$
|
465,997
|
|
617,281
|
|
1,083,278
|
|
496,337
|
|
616,305
|
|
1,112,642
|
|
|||||
————————————
(1) Insurance obligations are primarily comprised of self-insured claim liabilities.
(I) INCOME TAXES
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 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. We reevaluate uncertain tax positions each quarter based on factors including, but not limited to, changes in facts or circumstances, expiration of statutes of limitations, changes in tax law, effectively settled issues under audit, and new audit activity. Depending on the jurisdiction, such a change in recognition or measurement may result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
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 2008.
State
— for the majority of states, tax returns are closed through fiscal year 2008.
Foreign
— we are no longer subject to foreign tax examinations by tax authorities for tax years before 2006 in Canada, 2009 in Brazil, 2008 in Mexico and 2011 in the U.K., which are our major foreign tax jurisdictions. Refer to Note (C), “Discontinued Operations,” for further discussion on various assessments related to our former South American operations.
At
March 31, 2014
and
December 31, 2013
, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was
$57.8 million
and
$56.8 million
, respectively. Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by
$2.7 million
by March 31, 2015, if audits are completed or tax years close.
11
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Like-Kind Exchange Program
We have a like-kind exchange program for certain of our U.S.-based revenue earning equipment. 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 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, and a decrease in cash taxes in periods when we are not in a net operating loss (NOL) position. 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. These proceeds are classified as restricted cash, which is included 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. 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 Condensed Financial Statements in accordance with U.S. GAAP. The total assets, primarily revenue earning equipment, and the total liabilities, primarily vehicle accounts payable, held by these consolidated entities are equal in value as these entities are solely structured to facilitate the like-kind exchanges. At
March 31, 2014
and
December 31, 2013
, these consolidated entities had total assets, primarily revenue earning equipment, and total liabilities, primarily accounts payable of
$249.2 million
and
$246.3 million
, respectively.
In the
first
quarter of
2013
, once we had completed a restructuring of the administrative processes for purchasing and selling vehicles, we reinstated our like-kind exchange program. The reinstated program operates, and will provide cash tax benefits, in the same manner as it did prior to suspension once we are no longer in a NOL position. Our cash flow declined
$19.0 million
in the first quarter of
2013
as a result of the program's restricted cash. There were no other impacts to cash flow as a result of the program's reinstatement.
Effective Tax Rate
Our effective income tax rate from continuing operations for the
first
quarter of
2014
was
34.5%
compared with
34.7%
in the same period of the prior year. The decrease in our effective tax rate in the first quarter of
2014
reflects a benefit from a tax law change in the state of New York partially offset by a higher proportionate amount of
2014
earnings in higher tax rate jurisdictions.
On March 31, 2014, the State of New York enacted changes to its tax system, which impacted net operating loss provisions and reduced the corporate income tax rate from
7.1%
to
6.5%
. The impact of these changes resulted in a non-cash benefit to deferred income taxes of
$1.8 million
.
12
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(J) DEBT
|
|
Weighted-Average
Interest Rate
|
|
|
|
||||||||
|
|
March 31,
2014 |
December 31,
2013 |
Maturities
|
March 31,
2014 |
December 31,
2013 |
|||||||
|
|
|
|
|
(In thousands)
|
||||||||
|
Short-term debt and current portion of long-term debt:
|
||||||||||||
|
Short-term debt
|
1.02%
|
1.70%
|
2014
|
$
|
1,590
|
|
1,315
|
|
||||
|
Current portion of long-term debt, including capital leases
|
399,256
|
|
258,123
|
|
||||||||
|
Total short-term debt and current portion of long-term debt
|
400,846
|
|
259,438
|
|
||||||||
|
Long-term debt:
|
||||||||||||
|
U.S. commercial paper
(1)
|
0.26%
|
0.28%
|
2018
|
640,940
|
|
486,939
|
|
|||||
|
Canadian commercial paper
(1)
|
—%
|
1.13%
|
2018
|
—
|
|
11,297
|
|
|||||
|
Global revolving credit facility
|
3.00%
|
—%
|
2018
|
16,290
|
|
—
|
|
|||||
|
Unsecured U.S. notes — Medium-term notes
(1)
|
3.44%
|
3.76%
|
2015-2025
|
3,371,707
|
|
3,271,734
|
|
|||||
|
Unsecured U.S. obligations, principally bank term loans
|
1.45%
|
1.45%
|
2015-2018
|
55,500
|
|
55,500
|
|
|||||
|
Unsecured foreign obligations
|
1.99%
|
1.99%
|
2015-2016
|
315,681
|
|
315,558
|
|
|||||
|
Capital lease obligations
|
3.78%
|
3.81%
|
2014-2019
|
38,701
|
|
38,911
|
|
|||||
|
Total before fair market value adjustment
|
4,438,819
|
|
4,179,939
|
|
||||||||
|
Fair market value adjustment on notes subject to hedging
(2)
|
6,188
|
|
8,171
|
|
||||||||
|
4,445,007
|
|
4,188,110
|
|
|||||||||
|
Current portion of long-term debt, including capital leases
|
(399,256
|
)
|
(258,123
|
)
|
||||||||
|
Long-term debt
|
4,045,751
|
|
3,929,987
|
|
||||||||
|
Total debt
|
$
|
4,446,597
|
|
4,189,425
|
|
|||||||
————————————
|
(1)
|
We had unamortized original issue discounts of
$8.4 million
and
$8.3 million
at
March 31, 2014
and
December 31, 2013
, respectively.
|
|
(2)
|
The notional amount of executed interest rate swaps designated as fair value hedges was
$500 million
and
$400 million
at
March 31, 2014
and
December 31, 2013
, respectively.
|
We maintain a
$900 million
global revolving credit facility with a syndicate of
twelve
lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Mizuho Corporate Bank, Ltd., Royal Bank of Canada, Royal Bank of Scotland Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. The global credit facility matures in October 2018. The global facility is used primarily to finance working capital but 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
March 31, 2014
). 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
8.0
basis points to
27.5
basis points and are based on Ryder’s long-term credit ratings. This annual facility fee is
12.5
basis points, which applies to the total facility size of
$900 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 net worth of
less than or equal to 300%
. Net worth, as defined in the credit facility, represents shareholders' equity excluding any accumulated other comprehensive income or loss associated with our pension and other postretirement plans. The ratio at
March 31, 2014
was
188%
. At
March 31, 2014
,
$242.7 million
was available under the credit facility.
Our global revolving credit facility enables us to refinance short-term 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
March 31, 2014
and
December 31, 2013
, we classified
$640.9 million
and
$498.2 million
, respectively, of short-term commercial paper as long-term debt.
13
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
In February 2014, we issued
$350 million
of unsecured medium-term notes maturing in June 2019. The proceeds from the notes were used to pay down commercial paper and for general corporate purposes. If the notes are downgraded following, and as a result of, a change in control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to
101% of principal plus accrued and unpaid interest
.
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 24, 2014. 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
March 31, 2014
and
December 31, 2013
,
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.
At
March 31, 2014
and
December 31, 2013
, we had letters of credit and surety bonds outstanding totaling
$308.9 million
and
$310.5 million
, respectively, which primarily guarantee the payment of insurance claims.
14
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(K) 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:
|
|
Balance Sheet Location
|
Fair Value Measurements
At March 31, 2014 Using
|
Total
|
|||||||||||
|
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||
|
|
|
(In thousands)
|
||||||||||||
|
Assets:
|
||||||||||||||
|
Interest rate swaps
|
Prepaid expenses and other current assets
|
$
|
—
|
|
2,509
|
|
—
|
|
2,509
|
|
||||
|
Interest rate swaps
|
DFL and other assets
|
—
|
|
5,625
|
|
—
|
|
5,625
|
|
|||||
|
Investments held in Rabbi Trusts:
|
||||||||||||||
|
Cash and cash equivalents
|
3,719
|
|
—
|
|
—
|
|
3,719
|
|
||||||
|
U.S. equity mutual funds
|
20,005
|
|
—
|
|
—
|
|
20,005
|
|
||||||
|
Foreign equity mutual funds
|
4,383
|
|
—
|
|
—
|
|
4,383
|
|
||||||
|
Fixed income mutual funds
|
5,000
|
|
—
|
|
—
|
|
5,000
|
|
||||||
|
Investments held in Rabbi Trusts
|
DFL and other assets
|
33,107
|
|
—
|
|
—
|
|
33,107
|
|
|||||
|
Total assets at fair value
|
$
|
33,107
|
|
8,134
|
|
—
|
|
41,241
|
|
|||||
|
Liabilities:
|
||||||||||||||
|
Interest rate swaps
|
Other non-current liabilities
|
$
|
—
|
|
1,946
|
|
—
|
|
1,946
|
|
||||
|
Total liabilities at fair value
|
$
|
—
|
|
1,946
|
|
—
|
|
1,946
|
|
|||||
|
|
Balance Sheet Location
|
Fair Value Measurements
At December 31, 2013 Using
|
Total
|
|||||||||||
|
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||
|
|
|
(In thousands)
|
||||||||||||
|
Assets:
|
||||||||||||||
|
Interest rate swaps
|
DFL and other assets
|
—
|
|
9,333
|
|
—
|
|
9,333
|
|
|||||
|
Investments held in Rabbi Trusts:
|
||||||||||||||
|
Cash and cash equivalents
|
7,101
|
|
—
|
|
—
|
|
7,101
|
|
||||||
|
U.S. equity mutual funds
|
16,479
|
|
—
|
|
—
|
|
16,479
|
|
||||||
|
Foreign equity mutual funds
|
4,323
|
|
—
|
|
—
|
|
4,323
|
|
||||||
|
Fixed income mutual funds
|
4,616
|
|
—
|
|
—
|
|
4,616
|
|
||||||
|
Investments held in Rabbi Trusts
|
DFL and other assets
|
32,519
|
|
—
|
|
—
|
|
32,519
|
|
|||||
|
Total assets at fair value
|
$
|
32,519
|
|
9,333
|
|
—
|
|
41,852
|
|
|||||
|
Liabilities:
|
||||||||||||||
|
Interest rate swaps
|
Other non-current liabilities
|
$
|
—
|
|
1,162
|
|
—
|
|
1,162
|
|
||||
|
Total liabilities at fair value
|
$
|
—
|
|
1,162
|
|
—
|
|
1,162
|
|
|||||
The following is a description of the valuation methodologies used for these items, as well as the level of inputs used to measure fair value:
Interest rate swaps
— The derivatives are pay-variable, receive-fixed interest rate swaps based on the LIBOR rate and are designated as fair value hedges. Fair value was based on a model-driven income approach using the LIBOR rate at each interest payment date, which was observable at commonly quoted intervals for the full term of the swaps. Therefore, our interest rate swaps were classified within Level 2 of the fair value hierarchy.
