Ryder 2nd Quarter 2012 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012
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)
|
| |
Florida | 59-0739250 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
11690 N.W. 105th Street | |
Miami, Florida 33178 | (305) 500-3726 |
(Address of principal executive offices, including zip code) | (Registrant’s telephone number, including area code) |
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.
|
| | | |
Large accelerated filer þ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ |
| (Do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ¨ YES þ NO
The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at June 30, 2012 was 51,123,202.
RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
|
| | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| (In thousands, except per share amounts) |
Lease and rental revenues | $ | 675,623 |
| | 634,717 |
| | $ | 1,313,481 |
| | 1,214,132 |
|
Services revenue | 675,533 |
| | 640,482 |
| | 1,353,885 |
| | 1,273,220 |
|
Fuel services revenue | 212,704 |
| | 238,145 |
| | 432,770 |
| | 451,368 |
|
Total revenues | 1,563,860 |
| | 1,513,344 |
| | 3,100,136 |
| | 2,938,720 |
|
| | | | | | | |
Cost of lease and rental | 475,367 |
| | 429,196 |
| | 930,997 |
| | 837,711 |
|
Cost of services | 562,412 |
| | 533,624 |
| | 1,140,360 |
| | 1,071,481 |
|
Cost of fuel services | 209,337 |
| | 233,451 |
| | 424,910 |
| | 442,411 |
|
Other operating expenses | 33,664 |
| | 30,174 |
| | 67,913 |
| | 64,803 |
|
Selling, general and administrative expenses | 190,434 |
| | 195,168 |
| | 386,453 |
| | 368,277 |
|
Gains on vehicle sales, net | (22,546 | ) | | (15,658 | ) | | (44,537 | ) | | (28,007 | ) |
Interest expense | 35,622 |
| | 32,974 |
| | 70,387 |
| | 67,393 |
|
Miscellaneous income, net | (1,341 | ) | | (595 | ) | | (5,821 | ) | | (4,737 | ) |
Restructuring and other charges, net | 7,142 |
| | — |
| | 8,007 |
| | 768 |
|
| 1,490,091 |
| | 1,438,334 |
| | 2,978,669 |
| | 2,820,100 |
|
Earnings from continuing operations before income taxes | 73,769 |
| | 75,010 |
| | 121,467 |
| | 118,620 |
|
Provision for income taxes | 27,002 |
| | 34,096 |
| | 39,824 |
| | 51,849 |
|
Earnings from continuing operations | 46,767 |
| | 40,914 |
| | 81,643 |
| | 66,771 |
|
Loss from discontinued operations, net of tax | (44 | ) | | (881 | ) | | (599 | ) | | (1,613 | ) |
Net earnings | $ | 46,723 |
| | 40,033 |
| | $ | 81,044 |
| | 65,158 |
|
| | | | | | | |
Earnings (loss) per common share — Basic | | | | | | | |
Continuing operations | $ | 0.92 |
| | 0.80 |
| | $ | 1.60 |
| | 1.30 |
|
Discontinued operations | — |
| | (0.02 | ) | | (0.01 | ) | | (0.03 | ) |
Net earnings | $ | 0.92 |
| | 0.78 |
| | $ | 1.59 |
| | 1.27 |
|
| | | | | | | |
Earnings (loss) per common share — Diluted | | | | | | | |
Continuing operations | $ | 0.91 |
| | 0.79 |
| | $ | 1.59 |
| | 1.29 |
|
Discontinued operations | — |
| | (0.02 | ) | | (0.01 | ) | | (0.03 | ) |
Net earnings | $ | 0.91 |
| | 0.77 |
| | $ | 1.58 |
| | 1.26 |
|
| | | | | | | |
Comprehensive income | $ | 31,841 |
| | 42,854 |
| | $ | 93,653 |
| | 95,278 |
|
| | | | | | | |
Cash dividends declared per common share | $ | 0.29 |
| | 0.27 |
| | $ | 0.58 |
| | 0.54 |
|
See accompanying notes to consolidated condensed financial statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
|
| | | | | | |
| June 30, 2012 | | December 31, 2011 |
| (Dollars in thousands, except per share amount) |
Assets: | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 72,559 |
| | 104,572 |
|
Receivables, net | 793,599 |
| | 754,644 |
|
Inventories | 63,826 |
| | 65,912 |
|
Prepaid expenses and other current assets | 129,302 |
| | 163,045 |
|
Total current assets | 1,059,286 |
| | 1,088,173 |
|
Revenue earning equipment, net of accumulated depreciation of $3,490,832 and $3,462,359, respectively | 5,562,657 |
| | 5,049,671 |
|
Operating property and equipment, net of accumulated depreciation of $938,591 and $911,717, respectively | 620,448 |
| | 624,180 |
|
Goodwill | 377,539 |
| | 377,306 |
|
Intangible assets | 80,706 |
| | 84,820 |
|
Direct financing leases and other assets | 416,322 |
| | 393,685 |
|
Total assets | $ | 8,116,958 |
| | 7,617,835 |
|
| | | |
Liabilities and shareholders’ equity: | | | |
Current liabilities: | | | |
Short-term debt and current portion of long-term debt | $ | 381,561 |
| | 274,366 |
|
Accounts payable | 494,420 |
| | 391,827 |
|
Accrued expenses and other current liabilities | 485,575 |
| | 507,630 |
|
Total current liabilities | 1,361,556 |
| | 1,173,823 |
|
Long-term debt | 3,364,087 |
| | 3,107,779 |
|
Other non-current liabilities | 862,839 |
| | 896,587 |
|
Deferred income taxes | 1,144,068 |
| | 1,121,493 |
|
Total liabilities | 6,732,550 |
| | 6,299,682 |
|
| | | |
Shareholders’ equity: | | | |
Preferred stock of no par value per share — authorized, 3,800,917; none outstanding, June 30, 2012 or December 31, 2011 | — |
| | — |
|
Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding, June 30, 2012 — 51,123,202; December 31, 2011 — 51,143,946 | 25,562 |
| | 25,572 |
|
Additional paid-in capital | 787,534 |
| | 769,383 |
|
Retained earnings | 1,125,868 |
| | 1,090,363 |
|
Accumulated other comprehensive loss | (554,556 | ) | | (567,165 | ) |
Total shareholders’ equity | 1,384,408 |
| | 1,318,153 |
|
Total liabilities and shareholders’ equity | $ | 8,116,958 |
| | 7,617,835 |
|
See accompanying notes to consolidated condensed financial statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
|
| | | | | | |
| Six months ended June 30, |
| 2012 | | 2011 |
| (In thousands) |
Cash flows from operating activities from continuing operations: | | | |
Net earnings | $ | 81,044 |
| | 65,158 |
|
Less: Loss from discontinued operations, net of tax | (599 | ) | | (1,613 | ) |
Earnings from continuing operations | 81,643 |
| | 66,771 |
|
Depreciation expense | 460,081 |
| | 420,795 |
|
Gains on vehicle sales, net | (44,537 | ) | | (28,007 | ) |
Share-based compensation expense | 9,085 |
| | 8,340 |
|
Amortization expense and other non-cash charges, net | 24,873 |
