Ryder 2nd Quarter 2015 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, 2015
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, 2015 was 53,374,025.
 
 
 
 
 




RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
 
 
 
 
 
 
Page No.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 5       Other Information
 
 
 
 
 
 


i



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)

 
 
Three months ended June 30,
 
 
Six months ended June 30,
 
2015
 
2014
 
 
2015
 
2014
 
(In thousands, except per share amounts)
Lease and rental revenues
$
779,046

 
733,763

 
 
$
1,508,070

 
1,423,445

Services revenue
737,170

 
741,427

 
 
1,430,874

 
1,451,126

Fuel services revenue
146,715

 
209,381

 
 
291,140

 
420,737

Total revenues
1,662,931

 
1,684,571

 
 
3,230,084

 
3,295,308

 
 
 
 
 
 
 
 
 
Cost of lease and rental
531,308

 
507,620

 
 
1,049,730

 
1,000,192

Cost of services
603,488

 
625,276

 
 
1,185,818

 
1,231,505

Cost of fuel services
142,176

 
203,613

 
 
278,465

 
410,818

Other operating expenses
32,834

 
31,007

 
 
67,578

 
67,652

Selling, general and administrative expenses
214,868

 
200,430

 
 
421,473

 
392,132

Gains on vehicle sales, net
(33,237
)
 
(34,365
)
 
 
(62,816
)
 
(63,183
)
Interest expense
39,075

 
35,729

 
 
75,877

 
71,267

Miscellaneous income, net
(1,028
)
 
(4,828
)
 
 
(3,665
)
 
(10,210
)
 
1,529,484

 
1,564,482

 
 
3,012,460

 
3,100,173

Earnings from continuing operations before income taxes
133,447

 
120,089

 
 
217,624

 
195,135

Provision for income taxes
47,530


44,368

 
 
78,381


70,288

Earnings from continuing operations
85,917


75,721

 
 
139,243


124,847

Loss from discontinued operations, net of tax
(758
)
 
(336
)
 
 
(1,295
)
 
(1,202
)
Net earnings
$
85,159

 
75,385

 
 
$
137,948

 
123,645

 
 
 
 
 
 
 
 
 
Earnings (loss) per common share — Basic
 
 
 
 
 
 
 
 
Continuing operations
$
1.62

 
1.43

 
 
$
2.63

 
2.36

Discontinued operations
(0.01
)
 

 
 
(0.02
)
 
(0.02
)
Net earnings
$
1.61

 
1.43

 
 
$
2.61

 
2.34

 
 
 
 
 
 
 
 
 
Earnings (loss) per common share — Diluted
 
 
 
 
 
 
 
 
Continuing operations
$
1.61

 
1.42

 
 
$
2.61

 
2.34

Discontinued operations
(0.01
)
 
(0.01
)
 
 
(0.03
)
 
(0.02
)
Net earnings
$
1.59

 
1.41

 
 
$
2.59

 
2.32

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.37

 
0.34

 
 
$
0.74

 
0.68


See accompanying notes to consolidated condensed financial statements.

Note: EPS amounts may not be additive due to rounding.

1


RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

    
    
 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
 
 
 
 
 
 
 
 
Net earnings
$
85,159

 
75,385

 
$
137,948

 
123,645

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in cumulative translation adjustment and other
27,027

 
26,273

 
(30,345
)
 
11,681

 
 
 
 
 
 
 
 
Amortization of pension and postretirement items
6,834

 
4,295

 
13,892

 
9,328

Income tax expense related to amortization of pension and postretirement items
(2,366
)
 
(1,302
)
 
(4,814
)
 
(3,208
)
Amortization of pension and postretirement items, net of taxes
4,468

 
2,993

 
9,078

 
6,120

 
 
 
 
 
 
 
 
Change in net actuarial loss
(8,526
)
 
(3,144
)
 
(8,526
)
 
(3,144
)
Income tax benefit related to change in net actuarial loss
3,205

 
1,096

 
3,205

 
1,096

Change in net actuarial loss, net of taxes
(5,321
)
 
(2,048
)
 
(5,321
)
 
(2,048
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of taxes
26,174

 
27,218

 
(26,588
)
 
15,753

 
 
 
 
 
 
 
 
Comprehensive income
$
111,333

 
102,603

 
$
111,360

 
139,398

See accompanying notes to consolidated condensed financial statements.




