Ryder 1st Quarter 2015 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 1-4364
RYDER SYSTEM, INC.
(Exact name of registrant as specified in its charter)
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Florida | 59-0739250 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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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.
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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 March 31, 2015 was 53,309,221.
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 EARNINGS
(unaudited)
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| | | | | | |
| Three months ended March 31, |
| 2015 | | 2014 |
| (In thousands, except per share amounts) |
Lease and rental revenues | $ | 729,024 |
| | 689,682 |
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Services revenue | 693,704 |
| | 709,699 |
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Fuel services revenue | 144,425 |
| | 211,356 |
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Total revenues | 1,567,153 |
| | 1,610,737 |
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| | | |
Cost of lease and rental | 519,174 |
| | 493,043 |
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Cost of services | 582,330 |
| | 606,229 |
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Cost of fuel services | 136,289 |
| | 207,205 |
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Other operating expenses | 34,744 |
| | 36,645 |
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Selling, general and administrative expenses | 206,605 |
| | 191,702 |
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Gains on vehicle sales, net | (29,579 | ) | | (28,818 | ) |
Interest expense | 35,849 |
| | 35,109 |
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Miscellaneous income, net | (2,637 | ) | | (5,382 | ) |
| 1,482,775 |
| | 1,535,733 |
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Earnings from continuing operations before income taxes | 84,378 |
| | 75,004 |
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Provision for income taxes | 30,925 |
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| 25,906 |
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Earnings from continuing operations | 53,453 |
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| 49,098 |
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Loss from discontinued operations, net of tax | (537 | ) | | (866 | ) |
Net earnings | $ | 52,916 |
| | 48,232 |
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| | | |
Earnings (loss) per common share — Basic | | | |
Continuing operations | $ | 1.01 |
| | 0.93 |
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Discontinued operations | (0.01 | ) | | (0.02 | ) |
Net earnings | $ | 1.00 |
| | 0.91 |
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| | | |
Earnings (loss) per common share — Diluted | | | |
Continuing operations | $ | 1.00 |
| | 0.92 |
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Discontinued operations | (0.01 | ) | | (0.02 | ) |
Net earnings | $ | 0.99 |
| | 0.90 |
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| | | |
Cash dividends declared per common share | $ | 0.37 |
| | 0.34 |
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See accompanying notes to consolidated condensed financial statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
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| Three months ended March 31, |
| 2015 | | 2014 |
| (In thousands) |
| | | |
Net earnings | $ | 52,916 |
| | 48,232 |
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| | | |
Other comprehensive loss: | | | |
| | | |
Changes in cumulative translation adjustment and other | (57,372 | ) | | (14,592 | ) |
| | | |
Amortization of pension and postretirement items | 7,058 |
| | 5,033 |
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Income tax expense related to amortization of pension and postretirement items | (2,448 | ) | | (1,906 | ) |
Amortization of pension and postretirement items, net of taxes | 4,610 |
| | 3,127 |
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Other comprehensive loss, net of taxes | (52,762 | ) | | (11,465 | ) |
| | | |
Comprehensive income | $ | 154 |
| | 36,767 |
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See accompanying notes to consolidated condensed financial statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
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| March 31, 2015 | | December 31, 2014 |
| (Dollars in thousands, except per share amount) |
Assets: | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 72,199 |
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| 50,092 |
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Receivables, net of allowance of $15,372 and $16,388, respectively | 778,280 |
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| 794,864 |
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Inventories | 63,021 |
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| 66,007 |
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Prepaid expenses and other current assets | 164,519 |
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| 165,234 |
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Total current assets | 1,078,019 |
| | 1,076,197 |
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Revenue earning equipment, net of accumulated depreciation of $3,679,498 and $3,648,704, respectively | 7,208,345 |
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| 6,994,448 |
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Operating property and equipment, net of accumulated depreciation of $1,046,137 and $1,035,028, respectively | 700,118 |
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| 699,594 |
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Goodwill | 391,082 |
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| 393,029 |
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Intangible assets | 63,977 |
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| 66,619 |
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Direct financing leases and other assets | 465,250 |
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| 446,099 |
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Total assets | $ | 9,906,791 |
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| 9,675,986 |
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| | | |
Liabilities and shareholders’ equity: | | | |
Current liabilities: | | | |
Short-term debt and current portion of long-term debt | $ | 11,417 |
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| 12,207 |
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Accounts payable | 625,473 |
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| 560,852 |
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Accrued expenses and other current liabilities | 489,647 |
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| 520,532 |
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Total current liabilities | 1,126,537 |
| | 1,093,591 |
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Long-term debt | 4,692,503 |
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| 4,500,275 |
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Other non-current liabilities | 788,094 |
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| 786,676 |
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Deferred income taxes | 1,488,111 |
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| 1,475,970 |
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Total liabilities | 8,095,245 |
| | 7,856,512 |
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Shareholders’ equity: | | | |
Preferred stock of no par value per share — authorized, 3,800,917; none outstanding, March 31, 2015 or December 31, 2014 | — |
| | — |
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Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding, March 31, 2015 — 53,309,221; December 31, 2014 — 53,039,688 | 26,655 |
| | 26,520 |
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Additional paid-in capital | 978,748 |
| | 962,328 |
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Retained earnings | 1,479,175 |
| | 1,450,896 |
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Accumulated other comprehensive loss | (673,032 | ) | | (620,270 | ) |
Total shareholders’ equity | 1,811,546 |
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| 1,819,474 |
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Total liabilities and shareholders’ equity | $ | 9,906,791 |
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| 9,675,986 |
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See accompanying notes to consolidated condensed financial statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