| | 18,766 |
|
Deferred income tax expense | 37,442 |
| | 40,123 |
|
Changes in operating assets and liabilities, net of acquisitions: | | | |
Receivables | (29,119 | ) | | (84,408 | ) |
Inventories | 2,142 |
| | (4,717 | ) |
Prepaid expenses and other assets | 5,723 |
| | (12,029 | ) |
Accounts payable | (11,161 | ) | | 21,521 |
|
Accrued expenses and other non-current liabilities | (64,151 | ) | | 25,638 |
|
Net cash provided by operating activities from continuing operations | 472,021 |
| | 472,793 |
|
| | | |
Cash flows from financing activities from continuing operations: | | | |
Net change in commercial paper borrowings | 187,935 |
|
| 163,395 |
|
Debt proceeds | 378,000 |
|
| 701,542 |
|
Debt repaid, including capital lease obligations | (205,324 | ) |
| (376,450 | ) |
Dividends on common stock | (29,656 | ) | | (27,825 | ) |
Common stock issued | 15,771 |
| | 20,257 |
|
Common stock repurchased | (23,290 | ) | | (42,047 | ) |
Excess tax benefits from share-based compensation | 968 |
| | 1,398 |
|
Debt issuance costs | (2,358 | ) | | (6,781 | ) |
Net cash provided by financing activities from continuing operations | 322,046 |
| | 433,489 |
|
| | | |
Cash flows from investing activities from continuing operations: | | | |
Purchases of property and revenue earning equipment | (1,203,985 | ) | | (817,377 | ) |
Sales of revenue earning equipment | 194,907 |
| | 136,578 |
|
Sale and leaseback of revenue earning equipment | 130,184 |
| | — |
|
Sales of operating property and equipment | 4,381 |
| | 6,180 |
|
Acquisitions | (2,426 | ) | | (348,584 | ) |
Collections on direct finance leases | 32,586 |
| | 30,046 |
|
Changes in restricted cash | 19,306 |
| | 2,662 |
|
Net cash used in investing activities from continuing operations | (825,047 | ) | | (990,495 | ) |
| | | |
Effect of exchange rate changes on cash | 1,216 |
| | 2,862 |
|
Decrease in cash and cash equivalents from continuing operations | (29,764 | ) | | (81,351 | ) |
| | | |
Cash flows from discontinued operations: | | | |
Operating cash flows | (2,274 | ) | | (1,603 | ) |
Financing cash flows | — |
|
| 27 |
|
Investing cash flows | — |
| | — |
|
Effect of exchange rate changes on cash | 25 |
| | 30 |
|
Decrease in cash and cash equivalents from discontinued operations | (2,249 | ) | | (1,546 | ) |
| | | |
Decrease in cash and cash equivalents | (32,013 | ) | | (82,897 | ) |
Cash and cash equivalents at January 1 | 104,572 |
| | 213,053 |
|
Cash and cash equivalents at June 30 | $ | 72,559 |
| | 130,156 |
|
See accompanying notes to consolidated condensed financial statements.
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, 2011 | $ | — |
| | 51,143,946 |
| | $ | 25,572 |
| | 769,383 |
| | 1,090,363 |
| | (567,165 | ) | | 1,318,153 |
|
Components of comprehensive income: | | | | | | | | | | | | | |
Net earnings | — |
| | — |
| | — |
| | — |
| | 81,044 |
| | — |
| | 81,044 |
|
Foreign currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | 5,844 |
| | 5,844 |
|
Unrealized gain related to derivatives | — |
| | — |
| | — |
| | — |
| | — |
| | 19 |
| | 19 |
|
Amortization of pension and postretirement items, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 6,746 |
| | 6,746 |
|
Total comprehensive income | | | | | | | | | | | | | 93,653 |
|
Common stock dividends declared — $0.58 per share | — |
| | — |
| | — |
| | — |
| | (29,767 | ) | | — |
| | (29,767 | ) |
Common stock issued under employee stock option and stock purchase plans (1) | — |
| | 445,086 |
| | 223 |
| | 15,548 |
| | — |
| | — |
| | 15,771 |
|
Benefit plan stock purchases (2) | — |
| | (9,130) |
| | (5 | ) | | (418 | ) | | — |
| | — |
| | (423 | ) |
Common stock repurchases | — |
| | (456,700 | ) | | (228 | ) | | (6,867 | ) | | (15,772 | ) | | — |
| | (22,867 | ) |
Share-based compensation | — |
| | — |
| | — |
| | 9,085 |
| | — |
| | — |
| | 9,085 |
|
Tax benefits from share-based compensation | — |
| | — |
| | — |
| | 803 |
| | — |
| | — |
| | 803 |
|
Balance at June 30, 2012 | $ | — |
| | 51,123,202 |
| | $ | 25,562 |
| | 787,534 |
| | 1,125,868 |
| | (554,556 | ) | | 1,384,408 |
|
————————————
(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.
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 2011 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.
In the fourth quarter of 2011, we revised our Consolidated Condensed Statements of Comprehensive Income presentation to disaggregate our revenues and direct costs into three categories: lease and rental, services and fuel. We changed our business segments and our primary measure of segment operating performance. Prior to 2012, our business was divided into three business segments: Fleet Management Solutions (FMS), Supply Chain Solutions (SCS), and Dedicated Contract Carriage (DCC). In the first quarter of 2012, the SCS and DCC reportable business segments were combined as a result of aligning our internal reporting with how we operate our business. Our primary measurement of segment operating performance, “Earnings Before Taxes” (EBT) from continuing operations, was changed in 2012 to exclude the non-service components of pension costs in order to more accurately reflect the operating performance of the business segments. Prior year amounts have been reclassified to conform to the current period presentation.
(B) ACCOUNTING CHANGES
In June 2011, the Financial Accounting Standards Board (FASB) issued accounting guidance on the presentation of comprehensive income. Under this guidance, entities have the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance was amended in December 2011 to defer the requirement to present the effects of reclassification adjustments out of accumulated other comprehensive income on the components of net income. We adopted this guidance in the first quarter of 2012 and have presented total comprehensive income in a single continuous statement which contains two sections, net earnings and comprehensive income. This accounting guidance only impacted presentation and did not have an impact on our consolidated financial position, results of operations or cash flows.
