Ryder 2nd 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 JUNE 30, 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 June 30, 2015 was 53,374,025.
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)
|
| | | | | | | | | | | | | | |
| 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.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
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| | | | | | | | | | | | | |
| 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.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
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| | | | | | |
| 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 |
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| 66,007 |
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Prepaid expenses and other current assets | 166,438 |
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| 165,234 |
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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 |
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| 7,201,886 |
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Operating property and equipment, net of accumulated depreciation of $1,068,779 and $1,035,028, respectively | 707,886 |
|
| 699,594 |
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Goodwill | 392,260 |
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| 393,029 |
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Intangible assets | 62,874 |
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| 66,619 |
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Direct financing leases and other assets | 485,291 |
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| 446,099 |
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Total assets | $ | 10,638,264 |
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| 9,883,424 |
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| | | |
Liabilities and shareholders’ equity: | | | |
Current liabilities: | | | |
Short-term debt and current portion of long-term debt | $ | 347,817 |
|
| 36,284 |
|
Accounts payable | 652,193 |
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| 560,852 |
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Accrued expenses and other current liabilities | 523,722 |
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| 513,679 |
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Total current liabilities | 1,523,732 |
| | 1,110,815 |
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Long-term debt | 4,869,208 |
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| 4,694,335 |
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Other non-current liabilities | 799,415 |
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| 783,342 |
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Deferred income taxes | 1,532,470 |
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| 1,475,845 |
|
Total liabilities | 8,724,825 |
| | 8,064,337 |
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| | | |
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.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
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| | | | | | |
| 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.
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.
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.
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 |
|
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 |
|
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 | ) |
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 | ) |
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."
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 |
|
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 |
|
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.
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. |
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.
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.
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.
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.
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.
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 | |