Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 2.39M
2: EX-10.2 Material Contract HTML 122K
3: EX-10.3 Material Contract HTML 150K
4: EX-10.4 Material Contract HTML 166K
5: EX-31.1 Certification -- §302 - SOA'02 HTML 25K
6: EX-31.2 Certification -- §302 - SOA'02 HTML 25K
7: EX-32 Certification -- §906 - SOA'02 HTML 22K
13: R1 Cover HTML 72K
14: R2 Condensed Consolidated Statements of Earnings HTML 127K
15: R3 Condensed Consolidated Statements of Comprehensive HTML 63K
Income
16: R4 Condensed Consolidated Balance Sheets HTML 122K
17: R5 Condensed Consolidated Balance Sheets HTML 39K
(Parenthetical)
18: R6 Condensed Consolidated Statements of Cash Flows HTML 116K
19: R7 Condensed Consolidated Statements of Shareholders' HTML 74K
Equity
20: R8 Condensed Consolidated Statements of Shareholders' HTML 23K
Equity (Parenthetical)
21: R9 General HTML 28K
22: R10 Segment Reporting HTML 99K
23: R11 Revenue HTML 125K
24: R12 Receivables, Net HTML 41K
25: R13 Revenue Earning Equipment, Net HTML 64K
26: R14 Accrued Expenses and Other Liabilities HTML 68K
27: R15 Leases HTML 88K
28: R16 Debt HTML 95K
29: R17 Share Repurchase Programs HTML 26K
30: R18 Accumulated Other Comprehensive Loss HTML 58K
31: R19 Earnings Per Share HTML 67K
32: R20 Employee Benefit Plans HTML 59K
33: R21 Other Items Impacting Comparability HTML 50K
34: R22 Contingencies and Other Matters HTML 31K
35: R23 Supplemental Cash Flow Information HTML 40K
36: R24 Pay vs Performance Disclosure HTML 33K
37: R25 Insider Trading Arrangements HTML 27K
38: R26 Segment Reporting (Tables) HTML 95K
39: R27 Revenue (Tables) HTML 124K
40: R28 Receivables, Net (Tables) HTML 42K
41: R29 Revenue Earning Equipment, Net (Tables) HTML 62K
42: R30 Accrued Expenses and Other Liabilities (Tables) HTML 68K
43: R31 Leases (Tables) HTML 57K
44: R32 Debt (Tables) HTML 87K
45: R33 Accumulated Other Comprehensive Loss (Tables) HTML 57K
46: R34 Earnings Per Share (Tables) HTML 67K
47: R35 Employee Benefit Plans (Tables) HTML 55K
48: R36 Other Items Impacting Comparability (Tables) HTML 49K
49: R37 Supplemental Cash Flow Information (Tables) HTML 39K
50: R38 General (Details) HTML 35K
51: R39 SEGMENT REPORTING - Schedule of Segment Revenue HTML 82K
and Net Before Tax Information by Segment
(Details)
52: R40 SEGMENT REPORTING - Schedule of Financial HTML 35K
Information of Business Segments (Details)
53: R41 REVENUE - Disaggregation of Revenue - Schedule of HTML 72K
Revenue from External Customers by Geographic
Areas (Details)
54: R42 REVENUE - Schedule of Disaggregation of Revenue HTML 43K
(Details)
55: R43 REVENUE - Narrative (Details) HTML 30K
56: R44 REVENUE - Schedule of Deferred Revenue (Details) HTML 30K
57: R45 RECEIVABLES, NET - Schedule of Receivables, Net HTML 34K
(Details)
58: R46 RECEIVABLES, NET - Schedule of Allowance for HTML 28K
Credit Loss (Details)
59: R47 REVENUE EARNING EQUIPMENT, NET - Schedule of HTML 47K
Revenue Earning Equipment (Details)
60: R48 REVENUE EARNING EQUIPMENT, NET - Schedule of Gain HTML 30K
and Losses Revenue Earning Equipment (Details)
61: R49 Accrued Expenses and Other Liabilities (Details) HTML 97K
62: R50 LEASES - Schedule of Components of Revenue from HTML 37K
Leases (Details)
63: R51 LEASES - Schedule of Components of Net Investment HTML 32K
in Leases (Details)
64: R52 DEBT - Schedule of Debt (Details) HTML 93K
65: R53 DEBT - Narrative (Details) HTML 52K
66: R54 DEBT - Schedule of Debt Proceeds and Repayments HTML 36K
(Details)
67: R55 Share Repurchase Programs (Details) HTML 53K
68: R56 Accumulated Other Comprehensive Loss (Details) HTML 55K
69: R57 Earnings Per Share (Details) HTML 61K
70: R58 EMPLOYEE BENEFIT PLANS - Schedule of Components of HTML 42K
Net Periodic Benefit Cost (Details)
71: R59 EMPLOYEE BENEFIT PLANS - Narrative (Details) HTML 28K
72: R60 OTHER ITEMS IMPACTING COMPARABILITY - Schedule of HTML 45K
Other Items Impacting Comparability (Details)
73: R61 Contingencies and Other Matters (Details) HTML 29K
74: R62 Supplemental Cash Flow Information (Details) HTML 37K
77: XML IDEA XML File -- Filing Summary XML 137K
75: XML XBRL Instance -- r-20230630_htm XML 2.33M
76: EXCEL IDEA Workbook of Financial Report Info XLSX 124K
9: EX-101.CAL XBRL Calculations -- r-20230630_cal XML 268K
10: EX-101.DEF XBRL Definitions -- r-20230630_def XML 437K
11: EX-101.LAB XBRL Labels -- r-20230630_lab XML 1.68M
12: EX-101.PRE XBRL Presentations -- r-20230630_pre XML 910K
8: EX-101.SCH XBRL Schema -- r-20230630 XSD 183K
78: JSON XBRL Instance as JSON Data -- MetaLinks 508± 713K
79: ZIP XBRL Zipped Folder -- 0000085961-23-000147-xbrl Zip 711K
(Exact name of registrant as specified in its charter)
iFlorida
i59-0739250
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i11690 N.W. 105th Street
iMiami,
iFlorida
i33178
(i305)
i500-3726
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name
of each exchange on which registered
iRyder System, Inc. Common Stock ($0.50 par value)
iR
iNew York Stock Exchange
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. iYes☑ No ☐
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). iYes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐No ☑
The
number of shares of Ryder System, Inc. Common Stock outstanding at June 30, 2023, was i45,527,262.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. iGENERAL
Interim Financial Statements
The accompanying unaudited condensed consolidated
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 (VIE) where Ryder is determined to be the primary beneficiary in accordance with generally accepted accounting principles in the United States (GAAP). Ryder is deemed to be the primary beneficiary if we have the power to direct the activities that most significantly impact the entity's economic performance and we share in the significant risks and rewards of the entity. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting policies described in our 2022 Annual Report on Form 10-K and should be read in conjunction with the consolidated financial statements and notes thereto. The year-end Condensed Consolidated Balance Sheet data was
derived from our audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair statement have been included and the disclosures herein are adequate. The operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. Certain prior period amounts have been reclassified to conform with the current period presentation. In the three and six months ended June 30, 2022, we previously reported certain costs in "Cost of services" that should have been included in the "Cost of fuel services" within the unaudited Condensed Consolidated Statement of Earnings. These costs were not material to any financial statement line item and we elected to revise the presentation of these prior period costs to conform to the current year
presentation in our financial statements. We added the "Operating lease right-of-use assets" financial statement line to the unaudited Condensed Consolidated Balance Sheets. These assets were previously included in "Sales-type leases and other assets" in the year-end Condensed Consolidated Balance Sheets.