(C) ACQUISITIONS
Hill Hire plc — On June 8, 2011, we acquired all of the common stock of Hill Hire plc (Hill Hire), a U.K. based full service leasing, rental and maintenance company for a purchase price of $251.5 million, net of cash acquired, all of which was paid in 2011. The acquisition included Hill Hire’s fleet of approximately 8,000 full service lease vehicles and 5,700 rental vehicles, and approximately 400 contractual customers. The acquired fleet included 9,700 trailers. The combined network operates under the Ryder name, complementing our FMS business segment market coverage in the U.K. During the six months ended June 30, 2012, purchase price adjustments totaled $1.8 million and related to adjustments to the fair value of liabilities assumed and revenue earning equipment.
Pro Forma Information — The operating results of Hill Hire have been included in the consolidated condensed financial statements from the date of acquisition. The following table provides the unaudited pro forma revenues, net earnings and earnings per common share for the three and six months ended June 30, 2011 as if the results of the Hill Hire acquisition had been included in operations commencing January 1, 2010. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized had the acquisition been consummated during the period for which the pro forma information is presented, or of future results.
|
| | | | | | | |
| Three months ended June 30, 2011 | | Six months ended June 30, 2011 |
| (In thousands, except per share amounts) |
Revenue — As reported | $ | 1,513,344 |
| | $ | 2,938,720 |
|
Revenue — Pro forma | $ | 1,543,084 |
| | $ | 3,006,290 |
|
| | | |
Net earnings — As reported | $ | 40,033 |
| | $ | 65,158 |
|
Net earnings — Pro forma | $ | 48,017 |
| | $ | 80,230 |
|
| | | |
Net earnings per common share: | | | |
Basic — As reported | $ | 0.78 |
| | $ | 1.27 |
|
Basic — Pro forma | $ | 0.93 |
| | $ | 1.56 |
|
| | | |
Diluted — As reported | $ | 0.77 |
| | $ | 1.26 |
|
Diluted — Pro forma | $ | 0.93 |
| | $ | 1.55 |
|
Other Acquisitions—During 2011, we completed three other acquisitions of full service leasing and fleet service companies, one of which included the assets of the seller’s dedicated contract carriage business. The combined networks operate under the Ryder name, complementing our FMS and SCS business segment market coverage throughout the United States. The purchase price of these acquisitions totaled $113.8 million, of which $1.5 million and $92.9 million was paid during the six months ended June 30, 2012 and June 30, 2011, respectively. Goodwill and customer relationship intangibles related to these acquisitions totaled $28.4 million and $11.9 million, respectively. The following table provides further information regarding each of these acquisitions:
|
| | | | | | | | | | |
Company Acquired | | Date Acquired | | Segment | | Purchase Price | | Vehicles | | Contractual Customers |
Carmenita Leasing, Inc. | | January 10, 2011 | | FMS | | $9.0 million | | 190 | | 60 |
The Scully Companies | | January 28, 2011 | | FMS/SCS | | $91.0 million | | 2,100 | | 200 |
B.I.T Leasing | | April 1, 2011 | | FMS | | $13.8 million | | 490 | | 130 |
During the six months ended June 30, 2012 and June 30, 2011, we paid $0.9 million and $4.2 million, respectively, related to acquisitions completed in years prior to 2011.
(D) 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 June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| (In thousands) |
Pre-tax income (loss) from discontinued operations | $ | 66 |
| | (969 | ) | | $ | (509 | ) | | (1,716 | ) |
Income tax (expense) benefit | (110 | ) | | 88 |
| | (90 | ) | | 103 |
|
Loss from discontinued operations, net of tax | $ | (44 | ) | | (881 | ) | | $ | (599 | ) | | (1,613 | ) |
Results of discontinued operations in 2012 and 2011 included losses related to adverse legal developments and professional and administrative fees associated with our discontinued South American operations. Results of discontinued operations in the second quarter of 2012 also included $0.6 million of pre-tax income related to the sub-lease of a SCS facility in Europe in June 2012.
The following is a summary of assets and liabilities of discontinued operations:
|
| | | | | | |
| June 30, 2012 | | December 31, 2011 |
| (In thousands) |
Total assets, primarily deposits | $ | 4,699 |
| | 4,600 |
|
Total liabilities, primarily contingent accruals | $ | 6,126 |
| | 6,502 |
|
Although we discontinued our 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. Other than with respect to the matters discussed below, 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 have been assessed $4.7 million (before and after tax) 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.
Additionally in Brazil, we have been assessed $5.6 million (before and after tax) for certain state operating tax credits utilized between 2001 and 2003. Although we believe it is reasonably possible that we could incur this loss, we believe it is more likely than not that our position will ultimately be sustained and no amounts have been reserved for these matters.
In Brazil, we were assessed $15.7 million, including penalties and interest, related to tax due on the sale of our outbound auto carriage business in 2001. On November 11, 2010, the Administrative Tax Court dismissed the assessment. The tax authority filed a motion to review the decision before the Administrative Tax Court. On December 6, 2011, the Administrative Tax Court upheld our position. In the first quarter of 2012, the tax authority decided not to file a final special appeal. The case was dismissed.
(E) 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.
The following table provides information on share-based compensation expense and income tax benefits recognized during the periods:
|
| | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| (In thousands) |
Stock option and stock purchase plans | $ | 2,274 |
| | 2,357 |
| | $ | 4,638 |
| | $ | 4,604 |
|
Nonvested stock | 2,374 |
| | 1,878 |
| | 4,447 |
| | 3,736 |
|
Share-based compensation expense | 4,648 |
| | 4,235 |
| | 9,085 |
| | 8,340 |
|
Income tax benefit | (1,522 | ) | | (1,415 | ) | | (3,006 | ) | | (2,787 | ) |
Share-based compensation expense, net of tax | $ | 3,126 |
| | 2,820 |
| | $ | 6,079 |
| | $ | 5,553 |
|
During the six months ended June 30, 2012 and 2011, approximately 460,000 and 700,000 stock options, respectively, were granted under the Plans. These awards generally vest evenly over a three year period from the date of grant and have contractual terms of seven years. The fair value of each option award at the date of grant was estimated using a Black-Scholes-Merton option-pricing valuation model. The weighted-average fair value per option granted during the six months ended June 30, 2012 and 2011 was $14.07 and $12.85, respectively.
During the six months ended June 30, 2012 and 2011, approximately 93,000 and 140,000 market-based restricted stock rights, respectively, were granted under the Plans. For the 2012 grant, the awards were segmented into three equal 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 target TSR of the S&P 500 over the applicable performance period. Employees will receive the grant of stock at the end of the three year period provided they continue to be employed with Ryder, subject to Compensation Committee approval. For grants prior to 2012, employees only receive the grant of stock if Ryder’s cumulative average TSR at least meets the S&P 500 cumulative average TSR over an applicable three-year period. 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 and fixed on the grant date and considers the likelihood of Ryder achieving the market-based condition. The weighted-average fair value per market-based restricted stock right granted during the six months ended June 30, 2012 and 2011 was $43.39 and $25.29, respectively.