2



RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
 
 
June 30,
2015
 
December 31,
2014
 
(Dollars in thousands, except per
share amount)
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
73,353


50,092

Receivables, net of allowance of $17,180 and $16,388, respectively
831,441


794,864

Inventories
64,684


66,007

Prepaid expenses and other current assets
166,438


165,234

Total current assets
1,135,916

 
1,076,197

Revenue earning equipment, net of accumulated depreciation of $3,811,697 and $3,689,016 respectively
7,854,037


7,201,886

Operating property and equipment, net of accumulated depreciation of $1,068,779 and $1,035,028, respectively
707,886


699,594

Goodwill
392,260


393,029

Intangible assets
62,874


66,619

Direct financing leases and other assets
485,291


446,099

Total assets
$
10,638,264


9,883,424

 
 
 
 
Liabilities and shareholders’ equity:
 
 
 
Current liabilities:
 
 
 
Short-term debt and current portion of long-term debt
$
347,817


36,284

Accounts payable
652,193


560,852

Accrued expenses and other current liabilities
523,722


513,679

Total current liabilities
1,523,732

 
1,110,815

Long-term debt
4,869,208


4,694,335

Other non-current liabilities
799,415


783,342

Deferred income taxes
1,532,470


1,475,845

Total liabilities
8,724,825

 
8,064,337

 
 
 
 
Shareholders’ equity:
 
 
 
Preferred stock of no par value per share — authorized, 3,800,917; none outstanding,
   June 30, 2015 or December 31, 2014

 

Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding,
   June 30, 2015 — 53,374,025; December 31, 2014 — 53,039,688
26,687

 
26,520

Additional paid-in capital
989,563

 
962,328

Retained earnings
1,544,047

 
1,450,509

Accumulated other comprehensive loss
(646,858
)
 
(620,270
)
Total shareholders’ equity
1,913,439


1,819,087

Total liabilities and shareholders’ equity
$
10,638,264


9,883,424

See accompanying notes to consolidated condensed financial statements.

3



RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)

 
Six months ended June 30,
 
2015
 
2014
 
(In thousands)
Cash flows from operating activities from continuing operations:
 
 
 
Net earnings
$
137,948

 
123,645

Less: Loss from discontinued operations, net of tax
(1,295
)
 
(1,202
)
Earnings from continuing operations
139,243

 
124,847

Depreciation expense
546,699

 
512,109

Gains on vehicle sales, net
(62,816
)
 
(63,183
)
Share-based compensation expense
11,169

 
9,989

Amortization expense and other non-cash charges, net
28,329

 
25,727

Deferred income tax expense
67,592

 
59,987

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Receivables
(33,535
)
 
(40,579
)
Inventories
1,006

 
(1,178
)
Prepaid expenses and other assets
(25,555
)
 
(19,163
)
Accounts payable
(30,439
)
 
1,771

Accrued expenses and other non-current liabilities
17,005

 
(67,439
)
Net cash provided by operating activities from continuing operations
658,698

 
542,888

 
 
 
 
Cash flows from financing activities from continuing operations:
 
 
 
Net change in commercial paper borrowings
34,750


21,377

Debt proceeds
930,090


765,713

Debt repaid
(486,103
)

(277,636
)
Dividends on common stock
(39,690
)
 
(35,915
)
Common stock issued
17,129

 
34,129

Common stock repurchased
(6,141
)
 
(79,488
)
Excess tax benefits from share-based compensation
710

 
411

Debt issuance costs
(5,225
)
 
(5,026
)
Net cash provided by financing activities from continuing operations
445,520

 
423,565

 
 
 
 
Cash flows from investing activities from continuing operations:
 
 
 
Purchases of property and revenue earning equipment
(1,329,218
)
 
(1,255,222
)
Sales of revenue earning equipment
211,153

 
274,394

Sales of operating property and equipment
641

 
2,780

Acquisitions

 
(1,649
)
Collections on direct finance leases
33,912

 
32,355

Changes in restricted cash
4,849

 
8,774

Other

 
(1,250
)
Net cash used in investing activities from continuing operations
(1,078,663
)
 
(939,818
)
 
 
 
 
Effect of exchange rate changes on cash
(1,198
)
 
48

Increase in cash and cash equivalents from continuing operations
24,357

 
26,683

 
 
 
 
Decrease in cash and cash equivalents from discontinued operations
(1,096
)
 
(1,357
)
 
 
 
 
Increase in cash and cash equivalents
23,261

 
25,326

Cash and cash equivalents at January 1
50,092

 
61,562

Cash and cash equivalents at June 30
$
73,353

 
86,888

See accompanying notes to consolidated condensed financial statements.