We report our financial performance based on ithree business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing and leasing with flexible maintenance options, commercial rental and
maintenance services of trucks, tractors and trailers to customers principally in the United States (U.S.) and Canada; (2) Supply Chain Solutions (SCS), which provides integrated logistics solutions, including distribution management, dedicated transportation, transportation management, brokerage, e-commerce, last mile, and professional services in North America; and (3) Dedicated Transportation Solutions (DTS), which provides turnkey transportation solutions in the U.S., including dedicated vehicles, professional drivers, management, and administrative support. Dedicated transportation services provided as part of an operationally integrated, multi-service, supply chain solution to SCS customers are primarily reported in the SCS business segment.
In the beginning of 2022, we announced our intention to exit our lower return FMS Europe (primarily United Kingdom (U.K.)) business. We completed
the shutdown of operations as well as the sale of the remaining vehicles and properties as of June 30, 2023, generating cash proceeds of $i394 million and recording gains of $i95 million
from the beginning of 2022 through the first six months of 2023. As a result of the shutdown, we reclassified $i188 million ($i183 million,
net of tax) of cumulative currency translation adjustment charges from "Accumulated other comprehensive loss" in our Condensed Consolidated Balance Sheet into a one-time, non-cash charge in our Condensed Consolidated Statements of Earnings. The currency translation adjustment loss had no impact on our consolidated financial position or cash flows. Refer to Note 10, "Accumulated Other Comprehensive Loss" for a discussion on the currency translation adjustment loss.
2. iSEGMENT
REPORTING
Our primary measurement of segment financial performance, defined as segment "Earnings from continuing operations before income taxes" (EBT), includes an allocation of costs from Central Support Services (CSS) and excludes Non-operating pension costs, net, intangible amortization expense, and certain other items as discussed in Note 13, "Other Items Impacting Comparability." The objective of the EBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment accountable for their allocated share of CSS costs. Certain costs are not attributable to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation.
In the first quarter of 2023, we revised our primary measure of segment financial performance to exclude intangible amortization expense. We revised the presentation of the prior period to conform to the current period presentation. This change did not have a material impact to segment results. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
i
The
following table sets forth financial information for each of our segments and provides a reconciliation between segment EBT and Earnings from continuing operations before income taxes:
Three months ended June 30,
Six
months ended June 30,
(In millions)
2023
2022
2023
2022
Revenue:
Fleet Management Solutions:
ChoiceLease
$
i781
$
i763
$
i1,557
$
i1,527
Commercial
rental
i301
i336
i605
i642
SelectCare
and other
i172
i153
i354
i301
FMS
Europe (1)
i—
i55
i—
i119
Fuel
services revenue
i205
i314
i446
i561
Fleet
Management Solutions
i1,459
i1,621
i2,962
i3,150
Supply
Chain Solutions
i1,179
i1,174
i2,380
i2,263
Dedicated
Transportation Solutions
i440
i450
i894
i875
Eliminations
(2)
(i194)
(i211)
(i400)
(i400)
Total
revenue
$
i2,884
$
i3,034
$
i5,836
$
i5,888
Earnings
from continuing operations before income taxes:
Fleet Management Solutions
$
i180
$
i286
$
i362
$
i535
Supply
Chain Solutions
i76
i62
i93
i105
Dedicated
Transportation Solutions
i33
i23
i62
i43
Eliminations
(i24)
(i30)
(i49)
(i56)
i265
i341
i468
i627
Unallocated
Central Support Services
(i20)
(i24)
(i35)
(i40)
Intangible
amortization expense (3)
(i8)
(i9)
(i17)
(i19)
Non-operating
pension costs, net (4)
(i10)
(i2)
(i20)
(i5)
Other
items impacting comparability, net (5)
(i183)
i32
(i151)
i27
Earnings
from continuing operations before income taxes
$
i44
$
i338
$
i245
$
i590
————————————
(1)Refer
to Note 13, "Other Items Impacting Comparability" for further information on the FMS U.K. business exit.
(2)Represents the elimination of intercompany revenue in our FMS business segment.
(3)Included within "Selling, general and administrative expenses" in our Condensed Consolidated Statements of Earnings.
(4)Refer to Note 12, "Employee Benefit Plans," for a discussion on this item.
(5)Refer to Note 13, "Other Items Impacting Comparability," for a discussion of items excluded from our primary measure of segment performance.
/
Long-Lived
Asset Impairment
During the first quarter of 2023, we identified impairment indicators primarily associated with specialized sortation and conveyor equipment used in the warehouse operations of a specific SCS customer. The impairment indicators were triggered by the credit deterioration and eventual bankruptcy of this customer in April 2023. These events resulted in a significant decline in the current forecasted operating cash flows associated with the equipment. We performed an asset impairment test under the income-based approach using a discounted cash flow method of valuation and determined we had a $i30 million
impairment. Events or changes in circumstances may occur in the near term resulting in a change in management’s estimates of undiscounted cash flows. Any such events or changes could ultimately impact the amount of the impairment loss. In the fourth quarter of 2022, we were notified by this customer of their intent to early terminate operations at one of their distribution centers and we recorded an impairment charge of $i20 million in the fourth quarter of 2022.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
i
The following table sets forth the capital expenditures paid for each of our segments:
Three
months ended June 30,
Six months ended June 30,
(In millions)
2023
2022
2023
2022
Fleet Management Solutions
$
i971
$
i561
$
i1,592
$
i1,112
Supply
Chain Solutions
i32
i40
i44
i66
Dedicated
Transportation Solutions
i1
i1
i1
i1
Central
Support Services
i7
i9
i15
i16
Purchases
of property and revenue earning equipment
$
i1,011
$
i611
$
i1,652
$
i1,195
/
3. iREVENUE
i
The following tables present our revenue recognized by primary geographical market in our reportable business segments and by industry vertical for SCS. Refer to Note 2, "Segment Reporting," for the disaggregation of our revenue by major products/service lines.
(1)Refer
to Note 13, "Other Items Impacting Comparability" for further information on the exit of the FMS U.K. business.
Industry
Beginning in the first quarter of 2023, we introduced the omnichannel retail industry vertical to provide better visibility to the revenue mix following recent acquisitions and organic growth. This new vertical includes retail, e-commerce, last mile services, and technology. iOur
SCS business segment included revenue from the following industries:
Three months ended June 30,
Six months ended June 30,
(In
millions)
2023
2022
2023
2022
Omnichannel retail
$
i405
$
i451
$
i858
$
i869
Automotive
i410
i389
i803
i743
Consumer
packaged goods
i231
i208
i458
i404
Industrial
and other
i133
i126
i261
i247
Total
SCS revenue
$
i1,179
$
i1,174
$
i2,380
$
i2,263
Lease
& Related Maintenance and Rental Revenue
The non-lease revenue from maintenance services related to our ChoiceLease product is recognized in "Lease & related maintenance and rental revenue" in the Condensed Consolidated Statements of Earnings. For the three months ended June 30, 2023 and 2022, we recognized $i239 million and $i262
million, respectively. For the six months ended June 30, 2023 and 2022, we recognized $i483 million and $i519 million, respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Deferred Revenue
i
The following table includes the changes in deferred revenue due to the collection and deferral of cash or the satisfaction of our performance obligation under the
contract:
Six months ended June 30,
(In millions)
2023
2022
Balance
as of beginning of period
$
i544
$
i593
Recognized
as revenue during period from beginning balance
(i93)
(i163)
Consideration
deferred during period, net
i96
i123
Foreign
currency translation adjustment and other
i2
i11
Balance
as of end of period
$
i549
$
i564
/
Contracted
Not Recognized Revenue
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (contracted not recognized revenue). Contracted not recognized revenue was $i2.6 billion as of June 30, 2023, and primarily includes deferred revenue and amounts for ChoiceLease maintenance revenue that will be recognized as revenue in future periods as we provide maintenance services to our customers.