During the six months ended June 30, 2012 and 2011, approximately 123,000 and 150,000 time-vested restricted stock rights and restricted stock units (RSU), respectively, were granted under the plans. The time-vested restricted stock rights entitle the holder to shares of common stock when the awards vest at the end of a three-year period. 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. The weighted-average fair value per time-vested restricted stock right and RSU granted during the six months ended June 30, 2012 and 2011 was $52.64 and $50.95, respectively.
During the six months ended June 30, 2012 and 2011, employees who received market-based restricted stock rights also received market-based cash awards. In addition, in 2012, the majority of the employees who received time-vested restricted stock also received market-based cash awards. For the 2012 grant, the cash awards have the same vesting provisions as the market-based restricted stock rights. For grants prior to 2012, the awards have the same vesting provisions as the market-based restricted stock rights except that Ryder’s TSR must at least meet the TSR of the 33rd percentile of the S&P 500. The cash awards are accounted for as liability awards under the share-based compensation accounting guidance as the awards are based upon the performance of our common stock and are settled in cash. As a result, the liability is adjusted to reflect fair value at the end of each reporting period. The fair value of the cash awards was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation.
The following table is a summary of compensation expense recognized for cash awards in addition to the share-based compensation expense reported in the previous table:
|
| | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| (In thousands) |
Cash awards | $788 | | 360 | | $1,385 | | 820 |
Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at June 30, 2012 was $37.9 million and is expected to be recognized over a weighted-average period of 2.1 years.
(F) 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 are considered participating securities since the share-based awards contain a non-forfeitable right to dividend equivalents irrespective of whether the awards ultimately vest. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings 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 June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| (In thousands, except per share amounts) |
Earnings per share — Basic: | | | | | | | |
Earnings from continuing operations | $ | 46,767 |
| | 40,914 |
| | 81,643 |
| | 66,771 |
|
Less: Distributed and undistributed earnings allocated to nonvested stock | (590 | ) | | (649 | ) | | (1,062 | ) | | (1,054 | ) |
Earnings from continuing operations available to common shareholders — Basic | $ | 46,177 |
| | 40,265 |
| | 80,581 |
| | 65,717 |
|
| | | | | | | |
Weighted average common shares outstanding — Basic | 50,433 |
| | 50,546 |
| | 50,459 |
| | 50,586 |
|
| | | | | | | |
Earnings from continuing operations per common share — Basic | $ | 0.92 |
| | 0.80 |
| | 1.60 |
| | 1.30 |
|
| | | | | | | |
Earnings per share — Diluted: | | | | | | | |
Earnings from continuing operations | $ | 46,767 |
| | 40,914 |
| | 81,643 |
| | 66,771 |
|
Less: Distributed and undistributed earnings allocated to nonvested stock | (587 | ) | | (645 | ) | | (1,057 | ) | | (1,049 | ) |
Earnings from continuing operations available to common shareholders — Diluted | $ | 46,180 |
| | 40,269 |
| | 80,586 |
| | 65,722 |
|
| | | | | | | |
Weighted average common shares outstanding — Basic | 50,433 |
| | 50,546 |
| | 50,459 |
| | 50,586 |
|
Effect of dilutive equity awards | 264 |
| | 457 |
| | 351 |
| | 421 |
|
Weighted average common shares outstanding — Diluted | 50,697 |
| | 51,003 |
| | 50,810 |
| | 51,007 |
|
| | | | | | | |
Earnings from continuing operations per common share — Diluted | $ | 0.91 |
| | 0.79 |
| | 1.59 |
| | 1.29 |
|
| | | | | | | |
Anti-dilutive equity awards and market-based restricted stock rights not included above | 2,414 |
| | 1,224 |
| | 2,044 |
| | 1,333 |
|
(G) RESTRUCTURING AND OTHER CHARGES
The components of restructuring and other charges, net in the three and six months ended June 30, 2012 and 2011, respectively, were as follows:
|
| | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Restructuring charges, net: | | | | | | | |
Severance and employee-related costs | $ | 7,142 |
| | — |
| | $ | 7,142 |
| | 393 |
|
Contract termination costs | — |
| | — |
| | 865 |
| | 375 |
|
Total | 7,142 |
| | — |
| | 8,007 |
| | 768 |
|
During the second quarter of 2012, we approved a plan to eliminate approximately 350 employees, primarily in the U.S., as a result of cost management actions. The workforce reduction resulted in a pre-tax restructuring charge of $7.1 million in the second quarter of 2012, all of which related to the payment of severance and other termination benefits. These actions will be substantially completed by the end of the third quarter of 2012. During the first half of 2012, we also recorded exit costs of $0.9 million associated with non-essential leased facilities assumed in the Hill Hire acquisition.
Restructuring charges, net of $0.8 million for the six months ended June 30, 2011 represented employee severance and benefit costs related to workforce reductions and termination costs associated with non-essential equipment contracts assumed in the Scully acquisition.
Activity related to restructuring reserves including discontinued operations were as follows:
|
| | | | | | | | | | | | | | | | | | |
| | | | | Deductions | | | | |
| December 31, 2011 | | Additions | | Cash Payments | | Non-Cash Reductions (1) | | Foreign Translation Adjustments | | June 30, 2012 |
| Balance | | | | | | Balance |
| (In thousands) |
Employee severance and benefits | $ | 2,607 |
| | 7,142 |
| | 1,160 |
| | — |
| | 7 |
| | 8,596 |
|
Contract termination costs | 2,639 |
| | 865 |
| | 659 |
| | 555 |
| | 46 |
| | 2,336 |
|
Total | $ | 5,246 |
| | 8,007 |
| | 1,819 |
| | 555 |
| | 53 |
| | 10,932 |
|
_________________________
(1) Non-cash reductions represent adjustments to the restructuring reserve as actual costs were less than originally estimated.
At June 30, 2012, the majority of outstanding restructuring obligations are required to be paid by January 2014.