4



RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
 
 
Preferred
Stock
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
Amount
 
Shares
 
Par
 
 
(Dollars in thousands, except per share amount)
Balance at December 31, 2014
$

 
53,039,688

 
$
26,520

 
962,328

 
1,450,509

 
(620,270
)
 
1,819,087

Comprehensive income (loss)

 

 

 

 
137,948

 
(26,588
)
 
111,360

Common stock dividends declared — $0.74 per share

 

 

 

 
(39,519
)
 

 
(39,519
)
Common stock issued under employee stock option and stock purchase plans (1)

 
402,573

 
201

 
16,851

 

 

 
17,052

Benefit plan stock sales (2)

 
871

 
1

 
76

 

 

 
77

Common stock repurchases

 
(69,107
)
 
(35
)
 
(1,215
)
 
(4,891
)
 

 
(6,141
)
Share-based compensation

 

 

 
11,169

 

 

 
11,169

Tax benefits from share-based compensation

 

 

 
354

 

 

 
354

Balance at June 30, 2015
$

 
53,374,025

 
$
26,687

 
989,563

 
1,544,047

 
(646,858
)
 
1,913,439

————————————
(1)Net of common shares delivered as payment for the exercise price or to satisfy the option holders’ withholding tax liability upon exercise of options.
(2)Represents open-market transactions of common shares by the trustee of Ryder’s deferred compensation plans.
See accompanying notes to consolidated condensed financial statements.

5

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)


(A) GENERAL

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 and items referenced under the "Revision of Prior Period Financial Statements") 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 previously within Supply Chain Solutions (SCS). We are now reporting our financial performance as follows: (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 are reported in the SCS business segment. Prior period amounts have been recast to conform to the new presentation. This change impacted Note (F), "Goodwill," and Note (Q), "Segment Reporting," with no impact on consolidated revenues, net income or cash flows.

Revision of Prior Period Financial Statements

The Company periodically enters into sale and leaseback transactions to lower the total cost of funding our operations, to diversify funding among different classes of investors and among different types of funding instruments. Historically, these sale-leaseback transactions resulted in a reduction of revenue earning equipment and debt on the balance sheet, as proceeds from the sale of revenue earning equipment were primarily used to repay debt. The related leasebacks were historically treated as off-balance sheet operating leases and were included in our reported total obligations leverage ratios.

In April of 2015, we completed a financing transaction of revenue earning equipment with third parties not deemed to be variable interest entities. The revenue earning equipment subject to this transaction was originally owned and titled in a titling trust which is a wholly-owned, consolidated subsidiary of Ryder. As part of the sale-leaseback transaction, the titling trust created special units of beneficial interests (SUBIs) for the specific revenue earning equipment. The SUBIs were then sold to third parties and leased back to Ryder. In conjunction with this transaction, we reviewed and evaluated the structure to determine whether it qualified for off-balance sheet treatment. We concluded the April 2015 transaction should be treated as an issuance of financial interests that does not qualify for deconsolidation. As a result, off-balance sheet treatment is not appropriate for the current, as well as similar prior year transactions.

We have evaluated the materiality of this revision, quantitatively and qualitatively, and concluded it was not material to any of our previously issued consolidated financial statements and correction as an out of period adjustment in the quarter ended June 30, 2015 would not be material. However, we have elected to revise previously issued financial statements to avoid inconsistencies in our financial statements. Adjustments may not be additive and may have minor differences within the tables due to rounding.


6

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)




The effects of this revision on our Consolidated Statements of Earnings were as follows (in millions):

 
Year ended December 31, 2014
 
Year ended December 31, 2013
 
Year ended December 31, 2012
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
Cost of lease and rental
$
2,039.3

(2.4
)
2,036.9

 
$
1,928.9

(3.4
)
1,925.5

 
$
1,902.8

(2.4
)
1,900.4

Interest expense
142.1

2.6

144.7

 
137.2

3.3

140.5

 
140.6

2.7

143.3

Earnings from continuing operations before income taxes
338.5

(0.2
)
338.3

 
368.9

0.1

369.0

 
303.1

(0.3
)
302.8

Provision for income taxes
118.1

(0.1
)
118.0

 
125.7


125.7

 
102.2

(0.1
)
102.1

Earnings from continuing operations
220.5

(0.3
)
220.2

 
243.2

0.1

243.3

 
200.9

(0.2
)
200.7

Net earnings
218.6

(0.3
)
218.3

 
237.8

0.1

237.9

 
210.0

(0.3
)
209.7

Earnings (loss) per common share — Diluted, Net Earnings
4.14


4.14

 
4.63


4.63

 
3.91

(0.01
)
3.90


 
Three months ended March 31, 2015
 
Three months ended March 31, 2014
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
Cost of lease and rental
$
519.2