Investments held in Rabbi Trusts
— The investments primarily include mutual funds that invest in equity and fixed income securities. Shares of mutual funds were valued based on quoted market prices, which represent the net asset value of the shares and were therefore classified within Level 1 of the fair value hierarchy.
15
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
The following tables present our assets and liabilities that are measured at fair value on a nonrecurring basis and the levels of inputs used to measure fair value:
|
|
Fair Value Measurements
At March 31, 2014 Using
|
Total Losses
(2)
|
|||||||||||
|
|
Level 1
|
Level 2
|
Level 3
|
Three months ended
|
|||||||||
|
|
(In thousands)
|
||||||||||||
|
Assets held for sale:
|
|||||||||||||
|
Revenue earning equipment:
(1)
|
|||||||||||||
|
Trucks
|
$
|
—
|
|
—
|
|
11,928
|
|
$
|
1,882
|
|
|||
|
Tractors
|
—
|
|
—
|
|
7,495
|
|
1,632
|
|
|||||
|
Trailers
|
—
|
|
—
|
|
742
|
|
161
|
|
|||||
|
Total assets at fair value
|
$
|
—
|
|
—
|
|
20,165
|
|
$
|
3,675
|
|
|||
|
|
Fair Value Measurements
At March 31, 2013 Using
|
Total Losses
(2)
|
|||||||||||
|
|
Level 1
|
Level 2
|
Level 3
|
Three months
ended
|
|||||||||
|
|
(In thousands)
|
||||||||||||
|
Assets held for sale:
|
|||||||||||||
|
Revenue earning equipment
(1)
|
|||||||||||||
|
Trucks
|
$
|
—
|
|
—
|
|
13,229
|
|
$
|
3,029
|
|
|||
|
Tractors
|
—
|
|
—
|
|
14,943
|
|
1,095
|
|
|||||
|
Trailers
|
—
|
|
—
|
|
989
|
|
597
|
|
|||||
|
Total assets at fair value
|
$
|
—
|
|
—
|
|
29,161
|
|
$
|
4,721
|
|
|||
————————————
|
(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 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 “Other operating expenses” in the Consolidated Condensed 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.
Fair value of total debt (excluding capital lease obligations) at
March 31, 2014
and
December 31, 2013
was approximately
$4.45 billion
and
$4.28 billion
, respectively. For publicly-traded debt, estimates of fair value were based on market prices. Since our publicly-traded debt is not actively traded, the fair value measurement was classified within Level 2 of the fair value hierarchy. For other debt, fair value was estimated based on a model-driven approach using rates currently available to us for debt with similar terms and remaining maturities. Therefore, the fair value measurement of our other debt was classified within Level 2 of the fair value hierarchy. The carrying amounts reported in the Consolidated Condensed Balance Sheets for “Cash and cash equivalents,” “Receivables, net” and “Accounts payable” approximate fair value because of the immediate or short-term maturities of these financial instruments.
16
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(L) DERIVATIVES
We have interest rate swaps outstanding which are designated as fair value hedges 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 following table provides a detail of the swaps outstanding and the related hedged items as of
March 31, 2014
:
|
|
Maturity date
|
Face value of medium-term notes
|
Aggregate
notional
amount of interest rate swaps |
Fixed interest
rate
|
Weighted-average variable
interest rate on hedged debt
as of March 31,
|
|||||||
|
Issuance date
|
2014
|
2013
|
||||||||||
|
|
|
(Dollars in thousands)
|
|
|
|
|||||||
|
February 2011
|
March 2015
|
$350,000
|
$150,000
|
3.15%
|
1.28%
|
1.41%
|
||||||
|
May 2011
|
June 2017
|
$350,000
|
$150,000
|
3.50%
|
1.44%
|
1.62%
|
||||||
|
November 2013
|
November 2018
|
$300,000
|
$100,000
|
2.45%
|
1.19%
|
—%
|
||||||
|
February 2014
|
June 2019
|
$350,000
|
$100,000
|
2.55%
|
1.10%
|
—%
|
||||||
Changes in the fair value of our interest rate swaps are offset by changes in the fair value of the debt instrument. Accordingly, there is no ineffectiveness related to the interest rate swaps. The location and amount of gains (losses) on interest rate swap agreements designated as fair value hedges and related hedged items reported in the Consolidated Condensed Statements of Earnings were as follows:
|
Fair Value Hedging Relationship
|
Location of
Gain (Loss)
Recognized in Income
|
Three months ended March 31,
|
|||||||
|
2014
|
2013
|
||||||||
|
|
|
(In thousands)
|
|||||||
|
Derivatives: Interest rate swaps
|
Interest expense
|
$
|
(1,983
|
)
|
(2,781
|
)
|
|||
|
Hedged items: Fixed-rate debt
|
Interest expense
|
1,983
|
|
2,781
|
|
||||
|
Total
|
$
|
—
|
|
—
|
|
||||
Refer to Note (K), “Fair Value Measurements,” for disclosures of the fair value and line item caption of derivative instruments recorded on the Consolidated Condensed Balance Sheets.
(M) SHARE REPURCHASE PROGRAMS
In December 2013, 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 2013 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, 2013 through December 31, 2015. The December 2013 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 prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2013 program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the
three months ended
March 31, 2014
, we repurchased and retired
562,683
shares under the program at an aggregate cost of
$40.4 million
. We did not repurchase any shares under this program in 2013.
In December 2011, 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 2011 program, management was 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, 2011 through December 13, 2013. The December 2011 program limited aggregate share repurchases to no more than
2 million
shares of Ryder common stock. In 2013, we temporarily paused our anti-dilutive share repurchase program to appropriately manage our leverage and to allow us to maintain near-term balance sheet flexibility.
17
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(N) ACCUMULATED OTHER COMPREHENSIVE LOSS
The following summaries set forth the components of accumulated other comprehensive loss, net of tax:
|
Currency
Translation
Adjustments and Other
|
Net Actuarial
Loss
(1)
|
Prior Service
Credit
(1)
|
Accumulated
Other
Comprehensive
Loss
|
||||||||||
|
|
(In thousands)
|
||||||||||||
|
December 31, 2013
|
$
|
35,875
|
|
(477,883
|
)
|
3,760
|
|
(438,248
|
)
|
||||
|
Amortization
|
—
|
|
3,807
|
|
(680
|
)
|
3,127
|
|
|||||
|
Current period change
|
(14,592
|
)
|
—
|
|
—
|
|
(14,592
|
)
|
|||||
|
March 31, 2014
|
$
|
21,283
|
|
(474,076
|
)
|
3,080
|
|
(449,713
|
)
|
||||
|
Currency
Translation Adjustments and Other |
Net Actuarial
Loss
(1)
|
Prior Service
Credit
(1)
|
Accumulated
Other
Comprehensive
Loss
|
||||||||||
|
|
(In thousands)
|
||||||||||||
|
December 31, 2012
|
$
|
57,860
|
|
(648,113
|
)
|
2,634
|
|
(587,619
|
)
|
||||
|
Amortization
|
—
|
|
5,754
|
|
(335
|
)
|
5,419
|
|
|||||
|
Current period change
|
(33,704
|
)
|
—
|
|
—
|
|
(33,704
|
)
|
|||||
|
March 31, 2013
|
$
|
24,156
|
|
(642,359
|
)
|
2,299
|
|
(615,904
|
)
|
||||
_______________________
|
(1)
|
These amounts are included in the computation of net periodic pension cost. See Note (O), "Employee Benefit Plans," for further information.
|
(O) EMPLOYEE BENEFIT PLANS
Components of net periodic benefit cost were as follows:
|
Pension Benefits
|
Postretirement Benefits
|
||||||||||||
|
Three months ended March 31,
|
|||||||||||||
|
|
2014
|
2013
|
2014
|
2013
|
|||||||||
|
|
(In thousands)
|
||||||||||||
|
Company-administered plans:
|
|||||||||||||
|
Service cost
|
$
|
3,423
|
|
4,252
|
|
$
|
135
|
|
263
|
|
|||
|
Interest cost
|
25,561
|
|
22,419
|
|
365
|
|
395
|
|
|||||
|
Expected return on plan assets
|
(28,718
|
)
|
(26,448
|
)
|
—
|
|
—
|
|
|||||
|
Amortization of:
|
|||||||||||||
|
Net actuarial loss (credit)
|
6,235
|
|
8,880
|
|
(129
|
)
|
(2
|
)
|
|||||
|
Prior service credit
|
(458
|
)
|
(466
|
)
|
(615
|
)
|
(58
|
)
|
|||||
|
6,043
|
|
8,637
|
|
(244
|
)
|
598
|
|
||||||
|
Union-administered plans
|
2,091
|
|
1,984
|
|
—
|
|
—
|
|
|||||
|
Net periodic benefit cost
|
$
|
8,134
|
|
10,621
|
|
$
|
(244
|
)
|
598
|
|
|||
|
Company-administered plans:
|
|||||||||||||
|
U.S.
|
$
|
6,287
|
|
8,741
|
|
$
|
(397
|
)
|
406
|
|
|||
|
Non-U.S.
|
(244
|
)
|
(104
|
)
|
153
|
|
192
|
|
|||||
|
6,043
|
|
8,637
|
|
(244
|
)
|
598
|
|
||||||
|
Union-administered plans
|
2,091
|
|
1,984
|
|
—
|
|
—
|
|
|||||
|
$
|
8,134
|
|
10,621
|
|
$
|
(244
|
)
|
598
|
|
||||
During the
three months ended
March 31, 2014
, we contributed
$4.3 million
to our pension plans. In 2014, we expect total contributions to our pension plans to be approximately
$75 million
.