As mentioned in Note T, "Segment Reporting," our primary measure of segment financial performance excludes, among other items, restructuring and other charges, net. However, the applicable portion of the restructuring and other charges, net that related to each segment for the three and six months ended June 30, 2012 and 2011, respectively, were as follows:
|
| | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Fleet Management Solutions | $ | 5,482 |
| | — |
| | $ | 6,347 |
| | 768 |
|
Supply Chain Solutions | 1,400 |
| | — |
| | 1,400 |
| | — |
|
Central Support Services (CSS) | 260 |
| | — |
| | 260 |
| | — |
|
Total | $ | 7,142 |
| | — |
| | $ | 8,007 |
| | 768 |
|
(H) DIRECT FINANCING LEASE RECEIVABLES
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. The net investment in direct financing and sales-type leases consisted of:
|
| | | | | | |
| June 30, 2012 | | December 31, 2011 |
| (In thousands) |
Total minimum lease payments receivable | $ | 631,504 |
| | 561,772 |
|
Less: Executory costs | (207,215 | ) | | (181,820 | ) |
Minimum lease payments receivable | 424,289 |
| | 379,952 |
|
Less: Allowance for uncollectibles | (738 | ) | | (903 | ) |
Net minimum lease payments receivable | 423,551 |
| | 379,049 |
|
Unguaranteed residuals | 62,846 |
| | 63,472 |
|
Less: Unearned income | (100,598 | ) | | (92,637 | ) |
Net investment in direct financing and sales-type leases | 385,799 |
| | 349,884 |
|
Current portion | (75,251 | ) | | (68,896 | ) |
Non-current portion | $ | 310,548 |
| | 280,988 |
|
Our direct financing lease customers operate in a wide variety of industries, and we have no significant customer concentrations in any one industry. We assess credit risk for all of our customers including those who lease equipment under direct financing leases. Credit risk is assessed using an internally developed model which incorporates credit scores from third party providers and our own custom risk ratings and is updated on a monthly basis. The external credit scores are developed based on the customer’s historical payment patterns and an overall assessment of the likelihood of delinquent payments. Our internal ratings are weighted based on the industry that the customer operates, company size, years in business, and other credit-related indicators (i.e. profitability, cash flow, liquidity, tangible net worth, etc.). Any one of the following factors may result in a customer being classified as high risk: i) the customer has a history of late payments; ii) the customer has open lawsuits, liens or judgments; iii) the customer has been in business less than 3 years; and iv) the customer operates in an industry with low barriers to entry. For those customers who are designated as high risk, we typically require deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicle’s fair value, which further mitigates our credit risk.
The following table presents the credit risk profile by creditworthiness category of our direct financing lease receivables:
|
| | | | | | |
| June 30, 2012 | | December 31, 2011 |
| (In thousands) |
Very low risk to low risk | $ | 173,294 |
| | 121,836 |
|
Moderate risk | 189,496 |
| | 190,070 |
|
Moderately high risk to high risk | 61,499 |
| | 68,046 |
|
| $ | 424,289 |
| | 379,952 |
|
The following table is a rollforward of the allowance for credit losses on direct financing lease receivables for the six months ended June 30, 2012:
|
| | | |
| |
| (In thousands) |
Balance at December 31, 2011 | $ | 903 |
|
Charged to earnings | 746 |
|
Deductions | (911 | ) |
Balance at June 30, 2012 | $ | 738 |
|
As of June 30, 2012, 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 as of June 30, 2012.
(I) REVENUE EARNING EQUIPMENT
|
| | | | | | | | | | | | | | | | | | |
| June 30, 2012 | | December 31, 2011 |
| Cost | | Accumulated Depreciation | | Net Book Value(1) | | Cost | | Accumulated Depreciation | | Net Book Value(1) |
| (In thousands) |
Held for use: | |
Full service lease | $ | 6,411,806 |
| | (2,494,425 | ) | | 3,917,381 |
| | 6,010,335 |
| | (2,518,830 | ) | | 3,491,505 |
|
Commercial rental | 2,155,275 |
| | (648,455 | ) | | 1,506,820 |
| | 2,175,003 |
| | (708,052 | ) | | 1,466,951 |
|
Held for sale | 486,408 |
| | (347,952 | ) | | 138,456 |
| | 326,692 |
| | (235,477 | ) | | 91,215 |
|
Total | $ | 9,053,489 |
| | (3,490,832 | ) | | 5,562,657 |
| | 8,512,030 |
| | (3,462,359 | ) | | 5,049,671 |
|
————————————
| |
(1) | Revenue earning equipment, net includes vehicles acquired under capital leases of $57.6 million, less accumulated depreciation of $15.3 million, at June 30, 2012, and $60.7 million, less accumulated depreciation of $14.4 million, at December 31, 2011. |
At the end of 2011, 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, 2012. The change in estimated residual values increased pre-tax earnings for the three and six months ended June 30, 2012 by approximately $4.5 million and $9.0 million, respectively.
In June of 2012, we completed a sale-leaseback transaction of revenue earning equipment with third parties not deemed to be VIEs and this transaction qualified for off-balance sheet treatment. Proceeds from the sale-leaseback transaction totaled $130.2 million. We did not enter into any sale-leaseback transactions during 2011.
(J) 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, 2012: | | | | | |
Goodwill | $ | 216,559 |
| | 189,968 |
| | 406,527 |
|
Accumulated impairment losses | (10,322 | ) | | (18,899 | ) | | (29,221 | ) |
| 206,237 |
| | 171,069 |
| | 377,306 |
|
Purchase accounting adjustments | 72 |
| | 97 |
| | 169 |
|
Foreign currency translation adjustments | 28 |
| | 36 |
| | 64 |
|
Balance at June 30, 2012: | | | | | |
Goodwill | 216,659 |
| | 190,101 |
| | 406,760 |
|
Accumulated impairment losses | (10,322 | ) | | (18,899 | ) | | (29,221 | ) |
| $ | 206,337 |
| | 171,202 |
| | 377,539 |
|
Purchase accounting adjustments primarily related to changes in the fair value of acquired revenue earning equipment. We did not recast the December 31, 2011 balance sheet as the adjustments are not material.
We assess goodwill for impairment on April 1st of each year or more often if deemed necessary. In the second quarter of 2012, we completed our annual goodwill impairment test and determined there was no impairment. As a result of combining the SCS and DCC reportable segments, all of the goodwill in DCC was allocated to the SCS reportable segment.