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| Three months ended March 31, |
| 2015 | | 2014 |
| (In thousands) |
Cash flows from operating activities from continuing operations: | | | |
Net earnings | $ | 52,916 |
| | 48,232 |
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Less: Loss from discontinued operations, net of tax | (537 | ) | | (866 | ) |
Earnings from continuing operations | 53,453 |
| | 49,098 |
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Depreciation expense | 262,395 |
| | 248,815 |
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Gains on vehicle sales, net | (29,579 | ) | | (28,818 | ) |
Share-based compensation expense | 5,665 |
| | 4,858 |
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Amortization expense and other non-cash charges, net | 13,317 |
| | 14,097 |
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Deferred income tax expense | 26,719 |
| | 21,653 |
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Changes in operating assets and liabilities, net of acquisitions: | | | |
Receivables | 10,775 |
| | (41,526 | ) |
Inventories | 2,563 |
| | (629 | ) |
Prepaid expenses and other assets | (17,093 | ) | | (14,410 | ) |
Accounts payable | (28,847 | ) | | 14,423 |
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Accrued expenses and other non-current liabilities | (21,490 | ) | | (29,901 | ) |
Net cash provided by operating activities from continuing operations | 277,878 |
| | 237,660 |
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Cash flows from financing activities from continuing operations: | | | |
Net change in commercial paper borrowings | 204,750 |
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| 142,834 |
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Debt proceeds | 455,111 |
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| 366,612 |
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Debt repaid, including capital lease obligations | (457,569 | ) |
| (252,845 | ) |
Dividends on common stock | (20,084 | ) | | (18,005 | ) |
Common stock issued | 11,846 |
| | 18,526 |
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Common stock repurchased | (6,141 | ) | | (40,437 | ) |
Excess tax benefits from share-based compensation | 620 |
| | 293 |
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Debt issuance costs | (3,696 | ) | | (1,809 | ) |
Net cash provided by financing activities from continuing operations | 184,837 |
| | 215,169 |
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Cash flows from investing activities from continuing operations: | | | |
Purchases of property and revenue earning equipment | (553,242 | ) | | (578,722 | ) |
Sales of revenue earning equipment | 96,821 |
| | 125,673 |
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Sales of operating property and equipment | 273 |
| | 2,004 |
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Acquisitions | — |
| | (1,649 | ) |
Collections on direct finance leases | 16,243 |
| | 16,184 |
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Changes in restricted cash | (912 | ) | | (4,087 | ) |
Other | — |
| | (1,250 | ) |
Net cash used in investing activities from continuing operations | (440,817 | ) | | (441,847 | ) |
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Effect of exchange rate changes on cash | 756 |
| | 1,369 |
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Increase in cash and cash equivalents from continuing operations | 22,654 |
| | 12,351 |
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Decrease in cash and cash equivalents from discontinued operations | (547 | ) | | (1,127 | ) |
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Increase in cash and cash equivalents | 22,107 |
| | 11,224 |
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Cash and cash equivalents at January 1 | 50,092 |
| | 61,562 |
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Cash and cash equivalents at March 31 | $ | 72,199 |
| | 72,786 |
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See accompanying notes to consolidated condensed financial statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
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| 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, 2014 | $ | — |
| | 53,039,688 |
| | $ | 26,520 |
| | 962,328 |
| | 1,450,896 |
| | (620,270 | ) | | 1,819,474 |
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Comprehensive income | — |
| | — |
| | — |
| | — |
| | 52,916 |
| | (52,762 | ) | | 154 |
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Common stock dividends declared — $0.37 per share | — |
| | — |
| | — |
| | — |
| | (19,746 | ) | | — |
| | (19,746 | ) |
Common stock issued under employee stock option and stock purchase plans (1) | — |
| | 338,009 |
| | 170 |
| | 11,623 |
| | — |
| | — |
| | 11,793 |
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Benefit plan stock sales (2) | — |
| | 631 |
| | — |
| | 53 |
| | — |
| | — |
| | 53 |
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Common stock repurchases | — |
| | (69,107 | ) | | (35 | ) | | (1,215 | ) | | (4,891 | ) | | — |
| | (6,141 | ) |
Share-based compensation | — |
| | — |
| | — |
| | 5,665 |
| | — |
| | — |
| | 5,665 |
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Tax benefits from share-based compensation | — |
| | — |
| | — |
| | 294 |
| | — |
| | — |
| | 294 |
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Balance at March 31, 2015 | $ | — |
| | 53,309,221 |
| | $ | 26,655 |
| | 978,748 |
| | 1,479,175 |
| | (673,032 | ) | | 1,811,546 |
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(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 2014 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. 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.
During the first quarter of 2015, our management structure changed within the supply chain business. We created the role of President of Dedicated Transportation Solutions (DTS) for the dedicated product offering which was within Supply Chain Solutions (SCS). Beginning with the period ended March 31, 2015, we are reporting our financial performance based on our new segments: (1) Fleet Management Solutions (FMS), which provides full service leasing, commercial rental, contract maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides vehicles and drivers as part of a dedicated transportation solution in the U.S; and (3) SCS, which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated services provided as part of an integrated, multi-service, supply chain solution will continue to be reported in the SCS business segment where those services will continue to be managed. As a result, we recasted certain prior period amounts to conform to the way we internally manage and monitor segment performance during the year. This change impacted Note (F), "Goodwill," and Note (Q), "Segment Reporting," with no impact on consolidated revenues, net income or cash flows.
(B) RECENT ACCOUNTING PRONOUNCEMENTS
Presentation of Debt Issuance Costs
On April 7, 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires an entity to present debt issuance costs as a direct deduction from the carrying amount of the related debt liability on the balance sheet. The update requires retrospective application and represents a change in accounting principle. The update becomes effective January 1, 2016. Based on the balances as of March 31, 2015, the adoption of this ASU will require us to reclassify $18.7 million of unamortized debt issuance costs from "Direct financing leases and other assets" to "Long-term debt."
Revenue Recognition
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance when it becomes effective January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition methods. We are evaluating the effect that this ASU will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our consolidated financial position and results of operations.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(C) 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 nonvested stock awards but 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:
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| Three months ended March 31, |
| 2015 | | 2014 |
| (In thousands) |
Stock option and stock purchase plans | $ | 2,301 |
| | 2,237 |
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Nonvested stock | 3,364 |
| | 2,621 |
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Share-based compensation expense | 5,665 |
| | 4,858 |
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Income tax benefit | (1,882 | ) | | (1,676 | ) |
Share-based compensation expense, net of tax | $ | 3,783 |
| | 3,182 |
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During the three months ended March 31, 2015 and 2014, approximately 358,000 and 405,000 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, 2015 and 2014 was $18.46 and $14.99, respectively.