18
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(P) 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. We believe that excluding these items from our segment measure of performance allows for better comparison of results.
During the
three months ended
March 31, 2013
, we recognized a benefit of
$1.9 million
(before and after tax) from the recognition of the accumulated currency translation adjustment from a FMS foreign operation which has substantially liquidated its net assets. This benefit was recorded within “Miscellaneous income, net” in our Consolidated Condensed Statement of Earnings.
(Q) SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information was as follows:
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Interest paid
|
$
|
41,180
|
|
45,425
|
|
|
|
Income taxes paid
|
1,534
|
|
3,721
|
|
||
|
Changes in accounts payable related to purchases of revenue earning equipment
|
16,918
|
|
29,381
|
|
||
|
Operating and revenue earning equipment acquired under capital leases
|
2,245
|
|
458
|
|
||
During the
three months ended
March 31, 2014
and
2013
, we paid
$1.6 million
and
$1.4 million
, respectively, related to acquisitions completed in prior years.
(R) MISCELLANEOUS INCOME, NET
|
|
Three months ended March 31,
|
|||||
|
2014
|
2013
|
|||||
|
(In thousands)
|
||||||
|
Contract settlement
|
$
|
2,908
|
|
—
|
|
|
|
Gains on sales of operating property and equipment
|
1,304
|
|
273
|
|
||
|
Foreign currency translation benefit
(1)
|
—
|
|
1,904
|
|
||
|
Rabbi trust investment income
|
500
|
|
1,459
|
|
||
|
Other, net
|
670
|
|
934
|
|
||
|
Total
|
$
|
5,382
|
|
4,570
|
|
|
————————————
(1) Refer to Note (P), "Other Items Impacting Comparability," for additional information.
19
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(S) 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 two 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.; and (2) SCS, which provides comprehensive supply chain management solutions including distribution and transportation services in North America and Asia. The SCS segment also provides dedicated services, which includes vehicles and drivers as part of a dedicated transportation solution in the U.S.
Our primary measurement of segment financial performance, defined as “Earnings Before Tax” (EBT) from continuing operations, includes an allocation of Central Support Services (CSS) and excludes non-operating pension costs, restructuring and other charges, net and the items discussed in Note (P), “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, marketing and corporate communications. The objective of the EBT 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.
Our FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to the SCS segment. Inter-segment revenue and EBT are accounted for at rates similar to those executed with third parties. EBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in both FMS and SCS and then eliminated (presented as “Eliminations”).
The following tables set forth financial information for each of our business segments and provides a reconciliation between segment EBT and earnings from continuing operations before income taxes for the
three months ended
March 31, 2014
and
2013
. 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.
20
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
|
FMS
|
SCS
|
Eliminations
|
Total
|
||||||||||
|
|
(In thousands)
|
|
|||||||||||
|
For the three months ended March 31, 2014
|
|||||||||||||
|
Revenue from external customers
|
$
|
1,013,396
|
|
597,341
|
|
—
|
|
1,610,737
|
|
||||
|
Inter-segment revenue
|
121,691
|
|
—
|
|
(121,691
|
)
|
—
|
|
|||||
|
Total revenue
|
$
|
1,135,087
|
|
597,341
|
|
(121,691
|
)
|
1,610,737
|
|
||||
|
Segment EBT
|
$
|
76,991
|
|
21,784
|
|
(9,628
|
)
|
89,147
|
|
||||
|
Unallocated CSS
|
(10,829
|
)
|
|||||||||||
|
Non-operating pension costs
|
(3,314
|
)
|
|||||||||||
|
Earnings from continuing operations before income taxes
|
$
|
75,004
|
|
||||||||||
|
Segment capital expenditures paid
(1), (2)
|
$
|
568,239
|
|
3,872
|
|
—
|
|
572,111
|
|
||||
|
Unallocated CSS
|
6,611
|
|
|||||||||||
|
Capital expenditures paid
|
$
|
578,722
|
|
||||||||||
|
For the three months ended March 31, 2013
|
|||||||||||||
|
Revenue from external customers
|
$
|
986,538
|
|
576,479
|
|
—
|
|
1,563,017
|
|
||||
|
Inter-segment revenue
|
113,194
|
|
—
|
|
(113,194
|
)
|
—
|
|
|||||
|
Total revenue
|
$
|
1,099,732
|
|
576,479
|
|
(113,194
|
)
|
1,563,017
|
|
||||
|
Segment EBT
|
$
|
60,745
|
|
24,436
|
|
(7,958
|
)
|
77,223
|
|
||||
|
Unallocated CSS
|
(11,375
|
)
|
|||||||||||
|
Non-operating pension costs
|
(5,244
|
)
|
|||||||||||
|
Restructuring and other charges, net and other items
|
1,904
|
|
|||||||||||
|
Earnings from continuing operations before income taxes
|
$
|
62,508
|
|
||||||||||
|
Segment capital expenditures paid
(1), (2)
|
$
|
406,511
|
|
5,800
|
|
—
|
|
412,311
|
|
||||
|
Unallocated CSS
|
7,743
|
|
|||||||||||
|
Capital expenditures paid
|
$
|
420,054
|
|
||||||||||
————————————
|
(1)
|
Excludes revenue earning equipment acquired under capital leases.
|
|
(2)
|
Excludes acquisition payments of
$1.6 million
and
$1.4 million
during the three months ended
March 31, 2014
, and 2013, respectively.
|
21
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(T) OTHER MATTERS
We are a party to various claims, complaints and proceedings arising in the ordinary course of our continuing business operations including but not limited to those relating to commercial and employment claims, 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. For matters from continuing operations where a reserve has not been established and for which we believe a loss is reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, we believe that such losses will not have a material effect on our consolidated financial statements.
Our estimates regarding potential losses and materiality are based on our judgment and assessment of the claims utilizing currently available information. Although we will continue to reassess our reserves and estimates based on future developments, our objective assessment of the legal merits of such claims may not always be predictive of the outcome and actual results may vary from our current estimates.
Refer to Note (C), “Discontinued Operations,” for additional matters.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the unaudited Consolidated Condensed Financial Statements and notes thereto included under Item 1. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the
2013
Annual Report on Form 10-K.
Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We operate in two 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.; and (2) SCS, which provides comprehensive supply chain management solutions including distribution and transportation services in North America and Asia. The SCS segment also provides dedicated services, which includes vehicles and drivers as part of a dedicated transportation solution in the U.S.
We 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, industrial, food and beverage service, consumer packaged goods, transportation and warehousing, hi-tech and electronics, retail, housing, business and personal services, and paper and publishing.
Total revenue increased
3%
in the
first
quarter of
2014
to
$1.61 billion
. Operating revenue (revenue excluding FMS fuel and all subcontracted transportation) increased
4%
in the
first
quarter of
2014
to
$1.32 billion
. The increase in total and operating revenue for both periods was driven by growth in both the FMS and SCS business segments. See “Consolidated Results” for further discussion of operating revenue, a non-GAAP financial measure.
Earnings from continuing operations before taxes (EBT) increased
20%
in the
first
quarter of
2014
to
$75.0 million
. The increase in EBT in the
first
quarter of
2014
reflects improved performance in the FMS business segment.
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
EBT, earnings and EPS from continuing operations in the first quarter of
2014
and
2013
included certain items we do not consider indicative of our ongoing operations and have been excluded from our comparable EBT, earnings and EPS measures. The following discussion provides a summary of these items, which are discussed in more detail throughout our MD&A and within the Notes to Consolidated Condensed Financial Statements:
|
EBT
|
Earnings
|
Diluted EPS
|
||||||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
2014
|
2013
|
|||||||||||||||
|
Three months ended March 31
|
(In thousands, except per share amounts)
|
|||||||||||||||||||
|
EBT/Earnings/EPS
|
$
|
75,004
|
|
62,508
|
|
$
|
49,098
|
|
40,802
|
|
$
|
0.92
|
|
0.79
|
|
|||||
|
Non-operating pension costs
(1)
|
3,314
|
|
5,244
|
|
1,888
|
|
3,081
|
|
0.03
|
|
0.06
|
|
||||||||
|
Foreign currency translation benefit
(2)
|
—
|
|
(1,904
|
)
|
—
|
|
(1,904
|
)
|
—
|
|
(0.04
|
)
|
||||||||
|
Benefit from tax law change
(3)
|
—
|
|
—
|
|
(1,776
|
)
|
—
|
|
(0.03
|
)
|
—
|
|
||||||||
|
Comparable
(4)
|
$
|
78,318
|
|
65,848
|
|
$
|
49,210
|
|
41,979
|
|
$
|
0.92
|
|
|
0.81
|
|
||||
__________________
|
(1)
|
Includes the amortization of actuarial loss, interest cost and expected return on plan assets components of pension and postretirement costs, which are tied to financial market performance. We consider these costs to be outside the operational performance of the business.
|
|
(2)
|
See Note (P), "Other Items Impacting Comparability," for additional information.
|
|
(3)
|
See Note (I), "Income Taxes," for additional information.
|
|
(4)
|
Non-GAAP financial measure. We believe comparable EBT, comparable earnings and comparable earnings per diluted common share all from continuing operations measures provide useful information to investors because they exclude non-operating pension costs, which we consider to be those impacted by financial market performance and outside the operational performance of the business, and other significant items that are unrelated to our ongoing business operations.
|
Excluding the special items listed above, comparable earnings and comparable EPS from continuing operations in the
first
quarter of
2014
increased
17%
to
$49.2 million
and increased
14%
to
$0.92
per diluted common share, respectively. EBT growth exceeded the EPS growth during the first quarter of
2014
because the average number of shares outstanding has increased 3% over prior year reflecting the impact of stock issuances under employee stock option and stock purchase plans.