(0.8
)
518.4

 
$
493.0

(0.4
)
492.6

Interest expense
35.8

1.0

36.8

 
35.1

0.4

35.5

Earnings from continuing operations before income taxes
84.4

(0.2
)
84.2

 
75.0


75.0

Earnings from continuing operations
53.5

(0.2
)
53.3

 
49.1


49.1

Net earnings
52.9

(0.1
)
52.8

 
48.2

0.1

48.3


 
Three months ended June 30, 2014
 
Six months ended June 30, 2014
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
Cost of lease and rental
$
508.1

(0.5
)
507.6

 
$
1,001.1

(0.9
)
1,000.2

Interest expense
35.3

0.4

35.7

 
70.4

0.9

71.3

Earnings from continuing operations before income taxes
120.0

0.1

120.1

 
195.0

0.1

195.1


 
Three months ended September 30, 2014
 
Nine months ended September 30, 2014
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
Cost of lease and rental
$
522.9

(0.7
)
522.2

 
$
1,524.0

(1.6
)
1,522.4

Interest expense
35.9

0.8

36.7

 
106.3

1.6

107.9

Earnings from continuing operations before income taxes
129.7

(0.1
)
129.6

 
324.8

(0.1
)
324.7

Provision for income taxes
45.8

(0.1
)
45.7

 
116.0


116.0

Earnings from continuing operations
84.0

(0.1
)
83.9

 
208.8

(0.1
)
208.7

Net earnings
83.7

(0.1
)
83.6

 
207.3


207.3




7

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)



The effects of this revision on our Consolidated Statements of Comprehensive Income were as follows (in millions):

 
Comprehensive Income
 
As Previously Reported
Adjustment
As Revised
Year ended December 31, 2014
$
36.6

(0.2
)
36.4

Year ended December 31, 2013
387.2

0.1

387.3

Year ended December 31, 2012
189.5

(0.2
)
189.3

 
 
 
 
Three months ended March 31, 2015
$
0.2

(0.1
)
0.1

Three months ended September 30, 2014
39.8

(0.1
)
39.7

Nine months ended September 30, 2014
179.1


179.1

Three months ended June 30, 2014
102.6


102.6

Six months ended June 30, 2014
139.3

0.1

139.4

Three months ended March 31, 2014
36.8


36.8



The effects of this revision on our Consolidated Balance Sheets were as follows (in millions):

 
March 31, 2015
 
December 31, 2014
 
December 31, 2013
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
Revenue earning equipment, net
$
7,208.3

201.2

7,409.5

 
$
6,994.4

207.4

7,201.9

 
$
6,490.8

102.0

6,592.8

Total assets
9,906.8

201.2

10,108.0

 
9,676.0

207.4

9,883.4

 
9,103.8

102.0

9,205.8

Short-term debt and current portion of long-term debt
11.4

24.1

35.5

 
12.2

24.1

36.3

 
259.4

12.8

272.2

Accrued expenses and other current liabilities
489.6

(7.1
)
482.5

 
520.5

(6.8
)
513.7

 
496.3

(1.9
)
494.4

Total current liabilities
1,126.5

16.9

1,143.4

 
1,093.6

17.2

1,110.8

 
1,231.1

10.9

1,242.0

Long-term debt
4,692.5

188.1

4,880.6

 
4,500.3

194.0

4,694.3

 
3,930.0

93.0

4,023.0

Other non-current liabilities
788.1

(3.2
)
784.9

 
786.7

(3.4
)
783.3

 
616.3

(1.6
)
614.7

Deferred income taxes
1,488.1

(0.2
)
1,487.9

 
1,476.0

(0.2
)
1,475.8

 
1,429.6


1,429.6

Total liabilities
8,095.2

201.7

8,296.9

 
7,856.5

207.8

8,064.3

 
7,207.1

102.1

7,309.2

Retained earnings
1,479.2

(0.5
)
1,478.7

 
1,450.9

(0.4
)
1,450.5

 
1,390.8

(0.2
)
1,390.6

Total shareholders’ equity
1,811.5

(0.5
)
1,811.0

 
1,819.5

(0.4
)
1,819.1

 
1,896.7

(0.1
)
1,896.6

Total liabilities and shareholders’ equity
9,906.8

201.2

10,108.0

 
9,676.0

207.4

9,883.4

 
9,103.8

102.0

9,205.8





8

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)



The effects of this revision on the individual line items within our Consolidated Statements of Cash Flows were as follows (in millions):
 
Year ended December 31, 2014
 
Year ended December 31, 2013
 
Year ended December 31, 2012
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
Net earnings
$
218.6

(0.3
)
218.3

 
$
237.8

0.1

237.9

 
$
210.0

(0.3
)
209.7

Depreciation expense
1,040.3

17.6

1,057.8

 
957.1

26.5

983.6

 
939.7

22.4

962.1

Deferred income tax expense
104.8


104.7

 
113.6


113.6

 
87.1

(0.1
)
87.0

Accrued expenses and other non-current liabilities
(48.7
)
(4.4
)
(53.1
)
 