(1)Revenue
earning equipment held for sale where net book values exceed fair values are adjusted to fair value on a nonrecurring basis and these adjustments are considered Level 3 fair value measurements. The fair value of revenue earning equipment held for sale adjusted with Level 3 fair value measurements was $ii3/
million for both periods ending June 30, 2023, and December 31, 2022. The net book value of all other assets held for sale were below fair value.
/
Residual Value Estimate Changes
We periodically review and adjust, as appropriate, the estimated residual values and useful lives of existing revenue earning equipment for the purposes of recording depreciation expense. Reductions in estimated residual values or useful lives will increase depreciation expense over the remaining useful life of the vehicle. Conversely, an increase in estimated residual values or useful lives will decrease depreciation expense
over the remaining useful life of the vehicle. Our review of the estimated residual values and useful lives of revenue earning equipment is based on vehicle class (i.e., generally subcategories of trucks, tractors and trailers by weight and usage), historical and current market prices, third-party expected future market prices, expected lives of vehicles, and expected sales in the wholesale or retail markets, among other factors. A variety of factors, many of which are outside of our control, could cause residual value estimates to differ from actual used vehicle sales pricing, such as changes in supply and demand of used vehicles; volatility in market conditions; changes in vehicle technology; competitor pricing; regulatory requirements; driver shortages; customer requirements and preferences; and changes in underlying assumption factors. We have disciplines related to the management and maintenance of our vehicles designed to manage the risk associated with the residual
values of our revenue earning equipment. For the six months ended June 30, 2023 and 2022, we did not adjust the estimated residual values and useful lives of existing revenue earning equipment.
Used Vehicle Sales and Valuation Adjustments
Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Losses on vehicles held for sale for which carrying values exceeded fair value, which we refer to as "valuation adjustments," are recognized at the time they are deemed to meet the held for sale criteria and are presented within "Used vehicle sales, net" in the Condensed Consolidated 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. For revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for each class of similar assets and vehicle condition, if available, or third-party market pricing. In addition, we also consider expected declines in market prices when valuing the vehicles held for sale, as well as forecasted sales channel mix (retail/wholesale).
i
The
components of "Used vehicle sales, net" were as follows:
Three months ended June 30,
Six months ended June 30,
(In millions)
2023
2022
2023
2022
Gains
on used vehicle sales, net (1)
$
(i57)
$
(i132)
$
(i131)
$
(i247)
Losses
from valuation adjustments
i2
i2
i4
i4
Used
vehicle sales, net
$
(i55)
$
(i130)
$
(i127)
$
(i243)
————————————
(1)For
the six months ended June 30, 2023, Gains on used vehicle sales, net includes $i2 million, recorded during the first quarter of 2023, related to the exit of the FMS U.K. business and $i20 million and
$i28 million, for the three and six months ended June 30, 2022, respectively.
(1)Refer
to Note 3, "Revenue," for additional information.
7. iiLEASES
/
Leases as Lessor
i
The components of lease income were as follows:
Three
months ended June 30,
Six months ended June 30,
(In millions)
2023
2022
2023
2022
Operating leases
Lease
income related to ChoiceLease
$
i368
$
i378
$
i728
$
i760
Lease
income related to commercial rental (1)
$
i287
$
i325
$
i575
$
i623
Sales-type
leases
Interest income related to net investment in leases
$
i11
$
i10
$
i26
$
i21
Variable
lease income excluding commercial rental (1)
$
i70
$
i71
$
i142
$
i145
————————————
(1)Lease
income related to commercial rental includes both fixed and variable lease income. Variable income is approximately i15% to i20% of total commercial rental income based on management's internal estimates.
/
i
The
components of net investment in sales-type leases, which are included in "Receivables, net" and "Sales-type leases and other assets" in the Condensed Consolidated Balance Sheets, were as follows:
Unsecured
medium-term note issued November 2021 (1)
i6.03%
2026
i270
i270
Unsecured
medium-term note issued November 2019
i2.90%
2026
i400
i400
Unsecured
medium-term note issued February 2022 (1)
i4.29%
2027
i433
i434
Unsecured
medium-term note issued May 2022
i4.30%
2027
i300
i300
Unsecured
medium-term note issued February 2023
i5.65%
2028
i500
i—
Unsecured
medium-term note issued May 2023
i5.25%
2028
i650
i—
Unsecured
foreign obligations
i2.88%
2024
i50
i50
Asset-backed
U.S. obligations (2)
i3.22%
2023-2030
i432
i477
Finance
lease obligations and other
2023-2041
i44
i42
i6,550
i6,370
Debt
issuance costs and original issue discounts
(i25)
(i18)
Total
debt (3)
i6,525
i6,352
Short-term
debt and current portion of long-term debt
(i1,330)
(i1,349)
Long-term
debt
$
i5,195
$
i5,003
————————————
(1)Includes
impact from the fair market values of hedging instruments on our notes, which was $ii47/
million as of both June 30, 2023 and December 31, 2022, and was included in "Other non-current liabilities" within the Condensed Consolidated Balance Sheets. The notional amount of interest rate swaps designated as fair value hedges was $ii500/
million as of both June 30, 2023 and December 31, 2022.
(2)Asset-backed U.S. obligations are related to financing transactions backed by a portion of our revenue earning equipment.
The fair value of total debt (excluding finance lease and asset-backed U.S. obligations) was approximately $i6.0
billion and $i5.7 billion as of June 30, 2023 and December 31, 2022, respectively. For publicly traded debt, estimates of fair value were based on market prices. 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. The fair value measurements of our publicly traded debt and our other debt were classified within Level 2 of the fair value hierarchy.
As
of June 30, 2023, there was $i754 million available under the global revolving credit facility. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated net worth of less than or equal to i300%,
as defined in the credit facility agreement. As of June 30, 2023, the ratio was i164%.
On April 25, 2023, certain terms of our global revolving credit facility were amended. Pursuant to the amendment, among other items, (i) the definition of consolidated net worth was revised to exclude impacts from our exit of the FMS U.K. business,
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
(ii) LIBOR was replaced as an available benchmark interest rate with term secured overnight financing rate (SOFR), and (iii) the maximum absolute dollar amounts for our trade receivables financing program and asset-backed financings were removed and the percentage-based maximum amounts were substantially increased.
We had letters of credit and surety bonds outstanding of $i466
million and $i513 million as of June 30, 2023 and December 31, 2022, respectively, which primarily guarantee the payment of insurance claims.
As of June 30, 2023, the available proceeds under the trade receivables financing program were $i217
million. As of June 30, 2023, utilization of this program included borrowing of $i50 million and letters of credit outstanding of $i33 million. On April
24, 2023, we extended the trade receivables financing program for an additional year to April 2024.
The following table summarizes our debt proceeds and repayments in 2023:
U.S.
and foreign term loans, finance lease obligations and other
i172
U.S. and foreign term loans, finance lease obligations and other
i224
Total
debt proceeds
$
i1,314
Total debt repaid
$
i1,124
————————————
(1)Proceeds
from medium-term notes presented net of discount and issuance costs.
Debt proceeds were used to repay maturing debt and for general corporate purposes. If the unsecured medium-term notes are downgraded below investment grade following, or as a result of, a change in control, the note holders can require us to repurchase all or a portion of the notes at a purchase price equal to i101% of principal value plus accrued and unpaid interest.
9. iSHARE
REPURCHASE PROGRAMS
We maintain itwo share repurchase programs. The first program authorizes management to repurchase up to i2.5 million
shares of common stock, issued to employees under our employee stock plans since September 1, 2021 (the "2021 Anti-Dilutive Program"). The 2021 Anti-Dilutive Program is designed to mitigate the dilutive impact of shares issued under our employee stock plans. The 2021 Anti-Dilutive Program commenced October 14, 2021 and expires October 14, 2023. In February 2023, our board of directors authorized a new discretionary share repurchase program to grant management discretion to repurchase up to i2 million
shares of common stock over a period of itwo years (the "2023 Discretionary Program"). Share repurchases under both programs can be made from time to time using our working capital and a variety of methods, including open-market transactions and trading plans established pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and actual number of shares repurchased are subject to market conditions, legal requirements and other factors, including balance sheet leverage, availability of acquisitions and stock price.