In the
first
quarter of
2014
, net earnings and EPS increased
21%
to
$48.2 million
and
17%
to
$0.90
per diluted common share, respectively. Net earnings in the
first
quarter of
2014
and
2013
were negatively impacted by losses from discontinued operations of
$0.9 million
, or
$0.02
per diluted share in both periods.
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
CONSOLIDATED RESULTS
|
|
Three months ended March 31,
|
Change
|
||||||
|
|
2014
|
2013
|
2014/2013
|
|||||
|
|
(In thousands, except per share amounts)
|
|
||||||
|
Total revenue
|
$
|
1,610,737
|
|
1,563,017
|
|
3%
|
||
|
Operating revenue
(1)
|
1,322,478
|
|
1,267,521
|
|
4%
|
|||
|
EBT
|
$
|
75,004
|
|
62,508
|
|
20%
|
||
|
Earnings from continuing operations
|
49,098
|
|
40,802
|
|
20%
|
|||
|
Net earnings
|
48,232
|
|
39,924
|
|
21%
|
|||
|
Earnings per common share — Diluted
|
||||||||
|
Continuing operations
|
$
|
0.92
|
|
0.79
|
|
16%
|
||
|
Net earnings
|
0.90
|
|
0.77
|
|
17%
|
|||
————————————
|
(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, 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 rapid changes 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 is deducted from total revenue to arrive at operating revenue as subcontracted transportation is typically a pass-through to our customers. 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.
|
Revenue and Cost of Revenue by Source
Total revenue increased
3%
in the
first
quarter of
2014
to
$1.61 billion
. Operating revenue increased
4%
in the
first
quarter of
2014
to
$1.32 billion
. The increase in total and operating revenue reflects growth in both FMS and SCS. The FMS growth was primarily driven by higher lease and commercial rental revenue and the SCS growth was driven by new business and higher volumes.
Lease and Rental
|
Three months ended March 31,
|
Change
|
|||||||
|
2014
|
2013
|
2014/2013
|
||||||
|
(Dollars in thousands)
|
||||||||
|
Lease and rental revenues
|
$
|
689,682
|
|
659,708
|
|
5%
|
||
|
Cost of lease and rental
|
493,043
|
|
473,077
|
|
4%
|
|||
|
Gross margin
|
196,639
|
|
186,631
|
|
5%
|
|||
|
Gross margin %
|
29
|
%
|
28
|
%
|
||||
Lease and rental revenues represent full service lease and commercial rental product offerings within our FMS business segment. Revenues increased
5%
in the
first
quarter of
2014
to
$689.7 million
driven by full service lease fleet growth, higher prices on full service lease vehicles and increased commercial rental revenue. Commercial rental revenue increased due to higher rental pricing (up
5%
in the
first
quarter of
2014
) and North American demand.
Cost of lease and rental represents the direct costs related to lease and rental revenues. These costs are comprised of depreciation of revenue earning equipment, maintenance costs (primarily repair parts and labor), and other fixed costs such as licenses, insurance and operating taxes. Cost of lease and rental excludes interest costs from vehicle financing. Cost of lease and rental grew
4%
to
$493.0 million
in the
first
quarter of
2014
due to depreciation from increased lease vehicle investments and higher maintenance costs on a larger average lease fleet. Cost of lease and rental benefited by
$6.3 million
in the first quarter of
2014
from changes in the residual value policy effective January 1,
2014
.
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Lease and rental gross margin increased
5%
in the
first
quarter of
2014
to
$196.6 million
and lease and rental gross margin as a percentage of revenue increased to
29%
in the first quarter of
2014
. The increase was due to higher rental pricing and demand as well as benefits from depreciation policy changes.
Services
|
Three months ended March 31,
|
Change
|
|||||||
|
2014
|
2013
|
2014/2013
|
||||||
|
(Dollars in thousands)
|
||||||||
|
Services revenue
|
$
|
709,699
|
|
689,461
|
|
3%
|
||
|
Cost of services
|
606,229
|
|
583,589
|
|
4%
|
|||
|
Gross margin
|
103,470
|
|
105,872
|
|
(2)%
|
|||
|
Gross margin %
|
15
|
%
|
15
|
%
|
||||
Services revenue represents all the revenues associated with our SCS business segment as well as contract maintenance, contract-related maintenance and fleet support services associated with our FMS business segment. Services revenue increased
3%
in the
first
quarter of
2014
to
$709.7 million
primarily due to higher volumes and new business in our SCS business segment, especially in our dedicated services.
Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, SCS subcontracted transportation (purchased transportation from third parties) and maintenance costs. Cost of services increased
4%
in the
first
quarter of
2014
to
$606.2 million
primarily due to higher revenue and, to a lesser extent, downtime and other costs related to severe winter weather in our SCS business segment.
Services gross margin decreased
2%
to
$103.5 million
in the
first
quarter of
2014
primarily due to the impact of severe winter weather-related downtime and associated costs in SCS. Services gross margin as a percentage of revenue remained at
15%
in the
first
quarter of
2014
.
Fuel
|
Three months ended March 31,
|
Change
|
|||||||
|
2014
|
2013
|
2014/2013
|
||||||
|
(Dollars in thousands)
|
||||||||
|
Fuel services revenue
|
$
|
211,356
|
|
213,848
|
|
(1)%
|
||
|
Cost of fuel services
|
207,205
|
|
210,293
|
|
(1)%
|
|||
|
Gross margin
|
4,151
|
|
3,555
|
|
17%
|
|||
|
Gross margin %
|
2
|
%
|
2
|
%
|
||||
Fuel services revenue decreased
1%
in the
first
quarter of
2014
to
$211.4 million
due to lower fuel prices passed through to customers.
Cost of fuel services includes the direct costs associated with providing our customers with fuel. These costs include fuel, salaries and employee-related costs of fuel island attendants and depreciation of our fueling facilities and equipment. Cost of fuel decreased
1%
in the
first
quarter of
2014
to
$207.2 million
due to lower fuel services revenue.
Fuel services gross margin increased
17%
to
$4.2 million
in the
first
quarter of
2014
. Fuel is largely a pass-through to customers for which we realize minimal changes in margin during periods of steady market fuel prices. However, fuel services margin is impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel is established based on market fuel costs. Fuel service margin as a percent of revenue was unchanged in the first quarter of
2014
.
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
|
Three months ended March 31,
|
Change
|
|||||||
|
2014
|
2013
|
2014/2013
|
||||||
|
(In thousands)
|
||||||||
|
Other operating expenses
|
$
|
36,645
|
|
37,599
|
|
(3)%
|
||
Other operating expenses include costs related to our owned and leased facilities within the FMS business segment such as facility depreciation, rent, insurance, utilities and taxes. These facilities are utilized to provide maintenance to our lease, rental, contract maintenance, contract-related maintenance and on-demand customers. Other operating expenses also include the costs associated with used vehicle sales such as writedowns of used vehicles to fair market value and facilities costs. Other operating expenses decreased
3%
to
$36.6 million
in the
first
quarter of
2014
primarily due to a
$1.0 million
reduction in writedowns on vehicles held for sale and lower property insurance costs partially offset by higher maintenance costs for FMS facilities due to severe winter weather.
|
Three months ended March 31,
|
Change
|
||||
|
2014
|
2013
|
2014/2013
|
|||
|
(Dollars in thousands)
|
|||||
|
Selling, general and administrative expenses (SG&A)
|
$191,702
|
189,073
|
1%
|
||
|
Percentage of total revenue
|
12%
|
12%
|
|||
|
Percentage of operating revenue
|
14%
|
15%
|
|||
SG&A expenses rose
1%
to
$191.7 million
and as a percent of total revenue remained at
12%
in the
first
quarter of
2014
. The increase was driven by higher information technology and marketing-related costs. The increased costs in these areas were partially offset by lower pension expense. Pension expense, which primarily impacts SG&A expenses, decreased
$2.5 million
in the
first
quarter of
2014
reflecting higher than expected pension asset returns in
2013
and lower service costs.
|
Three months ended March 31,
|
Change
|
||||
|
2014
|
2013
|
2014/2013
|
|||
|
(In thousands)
|
|||||
|
Gains on vehicle sales, net
|
$28,818
|
23,006
|
25%
|
||
Gains on vehicle sales, net increased
25%
in the
first
quarter of
2014
to
$28.8 million
due to higher average proceeds per unit. Global average proceeds per unit increased
11%
in the
first
quarter of
2014
.
|
|
Three months ended March 31,
|
Change
|
|||
|
|
2014
|
2013
|
2014/2013
|
||
|
|
(Dollars in thousands)
|
|
|||
|
Interest expense
|
$35,109
|
34,454
|
2%
|
||
|
Effective interest rate
|
3.3%
|
3.6%
|
|||
Interest expense increased
2%
in the
first
quarter of
2014
to
$35.1 million
reflecting higher average outstanding debt partially offset by a lower effective interest rate. The lower effective interest rate in
2014
primarily reflects the replacement of higher interest rate debt with debt issuances at lower rates. The increase in average outstanding debt reflects planned higher vehicle capital spending.
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Miscellaneous income, net
|
$
|
5,382
|
|
4,570
|
|
|
Refer to Note (R), "Miscellaneous Income," in the Notes to Consolidated Condensed Financial Statements for a discussion of the components of miscellaneous income.