(66.6
)
2.2

(64.4
)
 
(68.3
)
4.1

(64.2
)
Net cash provided by operating activities from continuing operations
1,370.0

12.8

1,382.8

 
1,223.1

28.7

1,251.8

 
1,134.1

26.1

1,160.2

Debt proceeds
839.7

125.8

965.5

 
557.0


557.0

 
745.8

130.2

876.0

Debt repaid, including capital and financing lease obligations
(280.7
)
(12.8
)
(293.5
)
 
(332.6
)
(46.6
)
(379.2
)
 
(283.9
)
(26.1
)
(310.0
)
Net cash provided by financing activities from continuing operations
198.7

113.0

311.7

 
393.6

(46.5
)
347.1

 
333.8

104.1

437.9

Purchases of property and revenue earning equipment
(2,259.2
)

(2,259.2
)
 
(2,140.5
)
17.9

(2,122.6
)
 
(2,133.2
)

(2,133.2
)
Sale and leaseback of revenue earning equipment
125.8

(125.8
)

 



 
130.2

(130.2
)

Net cash used in investing activities from continuing operations
(1,578.7
)
(125.8
)
(1,704.5
)
 
(1,621.7
)
17.9

(1,603.8
)
 
(1,504.3
)
(130.2
)
(1,634.5
)





9

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)




 
Three months ended March 31, 2015
 
Three months ended March 31, 2014
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
Net earnings
$
52.9

(0.1
)
52.8

 
$
48.2

0.1

48.3

Depreciation expense
262.4

6.2

268.6

 
248.8

3.1

251.9

Deferred income tax expense
26.7

(0.1
)
26.6

 
21.7


21.7

Accrued expenses and other non-current liabilities
(21.5
)
(0.1
)
(21.6
)
 
(29.9
)
(3.1
)
(33.0
)
Net cash provided by operating activities from continuing operations
277.9

6.0

283.8

 
237.7


237.7

Debt repaid, including capital and financing lease obligations
(457.6
)
(6.0
)
(463.5
)
 
(252.8
)

(252.8
)
Net cash provided by financing activities from continuing operations
184.8

(6.0
)
178.9

 
215.2


215.2

 
Six months ended June 30, 2014
 
Nine months ended September 30, 2014
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
Net earnings
$
123.6


123.6

 
$
207.3


207.3

Depreciation expense
506.0

6.1

512.1

 
770.1

11.3

781.4

Accrued expenses and other non-current liabilities
(67.6
)
0.2

(67.4
)
 
(41.5
)
(4.9
)
(46.4
)
Net cash provided by operating activities from continuing operations
536.5

6.4

542.9

 
974.7

6.3

981.0

Debt proceeds
765.7


765.7

 
769.9

125.8

895.7

Debt repaid, including capital and financing lease obligations
(271.2
)
(6.4
)
(277.6
)
 
(278.4
)
(6.4
)
(284.8
)
Net cash provided by financing activities from continuing operations
430.0

(6.4
)
423.6

 
213.1

119.4

332.5

Sale and leaseback of revenue earning equipment



 
125.8

(125.8
)

Net cash used in investing activities from continuing operations
(939.8
)

(939.8
)
 
(1,171.5
)
(125.8
)
(1,297.3
)





10

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(B) RECENT ACCOUNTING PRONOUNCEMENTS

Inventory Valuation

On July 22, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-11, Simplifying the Measurement of Inventory, which applies to inventory that is measured using first-in, first-out or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, first-out. The update becomes effective January 1, 2017 and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. We are in the process of determining the effect of the standard on our consolidated financial position and results of operations.

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. The update was originally effective January 1, 2017. On July 9, 2015, the FASB issued a deferral of the update for one year, making the update effective January 1, 2018. Early application is permitted but not before January 1, 2017. The standard permits the use of either the modified retrospective or cumulative effect transition methods. We have not yet selected a transition method. We are in the process of determining the effect of the standard on our consolidated financial position and results of operations.

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 June 30, 2015, the adoption of this ASU will require us to reclassify $19.4 million of unamortized debt issuance costs from "Direct financing leases and other assets" to "Long-term debt."


11

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 grant date of the award until the date the shares underlying the award are delivered.