(K) ACCRUED EXPENSES AND OTHER LIABILITIES
|
| | | | | | | | | | | | | | | | | | |
| June 30, 2012 | | December 31, 2011 |
| Accrued Expenses | | Non-Current Liabilities | | Total | | Accrued Expenses | | Non-Current Liabilities | | Total |
| (In thousands) |
Salaries and wages | $ | 69,495 |
| | — |
| | 69,495 |
| | 121,087 |
| | — |
| | 121,087 |
|
Deferred compensation | 1,448 |
| | 21,950 |
| | 23,398 |
| | 1,405 |
| | 21,285 |
| | 22,690 |
|
Pension benefits | 3,126 |
| | 519,326 |
| | 522,452 |
| | 3,120 |
| | 546,681 |
| | 549,801 |
|
Other postretirement benefits | 2,839 |
| | 38,262 |
| | 41,101 |
| | 2,838 |
| | 40,154 |
| | 42,992 |
|
Insurance obligations, primarily self-insurance | 123,370 |
| | 168,066 |
| | 291,436 |
| | 120,045 |
| | 157,390 |
| | 277,435 |
|
Residual value guarantees | 1,969 |
| | 279 |
| | 2,248 |
| | 3,093 |
| | 1,125 |
| | 4,218 |
|
Accrued rent | 24,719 |
| | 5,922 |
| | 30,641 |
| | 4,088 |
| | 14,686 |
| | 18,774 |
|
Environmental liabilities | 4,476 |
| | 9,407 |
| | 13,883 |
| | 4,368 |
| | 9,171 |
| | 13,539 |
|
Asset retirement obligations | 5,861 |
| | 12,623 |
| | 18,484 |
| | 5,702 |
| | 12,364 |
| | 18,066 |
|
Operating taxes | 82,935 |
| | — |
| | 82,935 |
| | 81,820 |
| | — |
| | 81,820 |
|
Income taxes | 3,524 |
| | 71,209 |
| | 74,733 |
| | 4,160 |
| | 74,147 |
| | 78,307 |
|
Interest | 32,768 |
| | — |
| | 32,768 |
| | 30,410 |
| | — |
| | 30,410 |
|
Deposits, mainly from customers | 49,647 |
| | 6,235 |
| | 55,882 |
| | 50,951 |
| | 7,544 |
| | 58,495 |
|
Deferred revenue | 20,525 |
| | 191 |
| | 20,716 |
| | 20,698 |
| | 476 |
| | 21,174 |
|
Acquisition holdbacks | 4,556 |
| | — |
| | 4,556 |
| | 7,422 |
| | — |
| | 7,422 |
|
Other | 54,317 |
| | 9,369 |
| | 63,686 |
| | 46,423 |
| | 11,564 |
| | 57,987 |
|
Total | $ | 485,575 |
| | 862,839 |
| | 1,348,414 |
| | 507,630 |
| | 896,587 |
| | 1,404,217 |
|
(L) 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.
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 2007.
State — for the majority of states, tax returns are closed through fiscal year 2007.
Foreign — we are no longer subject to foreign tax examinations by tax authorities for tax years before 2004 in Canada, 2006 in Brazil, 2007 in Mexico and 2009 in the U.K., which are our major foreign tax jurisdictions. Refer to Note (D), "Discontinued Operations," for further discussion on the resolution of a Brazil tax assessment in the first quarter of 2012.
At June 30, 2012 and December 31, 2011, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $71.2 million and $69.2 million, respectively. Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by $13.9 million by June 30, 2013, if audits are completed or tax years close.
Like-Kind Exchange Program
We have a like-kind exchange program for certain of our revenue earning equipment operating in the U.S. Pursuant to the program, we dispose of vehicles and acquire replacement vehicles in a form whereby tax gains on disposal of eligible vehicles are deferred. To qualify for like-kind exchange treatment, we exchange through a qualified intermediary eligible vehicles being disposed of with vehicles being acquired, allowing us to generally carryover the tax basis of the vehicles sold (“like-kind exchanges”). The program results in a material deferral of federal and state income taxes. As part of the program, the proceeds from the sale of eligible vehicles are restricted for the acquisition of replacement vehicles and other specified applications. Due to the structure utilized to facilitate the like-kind exchanges, the qualified intermediary that holds the proceeds from the sales of eligible vehicles and the entity that holds the vehicles to be acquired under the program are required to be consolidated in the accompanying Consolidated Condensed Financial Statements in accordance with U.S. GAAP. At June 30, 2012 and December 31, 2011, these consolidated entities had total assets, primarily revenue earning equipment, and total liabilities, primarily accounts payable, of $27.2 million and $142.0 million, respectively. Effective April 1, 2012, we temporarily ceased the like-kind exchange program.
Tax Law Changes
On June 20, 2012, Ontario, Canada enacted legislation which sets the income tax rate at 11.5% starting in 2012. Previously enacted legislation would have lowered the income tax rate to 10.0% starting in 2013. The impact of this change resulted in a non-cash charge to deferred income taxes and a decrease to earnings for the three months ended June 30, 2012 of $0.7 million.
On May 25, 2011, the State of Michigan enacted changes to its tax system, which included a repeal of the Michigan Business Tax and replaced it with a corporate income tax. The impact of this change resulted in a non-cash charge to deferred income taxes and a decrease to earnings for the three and six months ended June 30, 2011 of $5.4 million.
On January 13, 2011, the State of Illinois enacted changes to its tax system, which included an increase to the corporate income tax rate from 4.8% to 7.0%. The impact of this change resulted in a non-cash charge to deferred income taxes and a decrease to earnings for the six months ended June 30, 2011 of $1.2 million.
Effective Tax Rate
Our effective income tax rate from continuing operations for the second quarter of 2012 was 36.6% compared with 45.5% in the same period of the prior year. The effective tax rate in the second quarter of 2011 was negatively impacted by a tax law change in Michigan which increased the provision for income taxes by $5.4 million and our effective rate by 7.1%. The decrease in the effective income tax rate from continuing operations also reflects a higher proportionate amount of earnings in lower rate jurisdictions.
Our effective income tax rate from continuing operations for the six months ended June 30, 2012 was 32.8% compared with 43.7% in the same period of the prior year. The effective rate from continuing operations in the first half of 2012 was favorably impacted by a tax benefit of $5.0 million or 4.1% of earnings before tax relating to the favorable resolution of a tax item from prior periods and a higher proportionate amount of earnings in lower rate jurisdictions. The effective rate from continuing operations in the first half of 2011 was negatively impacted by tax law changes in the States of Michigan and Illinois. For the first half of 2011, these tax law changes increased our provision for income taxes by $6.6 million and our effective rate by 5.5%.