During the three and six months ended June 30, 2023, we repurchased and retired i0.3 million and i0.8
million shares, respectively, for $i25 million and $i70 million, respectively, under the 2021 Anti-Dilutive Program. During the three and six months ended June
30, 2022, we did iinot/ repurchase any
shares under this program.
During the three and six months ended June 30, 2023, we repurchased and retired ii0.8/
million shares for $ii63/ million under the
2023 Discretionary Program.
In February 2022, our board of directors authorized an accelerated share repurchase program to repurchase up to $i300 million of common stock, with final settlement scheduled to occur no later than the end of October 2022. During February 2022, we remitted $i300 million
to our agent for the accelerated share repurchase program. We received an initial share amount of approximately i3 million, representing approximately i80% of the total notional value of the accelerated share repurchase
agreement.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
10. iACCUMULATED
OTHER COMPREHENSIVE LOSS
Comprehensive income presents a measure of all changes in shareholders' equity except for changes resulting from transactions with shareholders in their capacity as shareholders. iThe following summary sets forth the change in each component of Accumulated other comprehensive loss, net of tax (AOCI):
In
the second quarter of 2023, we recognized a non-cash, cumulative currency translation adjustment loss of $i183 million as a result of the FMS U.K. business exit, which is included in "Currency translation adjustment loss" in our Condensed Consolidated Statements of Earnings. The cumulative currency translation adjustment loss had no impact on our consolidated financial position or cash flows.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Non-operating pension costs, net include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or curtailments if recognized. During the six months ended June 30, 2023, we contributed $i1
million to our pension plans. We do inot have any required contributions to our pension plans for the year 2023. We also maintain other postretirement benefit plans that are not reflected in the table above as the amount of postretirement benefit expense for such plans was not material for any period presented.
13. iOTHER
ITEMS IMPACTING COMPARABILITY
Our primary measure of segment performance as shown in Note 2, "Segment Reporting," excludes unallocated corporate costs, intangible amortization expense, and certain items we do not believe are representative of the ongoing operations of our business segments. iExcluding these items from our segment measure of performance allows for better year over year comparison:
Three
months ended June 30,
Six months ended June 30,
(In millions)
2023
2022
2023
2022
FMS Europe results (1)
$
(i1)
$
i—
$
i3
$
i—
Gains
on sale of U.K. revenue earning equipment (2)
i—
(i20)
(i2)
(i28)
Gains
on sale of U.K. properties (3)
(i4)
(i23)
(i9)
(i24)
Commercial
claims proceeds, net of fees (1)
i—
i5
(i31)
i12
Severance
and other, net (1)
i—
i6
i3
i9
FMS
U.K. exit
(i5)
(i32)
(i36)
(i31)
Currency
translation adjustment loss
i188
i—
i188
i—
Other,
net (1)
i—
i—
(i1)
i4
Other
items impacting comparability
$
i183
$
(i32)
$
i151
$
(i27)
________________________
(1)Included
within "Restructuring and other items, net" in our Condensed Consolidated Statements of Earnings.
(2)Included within "Used vehicle sales, net" in our Condensed Consolidated Statements of Earnings.
(3)Included within "Miscellaneous income, net" in our Condensed Consolidated Statements of Earnings.
14.iCONTINGENCIES
AND OTHER MATTERS
We are a party to various claims, complaints and proceedings arising in the ordinary course of our continuing business operations, including those relating to commercial and employment claims, environmental matters, risk management matters (e.g., vehicle liability, workers' compensation, etc.), and administrative assessments primarily associated with operating taxes. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. We believe that the resolution of these claims, complaints and legal proceedings will not have a material effect on our Condensed Consolidated Financial Statements.
Our estimates regarding potential losses and materiality are based on our judgment and assessment of the claims utilizing currently
available information. Although we will continue to reassess our estimated liability based on future developments, our objective assessment of the legal merits of such claims may not always be predictive of the outcome and actual results may vary from our current estimates.
Securities Litigation Relating to Residual Value Estimates
On May 20, 2020, a putative class action on behalf of purchasers of our securities who purchased or otherwise acquired their securities between July 23, 2015 and February 13, 2020, inclusive (Class Period), was commenced against Ryder and certain of our current and former officers in the U.S. District Court for the Southern
District of Florida (the "Securities Class Action"). The complaint alleges, among other things, that the defendants misrepresented Ryder's depreciation policy and residual value estimates for its vehicles during the Class Period in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeks to recover, among other things, unspecified compensatory damages and attorneys' fees and costs. On August 3, 2020, the State of Alaska, Alaska Permanent Fund, the City of Fort Lauderdale General
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Employees' Retirement System, and the City of Plantation Police Officers Pension Fund were appointed lead plaintiffs. On October 5, 2020, the lead plaintiffs filed an amended complaint. On December 4, 2020, Ryder and the other named defendants in the case filed a Motion to Dismiss the amended complaint. On May 12, 2022, the court denied the defendants' motion to dismiss. The court entered a case management schedule on June 27, 2022, which, among other things, provides that discovery shall be completed by October 2023 and trial shall commence in June 2024. On April
18, 2023, the parties reached an agreement in principle to resolve the Securities Class Action. On May 19, 2023, plaintiffs filed an unopposed Motion for Preliminary Approval of the settlement, and the parties filed corresponding settlement documentation, which are pending court approval. We expect that the settlement amount will be covered by insurance, and accordingly is not material to our financial position or results of operations.
As previously disclosed, between June 2020 and February 2, 2021, ifive
shareholder derivative complaints were filed purportedly on behalf of Ryder against us as nominal defendant and certain of our current and former officers and our current directors. The derivative complaints are generally based on the allegations set forth in the Securities Class Action and allege breach of fiduciary duties, unjust enrichment, and waste of corporate assets. The derivative plaintiffs, on our behalf, seek an award of monetary damages and restitution to us, improvements in our corporate governance and internal procedures, and legal fees. iThree of these derivative complaints
were filed in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida, and were then consolidated into a single action (the "State Action"). iTwo of the derivative complaints were filed in U.S. District Court for the Southern District of Florida (the "Federal Actions", and together with the State Action, the "Derivative Cases"). All of the Derivative Cases were stayed (stopped) pending the resolution of the motion to dismiss the Securities Class Action described in the paragraph above. On July
18, 2022, the Federal Actions were further stayed pending the final resolution of the State Action. On July 26, 2022, the State Action was further stayed until the conclusion of summary judgment proceedings in the Securities Class Action (except that certain discovery would be permitted). We continue to believe that the claims asserted in the complaints are without merit and intend to defend against them vigorously.
15.iSUPPLEMENTAL
CASH FLOW INFORMATION
i
Six months ended June 30,
(In
millions)
2023
2022
Interest paid
$
i123
$
i100
Income
taxes paid
$
i67
$
i67
Cash
paid for operating lease liabilities
$
i115
$
i86
Right-of-use
assets obtained in exchange for lease obligations:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included under Item 1, as well as our audited Consolidated Financial Statements and notes thereto and related MD&A included in the 2022 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform with the current period presentation. During the three and six months ended June 30, 2022,
we previously reported certain costs in "Cost of services" that should have been included in the "Cost of fuel services" within the unaudited Condensed Consolidated Statement of Earnings. These costs were not material to any financial statement line item and we elected to revise the presentation of these prior period costs to conform to the current year presentation in our financial statements.
OVERVIEW
General
We operate in highly competitive markets. Our customers select us based on numerous factors, including service quality, price, technology and service offerings. As an alternative to using our services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative
services from other third-party vendors. Our customer base includes enterprises operating in a variety of industries including food and beverage service, transportation and logistics, retail and consumer goods, automotive, industrial, housing, technology, and business and personal services.