During the three months ended March 31, 2015 and 2014, approximately 19,000 and 22,000 market-based restricted stock rights were granted, respectively, under the Plans. The awards are segmented into three performance periods of one, two and three years. At the end of each performance period, up to 125% of the award may be earned based on Ryder's total shareholder return (TSR) compared to the target TSR of a 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, 2015 and 2014 was $89.40 and $61.07, respectively.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
During the three months ended March 31, 2015 and 2014, approximately 35,000 and 42,000 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, up to 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, 2015 and 2014, approximately 42,000 and 30,000 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, 2015 and 2014 was $93.04 and $71.43, respectively.
During the three months ended March 31, 2015 and 2014, approximately 68,000 and 87,000 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, 2015 and 2014 was $93.50 and $71.40, respectively.
During the three months ended March 31, 2015 and 2014, employees 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:
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| | | | | | |
| Three months ended March 31, |
| 2015 | | 2014 |
| (In thousands) |
Cash awards | $ | 172 |
| | 523 |
|
Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at March 31, 2015 was $38.5 million and is expected to be recognized over a weighted-average period of 2.0 years.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(D) EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share from continuing operations:
|
| | | | | | |
| Three months ended March 31, |
| 2015 | | 2014 |
| (In thousands, except per share amounts) |
Earnings per share — Basic: | | | |
Earnings from continuing operations | $ | 53,453 |
| | 49,098 |
|
Less: Distributed and undistributed earnings allocated to nonvested stock | (147 | ) | | (255 | ) |
Earnings from continuing operations available to common shareholders — Basic | $ | 53,306 |
| | 48,843 |
|
| | | |
Weighted average common shares outstanding — Basic | 52,596 |
| | 52,660 |
|
| | | |
Earnings from continuing operations per common share — Basic | $ | 1.01 |
| | 0.93 |
|
| | | |
Earnings per share — Diluted: | | | |
Earnings from continuing operations | $ | 53,453 |
| | 49,098 |
|
Less: Distributed and undistributed earnings allocated to nonvested stock | (145 | ) | | (255 | ) |
Earnings from continuing operations available to common shareholders — Diluted | $ | 53,308 |
| | 48,843 |
|
| | | |
Weighted average common shares outstanding — Basic | 52,596 |
| | 52,660 |
|
Effect of dilutive equity awards | 510 |
| | 463 |
|
Weighted average common shares outstanding — Diluted | 53,106 |
| | 53,123 |
|
| | | |
Earnings from continuing operations per common share — Diluted | $ | 1.00 |
| | 0.92 |
|
| | | |
Anti-dilutive equity awards not included above | 184 |
| | 215 |
|
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(E) REVENUE EARNING EQUIPMENT
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2015 | | December 31, 2014 |
| Cost | | Accumulated Depreciation | | Net Book Value(1) | | Cost | | Accumulated Depreciation | | Net Book Value(1) |
| (In thousands) |
Held for use: | |
Full service lease | $ | 8,042,352 |
| | (2,614,711 | ) | | 5,427,641 |
| | $ | 7,918,497 |
| | (2,591,688 | ) | | 5,326,809 |
|
Commercial rental | 2,513,888 |
| | (830,133 | ) | | 1,683,755 |
| | 2,411,957 |
| | (830,683 | ) | | 1,581,274 |
|
Held for sale | 331,603 |
| | (234,654 | ) | | 96,949 |
| | 312,698 |
| | (226,333 | ) | | 86,365 |
|
Total | $ | 10,887,843 |
| | (3,679,498 | ) | | 7,208,345 |
| | $ | 10,643,152 |
| | (3,648,704 | ) | | 6,994,448 |
|
————————————
| |
(1) | Revenue earning equipment, net includes vehicles acquired under capital leases of $48.4 million, less accumulated depreciation of $24.3 million, at March 31, 2015, and $47.8 million, less accumulated depreciation of $22.5 million, at December 31, 2014. |
At the end of 2014, 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, 2015. The change in estimated residual values and useful lives increased pre-tax earnings for the first quarter of 2015 by approximately $10.0 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, 2015 and December 31, 2014, the net investment in direct financing and sales-type leases was $422.2 million and $417.0 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 vehicles, based on their estimated fair values, which further mitigates our credit risk.
As of March 31, 2015 and December 31, 2014, the amount of direct financing lease receivables 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 $0.3 million as of March 31, 2015 and December 31, 2014.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(F) GOODWILL
The carrying amount of goodwill attributable to each reportable business segment with changes therein was as follows:
|
| | | | | | | | | | | | |
| Fleet Management Solutions | | Dedicated Transportation Solutions | | Supply Chain Solutions | | Total |
| |
Balance at January 1, 2015: | | | | | | | |
Goodwill | $ | 233,217 |
| | 40,808 |
| | 148,225 |
| | 422,250 |
|
Accumulated impairment losses | (10,322 | ) | | — |
| | (18,899 | ) | | (29,221 | ) |
| 222,895 |
| | 40,808 |
| | 129,326 |
| | 393,029 |
|
Foreign currency translation adjustments | (1,321 | ) | | — |
| | (626 | ) | | (1,947 | ) |
Balance at March 31, 2015: | | | | | | | |
Goodwill | 231,896 |
| | 40,808 |
| | 147,599 |
| | 420,303 |
|
Accumulated impairment losses | (10,322 | ) | | — |
| | (18,899 | ) | | (29,221 | ) |
| $ | 221,574 |
| | 40,808 |
| | 128,700 |
| | 391,082 |
|
As discussed in Note (Q), "Segment Reporting", we disaggregated our SCS business segment into DTS and SCS. This resulted in a change in our SCS U.S. operating segments and reporting units. We allocated goodwill to our DTS reporting unit using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for the SCS U.S. reporting unit immediately prior to and following the reallocation and determined that no impairment existed.