(M) DEBT
|
| | | | | | | | | | | | | | |
| Weighted-Average Interest Rate | | | | | | |
| June 30, 2012 | | December 31, 2011 | | Maturities | | June 30, 2012 | | December 31, 2011 |
| | | | | | | (In thousands) |
Short-term debt and current portion of long-term debt: | | | | | | | | | |
Short-term debt | 1.50 | % | | 1.45 | % | | 2012 | | $ | 5,612 |
| | 5,091 |
|
Current portion of long-term debt, including capital leases | | | | | | | 375,949 |
| | 269,275 |
|
Total short-term debt and current portion of long-term debt | | | | | | | 381,561 |
| | 274,366 |
|
Long-term debt: | | | | | | | | | |
U.S. commercial paper (1) | 0.46 | % | | 0.40 | % | | 2016 | | 571,897 |
| | 415,936 |
|
Canadian commercial paper (1) | 1.15 | % | | — | % | | 2016 | | 32,446 |
| | — |
|
Global revolving credit facility | 1.53 | % | | 1.52 | % | | 2016 | | 26,542 |
| | 1,000 |
|
Unsecured U.S. notes — Medium-term notes (1) | 4.23 | % | | 4.49 | % | | 2012-2025 | | 2,635,151 |
| | 2,484,712 |
|
Unsecured U.S. obligations, principally bank term loans | 1.70 | % | | 1.78 | % | | 2012-2017 | | 105,500 |
| | 105,000 |
|
Unsecured foreign obligations | 2.31 | % | | 2.71 | % | | 2014-2016 | | 303,374 |
| | 300,516 |
|
Capital lease obligations | 4.12 | % | | 4.24 | % | | 2012-2018 | | 45,235 |
| | 48,047 |
|
Total before fair market value adjustment | | | | | | | 3,720,145 |
| | 3,355,211 |
|
Fair market value adjustment on notes subject to hedging (2) | | | | | | 19,891 |
| | 21,843 |
|
| | | | | | | 3,740,036 |
| | 3,377,054 |
|
Current portion of long-term debt, including capital leases | | | | | | | (375,949 | ) | | (269,275 | ) |
Long-term debt | | | | | | | 3,364,087 |
| | 3,107,779 |
|
Total debt | | | | | | | $ | 3,745,648 |
| | 3,382,145 |
|
————————————
| |
(1) | We had unamortized original issue discounts of $9.0 million and $8.7 million at June 30, 2012 and December 31, 2011, respectively. |
| |
(2) | The notional amount of executed interest rate swaps designated as fair value hedges was $550 million at June 30, 2012 and December 31, 2011. |
We can borrow up to $900 million under a 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. This facility matures in June 2016 and is used primarily to finance working capital and provide support for the issuance of unsecured commercial paper in the U.S. and Canada. This facility can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at June 30, 2012). 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 10.0 basis points to 32.5 basis points, and are based on Ryder’s long-term credit ratings. The current annual facility fee is 15.0 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 and amended in April 2012, represents shareholders' equity excluding any accumulated other comprehensive income or loss associated with our pension and other postretirement plans. The ratio at June 30, 2012 was 189%.
Our global revolving credit facility permits us to refinance short-term commercial paper obligations on a long-term basis. Settlement of short-term commercial paper obligations not expected to require the use of working capital are classified as long-term as we have both the intent and ability to refinance on a long-term basis. At June 30, 2012 and December 31, 2011, we classified $604.3 million and $415.9 million, respectively, of short-term commercial paper as long-term debt.
In February 2012, we issued $350 million of unsecured medium-term notes maturing in March 2017. 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 26, 2012. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectability of the collateralized receivables. At June 30, 2012 and December 31, 2011, 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 June 30, 2012 and December 31, 2011, we had letters of credit and surety bonds outstanding totaling $270.5 million and $271.0 million, respectively, which primarily guarantee the payment of insurance claims.
(N) 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 June 30, 2012 Using | | Total |
| | Level 1 | | Level 2 | | Level 3 | |
| | | (In thousands) |
Assets: | | | | | | | | | |
Interest rate swap | Prepaid expenses and other current assets | | $ | — |
| | 5,123 |
| | — |
| | 5,123 |
|
Interest rate swaps | DFL and other assets | | — |
| | 14,768 |
| | — |
| | 14,768 |
|
Investments held in Rabbi Trusts: | | | | | | | | | |
Cash and cash equivalents | | | 3,334 |
| | — |
| | — |
| | 3,334 |
|
U.S. equity mutual funds | | | 10,224 |
| | — |
| | — |
| | 10,224 |
|
Foreign equity mutual funds | | | 2,653 |
| | — |
| | — |
| | 2,653 |
|
Fixed income mutual funds | | | 4,294 |
| | — |
| | — |
| | 4,294 |
|
Investments held in Rabbi Trusts | DFL and other assets | | 20,505 |
| | — |
| | — |
| | 20,505 |
|
Total assets at fair value | | | $ | 20,505 |
| | 19,891 |
| | — |
| | 40,396 |
|
|
| | | | | | | | | | | | | | |
| Balance Sheet Location | | Fair Value Measurements At December 31, 2011 Using | | Total |
| | Level 1 | | Level 2 | | Level 3 | |
| | | (In thousands) |
Assets: | | | |
Interest rate swaps | DFL and other assets | | $ | — |
| | 21,843 |
| | — |
| | 21,843 |
|
Investments held in Rabbi Trusts: | | | | | | | | | |
Cash and cash equivalents | | | 3,783 |
| | — |
| | — |
| | 3,783 |
|
U.S. equity mutual funds | | | 8,850 |
| | — |
| | — |
| | 8,850 |
|
Foreign equity mutual funds | | | 2,526 |
| | — |
| | — |
| | 2,526 |
|
Fixed income mutual funds | | | 3,537 |
| | — |
| | — |
| | 3,537 |
|
Investments held in Rabbi Trusts | DFL and other assets | | 18,696 |
| | — |
| | — |
| | 18,696 |
|
Total assets at fair value | | | $ | 18,696 |
| | 21,843 |
| | — |
| | 40,539 |
|
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Contingent consideration | Accrued expenses | | $ | — |
| | — |
| | 1,000 |
| | 1,000 |
|
Total liabilities at fair value | | | $ | — |
| | — |
| | 1,000 |
| | 1,000 |
|
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:
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 represents the net asset value of the shares and were therefore classified within Level 1 of the fair value hierarchy.
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.
Contingent consideration — Fair value was based on the income approach and uses significant inputs that are not observable in the market. These inputs are based on our expectations as to what amount we will pay based on contractual provisions. Therefore, the liability was classified within Level 3 of the fair value hierarchy.
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 June 30, 2012 Using | | Total Losses (2) |
| Level 1 | | Level 2 | | Level 3 | | Three months ended | | Six months ended |
| (In thousands) |
Assets held for sale: | | | | | | | | | |
Revenue earning equipment: (1) | | | | | | | | | |
Trucks | $ | — |
| | — |
| | 9,992 |
| | $ | 3,108 |
| | $ | 5,489 |
|
Tractors | — |
| | — |
| | 6,361 |
| | 1,071 |
| | 1,542 |
|
Trailers | — |
| | — |
| | 584 |
| | 276 |
| | 783 |
|
Total assets at fair value | $ | — |
| | — |
| | 16,937 |
| | $ | 4,455 |
| | $ | 7,814 |
|
|
| | | | | | | | | | | | | | | | | |
| Fair Value Measurements At June 30, 2011 Using | | Total Losses (2) |
| Level 1 | | Level 2 | | Level 3 | | Three months ended | | Six months ended |
| (In thousands) |
Assets held for sale: | | | | | | | | | |
Revenue earning equipment (1) | | | | | | | | | |
Trucks | $ | — |
| | — |
| | 8,090 |
| | $ | 1,411 |
| | $ | 2,600 |
|
Tractors | — |
| | — |
| | 2,569 |
| | 345 |
| | 952 |
|
Trailers | — |
| | — |
| | 352 |
| | 207 |
| | 510 |
|
Total assets at fair value | $ | — |
| | — |
| | 11,011 |
| | $ | 1,963 |
| | $ | 4,062 |
|
————————————
| |
(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 Comprehensive Income. 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 June 30, 2012 and December 31, 2011 was approximately $3.89 billion and $3.51 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, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturities of these financial instruments.