Business Trends
During the three and six months ended June 30, 2023, market conditions for our used vehicle sales and rental continued to weaken, although used vehicle trends were moderately higher than expected. We are still experiencing favorable trends in logistics and transportation solutions due to secular trends including ongoing supply chain disruptions and a limited supply of vehicles available in the market. These secular trends, along with successful
management of initiatives to increase long-term returns, are driving revenue growth and benefiting earnings in our Supply Chain Solutions (SCS) and Dedicated Transportation Solutions (DTS) business segments.
In our Fleet Management Solutions (FMS) North America business, used vehicle pricing declined from the historical highs of the prior year and rental utilization was 75% as compared to record 85% in the prior year. We anticipate that market conditions for used vehicle sales and rental will continue to weaken in the second half of 2023. ChoiceLease vehicle fleet grew during the first half of the year, and included the redeployment of units from our rental fleet into new ChoiceLease contracts in order to maintain optimal rental utilization and provide immediate availability to our lease customers.
Our lease pricing initiatives are delivering improved portfolio returns. We expect to realize incremental earnings benefits as our remaining portfolio is renewed at higher returns.
In our SCS business, strong outsourcing trends in warehousing and distribution continue. Higher pricing and volumes drove strong revenue growth in SCS and DTS. SCS revenue growth also benefited from new contract wins in the prior year. Pricing adjustments and cost recovery initiatives benefited earnings in both segments. Profitability in SCS in line with our long-term target range in the second quarter, despite weaker volume trends and increased lost business in the omnichannel retail vertical. In the first half of 2023, DTS contract sales
activity slowed, consistent with a softer freight environment. However, DTS profitability was at the high end of our target range. We expect SCS and DTS revenue growth to moderate over the remainder of the year.
While we are experiencing positive momentum in our businesses, other unknown effects from extended higher fuel prices, inflationary cost pressures, labor shortages, extended disruptions in vehicle and vehicle part production and rising interest rates may negatively impact demand for our business and financial results.
SELECTED OPERATING PERFORMANCE ITEMS
•Total revenue of $2.9 billion in the second quarter of 2023, compared to $3.0 billion in prior year
•Operating
revenue (a non-GAAP measure) of $2.3 billion in the second quarter of 2023, up 1%, reflecting SCS and DTS revenue growth partially offset by the impact from FMS U.K. exit
•Strong performance in all segments benefited EBT
•Diluted EPS from continuing operations of $(0.39) in the second quarter of 2023 due to a non-cash UK exit charge compared to $4.72 in prior year
•Comparable EPS (a non-GAAP measure) from continuing operations of $3.61 in the second quarter of 2023, as compared to a record $4.43 in prior year, largely reflecting weaker market conditions in used vehicles sales and rental
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
•Adjusted Return on Equity (ROE) (a non-GAAP measure) of 24% for the trailing twelve months ended June 30, 2023
•Net cash provided by operating activities from continuing operations of $1.2 billion and free cash flow (a non-GAAP measure) of $16 million in the six months ended June 30, 2023
Total
revenue was $2.9 billion in the second quarter of 2023, as compared to $3.0 billion in prior year and $5.8 billion in the six months ended June 30, 2023, as compared to $5.9 billion in prior year, reflecting lower fuel revenue and subcontracted transportation, largely offset by higher operating revenue. Operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) increased 1% in the second quarter of 2023 and 3% in the six months ended June 30, 2023, primarily reflecting SCS and DTS revenue growth, partially offset by impacts from the FMS U.K. exit.
EBT and Comparable EBT (a non-GAAP measure) decreased in the second quarter
of 2023, primarily due to lower gains on used vehicles sold in North America and decreased commercial rental results in FMS partially offset by higher earnings in SCS and DTS. EBT and Comparable EBT decreased in the six months ended June 30, 2023, primarily due to lower gains on used vehicles sold in North America, decreased commercial rental results in FMS and a first quarter $30 million asset impairment related to a SCS customer bankruptcy partially offset by higher earnings in DTS. EBT in the second quarter and the six months ended June 30, 2023, also reflects a one-time, non-cash $188 million currency translation adjustment loss related to the FMS U.K.
exit.
The following discussion provides a summary of financial highlights that are discussed in more detail throughout our MD&A and within the Notes to Condensed Consolidated Financial Statements:
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions, except per share)
2023
2022
2023
2022
Three Months
Six Months
Total
revenue
$
2,884
$
3,034
$
5,836
$
5,888
(5)%
(1)%
Operating revenue (1)
2,326
2,307
4,672
4,523
1%
3%
Earnings
from continuing operations before income taxes (EBT)
$
44
$
338
$
245
$
590
(87)%
(58)%
Comparable EBT (1)
237
308
416
568
(23)%
(27)%
Earnings
(loss) from continuing operations
(18)
240
122
416
NM
(71)%
Comparable earnings from continuing operations (1)
170
226
303
414
(25)%
(27)%
Net
earnings (loss)
(18)
239
121
415
NM
(71)%
Comparable EBITDA (1)
674
688
1,302
1,335
(2)%
(2)%
Earnings
(loss) per common share (EPS) — Diluted
Continuing operations
$
(0.39)
$
4.72
$
2.60
$
8.05
NM
(68)%
Comparable
(1)
3.61
4.43
6.42
8.00
(19)%
(20)%
Net earnings (loss)
(0.40)
4.70
2.57
8.03
NM
(68)%
______________________
(1)Non-GAAP
financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
CONSOLIDATED
RESULTS
Lease & Related Maintenance and Rental
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Lease
& related maintenance and rental revenue
$
976
$
1,050
$
1,955
$
2,075
(7)%
(6)%
Cost of lease & related maintenance and rental
661
688
1,335
1,387
(4)%
(4)%
Gross
margin
$
315
$
362
$
620
$
688
(13)%
(10)%
Gross margin %
32%
34%
32%
33%
Lease
& related maintenance and rental revenue represent revenue from our ChoiceLease and commercial rental product offerings within our FMS business segment. Revenue decreased 7% in the second quarter of 2023 and 6% for the six months ended June 30, 2023, reflecting a 4% and 5%, respectively, negative impact from the exit of the FMS U.K. business and lower commercial rental demand.
Cost of lease & related maintenance and rental represents the direct costs related to Lease & related maintenance and rental revenue and are comprised of depreciation of revenue earning equipment, maintenance costs (primarily repair parts and labor), and other costs such as licenses, insurance and operating taxes. Cost of lease & related maintenance and rental excludes interest costs from vehicle financing,
which are reported within "Interest expense" in our Condensed Consolidated Statements of Earnings. Cost of lease & related maintenance and rental decreased 4% in the second quarter of 2023 and 4% for the six months ended June 30, 2023, primarily from the exit of the FMS U.K. business.
Lease & related maintenance and rental gross margin decreased in the second quarter of 2023 and for the six months ended June 30, 2023, primarily due to lower commercial rental demand partially offset by higher commercial rental pricing. Lease & related maintenance and rental gross margin percentage decreased in the second quarter of 2023 and for the six months ended June 30, 2023, primarily due to lower commercial rental utilization.
Services
Three months ended June 30,
Six
months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Services
revenue
$
1,778
$
1,777
$
3,599
$
3,447
—%
4%
Cost of services
1,507
1,523
3,114
2,973
(1)%
5%
Gross
margin
$
271
$
254
$
485
$
474
7%
2%
Gross margin %
15%
14%
13%
14%
Services
revenue represents all the revenue associated with our SCS and DTS business segments, including subcontracted transportation and fuel, as well as SelectCare and fleet support services associated with our FMS business segment. Services revenue remained consistent with the prior year period as new business, increased pricing and higher volumes in SCS and DTS, as well as higher pricing in SelectCare, were offset by lower subcontracted transportation and fuel revenue passed through to customers in the second quarter of 2023. Services revenue increased 4% for the six months ended June 30, 2023, due to increases in revenue in SCS and DTS primarily driven by new business, higher volumes and increased pricing, as well as higher pricing in SelectCare.