(G) ACCRUED EXPENSES AND OTHER LIABILITIES
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2015 | | December 31, 2014 |
| Accrued Expenses | | Non-Current Liabilities | | Total | | Accrued Expenses | | Non-Current Liabilities | | Total |
| (In thousands) |
Salaries and wages | $ | 81,267 |
| | — |
| | 81,267 |
| | $ | 114,446 |
| | — |
| | 114,446 |
|
Deferred compensation | 2,197 |
| | 40,641 |
| | 42,838 |
| | 3,209 |
| | 37,093 |
| | 40,302 |
|
Pension benefits | 3,681 |
| | 445,789 |
| | 449,470 |
| | 3,739 |
| | 444,657 |
| | 448,396 |
|
Other postretirement benefits | 2,094 |
| | 26,442 |
| | 28,536 |
| | 2,112 |
| | 26,889 |
| | 29,001 |
|
Other employee benefits | 1,344 |
| | 15,967 |
| | 17,311 |
| | 7,172 |
| | 19,276 |
| | 26,448 |
|
Insurance obligations (1) | 135,652 |
| | 192,773 |
| | 328,425 |
| | 132,246 |
| | 189,431 |
| | 321,677 |
|
Environmental liabilities | 3,879 |
| | 7,360 |
| | 11,239 |
| | 3,877 |
| | 8,002 |
| | 11,879 |
|
Operating taxes | 106,159 |
| | — |
| | 106,159 |
| | 92,330 |
| | — |
| | 92,330 |
|
Income taxes | 2,854 |
| | 23,875 |
| | 26,729 |
| | 5,066 |
| | 22,843 |
| | 27,909 |
|
Interest | 28,020 |
| | — |
| | 28,020 |
| | 32,441 |
| | — |
| | 32,441 |
|
Deposits, mainly from customers | 60,654 |
| | 5,752 |
| | 66,406 |
| | 59,388 |
| | 5,929 |
| | 65,317 |
|
Deferred revenue | 11,624 |
| | — |
| | 11,624 |
| | 11,759 |
| | — |
| | 11,759 |
|
Acquisition holdbacks | 5,714 |
| | — |
| | 5,714 |
| | 3,817 |
| | 2,187 |
| | 6,004 |
|
Other | 44,508 |
| | 29,495 |
| | 74,003 |
| | 48,930 |
| | 30,369 |
| | 79,299 |
|
Total | $ | 489,647 |
| | 788,094 |
| | 1,277,741 |
| | $ | 520,532 |
| | 786,676 |
| | 1,307,208 |
|
————————————
(1) Insurance obligations are primarily comprised of self-insured claim liabilities.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(H) DEBT |
| | | | | | | | | | | | |
| Weighted-Average Interest Rate | | | | | | |
| March 31, 2015 | | December 31, 2014 | | Maturities | | March 31, 2015 | | December 31, 2014 |
| | | | | | | (In thousands) |
Short-term debt and current portion of long-term debt: | | | | | | | | | |
Short-term debt | 1.77% | | 1.30% | | 2015 | | $ | 2,550 |
| | 3,773 |
|
Current portion of long-term debt, including capital leases | | | | | | | 8,867 |
| | 8,434 |
|
Total short-term debt and current portion of long-term debt | | | | | | | 11,417 |
| | 12,207 |
|
Long-term debt: | | | | | | | | | |
U.S. commercial paper (1) | 0.46% | | 0.35% | | 2020 | | 481,410 |
| | 276,694 |
|
Global revolving credit facility | 2.67% | | 1.60% | | 2020 | | 22,710 |
| | 11,190 |
|
Unsecured U.S. notes — Medium-term notes (1) | 3.25% | | 3.29% | | 2015-2025 | | 3,822,369 |
| | 3,772,159 |
|
Unsecured U.S. obligations | 1.49% | | 0.76% | | 2018 | | 50,000 |
| | 110,500 |
|
Unsecured foreign obligations | 1.92% | | 2.01% | | 2015-2020 | | 279,992 |
| | 295,776 |
|
Capital lease obligations | 3.57% | | 3.65% | | 2015-2019 | | 35,004 |
| | 37,560 |
|
Total before fair market value adjustment | | | | | | | 4,691,485 |
| | 4,503,879 |
|
Fair market value adjustment on notes subject to hedging (2) | | | | | | 9,885 |
| | 4,830 |
|
| | | | | | | 4,701,370 |
| | 4,508,709 |
|
Current portion of long-term debt, including capital leases | | | | | | | (8,867 | ) | | (8,434 | ) |
Long-term debt | | | | | | | 4,692,503 |
| | 4,500,275 |
|
Total debt | | | | | | | $ | 4,703,920 |
| | 4,512,482 |
|
————————————
| |
(1) | We had unamortized original issue discounts of $7.7 million and $7.9 million at March 31, 2015 and December 31, 2014, respectively. |
| |
(2) | The notional amount of executed interest rate swaps designated as fair value hedges was $600 million at March 31, 2015 and December 31, 2014. |
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
We maintain 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. The availability under our credit facility is $1.2 billion and matures in January 2020. The agreement provides for annual facility fees which range from 7.5 basis points to 25 basis points based on Ryder's long-term credit ratings. The annual facility fee is currently 10 basis points, which applies to the total facility size of $1.2 billion. The credit 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, 2015). At our option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. 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, 2015 was 197%. At March 31, 2015, there was $695.3 million available under the credit facility, net of outstanding commercial paper borrowings.
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. In addition, we have the intent and ability to refinance the current portion of long-term debt on a long-term basis. At March 31, 2015, we classified $504.1 million of short-term commercial paper and amounts drawn under the global revolving credit facility and $609.9 million of the current portion of long-term debt as long-term debt. At December 31, 2014, we classified $276.7 million of short-term commercial paper, $60.0 million of trade receivables borrowings and $698.5 million of the current portion of long-term debt as long-term debt.
In February 2015, we issued $400 million of unsecured medium-term notes maturing in March 2020. The proceeds from the notes were used to payoff maturing debt and for general corporate purposes. If the notes are downgraded below investment grade 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 that causes early termination, the 364-day program will expire October 2015. 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. No amounts were outstanding under the program at March 31, 2015. At December 31, 2014, $60.0 million was outstanding under the program. Sales of receivables under this program are accounted for as secured borrowings based on our continuing involvement in the transferred assets.
At March 31, 2015 and December 31, 2014, we had letters of credit and surety bonds outstanding totaling $343.0 million and $334.3 million, respectively, which primarily guarantee the payment of insurance claims.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(I) FAIR VALUE MEASUREMENTS
The assets and liabilities measured at fair value on a recurring basis consist primarily of interest rate swaps and investments held in Rabbi Trusts. These amounts as of March 31, 2015 are not material to our consolidated financial position and operations and have not changed significantly from the amounts reported as of December 31, 2014.