(O) DERIVATIVES
Interest Rate Swaps
As of June 30, 2012, 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 June 30, 2012:
|
| | | | | | | | | | | | |
| | 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 June 30, |
Issuance date | | | | | | 2012 | | 2011 |
| | | | (Dollars in thousands) | | | | | | |
May 2011 | | June 2017 | | $350,000 | | $150,000 | | 3.50% | | 1.83% | | 1.50% |
February 2011 | | March 2015 | | $350,000 | | $150,000 | | 3.15% | | 1.70% | | 1.42% |
February 2008 | | March 2013 | | $250,000 | | $250,000 | | 6.00% | | 2.88% | | 2.59% |
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 Comprehensive Income were as follows:
|
| | | | | | | | | | | | | | | | |
Fair Value Hedging Relationship | | Location of Gain (Loss) Recognized in Income | | Three months ended June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| | | | (In thousands) |
Derivatives: Interest rate swaps | | Interest expense | | $ | 218 |
| | 2,161 |
| | $ | (1,952 | ) | | 1,012 |
|
Hedged items: Fixed-rate debt | | Interest expense | | (218 | ) | | (2,161 | ) | | 1,952 |
| | (1,012 | ) |
Total | | | | $ | — |
| | — |
| | $ | — |
| | — |
|
Refer to Note (N), "Fair Value Measurements," for disclosures of the fair value and line item caption of derivative instruments recorded on the Consolidated Condensed Balance Sheets.
(P) SHARE REPURCHASE PROGRAMS
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 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, 2011 through December 13, 2013. The December 2011 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 established prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2011 program, which allow for share repurchases during Ryder's quarterly blackout periods as set forth in the trading plan. For the three months ended June 30, 2012, we repurchased and retired 233,500 shares under this program at an aggregate cost of $10.9 million. For the six months ended June 30, 2012, we repurchased and retired 456,700 shares under this program at an aggregate cost of $22.9 million.
In December 2009, our Board of Directors authorized a two-year anti-dilutive share repurchase program. The December 2009 program limited aggregate share repurchases to no more than 2 million shares of Ryder common stock. For the three months ended June 30, 2011, we repurchased and retired 570,000 shares under this program at an aggregate cost of $29.9 million. For the six months ended June 30, 2011, we repurchased and retired 820,000 shares under this program at an aggregate cost of $41.9 million. We completed the December 2009 share repurchase program in December 2011.
(Q) EMPLOYEE BENEFIT PLANS
Components of net periodic benefit cost were as follows:
|
| | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| (In thousands) |
Pension Benefits | | | | | | | |
Company-administered plans: | | | | | | | |
Service cost | $ | 3,826 |
| | 3,616 |
| | $ | 7,733 |
| | 7,383 |
|
Interest cost | 23,563 |
| | 24,384 |
| | 47,252 |
| | 48,874 |
|
Expected return on plan assets | (24,055 | ) | | (25,177 | ) | | (48,112 | ) | | (51,036 | ) |
Amortization of: | | | | | | | |
Transition obligation | — |
| | (7 | ) | | — |
| | (15 | ) |
Net actuarial loss | 7,726 |
| | 5,002 |
| | 15,587 |
| | 10,131 |
|
Prior service credit | (567 | ) | | (572 | ) | | (1,136 | ) | | (1,142 | ) |
| 10,493 |
| | 7,246 |
| | 21,324 |
| | 14,195 |
|
Union-administered plans | 1,630 |
| | 1,455 |
| | 3,244 |
| | 2,796 |
|
Net periodic benefit cost | $ | 12,123 |
| | 8,701 |
| | $ | 24,568 |
| | 16,991 |
|
| | | | | | | |
Company-administered plans: | | | | | | | |
U.S. | $ | 9,643 |
| | 7,387 |
| | $ | 19,491 |
| | 14,487 |
|
Non-U.S. | 850 |
| | (141 | ) | | 1,833 |
| | (292 | ) |
| 10,493 |
| | 7,246 |
| | 21,324 |
| | 14,195 |
|
Union-administered plans | 1,630 |
| | 1,455 |
| | 3,244 |
| | 2,796 |
|
| $ | 12,123 |
| | 8,701 |
| | $ | 24,568 |
| | 16,991 |
|
| | | | | | | |
Postretirement Benefits | | | | | | | |
Company-administered plans: | | | | | | | |
Service cost | $ | 227 |
| | 303 |
| | $ | 547 |
| | 650 |
|
Interest cost | 475 |
| | 585 |
| | 989 |
| | 1,254 |
|
Amortization of: | | | | | | | |
Net actuarial (gain) loss | (7 | ) | | 31 |
| | (10 | ) | | 137 |
|
Prior service credit | (57 | ) | | (57 | ) | | (115 | ) | | (115 | ) |
Net periodic benefit cost | $ | 638 |
| | 862 |
| | $ | 1,411 |
| | 1,926 |
|
| | | | | | | |
Company-administered plans: | | | | | | | |
U.S. | $ | 519 |
| | 694 |
| | $ | 1,071 |
| | 1,577 |
|
Non-U.S. | 119 |
| | 168 |
| | 340 |
| | 349 |
|
| $ | 638 |
| | 862 |
| | $ | 1,411 |
| | 1,926 |
|
Pension Contributions
During the six months ended June 30, 2012, we contributed $39.9 million to our pension plans. During the second half of 2012, we expect to contribute approximately $41 million to our pension plans.
Savings Plans
Employees who do not actively participate in pension plans and are not covered by union-administered plans are generally eligible to participate in enhanced savings plans. Plans provide for (i) a company contribution even if employees do not make contributions, (ii) a company match of employee contributions of eligible pay, subject to tax limits and (iii) a discretionary company match. During the three months ended June 30, 2012 and 2011, we recognized total savings plan costs of $7.7 million and $12.3 million, respectively. During the six months ended June 30, 2012 and 2011, we recognized total savings plan costs of $16.1 million and $20.5 million, respectively.
(R) 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 second quarter of 2011, we incurred $1.7 million of transaction costs related to the acquisition of Hill Hire. These costs were primarily recorded within “Selling, general and administrative expenses” in our Consolidated Statements of Comprehensive Income.
(S) SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information was as follows:
|
| | | | | | |
| Six months ended June 30, |
| 2012 | | 2011 |
| (In thousands) |
Interest paid | $ | 64,060 |
| | 61,502 |
|
Income taxes paid | $ | 6,644 |
| |