Cost of services represents the direct costs related to services revenue and is primarily comprised
of salaries and employee-related costs, subcontracted transportation (purchased transportation from third parties), fuel, vehicle liability costs and maintenance costs. Cost of services decreased 1% in the second quarter and increased 5% for the six months ended June 30, 2023. The increase in the six months ended June 30, 2023, reflects a $30 million SCS asset impairment charge as a result of a customer bankruptcy in the first quarter of 2023.
Services gross margin increased 7% in the second quarter of 2023 and increased 2% for the six months ended June 30, 2023. Services gross margin as a percentage of revenue increased 1% in the second quarter of 2023. These increases reflect increased
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
pricing in DTS and new business in SCS and DTS. The services gross margin and gross margin as a percentage of revenue decreased 1% in the six months ended June 30, 2023, negatively impacted by the SCS asset impairment.
Fuel
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Fuel
services revenue
$
130
$
207
$
282
$
366
(37)%
(23)%
Cost of fuel services
126
199
275
354
(37)%
(22)%
Gross
margin
$
4
$
8
$
7
$
12
(50)%
(42)%
Gross margin %
3%
4%
2%
3%
Fuel
services revenue represents fuel services provided to our FMS customers. Fuel services revenue decreased 37% in the second quarter of 2023, and 23% for the six months ended June 30, 2023, reflecting lower fuel prices passed through to customers and fewer gallons sold.
Cost of fuel services includes the direct costs associated with providing our customers with fuel. These costs include fuel, salaries and employee-related costs of fuel island attendants and depreciation of our fueling facilities and equipment. Cost of fuel services decreased 37% in the second quarter of 2023 and 22% for the six months ended June 30, 2023, as a result of lower fuel prices and a fewer gallons sold.
Fuel services gross margin and gross
margin as a percentage of revenue decreased in the second quarter of 2023 and for the six months ended June 30, 2023, compared to prior year. Fuel is largely a pass-through to customers for which we realize minimal changes in margin during periods of steady market fuel prices. However, fuel services margin is impacted by sudden increases or decreases in market fuel prices during a short period of time, as customer pricing for fuel is established based on current market fuel costs. Fuel services gross margin for the second quarter of 2023 and six months ended June 30, 2023, was not significantly impacted by these price change dynamics as fuel prices fluctuated during the periods.
Selling, General and Administrative Expenses
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Selling,
general and administrative expenses (SG&A)
$
343
$
361
$
706
$
703
(5)%
—%
Percentage of total revenue
12%
12%
12%
12%
SG&A
expenses decreased 5% in the second quarter and were consistent with the prior year period in the six months ended June 30, 2023. The decrease in second quarter of 2023 primarily reflects lower bad debt and incentive-based compensation expenses. SG&A expenses as a percentage of total revenue remained at 12% for the second quarter of 2023 and for the six months ended June 30, 2023.
Non-Operating Pension Costs, net
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Non-operating
pension costs, net
$
10
$
2
$
20
$
5
NM
NM
Non-operating
pension costs, net include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or curtailments if recognized. The non-operating pension costs, net increased due to higher interest expense from a higher discount rate partially offset by an increase in expected return on plan assets.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Used
Vehicle Sales, net
Three months ended June 30,
Six
months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Used
vehicle sales, net
$
(55)
$
(130)
$
(127)
$
(243)
(58)%
(48)%
Used vehicle sales, net includes gains or losses from sales of used vehicles, selling costs associated with
used vehicles and write-downs of vehicles held for sale to fair market values (referred to as "valuation adjustments"). Used vehicle sales, net decreased in the second quarter of 2023 and six months ended June 30, 2023, due to lower proceeds per unit on sales of used vehicles partially offset by higher volumes. Used vehicle sales, net for for the six months ended June 30, 2023, includes gains associated with the exit from the U.K. of $2 million recorded during the first quarter. Used vehicle sales, net for the three and six months ended June 30, 2022, includes gains associated with the exit from the U.K. of $20 million and $28 million, respectively. Refer to Note 13, "Other Items Impacting Comparability" for further details.
Average
proceeds per unit decreased in the second quarter of 2023 and for the six months ended June 30, 2023. The following table presents the average used vehicle pricing changes for North America compared to the prior year:
Proceeds per unit change 2023/2022 (1)
Three Months
Six
Months
Tractors
(41)%
(38)%
Trucks
(34)%
(26)%
————————————
(1) Represents percentage change compared to prior year period in average sales proceeds on used vehicle sales using constant currency.
Interest Expense
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Interest
expense
$
72
$
56
$
137
$
108
29%
27%
Effective interest rate
4.5%
3.4%
4.3%
3.3%
Interest
expense in the second quarter of 2023 increased 29% from the prior year and increased 27% for the six months ended June 30, 2023,primarily reflecting higher interest rates.
Miscellaneous Income, net
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Miscellaneous
income, net
$
(11)
$
(14)
$
(31)
$
(14)
(21)%
121%
Miscellaneous income, net consists of investment income on securities used to fund certain benefit plans, interest income, gains on sales of operating property,
foreign currency transaction remeasurement and other non-operating items. Miscellaneous income, net was $11 million in the second quarter of 2023 compared to $14 million in the prior year period, primarily reflecting higher gains on sales of properties in the prior year partially offset by higher investment income on securities used to fund certain benefit plans in the second quarter of 2023. Miscellaneous income, net was $31 million for the six months ended June 30, 2023, compared to $14 million in the prior year period, primarily due to higher investment income on securities used to fund certain benefit plans partially offset by higher gains on sales of properties in the prior year.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Currency Translation Adjustment Loss
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Currency translation adjustment loss
$
188
$
—
$
188
$
—
NM
NM
Refer
to Note 10, "Accumulated Other Comprehensive Loss" for a discussion on the currency translation adjustment loss.
Restructuring and Other Items, net
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Restructuring
and other items, net
$
(1)
$
11
$
(26)
$
25
NM
NM
Refer to Note 13, "Other Items Impacting Comparability" in the Notes to Condensed Consolidated Financial Statements for a discussion of restructuring
charges and other items.
Provision for Income Taxes
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Provision
for income taxes
$
62
$
98
$
123
$
174
(37)%
(29)%
Effective tax rate on continuing operations
140.8%
29.0%
50.0%
29.5%
Comparable
tax rate on continuing operations (1)
28.6%
26.8%
27.3%
27.2%
————————————
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
Our
effective tax rate on continuing operations was 140.8% in the second quarter of 2023, compared to 29.0% in the prior year, and 50.0% for the six months ended June 30, 2023, compared to 29.5%, primarily due to a one-time, nondeductible cumulative currency translation adjustment loss related to the completion of the FMS U.K. business exit in the second quarter of 2023.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS — (Continued)
OPERATING RESULTS BY BUSINESS SEGMENT
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in thousands)
2023
2022
2023
2022
Three Months
Six Months
Revenue:
Fleet
Management Solutions
$
1,459
$
1,621
$
2,962
$
3,150
(10)%
(6)%
Supply Chain Solutions
1,179
1,174
2,380
2,263
—%
5%
Dedicated
Transportation Solutions
440
450
894
875
(2)%
2%
Eliminations
(194)
(211)
(400)
(400)
8%
—%
Total
$
2,884
$
3,034
$
5,836
$
5,888
(5)%
(1)%
Operating
Revenue: (1)
Fleet Management Solutions
$
1,254
$
1,307
$
2,516
$
2,589
(4)%
(3)%
Supply
Chain Solutions
865
798
1,744
1,536
8%
14%
Dedicated Transportation Solutions
327
306
649
602
7%
8%
Eliminations
(120)
(104)
(237)
(204)
(15)%
(16)%
Total
$
2,326
$
2,307
$
4,672
$
4,523
1%
3%
Earnings
from continuing operations before income taxes:
Fleet Management Solutions
$
180
$
286
$
362
$
535
(37)%
(32)%
Supply
Chain Solutions
76
62
93
105
23%
(11)%
Dedicated Transportation Solutions
33
23
62
43
43%
44%
Eliminations
(24)
(30)
(49)
(56)
20%
13%
265
341
468
627
(22)%
(25)%
Unallocated
Central Support Services
(20)
(24)
(35)
(40)
(17)%
(13)%
Intangible amortization expense (2)
(8)
(9)
(17)
(19)
(11)%
(11)%
Non-operating
pension costs, net (2)
(10)
(2)
(20)
(5)
NM
NM
Other items impacting comparability, net (3)
(183)
32
(151)
27
NM
NM
Earnings
from continuing operations before income taxes
$
44
$
338
$
245
$
590
(87)%
(58)%
————————————
(1)Non-GAAP
financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
(2)Refer to Note 12, "Employee Benefit Plans," for a discussion on this item.