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
|
|
Three months ended March 31,
|
Change
|
|||
|
|
2014
|
2013
|
2014/2013
|
||
|
|
(Dollars in thousands)
|
|
|||
|
Provision for income taxes
|
$25,906
|
21,706
|
19%
|
||
|
Effective tax rate from continuing operations
|
34.5%
|
34.7%
|
|||
Our effective income tax rate from continuing operations for the
first
quarter of
2014
was
34.5%
compared with
34.7%
in the same period of the prior year. The decrease in our effective tax rate in the first quarter of
2014
reflects a benefit from a tax law change in the state of New York partially offset by a higher proportionate amount of
2014
earnings in higher tax rate jurisdictions.
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Loss from discontinued operations, net of tax
|
$
|
(866
|
)
|
(878
|
)
|
|
Refer to Note (C), “Discontinued Operations,” in the Notes to Consolidated Condensed Financial Statements for a discussion of losses from discontinued operations.
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
OPERATING RESULTS BY BUSINESS SEGMENT
|
|
Three months ended March 31,
|
Change
|
||||||
|
|
2014
|
2013
|
2014/2013
|
|||||
|
|
(Dollars in thousands)
|
|
||||||
|
Revenue:
|
||||||||
|
Fleet Management Solutions
|
$
|
1,135,087
|
|
1,099,732
|
|
3%
|
||
|
Supply Chain Solutions
|
597,341
|
|
|
576,479
|
|
4
|
||
|
Eliminations
|
(121,691
|
)
|
|
(113,194
|
)
|
8
|
||
|
Total
|
$
|
1,610,737
|
|
|
1,563,017
|
|
3%
|
|
|
Operating Revenue:
|
||||||||
|
Fleet Management Solutions
|
$
|
859,916
|
|
|
823,988
|
|
4%
|
|
|
Supply Chain Solutions
|
520,438
|
|
|
494,831
|
|
5
|
||
|
Eliminations
|
(57,876
|
)
|
|
(51,298
|
)
|
13
|
||
|
Total
|
$
|
1,322,478
|
|
|
1,267,521
|
|
4%
|
|
|
EBT:
|
||||||||
|
Fleet Management Solutions
|
$
|
76,991
|
|
|
60,745
|
|
27%
|
|
|
Supply Chain Solutions
|
21,784
|
|
|
24,436
|
|
(11)
|
||
|
Eliminations
|
(9,628
|
)
|
|
(7,958
|
)
|
21
|
||
|
89,147
|
|
|
77,223
|
|
15
|
|||
|
Unallocated Central Support Services
|
(10,829
|
)
|
|
(11,375
|
)
|
(5)
|
||
|
Non-operating pension costs
|
(3,314
|
)
|
|
(5,244
|
)
|
(37)
|
||
|
Restructuring and other charges, net and other items
|
—
|
|
|
1,904
|
|
NM
|
||
|
Earnings from continuing operations before income taxes
|
$
|
75,004
|
|
|
62,508
|
|
20%
|
|
As part of management’s evaluation of segment operating performance, we define the primary measurement of our segment financial performance as “Earnings Before Taxes” (EBT) from continuing operations, which includes an allocation of Central Support Services (CSS), and excludes non-operating pension costs, restructuring and other charges, net and the items discussed in Note (P), “Other Items Impacting Comparability,” in the Notes to Consolidated Condensed Financial Statements. 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, marketing and corporate communications.
The objective of the EBT 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.
29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table provides a reconciliation of items excluded from our segment EBT measure to their classification within our Consolidated Condensed Statements of Earnings:
|
|
Three months ended March 31,
|
||||||||
|
Description
|
Consolidated
Condensed Statements of Earnings Line Item
|
2014
|
2013
|
||||||
|
|
|
(In thousands)
|
|||||||
|
Non-operating pension costs
|
SG&A
|
$
|
(3,314
|
)
|
(5,244
|
)
|
|||
|
Foreign currency translation benefit
(1)
|
Miscellaneous income
|
—
|
|
1,904
|
|
||||
|
$
|
(3,314
|
)
|
(3,340
|
)
|
|||||
———————————
|
(1)
|
See Note (P),
“
Other Items Impacting Comparability,
”
for additional information.
|
Inter-segment revenue and EBT are accounted for at rates similar to those executed with third parties. EBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in both FMS and SCS and then eliminated (presented as “Eliminations” in the table above). Prior year amounts have been reclassified to conform to the current period presentation.
Fleet Management Solutions
|
|
Three months ended March 31,
|
Change
|
||||||
|
|
2014
|
2013
|
2014/2013
|
|||||
|
|
(Dollars in thousands)
|
|
||||||
|
Full service lease
|
$
|
552,216
|
|
|
533,234
|
|
4%
|
|
|
Contract maintenance
|
43,663
|
|
|
46,103
|
|
(5)
|
||
|
Contractual revenue
|
595,879
|
|
|
579,337
|
|
3
|
||
|
Commercial rental
|
190,195
|
|
|
173,097
|
|
10
|
||
|
Contract-related maintenance
|
56,106
|
|
|
53,313
|
|
5
|
||
|
Other
|
17,736
|
|
|
18,241
|
|
(3)
|
||
|
Operating revenue
(1)
|
859,916
|
|
|
823,988
|
|
4
|
||
|
Fuel services revenue
|
275,171
|
|
|
275,744
|
|
|
—
|
|
|
Total revenue
|
$
|
1,135,087
|
|
|
1,099,732
|
|
3%
|
|
|
Segment EBT
|
$
|
76,991
|
|
|
60,745
|
|
27%
|
|
|
Segment EBT as a % of total revenue
|
6.8
|
%
|
|
5.5
|
%
|
130 bps
|
||
|
Segment EBT as a % of operating revenue
(1)
|
9.0
|
%
|
|
7.4
|
%
|
160 bps
|
||
————————————
|
(1)
|
We use operating revenue and EBT as a percent of operating revenue, non-GAAP financial measures, 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 rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs.
|
Total revenue increased
3%
in the
first
quarter of
2014
to
$1.14 billion
. Operating revenue (revenue excluding fuel) increased
4
% in the
first
quarter of
2014
to
$859.9 million
. Total and operating revenue increased as a result of organic business growth.
Full service lease revenue increased
4%
in the
first
quarter of
2014
due to growth in the fleet size and higher prices on replacement vehicles. The average number of full service lease vehicles increased
1%
from the prior year, reflecting continued increased sales activity. We expect favorable full service lease comparisons to continue throughout the year based on current sales activity. Commercial rental revenue increased
10%
in the
first
quarter of
2014
reflecting higher global pricing (up
5%
in the
first
quarter of
2014
) and increased North American demand. We expect favorable commercial rental comparisons to continue throughout the year.
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table provides commercial rental statistics on our global fleet:
|
|
Three months ended March 31,
|
Change
|
||||||
|
|
2014
|
2013
|
2014/2013
|
|||||
|
|
(Dollars in thousands)
|
|
||||||
|
Rental revenue from non-lease customers
|
$
|
107,063
|
|
96,112
|
|
11%
|
||
|
Rental revenue from lease customers
(1)
|
$
|
83,132
|
|
76,985
|
|
8%
|
||
|
Average commercial rental power fleet size — in service
(2),
(3)
|
29,600
|
|
27,800
|
|
6%
|
|||
|
Commercial rental utilization — power fleet
|
73.6
|
%
|
|
73.8
|
%
|
(20) bps
|
||
————————————
|
(1)
|
Represents 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 quarterly average unit counts.
|
|
(3)
|
Fleet size excluding trailers.
|
FMS EBT increased
27%
in the
first
quarter of
2014
to
$77.0 million
reflecting strong commercial rental performance, improved used vehicle sales results and higher full service lease margins. Maintenance costs benefited from deferral of vehicle service activities due to severe weather, which are expected to be incurred in the second quarter of
2014
. Commercial rental performance improved
17%
in the
first
quarter of
2014
as a result of higher pricing and increased North American demand. Rental power fleet utilization was
73.6%
for the
first
quarter of
2014
, which was comparable to the prior year on a
3%
larger average fleet. Used vehicle sales results improved due to higher proceeds per unit. Full service lease results benefited from
$6.3 million
of lower depreciation due to residual value policy changes implemented January 1,
2014
and growth in fleet size.