The following table provides information on share-based compensation expense and income tax benefits recognized during the periods:
 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Stock option and stock purchase plans
$
1,956

 
2,241

 
$
4,257

 
4,478

Nonvested stock
3,548

 
2,890

 
6,912

 
5,511

Share-based compensation expense
5,504

 
5,131

 
11,169

 
9,989

Income tax benefit
(1,860
)
 
(1,713
)
 
(3,743
)
 
(3,389
)
Share-based compensation expense, net of tax
$
3,644

 
3,418

 
$
7,426

 
6,600


The following table is a summary of compensation expense recognized for market-based cash awards in addition to the share-based compensation expense reported in the previous table:
 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Cash awards
$
281

 
$
743

 
$
464

 
$
1,266


Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at June 30, 2015 was $30.1 million and is expected to be recognized over a weighted-average period of 2.0 years.

The following table is a summary of the awards granted under the Plans during the periods presented:
 
Six months ended June 30,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Stock options
362

 
405

Market-based restricted stock rights
19

 
22

Performance-based restricted stock rights
42

 
30

Time-vested restricted stock rights
80

 
158

Total
503

 
615



12

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 June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except per share amounts)
Earnings per share — Basic:
 
 
 
 
 
 
 
Earnings from continuing operations
$
85,917

 
75,721

 
$
139,243

 
124,847

Less: Distributed and undistributed earnings allocated to nonvested stock
(246
)
 
(302
)
 
(393
)
 
(582
)
Earnings from continuing operations available to common shareholders — Basic
$
85,671

 
75,419

 
$
138,850

 
124,265

 
 
 
 
 
 
 
 
Weighted average common shares outstanding — Basic
52,827

 
52,564

 
52,712

 
52,612

 
 
 
 
 
 
 
 
Earnings from continuing operations per common share — Basic
$
1.62

 
1.43

 
$
2.63

 
2.36

 
 
 
 
 
 
 
 
Earnings per share — Diluted:
 
 
 
 
 
 
 
Earnings from continuing operations
$
85,917

 
75,721

 
$
139,243

 
124,847

Less: Distributed and undistributed earnings allocated to nonvested stock
(244
)
 
(299
)
 
(390
)
 
(578
)
Earnings from continuing operations available to common shareholders — Diluted
$
85,673

 
75,422

 
$
138,853

 
124,269

 
 
 
 
 
 
 
 
Weighted average common shares outstanding — Basic
52,827

 
52,564

 
52,712

 
52,612

Effect of dilutive equity awards
468

 
482

 
492

 
472

Weighted average common shares outstanding — Diluted
53,295

 
53,046

 
53,204

 
53,084

 
 
 
 
 
 
 
 
Earnings from continuing operations per common share — Diluted
$
1.61

 
1.42

 
$
2.61

 
2.34

 
 
 
 
 
 
 
 
Anti-dilutive equity awards not included above
363

 
412

 
273

 
314


13

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(E) REVENUE EARNING EQUIPMENT

 
June 30, 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
$
8,398,012

 
(2,677,023
)
 
5,720,989

 
$
8,008,122

 
(2,598,140
)
 
5,409,982

Commercial rental
2,925,063

 
(898,319
)
 
2,026,744

 
2,570,081

 
(864,543
)
 
1,705,538

Held for sale
342,659

 
(236,355
)
 
106,304

 
312,699

 
(226,333
)
 
86,366

Total
$
11,665,734

 
(3,811,697
)
 
7,854,037

 
$
10,890,902

 
(3,689,016
)
 
7,201,886

 ————————————
(1)
Revenue earning equipment, net includes vehicles acquired under capital leases of $48.0 million, less accumulated depreciation of $20.3 million, at June 30, 2015, and $47.8 million, less accumulated depreciation of $22.5 million, at December 31, 2014. Additionally, revenue earning equipment, net underlying asset-backed U.S. obligations was $346.1 million at June 30, 2015 ($403.3 million cost, less $57.1 million of accumulated depreciation) and $207.4 million at December 31, 2014 ($247.8 million cost, less $40.3 million of accumulated depreciation). See Note (A), General, Revision of Prior Period Financial Information for further information related to our evaluation of accounting for these transactions.

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 three and six months ended June 30, 2015 by approximately $10.0 million and $20.0 million, respectively.

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 June 30, 2015 and December 31, 2014, the net investment in direct financing and sales-type leases was $432.8 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 June 30, 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 June 30, 2015 and December 31, 2014.



14

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
(247
)
 

 
(522
)
 
(769
)
Balance at June 30, 2015:
 
 
 
 
 
 
 
Goodwill
232,970

 
40,808

 
147,703

 
421,481

Accumulated impairment losses
(10,322
)
 

 
(18,899
)
 
(29,221
)
 
$
222,648

 
40,808

 
128,804

 
392,260


We assess goodwill for impairment on April 1st of each year or more often if deemed necessary. In the second quarter of 2015, we completed our annual goodwill impairment test. We performed quantitative tests on four of our reporting units and determined there was no impairment. We performed a qualitative test for one reporting unit, which considered individual factors such as macroeconomic conditions, changes in our industry and the markets in which we operate as well as our historical and expected future financial performance. After performing the qualitative assessment, we concluded it is more likely than not that fair value is greater than the carrying value and determined there was no impairment.