(3)Refer to Note 13, "Other Items Impacting Comparability," and below for a discussion of items excluded from our primary measure of segment performance.
As part of management's evaluation of segment operating performance, we define the primary measurement of our segment financial performance as segment "Earnings from continuing operations before income taxes" (EBT), which includes an allocation
of Central Support Services (CSS), and excludes Non-operating pension costs, net, intangible amortization expense, and certain other items as discussed in Note 13, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements. CSS represents those costs incurred to support all business segments, including finance and procurement, corporate services, human resources, information technology, public affairs, legal, marketing, and corporate communications.
The objective of the EBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment accountable for their allocated share of CSS costs. In the first quarter of 2023, we revised our primary measurement of segment financial performance to exclude intangible amortization expense. This change did not have a material
impact to segment results. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Certain corporate costs are not attributable to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Our FMS segment leases revenue
earning equipment and also provides rental vehicles, fuel, maintenance and other ancillary services to the SCS and DTS segments. Inter-segment EBT allocated to SCS and DTS includes earnings related to equipment used in providing services to SCS and DTS customers. EBT related to inter-segment equipment and services billed to SCS and DTS customers (equipment contribution) are included in both FMS and the segment that served the customer and then eliminated upon consolidation (presented as "Eliminations").
The following table sets forth the benefits from equipment contribution included in EBT for our SCS and DTS business segments:
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Equipment
Contribution:
Supply Chain Solutions
$
11
$
11
$
21
$
21
—%
—%
Dedicated
Transportation Solutions
13
19
28
35
(32)%
(20)%
Total
$
24
$
30
$
49
$
56
(20)%
(13)%
The
decrease in DTS equipment contribution in the second quarter of 2023 and in the six months ended June 30, 2023, was related to lower proceeds on sales of used vehicles and lower fuel prices passed through to customers.
Items excluded from our segment EBT measure and their classification within our Condensed Consolidated Statements of Earnings are as follows (in millions):
Three
months ended June 30,
Six months ended June 30,
Description
Classification
2023
2022
2023
2022
FMS Europe results (1)
Restructuring and other items, net
$
1
$
—
$
(3)
$
—
Gains
on sale of U.K. revenue earning equipment (1)
Used vehicles sales, net
—
20
2
28
Gains on sale of U.K. properties (1)
Miscellaneous income, net
4
23
9
24
Commercial
claims proceeds, net of fees (1)
Restructuring and other items, net
—
(5)
31
(12)
Severance and other, net (1)
Restructuring and other items, net
—
(6)
(3)
(9)
FMS
U.K. exit (1)
5
32
36
31
Currency translation adjustment loss (1)
Currency translation adjustment loss
(188)
—
(188)
—
Other,
net (1)
Restructuring and other items, net
—
—
1
(4)
Other items impacting comparability, net
(183)
32
(151)
27
Non-operating
pension costs (2)
Non-operating pension costs
(10)
(2)
(20)
(5)
$
(193)
$
30
$
(171)
$
22
(1)Refer
to Note 13, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements for additional information.
(2)Includes the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or curtailments if recognized.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Fleet Management Solutions
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
ChoiceLease
$
781
$
763
$
1,557
$
1,527
2%
2%
Commercial
rental (1)
301
336
605
642
(10)%
(6)%
SelectCare and other
172
153
354
301
12%
18%
FMS
Europe
—
55
—
119
NM
NM
Fuel services revenue
205
314
446
561
(35)%
(20)%
FMS
total revenue
$
1,459
$
1,621
$
2,962
$
3,150
(10)%
(6)%
FMS
operating revenue (2)
$
1,254
$
1,307
$
2,516
$
2,589
(4)%
(3)%
FMS
EBT
$
180
$
286
$
362
$
535
(37)%
(32)%
FMS EBT as a % of FMS total revenue
12.3%
17.6%
12.2%
17.0%
(530)
bps
(480) bps
FMS EBT as a % of FMS operating revenue (2)
14.4%
21.9%
14.4%
20.7%
(750) bps
(630) bps
Twelve
months ended June 30,
Change 2023/2022
2023
2022
FMS EBT as a % of FMS total revenue
14.4
%
16.1%
(170)
bps
FMS EBT as a % of FMS operating revenue (3)
17.2
%
19.0%
(180) bps
————————————
(1)For
the three months ended June 30, 2023 and 2022, rental revenue from lease customers in place of a lease vehicle represented 35% and 32% of commercial rental revenue, respectively. For the six months ended June 30, 2023 and 2022, rental revenue from lease customers in place of a lease vehicle represented 36% and 33% of commercial rental revenue, respectively.
(2)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure
to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
FMS total revenue decreased 10% in the second quarter of 2023 and 6% for the six months ended June 30, 2023, due to lower fuel services revenue passed through to customers and lower operating revenue (a non-GAAP measure excluding fuel and ChoiceLease liability insurance revenue). FMS operating revenue decreased 4% in the second quarter, reflecting a 4% negative impact from the UK business exit. North America remained unchanged in the second quarter as higher ChoiceLease and SelectCare revenue was offset by lower rental demand. FMS operating revenue decreased 3% for the six months ended June
30, 2023, reflecting a 5% negative impact from the UK business exit and a 2% decrease in North America due to lower rental demand partially offset by higher SelectCare and ChoiceLease revenue in the six months ended June 30, 2023.
FMS EBT decreased 37% to $180 million from $286 million in the second quarter of 2023 and decreased 32% to $362 million from $535 million in the six months ended June 30, 2023. FMS EBT decreased primarily from lower gains on used vehicle sales and lower commercial rental results. Lower North America gains reflect a 34% and 41% decrease in used truck and tractor pricing, respectively, in the second quarter of 2023 and a 26% and 38% decrease in used truck and tractor pricing, respectively, in the six months ended June
30, 2023. The decreases in used truck and tractor pricing were partially offset by higher volumes in the three and six months ended June 30, 2023. Rental power fleet utilization declined to 75% in both the second quarter of 2023 and in the six months ended June 30, 2023, as compared to the 85% and 83% in the three and six months ended June 30, 2022, respectively. The average power fleet was 1% smaller in the second quarter of 2023 and 3% larger in the six months ended June 30, 2023. Commercial rental results benefited from 2% and 3% increase in power-fleet pricing during the second quarter and six months ended June 30, 2023, respectively. In the first half of 2023, we redeployed 2,300 units from the rental fleet into
new ChoiceLease contracts in order to maintain optimal rental utilization levels and to meet ChoiceLease customer needs for used equipment.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Our
North America fleet of owned and leased revenue earning equipment and SelectCare vehicles, including vehicles under on-demand maintenance, is summarized as follows (number of units rounded to the nearest hundred):
(1)Generally
comprised of Class 1 through Class 7 type vehicles with a Gross Vehicle Weight (GVW) up to 33,000 pounds.