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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):
|
|
|
|
|
Change
|
||||||||
|
|
March 31, 2014
|
December 31, 2013
|
March 31, 2013
|
Mar. 2014/Dec. 2013
|
Mar. 2014/Mar. 2013
|
|||||||
|
End of period vehicle count
|
||||||||||||
|
By type:
|
||||||||||||
|
Trucks
(1)
|
68,600
|
|
68,700
|
|
67,900
|
|
—%
|
1%
|
||||
|
Tractors
(2)
|
61,000
|
|
60,200
|
|
58,700
|
|
1
|
4
|
||||
|
Trailers
(3) (4)
|
41,200
|
|
41,700
|
|
42,400
|
|
(1)
|
(3)
|
||||
|
Other
|
1,400
|
|
1,500
|
|
2,200
|
|
(7)
|
(36)
|
||||
|
Total
|
172,200
|
|
172,100
|
|
171,200
|
|
—%
|
1%
|
||||
|
By ownership:
|
||||||||||||
|
Owned
|
169,100
|
|
169,000
|
|
166,900
|
|
—%
|
1%
|
||||
|
Leased
|
3,100
|
|
3,100
|
|
4,300
|
|
—
|
(28)
|
||||
|
Total
|
172,200
|
|
172,100
|
|
171,200
|
|
—%
|
1%
|
||||
|
By product line:
(4)
|
||||||||||||
|
Full service lease
|
123,300
|
|
122,900
|
|
121,700
|
|
—%
|
1%
|
||||
|
Commercial rental
|
38,600
|
|
38,200
|
|
36,500
|
|
1
|
6
|
||||
|
Service vehicles and other
|
3,100
|
|
3,100
|
|
3,000
|
|
—
|
3
|
||||
|
Active units
|
165,000
|
|
164,200
|
|
161,200
|
|
—
|
2
|
||||
|
Held for sale
|
7,200
|
|
7,900
|
|
10,000
|
|
(9)
|
(28)
|
||||
|
Total
|
172,200
|
|
172,100
|
|
171,200
|
|
—%
|
1%
|
||||
|
Customer vehicles under contract maintenance
|
37,300
|
|
37,400
|
|
38,100
|
|
—%
|
(2)%
|
||||
|
Customer vehicles under transactional maintenance
(5)
|
7,100
|
|
5,000
|
|
3,300
|
|
42%
|
115%
|
||||
|
Total vehicles under service
|
216,600
|
|
214,500
|
|
212,600
|
|
1%
|
2%
|
||||
|
Quarterly average vehicle count
|
||||||||||||
|
By product line:
|
||||||||||||
|
Full service lease
|
123,100
|
|
122,000
|
|
121,900
|
|
1%
|
1%
|
||||
|
Commercial rental
|
38,200
|
|
38,200
|
|
37,100
|
|
—
|
3
|
||||
|
Service vehicles and other
|
3,100
|
|
3,000
|
|
2,900
|
|
3
|
7
|
||||
|
Active units
|
164,400
|
|
163,200
|
|
161,900
|
|
1
|
2
|
||||
|
Held for sale
|
7,700
|
|
8,000
|
|
9,700
|
|
(4)
|
(21)
|
||||
|
Total
|
172,100
|
|
171,200
|
|
171,600
|
|
1%
|
—%
|
||||
|
Customer vehicles under contract maintenance
|
37,400
|
|
37,400
|
|
37,700
|
|
—%
|
(1)%
|
||||
———————————
|
(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.
|
|
(4)
|
Includes
7,200
UK trailers (
4,800
full service lease and
2,400
commercial rental and other),
7,700
UK trailers (
5,000
full service lease and
2,700
commercial rental and other) and
8,800
UK trailers (
6,000
full service lease and
2,800
commercial rental and other) as of
March 31, 2014
,
December 31, 2013
, and
March 31, 2013
, respectively, primarily acquired as part of the Hill Hire acquisition.
|
|
(5)
|
Comprised of the number of unique vehicles serviced under transactional on-demand maintenance agreements. Vehicles included in the end of period count may have been serviced more than one time during the respective period.
|
Note: Amounts were computed using a 6-point average based on monthly information.
32
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table provides a breakdown of our non-revenue earning equipment included in our global fleet count (number of units rounded to nearest hundred):
|
|
|
|
|
Change
|
|||||
|
|
March 31,
2014 |
December 31,
2013 |
March 31,
2013 |
Mar. 2014/
Dec. 2013
|
Mar. 2014/
Mar. 2013
|
||||
|
Not yet earning revenue (NYE)
|
2,700
|
2,800
|
2,300
|
(4)%
|
17%
|
||||
|
No longer earning revenue (NLE):
|
|||||||||
|
Units held for sale
|
7,200
|
7,900
|
10,000
|
(9)
|
(28)
|
||||
|
Other NLE units
|
4,200
|
2,800
|
3,300
|
50
|
27
|
||||
|
Total
|
14,100
|
13,500
|
15,600
|
4%
|
(10)%
|
||||
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. NYE units increased compared to
March 31, 2013
due to new sales activity. NLE units represent 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. NLE units decreased compared to
March 31, 2013
reflecting lower used vehicle inventories partially offset by lease and rental vehicles awaiting outservicing. We expect NLE levels to decrease throughout the year as vehicles are outserviced and units held for sale decline.
Supply Chain Solutions
|
|
Three months ended March 31,
|
Change
|
||||||
|
|
2014
|
2013
|
2014/2013
|
|||||
|
|
(Dollars in thousands)
|
|
||||||
|
Operating revenue:
|
||||||||
|
Automotive
|
$
|
144,575
|
|
148,627
|
|
(3)%
|
||
|
High-Tech
|
81,455
|
|
77,790
|
|
5
|
|||
|
Retail and CPG
|
183,333
|
|
175,818
|
|
4
|
|||
|
Industrial and other
|
111,075
|
|
92,596
|
|
20
|
|||
|
Total operating revenue
(1)
|
520,438
|
|
|
494,831
|
|
5
|
||
|
Subcontracted transportation
|
76,903
|
|
|
81,648
|
|
(6)
|
||
|
Total revenue
|
$
|
597,341
|
|
|
576,479
|
|
4%
|
|
|
Segment EBT
|
$
|
21,784
|
|
|
24,436
|
|
(11)%
|
|
|
Segment EBT as a % of total revenue
|
3.6
|
%
|
|
4.2
|
%
|
(60) bps
|
||
|
Segment EBT as a % of operating revenue
(1)
|
4.2
|
%
|
|
4.9
|
%
|
(70) bps
|
||
|
Memo:
|
|
|||||||
|
Dedicated services total revenue
|
$
|
345,865
|
|
|
324,765
|
|
6%
|
|
|
Dedicated services operating revenue
(1)(2)
|
$
|
311,721
|
|
|
291,149
|
|
7%
|
|
|
Average fleet
|
12,500
|
|
|
11,700
|
|
|
7%
|
|
|
Fuel costs
(3)
|
$
|
70,415
|
|
|
68,158
|
|
3%
|
|
————————————
|
(1)
|
We use operating revenue and EBT as a percent of operating revenue, non-GAAP financial measures, to evaluate the operating performance of our SCS business segment and as a measure of sales activity and profitability. In SCS transportation management arrangements, we may act as a principal or as an agent in purchasing transportation on behalf of our customer. We record revenue on a gross basis when acting as principal and we record revenue on a net basis when acting as an agent. As a result, total revenue may fluctuate depending on our role in subcontracted transportation arrangements yet our profitability remains unchanged as we typically realize minimal profitability from subcontracting transportation. We deduct subcontracted transportation expense from SCS total revenue to arrive at SCS operating revenue, and from dedicated services total revenue to arrive at dedicated services operating revenue.
|
|
(2)
|
Dedicated services operating revenue excludes dedicated subcontracted transportation as follows:
$34.1 million
and
$33.6 million
for the three months ended
March 31, 2014
and
2013
, respectively.
|
|
(3)
|
Fuel costs are largely a pass-through to customers and therefore have a direct impact on revenue.
|
33
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table summarizes the components of the change in revenue on a percentage basis versus the prior year:
|
|
Three months ended March 31, 2014
|
||
|
|
Total
|
Operating
|
|
|
Organic including price and volume
|
6%
|
6%
|
|
|
Subcontracted transportation
|
(1)
|
—
|
|
|
Foreign exchange
|
(1)
|
(1)
|
|
|
Total increase
|
4%
|
5%
|
|
Total revenue increased
4%
in the
first
quarter of
2014
to
$597.3 million
. Operating revenue (revenue excluding subcontracted transportation) increased
5%
in the
first
quarter of
2014
to $
520.4 million
. Operating revenue growth was due to new business and higher volumes in the industrial, retail and CPG, and high-tech vertical groups. The operating revenue growth in the
first
quarter of
2014
was partially offset by the impact of severe winter weather on customer activity levels and foreign exchange. We expect favorable revenue comparisons to continue throughout the year due to new business. SCS EBT decreased
11%
in the
first
quarter of
2014
to
$21.8 million
due to weather-related impacts and, to a lessor extent, start-up costs on a new account.
Central Support Services
|
|
Three months ended March 31,
|
Change
|
||||||
|
|
2014
|
2013
|
2014/2013
|
|||||
|
|
(Dollars in thousands)
|
|
||||||
|
Human resources
|
$
|
4,673
|
|
4,414
|
|
6%
|
||
|
Finance
|
12,561
|
|
12,506
|
|
—
|
|||
|
Corporate services and public affairs
|
3,151
|
|
4,031
|
|
(22)
|
|||
|
Information technology
|
20,789
|
|
17,088
|
|
22
|
|||
|
Health and safety
|
2,063
|
|
1,931
|
|
7
|
|||
|
Other
|
15,475
|
|
14,587
|
|
6
|
|||
|
Total CSS
|
58,712
|
|
54,557
|
|
8
|
|||
|
Allocation of CSS to business segments
|
(47,883
|
)
|
(43,182
|
)
|
11
|
|||
|
Unallocated CSS
|
$
|
10,829
|
|
11,375
|
|
(5)%
|
||
Total CSS costs increased
8%
in the
first
quarter of
2014
to
$58.7 million
primarily driven by higher information technology and marketing-related costs. Unallocated CSS decreased
5%
in the first quarter of
2014
to
$10.8 million
primarily due to lower compensation-related expenses and lower spending on public affairs partially offset by increased marketing-related costs. Prior year amounts related to marketing have been reclassified to conform to the current period presentation. Marketing costs were previously recorded as a direct expense of each business segment. We centralized the marketing function in the second half of
2013
and now record marketing costs within total CSS and allocate them to the segments. The change did not impact business segment EBT or unallocated CSS.
34
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
FINANCIAL RESOURCES AND LIQUIDITY
Cash Flows
The following is a summary of our cash flows from operating, financing and investing activities from continuing operations:
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Net cash provided by (used in):
|
||||||
|
Operating activities
|
$
|
237,660
|
|
248,928
|
|
|
|
Financing activities
|
215,169
|
|
51,570
|
|
||
|
Investing activities
|
(441,847
|
)
|
(295,934
|
)
|
||
|
Effect of exchange rate changes on cash
|
1,369
|
|
6,257
|
|
||
|
Net change in cash and cash equivalents
|
$
|
12,351
|
|
10,821
|
|
|
A detail of the individual items contributing to the cash flow changes is included in the Consolidated Condensed Statements of Cash Flows.