(G) ACCRUED EXPENSES AND OTHER LIABILITIES
 
June 30, 2015
 
December 31, 2014
 
Accrued
Expenses
 
Non-Current
Liabilities
 
Total
 
Accrued
Expenses
 
Non-Current
Liabilities
 
Total
 
(In thousands)
Salaries and wages
$
94,846

 

 
94,846

 
$
114,446

 

 
114,446

Deferred compensation
2,243

 
41,518

 
43,761

 
3,209

 
37,093

 
40,302

Pension benefits
3,687

 
457,170

 
460,857

 
3,739

 
444,657

 
448,396

Other postretirement benefits
2,097

 
25,904

 
28,001

 
2,112

 
26,889

 
29,001

Other employee benefits
7,681

 
16,910

 
24,591

 
7,172

 
19,276

 
26,448

Insurance obligations (1)
136,394

 
198,860

 
335,254

 
132,246

 
189,431

 
321,677

Environmental liabilities
3,728

 
7,152

 
10,880

 
3,877

 
8,002

 
11,879

Operating taxes
106,286

 

 
106,286

 
92,330

 

 
92,330

Income taxes
2,785

 
24,704

 
27,489

 
5,066

 
22,843

 
27,909

Interest
35,875

 

 
35,875

 
33,509

 

 
33,509

Deposits, mainly from customers
64,059

 
5,648

 
69,707

 
59,388

 
5,929

 
65,317

Deferred revenue
14,388

 

 
14,388

 
11,759

 

 
11,759

Acquisition holdbacks
6,061

 

 
6,061

 
3,817

 
2,187

 
6,004

Other
43,592

 
21,549

 
65,141

 
41,009

 
27,035

 
68,044

Total
$
523,722

 
799,415

 
1,323,137

 
$
513,679

 
783,342

 
1,297,021

 ————————————
(1)
Insurance obligations are primarily comprised of self-insured claim liabilities.


15

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(H) DEBT
 
Weighted-Average
Interest Rate
 
 
 
 
 
 
 
June 30,
2015
 
December 31,
2014
 
Maturities
 
June 30,
2015
 
December 31,
2014
 
 
 
 
 
 
 
(In thousands)
Short-term debt and current portion of long-term debt:
 
 
 
 
 
 
 
 
 
Short-term debt
2.75%
 
1.30%
 
2015
 
$
316

 
3,773

Current portion of long-term debt
 
 
 
 
 
 
347,501

 
32,511

Total short-term debt and current portion of long-term debt
 
 
 
 
 
 
347,817

 
36,284

Long-term debt:
 
 
 
 
 
 
 
 
 
U.S. commercial paper (1)
0.43%
 
0.35%
 
2020
 
311,432

 
276,694

Global revolving credit facility
2.78%
 
1.60%
 
2020
 
40,908

 
11,190

Unsecured U.S. notes — Medium-term notes (1)
3.21%
 
3.29%
 
2015-2025
 
4,111,991

 
3,772,159

Unsecured U.S. obligations
1.50%
 
0.76%
 
2018
 
50,000

 
110,500

Unsecured foreign obligations
1.92%
 
2.01%
 
2015-2020
 
295,217

 
295,776

Asset-backed U.S. obligations (2)
1.79%
 
1.81%
 
2018-2022
 
362,075

 
218,137

Capital lease obligations
1.79%
 
1.73%
 
2015-2022
 
38,418

 
37,560

Total before fair market value adjustment
 
 
 
 
 
 
5,210,041

 
4,722,016

Fair market value adjustment on notes subject to hedging (3)
 
 
 
 
 
6,668

 
4,830

 
 
 
 
 
 
 
5,216,709

 
4,726,846

Current portion of long-term debt
 
 
 
 
 
 
(347,501
)
 
(32,511
)
Long-term debt
 
 
 
 
 
 
4,869,208

 
4,694,335

Total debt
 
 
 
 
 
 
$
5,217,025

 
4,730,619

 ————————————
(1)
We had unamortized original issue discounts of $8.1 million and $7.9 million at June 30, 2015 and December 31, 2014, respectively.
(2)
Asset-backed U.S. obligations of $362.1 million at June 30, 2015 and $218.1 million at December 31, 2014 are related to financing transactions involving revenue earning equipment. See Note (A), General, Revision of Prior Period Financial Information for further information related to our evaluation of accounting for these transactions.
(3)
The notional amount of executed interest rate swaps designated as fair value hedges was $600 million at both June 30, 2015 and December 31, 2014.