The following tables present our assets that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:
|
| | | | | | | | | | | | | |
| | | | | Total Losses (2) |
| March 31, | | Three months ended March 31, |
| 2015 | | 2014 | | 2015 | | 2014 |
| (In thousands) |
Assets held for sale: | | | | | | | |
Revenue earning equipment: (1) | | | | | | | |
Trucks | $ | 5,298 |
| | 11,928 |
| | $ | 1,228 |
| | 1,882 |
|
Tractors | 4,611 |
| | 7,495 |
| | 827 |
| | 1,632 |
|
Trailers | 1,231 |
| | 742 |
| | 316 |
| | 161 |
|
Total assets at fair value | $ | 11,140 |
| | 20,165 |
| | $ | 2,371 |
| | 3,675 |
|
————————————
| |
(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. Only certain vehicles held for sale have carrying amounts greater than the fair value and losses are recorded at the time they arrive at our used truck centers. We typically record gains on the remaining vehicles with carrying amounts lower than fair value at the time they are sold. 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 (trucks, tractors 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, 2015 and December 31, 2014 was approximately $4.79 billion and $4.59 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.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(J) 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. 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. The fair value amounts of the interest rate swaps are reported in the Consolidated Condensed Balance Sheets within "Prepaid expenses and other current assets," "Direct financing leases and other assets," and "Other non-current liabilities." As of March 31, 2015, these amounts are not material to our consolidated financial position and operations and have not changed significantly from the amounts reported at December 31, 2014.
The following table provides a detail of the swaps outstanding and the related hedged items as of March 31, 2015:
|
| | | | | | | | | | | | |
| | 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 | | | | | | 2015 | | 2014 |
| | | | (Dollars in thousands) | | | | | | |
May 2011 | | June 2017 | | $350,000 | | $150,000 | | 3.50% | | 1.42% | | 1.44% |
November 2013 | | November 2018 | | $300,000 | | $100,000 | | 2.45% | | 1.20% | | 1.19% |
February 2014 | | June 2019 | | $350,000 | | $100,000 | | 2.55% | | 1.13% | | 1.10% |
May 2014 | | September 2019 | | $400,000 | | $100,000 | | 2.45% | | 0.89% | | —% |
February 2015 | | March 2020 | | $400,000 | | $150,000 | | 2.65% | | 1.14% | | —% |
The amount of gains (losses) on interest rate swap agreements designated as fair value hedges and related hedged items are reported in the Consolidated Condensed Statements of Earnings within "Interest expense." 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.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(K) 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 established 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. Early in the first quarter of 2015, we temporarily paused anti-dilutive share repurchase activity for the first half of 2015. For the three months ended March 31, 2015 and 2014, we repurchased and retired 69,107 shares and 562,683 shares, respectively under the program at an aggregate cost of $6.1 million and $40.4 million, respectively.
(L) ACCUMULATED OTHER COMPREHENSIVE LOSS
The following summary sets 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, 2014 | | $ | (36,087 | ) | | (585,941 | ) | | 1,758 |
| | (620,270 | ) |
Amortization | | — |
| | 4,961 |
| | (351 | ) | | 4,610 |
|
Other current period change | | (57,372 | ) | | — |
| | — |
| | (57,372 | ) |
March 31, 2015 | | $ | (93,459 | ) | | (580,980 | ) | | 1,407 |
| | (673,032 | ) |
|
| | | | | | | | | | | | | |
| | 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 |
|
Other current period change | | (14,592 | ) |
| — |
|
| — |
| | (14,592 | ) |
March 31, 2014 | | $ | 21,283 |
| | (474,076 | ) | | 3,080 |
| | (449,713 | ) |
_______________________
| |
(1) | These amounts are included in the computation of net periodic benefit cost. See Note (M), "Employee Benefit Plans," for further information. |
The loss from currency translation adjustments in the three months ended March 31, 2015 of $57.4 million was due primarily to the weakening of the Canadian Dollar and British Pound against the U.S. Dollar. The loss from currency translation adjustments in the three months ended March 31, 2014 of $14.6 million was due to the weakening of the Canadian Dollar compared to the U.S. Dollar.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(M) EMPLOYEE BENEFIT PLANS
Components of net periodic benefit cost were as follows: |
| | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| Three months ended March 31, |
| 2015 | | 2014 | | 2015 | | 2014 |
| (In thousands) |
Company-administered plans: | | | | | | | |
Service cost | $ | 3,627 |
| | 3,423 |
| | $ | 111 |
| | 135 |
|
Interest cost | 21,887 |
| | 25,561 |
| | 284 |
| | 365 |
|
Expected return on plan assets | (24,900 | ) | | (28,718 | ) | | — |
| | — |
|
Amortization of: | | | | | | | |
Net actuarial loss/(gain) | 7,808 |
| | 6,235 |
| | (196 | ) | | (129 | ) |
Prior service credit | (76 | ) | | (458 | ) | | (478 | ) | | (615 | ) |
| 8,346 |
| | 6,043 |
| | (279 | ) | | (244 | ) |
Union-administered plans | 2,172 |
| | 2,091 |
| | — |
| | — |
|
Net periodic benefit cost | $ | 10,518 |
| | 8,134 |
| | $ | (279 | ) | | (244 | ) |
| | | | | | | |
Company-administered plans: | | | | | | | |
U.S. | $ | 8,892 |
| | 6,287 |
| | $ | (415 | ) | | (397 | ) |
Non-U.S. | (546 | ) | | (244 | ) | | 136 |
| | 153 |
|
| 8,346 |
| | 6,043 |
| | (279 | ) | | (244 | ) |
Union-administered plans | 2,172 |
| | 2,091 |
| | — |
| | — |
|
| $ | 10,518 |
| | 8,134 |
| | $ | (279 | ) | | (244 | ) |
| | | | | | | |
During the three months ended March 31, 2015, we contributed $3.9 million to our pension plans. In 2015, we expect total contributions to our pension plans to be approximately $39 million.