Cash provided by operating activities from continuing operations decreased to
$237.7 million
in the
three months ended
March 31, 2014
compared with
$248.9 million
in
2013
, reflecting increased working capital needs which were partially offset by higher earnings compared to the prior year period. The increased working capital needs were primarily driven by higher outstanding account receivables compared to the prior year period. Cash provided by financing activities increased to
$215.2 million
in the
three months ended
March 31, 2014
compared with
$51.6 million
in
2013
as a result of increased borrowing needs to fund investing activities. Cash used in investing activities increased to
$441.8 million
in the
three months ended
March 31, 2014
compared with
$295.9 million
in
2013
primarily due to planned higher vehicle capital spending.
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 investing cash inflows from continuing operations 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) from continuing operations 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 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:
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Net cash provided by operating activities from continuing operations
|
$
|
237,660
|
|
|
248,928
|
|
|
Sales of revenue earning equipment
|
125,673
|
|
|
112,425
|
|
|
|
Sales of operating property and equipment
|
2,004
|
|
|
916
|
|
|
|
Collections on direct finance leases
|
16,184
|
|
|
27,411
|
|
|
|
Insurance recoveries and other
|
(1,250
|
)
|
3,767
|
|
||
|
Total cash generated
|
380,271
|
|
|
393,447
|
|
|
|
Purchases of property and revenue earning equipment
|
(578,722
|
)
|
|
(420,054
|
)
|
|
|
Free cash flow
|
$
|
(198,451
|
)
|
|
(26,607
|
)
|
Free cash flow decreased to negative
$198.5 million
in
2014
primarily due to planned higher spending on commercial rental and full service lease vehicles.
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table provides a summary of capital expenditures:
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Revenue earning equipment:
|
||||||
|
Full service lease
|
$
|
445,833
|
|
380,709
|
|
|
|
Commercial rental
|
125,363
|
|
46,597
|
|
||
|
571,196
|
|
427,306
|
|
|||
|
Operating property and equipment
|
24,444
|
|
22,129
|
|
||
|
Total capital expenditures
(1)
|
595,640
|
|
|
449,435
|
|
|
|
Changes in accounts payable related to purchases of revenue earning equipment
|
(16,918
|
)
|
(29,381
|
)
|
||
|
Cash paid for purchases of property and revenue earning equipment
|
$
|
578,722
|
|
|
420,054
|
|
————————————
|
(1)
|
Capital expenditures exclude non-cash additions of approximately
$2.2 million
and
$0.5 million
during the
three months ended
March 31, 2014
and
2013
, respectively, in assets held under capital leases resulting from the extension of existing operating leases and other additions.
|
Capital expenditures (accrual basis) increased
33%
in the
three months ended
March 31, 2014
to
$595.6 million
reflecting planned higher investments in both the commercial rental and full service lease fleets. We continue to expect full-year
2014
accrual basis capital expenditures from continuing operations to be approximately
$2.2 billion
, reflecting a reduction in full service lease spending offset by increased investments in the commercial rental fleet. We expect to fund 2014 capital expenditures with both internally generated funds and additional debt financing.
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 debt 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 impacted by both our short-term and long-term debt ratings. These ratings are intended to provide guidance to investors in determining the 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 significant downgrade of our short-term debt ratings would impair our ability to issue commercial paper and likely require us to rely on alternative funding sources. A significant downgrade would not affect our ability to borrow amounts under our revolving credit facility described below, assuming ongoing compliance with the terms and conditions of the credit facility.
Our debt ratings and rating outlooks at
March 31, 2014
were as follows:
|
Short-term
|
Long-term
|
||||||
|
|
Rating
|
Outlook
|
Rating
|
Outlook
|
|||
|
Moody’s Investors Service
|
P2
|
Stable
|
Baa1
|
|
Stable (affirmed March 2014)
|
||
|
Standard & Poor’s Ratings Services
|
A2
|
Stable
|
BBB
|
|
Stable
|
||
|
Fitch Ratings
|
F2
|
Stable
|
A-
|
|
Stable (affirmed April 2014)
|
||
Cash and equivalents totaled
$72.8 million
as of
March 31, 2014
, which is available to meet our needs. Approximately $24.4 million was held outside the U.S. as of
March 31, 2014
and is available to fund operations and other growth of non-U.S. subsidiaries. If we decide to repatriate cash and equivalents held outside the U.S., we may be subject to additional U.S. income taxes and foreign withholding taxes. However, our intent is to permanently reinvest these foreign amounts outside the U.S. and our current plans do not demonstrate a need to repatriate these foreign amounts to fund our U.S. operations.
36
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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.
At
March 31, 2014
, we had the following amounts available to fund operations under the following facilities:
|
|
(In millions)
|
|
Global revolving credit facility
|
$243
|
|
Trade receivables program
|
$175
|
We maintain a
$900 million
global revolving credit facility with a syndicate of twelve lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Mizuho Corporate Bank, Ltd., Royal Bank of Canada, Royal Bank of Scotland Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. The global credit facility matures in October 2018. The global facility is used primarily to finance working capital. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated net worth of
less than or equal to 300%
. Net worth, as defined in the credit facility, represents shareholders' equity excluding any accumulated other comprehensive income or loss associated with our pension and other postretirement plans. The ratio at
March 31, 2014
was
188%
.
We also have a
$175 million
trade receivables purchase and sale program, pursuant to which we ultimately sell certain ownership interests in certain of our domestic trade 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 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. If no event occurs which causes early termination, the 364-day program will expire on October 24, 2014.
On February 6, 2013, 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 February 2014, we issued
$350 million
of unsecured medium-term notes maturing in June 2019. The proceeds from the notes were used to pay down commercial paper and for general corporate purposes. If the notes are downgraded following, and as a result of, a change in control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to
101% of principal plus accrued and unpaid interest
.
Refer to Note (J), “Debt,” in the Notes to Consolidated Condensed Financial Statements for further discussion around the global revolving credit facility, the trade receivables program, the issuance of medium-term notes under this shelf registration statement and debt maturities.
37
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table shows the movements in our debt balance:
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Debt balance at January 1
|
$
|
4,189,425
|
|
3,820,796
|
|
|
|
Cash-related changes in debt:
|
||||||
|
Net change in commercial paper borrowings
|
142,834
|
|
112,938
|
|
||
|
Proceeds from issuance of medium-term notes
|
349,580
|
|
249,723
|
|
||
|
Proceeds from issuance of other debt instruments
|
17,032
|
|
—
|
|
||
|
Retirement of medium term notes
|
(250,000
|
)
|
(250,000
|
)
|
||
|
Other debt repaid, including capital lease obligations
|
(2,845
|
)
|
(67,344
|
)
|
||
|
256,601
|
|
45,317
|
|
|||
|
Non-cash changes in debt:
|
||||||
|
Fair market value adjustment on notes subject to hedging
|
(1,983
|
)
|
(2,781
|
)
|
||
|
Addition of capital lease obligations
|
2,245
|
|
458
|
|
||
|
Changes in foreign currency exchange rates and other non-cash items
|
309
|
|
(18,167
|
)
|
||
|
Total changes in debt
|
257,172
|
|
24,827
|
|
||
|
Debt balance at March 31
|
$
|
4,446,597
|
|
3,845,623
|
|
|
In accordance with our funding philosophy, we attempt to balance 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%
to
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
31%
and
27%
at
March 31, 2014
and
December 31, 2013
, respectively.
Ryder’s leverage ratios and a reconciliation of on-balance sheet debt to total obligations were as follows:
|
March 31,
2014 |
% to
Equity
|
December 31,
2013 |
% to
Equity
|
|||||||
|
|
(Dollars in thousands)
|
|||||||||
|
On-balance sheet debt
|
$
|
4,446,597
|
|
|
234%
|
|
4,189,425
|
|
|
221%
|
|
Off-balance sheet debt—PV of minimum lease payments and guaranteed residual values under operating leases for vehicles
(1)
|
95,081
|
|
|
|
|
94,519
|
|
|
|
|
|
Total obligations
|
$
|
4,541,678
|
|
|
239%
|
|
4,283,944
|
|
|
226%
|
————————————
|
(1)
|
Present value (PV) does not reflect payments Ryder 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. Our leverage ratios increased as of
March 31, 2014
due to increased obligations to fund capital expenditures.
38
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Off-Balance Sheet Arrangements
We periodically enter into sale-leaseback transactions in order to lower the total cost of funding our operations, to diversify our funding among different classes of investors 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. These leases contain limited guarantees by us of the residual values of the leased vehicles (residual value guarantees) that are generally 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. We did not enter into any sale-leaseback transactions during the
three months ended
March 31, 2014
or during 2013.
Pension Information
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. In
2014
, we expect total contributions to our pension plans to be approximately
$75 million
. During the
three months ended
March 31, 2014
, we contributed
$4.3 million
to our pension plans. Changes in interest rates and the market value of the securities held by the plans during
2014
could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and contributions in
2014
and beyond. See Note (O), “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information.
Share Repurchases and Cash Dividends
See Note (M), “Share Repurchase Programs,” in the Notes to Consolidated Condensed Financial Statements for a discussion of share repurchases.
In February 2014, our Board of Directors declared a quarterly cash dividend of $0.34 per share of common stock.