We maintain a $1.2 billion 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, Lloyds Bank Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. The facility 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 June 30, 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 June 30, 2015 was 209%. At June 30, 2015, there was $847.6 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 June 30, 2015, we classified $311.4 million of short-term commercial paper and $338.4 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.

16

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)



In May 2015, we issued $300 million of unsecured medium-term notes maturing in May 2020. The proceeds from the notes were used to reduce commercial paper borrowings 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.

In April of 2015, we completed a financing transaction backed by a portion of our revenue earning equipment that resulted in $156.4 million of cash proceeds. The proceeds from this transaction were used to fund capital expenditures. We have provided end of term guarantees for the residual value of the revenue earning equipment in this transaction. The transaction along with the end of term residual value guarantees have been included in the "asset-backed U.S. obligations" line within the preceding table.

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 during 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 June 30, 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 June 30, 2015 and December 31, 2014, we had letters of credit and surety bonds outstanding totaling $333.9 million and $334.3 million, respectively, which primarily guarantee the payment of insurance claims.



17

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 June 30, 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:
 
 
 
 
 
Fair Value Measurements at
 
Total Losses (2)
 
June 30, 2015
 
Three months ended June 30, 2015
 
Six months ended June 30, 2015
 
(In thousands)
Assets held for sale:
 
 
 
 
 
Revenue earning equipment: (1)
 
 
 
 
 
Trucks
$
6,805

 
$
1,515

 
$
2,743

Tractors
7,389

 
1,081

 
1,908

Trailers
1,625

 
656

 
972

Total assets at fair value
$
15,819

 
$
3,252

 
5,623


 
 
 
 
 
Fair Value Measurements at
 
Total Losses (2)
 
 
June 30, 2014
 
Three months ended June 30, 2014
 
Six months ended June 30, 2014
 
 
(In thousands)
 
Assets held for sale:
 
 
 
 
 
 
Revenue earning equipment: (1)
 
 
 
 
 
 
Trucks
$
10,713

 
$
1,572

 
$
3,454

 
Tractors
6,057

 
662

 
2,294

 
Trailers
497

 
281

 
442

 
Total assets at fair value
$
17,267

 
$
2,515

 
$
6,190

 
 
 ————————————
(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. Gains are recognized at the time of sale for vehicles with carrying amounts lower than fair value. 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.


18

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


Fair value of total debt (excluding capital lease and asset-backed U.S. obligations) at June 30, 2015 and December 31, 2014 was approximately $4.91 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.


(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 June 30, 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 June 30, 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 June 30,
Issuance date
 
 
 
 
 
2015
 
2014
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
May 2011
 
June 2017
 
$350,000
 
$150,000
 
3.50%
 
1.49%
 
1.42%
November 2013
 
November 2018
 
$300,000
 
$100,000
 
2.45%
 
1.23%
 
1.18%
February 2014
 
June 2019
 
$350,000
 
$100,000
 
2.55%
 
1.15%
 
1.10%
May 2014
 
September 2019
 
$400,000
 
$100,000
 
2.45%
 
0.90%
 
0.85%
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.


(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 10, 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, due to the increase in leverage, we temporarily paused anti-dilutive share repurchase activity. For the six months ended June 30, 2015 and 2014, we repurchased and retired 69,107 shares and 1,027,072 shares, respectively, under the program at an aggregate cost of $6.1 million and $79.5 million, respectively.


19

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(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
 

 
9,790

 
(712
)
 
9,078

Other current period change
 
(30,345
)
 
(5,321
)
 

 
(35,666
)
June 30, 2015
 
$
(66,432
)
 
(581,472
)
 
1,046

 
(646,858
)


 
 
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
 


7,455


(1,335
)
 
6,120

Other current period change
 
11,681


(2,048
)


 
9,633

June 30, 2014
 
$
47,556

 
(472,476
)
 
2,425

 
(422,495
)

_______________________ 

(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 six months ended June 30, 2015 of $30.3 million was due primarily to the weakening of the Canadian Dollar and British Pound against the U.S. Dollar. The gain from currency translation adjustments in the six months ended June 30, 2014 of $11.7 million was due to the strengthening of the Canadian Dollar and British Pound compared to the U.S. Dollar.



20

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(M) EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost/(credit) were as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Pension Benefits
 
 
 
 
 
 
 
Company-administered plans:
 
 
 
 
 
 
 
Service cost
$
3,566

 
3,171

 
$
7,193

 
6,594

Interest cost