(N) 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, 2015, we incurred charges of $1.8 million related to professional fees associated with cost savings initiatives. This charge was recorded within "Selling, general and administrative expenses" in our Condensed Consolidated Statement of Earnings.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(O) SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information was as follows:
|
| | | | | | |
| Three months ended March 31, |
| 2015 | | 2014 |
| (In thousands) |
Interest paid | $ | 38,381 |
| | 41,180 |
|
Income taxes paid | 3,590 |
| | 1,534 |
|
Changes in accounts payable related to purchases of revenue earning equipment | 99,972 |
| | 16,918 |
|
Operating and revenue earning equipment acquired under capital leases | — |
| | 2,245 |
|
During the three months ended March 31, 2014, we paid $1.6 million related to acquisitions completed in prior years. No payments related to acquisitions completed in prior years were made during the three months ended March 31, 2015.
(P) MISCELLANEOUS INCOME, NET
|
| | | | | | |
| Three months ended March 31, |
| 2015 | | 2014 |
| (In thousands) |
Rabbi trust investment income | $ | 1,067 |
| | 500 |
|
Insurance proceeds | 314 |
| | — |
|
Gains on sales of operating property and equipment | 183 |
| | 1,304 |
|
Foreign currency translation benefit | 129 |
| | (406 | ) |
Contract settlement | 15 |
| | 2,908 |
|
Other, net | 929 |
| | 1,076 |
|
Total | $ | 2,637 |
| | 5,382 |
|
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(Q) SEGMENT REPORTING
Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. During the first quarter of 2015, our management structure changed within the supply chain business. We created the role of President of DTS for the dedicated product offering which was within SCS. Beginning with the three-month period ended March 31, 2015, we are reporting our financial performance based on three business segments: (1) FMS, which provides full service leasing, commercial rental, contract maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides vehicles and drivers as part of a dedicated transportation solution in the U.S; and (3) SCS, which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated services provided as part of an integrated, multi-service, supply chain solution will continue to be reported in the SCS business segment where those services will continue to be managed.
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 other items discussed in Note (N), "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 DTS and SCS segments. 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 the business segment which served the customer and then eliminated (presented as “Eliminations”).
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
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, 2015 and 2014. 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.
|
| | | | | | | | | | | | | | | | |
| FMS | | DTS | | SCS | | Eliminations | | Total |
| | | |
For the three months ended March 31, 2015 | | | | | | | | |
Revenue from external customers | $ | 983,440 |
| | 212,659 |
| | 371,054 |
| | — |
| | 1,567,153 |
|
Inter-segment revenue | 103,710 |
| | — |
| | — |
| | (103,710 | ) | | — |
|
Total revenue | $ | 1,087,150 |
| | 212,659 |
| | 371,054 |
| | (103,710 | ) | | 1,567,153 |
|
| | | | | | | | | |
Segment EBT | $ | 89,919 |
| | 8,970 |
| | 15,689 |
| | (11,534 | ) | | 103,044 |
|
Unallocated CSS | | | | | | | | | (11,942 | ) |
Non-operating pension costs | | | | | | | | | (4,883 | ) |
Restructuring and other charges, net and other items (1) | | | | | | | | | (1,841 | ) |
Earnings from continuing operations before income taxes | | | | | | | | | $ | 84,378 |
|
| | | | | | | | | |
Segment capital expenditures paid (2) | $ | 538,743 |
| | 709 |
| | 5,987 |
| | — |
| | 545,439 |
|
Unallocated CSS | | | | | | | | | 7,803 |
|
Capital expenditures paid | | | | | | | | | $ | 553,242 |
|
| | | | | | | | | |
For the three months ended March 31, 2014 | | | | | | | | |
Revenue from external customers | $ | 1,013,396 |
| | 215,962 |
| | 381,379 |
| | — |
| | 1,610,737 |
|
Inter-segment revenue | 121,691 |
| | — |
| | — |
| | (121,691 | ) | | — |
|
Total revenue | $ | 1,135,087 |
| | 215,962 |
| | 381,379 |
| | (121,691 | ) | | 1,610,737 |
|
| | | | | | | | | |
Segment EBT | $ | 76,991 |
| | 8,686 |
| | 13,098 |
| | (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 (2), (3) | $ | 568,239 |
| | 250 |
| | 3,622 |
| | — |
| | 572,111 |
|
Unallocated CSS | | | | | | | | | 6,611 |
|
Capital expenditures paid | | | | | | | | | $ | 578,722 |
|
————————————
| |
(1) | See Note (N), "Other Items Impacting Comparability," for additional information. |
| |
(2) | Excludes revenue earning equipment acquired under capital leases. |
| |
(3) | Excludes acquisition payments of $1.6 million during the three months ended March 31, 2014. |
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(R) 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.
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. 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 were assessed $5 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 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.
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 2014 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. During the first quarter of 2015, our management structure changed within the supply chain business. We created the role of President of Dedicated Transportation Solutions (DTS) for the dedicated product offering which was within Supply Chain Solutions (SCS). Beginning with the three-month period ended March 31, 2015, we are reporting our financial performance based on three business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing, commercial rental, contract maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides vehicles and drivers as part of a dedicated transportation solution in the U.S; and (3) SCS, which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated services provided as part of an integrated, multi-service, supply chain solution will continue to be reported in the SCS business segment where those services will continue to be managed.
In addition, we revised the reporting of operating revenue, a non-GAAP financial measure. Beginning this quarter, in addition to excluding FMS fuel services revenue and subcontracted transportation from the calculation of operating revenue, we will also exclude DTS and SCS fuel costs. Prior year amounts have been revised to conform to the current period presentation. The revisions were not material and did not impact segment earnings.