39
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
NON-GAAP FINANCIAL MEASURES
This Quarterly Report on Form 10-Q includes information extracted from consolidated condensed 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 comparable earnings from continuing operations before taxes, comparable earnings from continuing operations, comparable EPS from continuing operations, operating revenue, FMS operating revenue, FMS EBT as a % of operating revenue, SCS operating revenue, SCS EBT as a % of operating revenue, dedicated services operating revenue, total cash generated, free cash flow, total obligations and total obligations to equity. We provide a reconciliation of each of these non-GAAP financial measures 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 within the management's discussion and analysis and in the table below. 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 reconciliation of total revenue to operating revenue which was not provided within the MD&A discussion:
|
|
Three months ended March 31,
|
|||||
|
|
2014
|
2013
|
||||
|
|
(In thousands)
|
|||||
|
Total revenue
|
$
|
1,610,737
|
|
|
1,563,017
|
|
|
FMS fuel services and SCS subcontracted transportation
(1)
|
(352,074
|
)
|
|
(357,392
|
)
|
|
|
Fuel eliminations
|
63,815
|
|
|
61,896
|
|
|
|
Operating revenue
|
$
|
1,322,478
|
|
|
1,267,521
|
|
————————————
|
(1)
|
Includes intercompany fuel sales.
|
40
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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 Quarterly Report on Form 10-Q contains forward-looking statements including, but not limited to, statements regarding:
|
•
|
our expectations in our FMS business segment regarding anticipated full service lease and commercial rental revenue, full service lease sales, and global pricing and demand in commercial rental;
|
|
•
|
our expectations in our SCS business segment regarding anticipated revenue and new business;
|
|
•
|
our expectations of the long-term residual values of revenue earning equipment;
|
|
•
|
the anticipated levels of NLE vehicles in inventory through the end of the year;
|
|
•
|
the anticipated tax benefits of our like-kind exchange program;
|
|
•
|
our expectations of operating cash flow and capital expenditures through the end of
2014
;
|
|
•
|
the adequacy of our accounting estimates and reserves for pension expense, compensation expense and employee benefit plan obligations, depreciation and residual value guarantees and income taxes;
|
|
•
|
the adequacy of our fair value estimates of employee incentive awards under our share-based compensation plans, total debt and other debt;
|
|
•
|
our beliefs regarding the default risk of our direct financing lease receivables
|
|
•
|
our ability to fund all of our operating, investing and financial needs for the foreseeable future through internally generated funds and outside funding sources;
|
|
•
|
the anticipated impact of fuel price fluctuations;
|
|
•
|
our expectations as to return on pension plan assets, future pension expense and estimated contributions
|
|
•
|
our expectations regarding the completion and ultimate resolution of tax audits;
|
|
•
|
our expectations regarding the scope, anticipated outcomes and the adequacy of our loss provisions with respect to certain claims, proceedings and lawsuits;
|
|
•
|
our ability to access commercial paper and other available debt financing in the capital markets;
|
|
•
|
our expectations regarding the future use and availability of funding sources; and
|
|
•
|
the anticipated impact of recent accounting pronouncements.
|
These statements, as well as other forward-looking statements contained in this Quarterly 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. These risk factors include, but are not limited to, the following:
|
•
|
Market Conditions:
|
|
|
Ÿ
|
|
Changes in general economic and financial conditions in the U.S. and worldwide leading to decreased demand for our services, lower profit margins, increased levels of bad debt and reduced access to credit
|
|
|
Ÿ
|
|
Decreases in freight demand or setbacks in the moderate recovery of the freight recession which would impact both our transactional and variable-based contractual business
|
|
|
Ÿ
|
|
Changes in our customers’ operations, financial condition or business environment that may limit their need for, or ability to purchase, our services
|
|
|
Ÿ
|
|
Decreases in market demand affecting the commercial rental market, as well as economic conditions in the U.K.
|
|
|
Ÿ
|
|
Volatility in customer volumes and shifting customer demand in the industries serviced by our SCS business
|
|
|
Ÿ
|
|
Changes in current financial, tax or regulatory requirements that could negatively impact the leasing market
|
41
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
|
•
|
Competition:
|
|
|
Ÿ
|
|
Advances in technology may require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments
|
|
|
Ÿ
|
|
Competition from other service providers, some of which have greater capital resources or lower capital costs, or from our customers, who may choose to provide services themselves
|
|
|
Ÿ
|
|
Continued consolidation in the markets in which we operate which may create large competitors with greater financial resources
|
|
|
Ÿ
|
|
Our inability to maintain current pricing levels due to economic conditions, demand for services, customer acceptance or competition
|
|
•
|
Profitability:
|
|
|
Ÿ
|
|
Our inability to obtain adequate profit margins for our services
|
|
|
Ÿ
|
|
Lower than expected sales volumes or customer retention levels
|
|
|
Ÿ
|
|
Lower full service lease sales activity
|
|
|
Ÿ
|
|
Loss of key customers in our SCS business segment
|
|
|
Ÿ
|
|
Our inability to adapt our product offerings to meet changing consumer preferences on a cost-effective basis
|
|
|
Ÿ
|
|
The inability of our legacy information technology systems to provide timely access to data
|
|
|
Ÿ
|
Sudden changes in fuel prices and fuel shortages
|
|
|
|
Ÿ
|
|
Higher prices for vehicles, diesel engines and fuel as a result of exhaust emissions standards enacted over the last few years
|
|
Ÿ
|
Higher than expected maintenance costs and lower than expected benefits associated with a younger fleet and maintenance initiatives
|
||
|
|
Ÿ
|
|
Our inability to successfully implement our asset management initiatives
|
|
|
Ÿ
|
|
Our key assumptions and pricing structure of our SCS contracts prove to be invalid
|
|
|
Ÿ
|
|
Increased unionizing, labor strikes, work stoppages and driver shortages
|
|
|
Ÿ
|
|
Difficulties in attracting and retaining drivers and technicians due to driver and technician shortages, which may result in higher costs to procure drivers and technicians and higher turnover rates affecting our customers
|
|
|
Ÿ
|
|
Our inability to manage our cost structure
|
|
|
Ÿ
|
|
Our inability to limit our exposure for customer claims
|
|
|
Ÿ
|
|
Unfavorable or unanticipated outcomes in legal proceedings or uncertain positions
|
|
|
Ÿ
|
|
Business interruptions or expenditures due to severe weather or natural occurrences
|
42
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
|
•
|
Financing Concerns:
|
|
|
Ÿ
|
|
Higher borrowing costs and possible decreases in available funding sources caused by an adverse change in our debt ratings
|
|
|
Ÿ
|
|
Unanticipated interest rate and currency exchange rate fluctuations
|
|
|
Ÿ
|
|
Negative funding status of our pension plans caused by lower than expected returns on invested assets and unanticipated changes in interest rates
|
|
|
Ÿ
|
|
Withdrawal liability as a result of our participation in multi-employer plans
|
|
|
Ÿ
|
|
Instability in U.S. and worldwide credit markets, resulting in higher borrowing costs and/or reduced access to credit
|
|
•
|
Accounting Matters:
|
|
|
Ÿ
|
|
Impact of unusual items resulting from ongoing evaluations of business strategies, asset valuations, acquisitions, divestitures and our organizational structure
|
|
|
Ÿ
|
|
Reductions in residual values or useful lives of revenue earning equipment
|
|
|
Ÿ
|
|
Increases in compensation levels, retirement rate and mortality resulting in higher pension expense; regulatory changes affecting pension estimates, accruals and expenses
|
|
|
Ÿ
|
|
Increases in health care costs resulting in higher insurance costs
|
|
|
Ÿ
|
|
Changes in accounting rules, assumptions and accruals
|
|
|
Ÿ
|
|
Impact of actual insurance claim and settlement activity compared to historical loss development factors used to project future development
|
|
•
|
Other risks detailed from time to time in our SEC filings
|
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 Quarterly Report. We do not intend, or assume any obligation, to update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of new information, future events or otherwise.
43
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to Ryder’s exposures to market risks since
December 31, 2013
. Please refer to the
2013
Annual Report on Form 10-K for a complete discussion of Ryder’s exposures to market risks.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the
first
quarter of
2014
, 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 as of the end of the
first
quarter of
2014
, Ryder’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective.
Changes in Internal Controls over Financial Reporting
During the
three months ended
March 31, 2014
, there were no changes in Ryder’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect such internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information with respect to purchases we made of our common stock during the three months ended
March 31, 2014
:
|
Total Number
of Shares
Purchased
(1)
|
Average Price
Paid per Share
|
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Programs
|
Maximum
Number of
Shares That May
Yet Be
Purchased
Under the
Anti-Dilutive
Program
(2)
|
|||||||||
|
January 1 through January 31, 2014
|
10,197
|
|
$
|
72.34
|
|
—
|
|
2,000,000
|
|
|||
|
February 1 through February 28, 2014
|
567,539
|
|
71.69
|
|
543,600
|
|
1,456,400
|
|
||||
|
March 1 through March 31, 2014
|
19,217
|
|
75.43
|
|
19,083
|
|
1,437,317
|
|
||||
|
Total
|
596,953
|
|
$
|
71.83
|
|
562,683
|
|
|||||
————————————
|
(1)
|
During the three months ended
March 31, 2014
, we purchased an aggregate of 34,270 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 2013, 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 2013 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, 2013 through December 31, 2015. The December 2013 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 prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2013 program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the three months ended
March 31, 2014
, we repurchased and retired
562,683
shares under this program at an aggregate cost of
$40.4 million
.
|
44
ITEM 6. EXHIBITS
|
31.1
|
|
Certification of Robert E. Sanchez 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 Robert E. Sanchez and Art A. Garcia pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350.
|
|
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
RYDER SYSTEM, INC.
|
||
|
(Registrant)
|
||
|
Date: April 23, 2014
|
By:
|
/s/ Art A. Garcia
|
|
Art A. Garcia
|
||
|
Executive Vice President and Chief Financial Officer
|
||
|
(Principal Financial Officer)
|
||
|
Date: April 23, 2014
|
By:
|
/s/ Cristina A. Gallo-Aquino
|
|
Cristina A. Gallo-Aquino
|
||
|
Vice President and Controller
|
||
|
(Principal Accounting Officer)
|
||
46
TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Conditionand Results Of OperationsprintItem 2. Management S Discussion and Analysis Of Financial ConditionprintItem 2. Management S Discussion and Analysis Of Financial Conditionand Results Of Operations - (continued)printItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 6. Exhibitsprint