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, technology and healthcare, retail, housing, business and personal services, and paper and publishing.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Operating results were as follows:
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (In thousands, except per share amounts) | | |
Total revenue | $ | 1,567,153 |
| | 1,610,737 |
| | (3)% |
Operating revenue (1) | 1,300,286 |
| | 1,242,771 |
| | 5% |
| | | | | |
| | | | | |
EBT | $ | 84,378 |
| | 75,004 |
| | 12% |
Comparable EBT (2) | 91,102 |
| | 78,318 |
| | 16% |
Earnings from continuing operations | 53,453 |
| | 49,098 |
| | 9% |
Comparable earnings from continuing operations (2) | 57,406 |
| | 49,210 |
| | 17% |
Net earnings | 52,916 |
| | 48,232 |
| | 10% |
| | | | | |
| | | | | |
Earnings per common share (EPS) — Diluted | | | | | |
Continuing operations | $ | 1.00 |
| | 0.92 |
| | 9% |
Comparable (2) | 1.08 |
| | 0.92 |
| | 17% |
Net earnings | 0.99 |
| | 0.90 |
| | 10% |
————————————
| |
(1) | We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our core businesses and as a measure of sales activity. Commencing this quarter, in addition to excluding FMS fuel services revenue and subcontracted transportation from the calculation of operating revenue, we will also be excluding DTS and SCS fuel. DTS and SCS fuel, similar to FMS fuel services revenue, is an ancillary service that we provide our customers and is impacted by fluctuations in market fuel prices. Therefore, these items are excluded from operating revenue as the costs are largely a pass-through to our customers, resulting in minimal changes in our 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 trailing market fuel costs. We also exclude subcontracted transportation from the calculation of operating revenue as this service is also typically a pass-through to our customers and therefore fluctuations result in minimal changes to our profitability. Refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of total revenue to operating revenue. |
| |
(2) | Non-GAAP financial measure. We believe comparable EBT, comparable earnings and comparable earnings per diluted common share, all from continuing operations, 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. Refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of EBT, net earnings and earnings per diluted common share to the comparable measures. |
Total revenue decreased 3% and operating revenue increased 5% for the three months ended March 31, 2015. Total revenue declined due to lower fuel prices largely passed through to customers and foreign exchange. The increase in operating revenue was driven by growth in the FMS, DTS, and SCS business segments partially offset by a 200 basis point negative impact from foreign exchange. FMS operating revenue growth was driven by higher prices on lease replacement vehicles, a larger full service lease fleet, increased North American rental demand and higher rental pricing. DTS and SCS operating revenue growth was due to new business and increased volumes. EBT for the three months ended March 31, 2015, increased due to improved performance in the FMS business segment driven by strong commercial rental performance and higher full service lease results and improved SCS performance.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
CONSOLIDATED RESULTS
Lease and Rental
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | | |
Lease and rental revenues | $ | 729,024 |
| | 689,682 |
| | 6% |
Cost of lease and rental | 519,174 |
| | 493,043 |
| | 5% |
Gross margin | 209,850 |
| | 196,639 |
| | 7% |
Gross margin % | 29 | % | | 29 | % | | |
Lease and rental revenues represent full service lease and commercial rental product offerings within our FMS business segment. Revenues increased 6% in the first quarter of 2015 to $729.0 million primarily driven by higher prices on full service lease vehicles, 3% full service lease fleet growth, and increased commercial rental revenue partially offset by a 200 basis point negative impact from foreign exchange. Commercial rental revenue grew due to increased North American demand and higher rental pricing (up 5% in the first quarter of 2015).
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 5% to $519.2 million in the first quarter of 2015 due to higher depreciation and higher maintenance costs on a 3% larger average lease fleet and a 5% larger average rental fleet. Cost of lease and rental benefited by $10.0 million in the first quarter of 2015 due to changes in estimated residual values and useful lives of revenue earning equipment effective January 1, 2015.
Lease and rental gross margin increased 7% in the first quarter of 2015 to $209.9 million. Lease and rental gross margin as a percentage of revenue remained at 29% in the first quarter of 2015. The increase in margin dollars was due to higher per-vehicle pricing as well as benefits from improved residual values.
Services
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | |
Services revenue | $ | 693,704 |
| | 709,699 |
| | (2)% |
Cost of services | 582,330 |
| | 606,229 |
| | (4)% |
Gross margin | 111,374 |
| | 103,470 |
| | 8% |
Gross margin % | 16 | % | | 15 | % | | |
Services revenue represents all the revenues associated with our DTS and SCS business segments as well as contract maintenance, contract-related maintenance and fleet support services associated with our FMS business segment. Services revenue decreased 2% in the first quarter of 2015 to $693.7 million due to impacts from lower fuel prices passed through to our DTS and SCS customers and a 200 basis point impact from foreign exchange partially offset by new business and higher volumes in our DTS and SCS business segments.
Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, subcontracted transportation (purchased transportation from third parties) and maintenance costs. Cost of services decreased 4% in the first quarter of 2015 to $582.3 million due to lower revenue as well as prior year severe winter weather-related costs and lower start-up costs partially offset by higher compensation-related costs and increased insurance costs.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Services gross margin increased 8% to $111.4 million in the first quarter of 2015, and services gross margin as a percentage of revenue increased to 16% in the first quarter of 2015. The increase in gross margin dollars and as a percentage of revenue reflects improved operating performance primarily in our SCS business segment. Prior year SCS gross margin was negatively impacted by severe winter weather and start-up costs.
Fuel
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | |
Fuel services revenue | $ | 144,425 |
| | 211,356 |
| | (32)% |
Cost of fuel services | 136,289 |
| | 207,205 |
| | (34)% |
Gross margin | 8,136 |
| | 4,151 |
| | 96% |
Gross margin % | 6 | % | | 2 | % | | |
Fuel services revenue represents fuel services provided to our FMS customers. Fuel services revenue decreased 32% in the first quarter of 2015 to $144.4 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 34% in the first quarter of 2015 to $136.3 million caused by lower fuel prices.
Fuel services gross margin increased 96% to $8.1 million and fuel services margin as a percentage of revenue increased to 6% in the first quarter of 2015. 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 services margin was favorably impacted by rapid decreases in market fuel prices during the first quarter of 2015.
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (In thousands) | |
Other operating expenses | $ | 34,744 |
| | 36,645 |
| | (5)% |
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 write-downs of used vehicles to fair market value and facilities costs. Other operating expenses decreased 5% to $34.7 million in the first quarter of 2015 primarily due to a $1.3 million reduction in write-downs on vehicles held for sale as well as lower maintenance costs for FMS facilities due to severe winter weather-related costs in the prior year.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | |
Selling, general and administrative expenses (SG&A) | $ | 206,605 |
| | 191,702 |
| | 8% |
Percentage of total revenue | 13 | % | | 12 | % | | |
Percentage of operating revenue | 16 | % | | 15 | % | | |
SG&A expenses increased 8% to $206.6 million in the first quarter of 2015. The increase in SG&A expenses in the first quarter of 2015 was driven by higher compensation-related and pension expenses partially offset by a 100 basis point impact from foreign exchange. Pension expense, which primarily impacts SG&A expenses, increased $2.4 million in the first quarter of 2015 due to a lower asset return assumption and the year-end adoption of new mortality assumptions that reflected improved trends in longevity. SG&A expenses as a percent of total revenue and as a percent of operating revenue increased to 13% and 16%, respectively, during the first quarter of 2015 due to the increase in SG&A expenses and the negative impact of lower fuel prices on total revenue and foreign exchange on total and operating revenue.
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (In thousands) | |
Gains on vehicle sales, net | $ | 29,579 |
| | 28,818 |
| | 3% |
Gains on vehicle sales, net increased 3% in the first quarter of 2015 to $29.6 million due to higher average proceeds per unit partially offset by lower sales volume. Global average proceeds per unit increased 16% in the first quarter of 2015 reflecting increases in average truck, tractor and trailer proceeds per unit. Lower sales volume in 2015 (down 23%) reflects lower average used vehicle inventories.
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | |
Interest expense | $ | 35,849 |
| | 35,109 |
| | 2% |
Effective interest rate | 3.1 | % | | 3.3 | % | | |
Interest expense increased 2% in the first quarter of 2015 to $35.8 million reflecting higher average outstanding debt partially offset by a lower effective interest rate. The increase in average outstanding debt reflects planned higher vehicle capital spending. The lower effective interest rate in 2015 reflects the replacement of higher interest rate debt with debt issuances at lower rates.
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | | |
Miscellaneous income, net | $ | 2,637 |
| | 5,382 |
| | (51)% |
Refer to Note (P), "Miscellaneous Income, Net" in the Notes to Consolidated Condensed Financial Statements for detail of the components within miscellaneous income.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | |
Provision for income taxes | $ | 30,925 |
| | 25,906 |
| | 19% |
Effective tax rate from continuing operations | 36.7 | % | | 34.5 | % | | |
Our effective income tax rate from continuing operations for the first quarter of 2015 was 36.7% compared with 34.5% in the same period of the prior year. The effective tax rate in the first quarter of 2014 benefited from a tax law change in the state of New York which decreased the provision for income taxes by $1.8 million, or 2.4% of earnings before tax.
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | | |
Loss from discontinued operations, net of tax | $ | (537 | ) | | (866 | ) | | (38)% |
Results of discontinued operations in the first quarter of 2015 reflect losses related to adverse legal developments and professional and administrative fees associated with our discontinued South American operations.
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 |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | |
Revenue: | | | | | |
Fleet Management Solutions | $ | 1,087,150 |
| | 1,135,087 |
| | (4)% |
Dedicated Transportation Solutions | 212,659 |
| | 215,962 |
| | (2) |
Supply Chain Solutions | 371,054 |
|
| 381,379 |
| | (3) |
Eliminations | (103,710 | ) |
| (121,691 | ) | | (15) |
Total | $ | 1,567,153 |
|
| 1,610,737 |
| | (3)% |
Operating Revenue: | | | | | |
Fleet Management Solutions | $ | 899,187 |
|
| 859,916 |
| | 5% |
Dedicated Transportation Solutions | 165,830 |
| | 156,240 |
| | 6 |
Supply Chain Solutions | 295,441 |
|
| 284,491 |
| | 4 |
Eliminations | (60,172 | ) |
| (57,876 | ) | | 4 |
Total | $ | 1,300,286 |
|
| 1,242,771 |
| | 5% |
EBT: | | | | | |
Fleet Management Solutions | $ | 89,919 |
|
| 76,991 |
| | 17% |
Dedicated Transportation Solutions | 8,970 |
| | 8,686 |
| | 3 |
Supply Chain Solutions | 15,689 |
|
| 13,098 |
| | 20 |
Eliminations | (11,534 | ) |
| (9,628 | ) | | 20 |
| 103,044 |
|
| 89,147 |
| | 16 |
Unallocated Central Support Solutions | (11,942 | ) |
| (10,829 | ) | | 10 |
Non-operating pension costs | (4,883 | ) |
| (3,314 | ) | | 47 |
Restructuring and other charges, net and other items | (1,841 | ) |
| — |
| | NM |
Earnings from continuing operations before income taxes | $ | 84,378 |
|
| 75,004 |
| | 12% |
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 item discussed in Note (N), "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.
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 FMS, DTS and SCS and then eliminated (presented as “Eliminations” in the table above). Prior year amounts have been revised to conform to the current period presentation.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table sets forth equipment contribution included in EBT for our DTS and SCS business segments:
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | | |
Equipment Contribution: | | | | | |
Dedicated Transportation Solutions | $ | 7,804 |
| | 6,239 |
| | 25% |
Supply Chain Solutions | 3,730 |
| | 3,389 |
| | 10% |
Total | $ | 11,534 |
| | 9,628 |
| | 20% |
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 | | 2015 | | 2014 |
| | | | (In thousands) | | |
Non-operating pension costs | | SG&A | | $ | (4,883 | ) | | (3,314 | ) |
Professional fees(1) | | SG&A | | (1,841 | ) | | — |
|
| | | | $ | (6,724 | ) | | (3,314 | ) |
———————————
(1) See Note (N), "Other Items Impacting Comparability" for additional information.
Fleet Management Solutions
|
| | | | | | | | |
| Three months ended March 31, | | Change |
| 2015 | | 2014 | | 2015/2014 |
| (Dollars in thousands) | |
Full service lease | $ | 577,113 |
|
| 552,216 |
| | 5% |
Contract maintenance | 45,951 |
|
| 43,663 |
| | 5 |
Contractual revenue | 623,064 |
|
| 595,879 |
| | 5 |
Commercial rental | 205,093 |
|
| 190,195 |
| | 8 |
Contract-related maintenance | 53,146 |
|
| 56,106 |
| | (5) |
Other | 17,884 |
|
| 17,736 |
| | 1 |
Operating revenue (1) | 899,187 |
|
| 859,916 |
| | 5 |
Fuel services revenue (2) | 187,963 |
|
| 275,171 |
|
| (32) |
Total revenue | $ | 1,087,150 |
|
| 1,135,087 |
| | (4)% |
| | | | | |
Segment EBT | $ | 89,919 |
|
| 76,991 |
| | 17% |
Segment EBT as a % of total revenue | 8.3 | % |
| 6.8 | % | | 150 bps |
Segment EBT as a % of operating revenue (1) | 10.0 | % | |