(2)Generally comprised of over the road on highway tractors and are primarily comprised of Class 8 type vehicles with a GVW of over 33,000 pounds.
(3)Generally comprised of dry, flatbed and refrigerated type trailers.
(4)Excludes customer vehicles under SelectCare on-demand contracts.
(5)Comprised of the number of unique vehicles serviced under on-demand maintenance agreements for the quarterly periods. This does not represent averages for the periods. Vehicles included in the count may have been serviced
more than one time during the respective period.
Note: Quarterly amounts were computed using a 6-point average based on monthly information.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides information on our North America active ChoiceLease fleet (number of units rounded to nearest hundred) and our commercial rental power fleet (excludes trailers):
Quarterly commercial rental utilization - power fleet (2)
75
%
82
%
85
%
(700)
bps
(1,000) bps
Year-to-date commercial rental utilization - power fleet (2)
75
%
83
%
83
%
(800) bps
(800)
bps
————————————
(1)Active
ChoiceLease vehicles are calculated as those units currently earning revenue and not classified as not yet earning (NYE) or no longer earning units (NLE). NYE units represent new vehicles on hand that are being prepared for deployment to a lease customer or into the rental fleet. Preparations include activities such as adding lift gates, paint, decals, cargo area and refrigeration equipment. NLE units represent all vehicles held for sale and vehicles for which no revenue has been earned in the previous 30 days. Accordingly, these vehicles may be temporarily out of service, being prepared for sale or awaiting redeployment.
(2)Rental utilization is calculated using the number of days units are rented divided by the number of days units are available to rent based on the days in the calendar year.
Supply
Chain Solutions
Beginning in the first quarter of 2023, we introduced the omnichannel retail industry vertical to provide better visibility to the revenue mix following recent acquisitions and organic growth. This new vertical includes retail, e-commerce, last mile services, and technology.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
(2)End of period power fleet count is 4,100 and 3,800 as of June 30, 2023 and June 30, 2022, respectively.
SCS total revenue remained at $1.2 billion in the second quarter of 2023
and increased 5% in the six months ended June 30, 2023, primarily as a result of higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) offset by lower subcontracted transportation. SCS operating revenue increased 8% in the second quarter of 2023 and increased 14% for the six months ended June 30, 2023, driven by new business, higher volumes and increased pricing.
SCS EBT increased 23% in the second quarter of 2023, primarily due to higher operating revenue, lower incentive-based compensation costs, as well as higher prior year customer accommodation charges. These increases were partially offset by lower volumes in the omnichannel retail vertical. For the six months ended June 30, 2023, SCS EBT decreased
11%, reflecting a $30 million asset impairment charge related to a customer bankruptcy. Refer to Note 2, "Segment Reporting," for additional discussion. The negative impact from the asset impairment was partially offset by revenue growth.
Dedicated Transportation Solutions
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions, except fleet count)
2023
2022
2023
2022
Three Months
Six Months
DTS total revenue
$
440
$
450
$
894
$
875
(2)%
2%
DTS
operating revenue (1)
$
327
$
306
$
649
$
602
7%
8%
DTS
EBT
$
33
$
23
$
62
$
43
43%
44%
DTS EBT as a % of DTS total revenue
7.6%
5.1%
7.0%
4.9%
250
bps
210 bps
DTS EBT as a % of DTS operating revenue (1)
10.3%
7.5%
9.6%
7.1%
280 bps
250 bps
Memo:
End
of period fleet count (2)
11,300
11,600
11,300
11,600
(3)%
(3)%
Twelve
months ended June 30,
Change 2023/2022
2023
2022
DTS EBT as a % of DTS total revenue
6.8%
4.0%
280
bps
DTS EBT as a % of DTS operating revenue (1)
9.5%
5.7%
380 bps
————————————
(1)Non-GAAP
financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
DTS total revenue decreased 2% in the second quarter of 2023, reflecting lower fuel revenue passed through to customers largely offset by higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation). DTS total revenue increased 2% for the six months ended June 30, 2023, primarily due
to higher operating revenue partially offset by lower fuel revenue. DTS operating revenue increased 7% in the second quarter of 2023 and 8% in the six months ended June 30, 2023, primarily due to inflationary cost recovery and higher volumes.
DTS EBT increased 43% in second quarter of 2023 and 44% for the six months ended June 30, 2023, primarily due to operating revenue growth and improved labor productivity.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Central Support Services
Three
months ended June 30,
Six months ended June 30,
Change 2023/2022
(Dollars in millions)
2023
2022
2023
2022
Three Months
Six Months
Total
CSS
104
107
207
204
(3)%
1%
Allocation of CSS to business segments
(84)
(83)
(172)
(164)
1%
5%
Unallocated
CSS
$
20
$
24
$
35
$
40
(17)%
(13)%
Total CSS costs decreased 3% in the second quarter primarily due to lower incentive-based
compensation costs and lower professional fees partially offset by strategic investments in marketing and information technology. Total CSS costs increased 1% in the six months ended June 30, 2023, primarily due to strategic investments in marketing and information technology, partially offset by lower incentive-based compensation costs. Unallocated CSS costs decreased 17% in the second quarter of 2023, primarily reflecting lower professional fees and incentive-based compensation costs. Unallocated CSS costs decreased 13% for the six months ended June 30, 2023, primarily reflecting lower incentive-based compensation costs and the first quarter gain from the sale of our corporate headquarters building.
FINANCIAL
RESOURCES AND LIQUIDITY
Cash Flows
The following is a summary of our cash flows from continuing operations:
Six months ended June 30,
(In millions)
2023
2022
Net
cash provided by (used in):
Operating activities
$
1,221
$
1,103
Investing activities
(1,207)
(982)
Financing activities
(57)
(330)
Effect
of exchange rate changes on cash
(6)
(15)
Net change in cash, cash equivalents, and restricted cash
$
(49)
$
(224)
Six months ended June 30,
(In
millions)
2023
2022
Net cash provided by operating activities
Earnings from continuing operations
$
122
$
416
Non-cash and other, net
1,033
905
Currency
translation adjustment loss
188
—
Collections on sales-type leases
63
64
Changes in operating assets and liabilities
(185)
(282)
Cash
flows from operating activities from continuing operations
$
1,221
$
1,103
Cash
provided by operating activities increased to $1.2 billion for the six months ended June 30, 2023, compared with $1.1 billion in 2022, driven by higher cash earnings and lower working capital needs. Cash used in investing activities increased to $1.2 billion for the six months ended June 30, 2023, compared with $982 million in 2022, primarily due to increased capital expenditures in 2023 and the accelerated timing of vehicle deliveries from OEMs as compared to the prior year, partially offset by the acquisition of the Whiplash business in 2022. Cash used in financing activities decreased to $57 million for the six months ended June 30, 2023, compared with $330 million in 2022, primarily reflecting lower common stock repurchases partially offset by higher borrowing needs.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table shows our free cash flow (a non-GAAP measure) computation:
Six months ended June 30,
(In millions)
2023
2022
Net
cash provided by operating activities
$
1,221
$
1,103
Sales of revenue earning equipment (1)
394
601
Sales of operating property and
equipment (1)
53
35
Other (1)
—
7
Total
cash generated (2)
1,668
1,746
Purchases of property and revenue earning equipment (1)
(1,652)
(1,195)
Free cash flow (2)
$
16
$
551
————————————
(1)Included
in cash flows from investing activities.
(2)Non-GAAP financial measure. Reconciliations of net cash provided by operating activities to total cash generated and to free cash flow are set forth in
this table. Refer to the "Non-GAAP Financial Measures" section of this MD&A for the reasons why management believes this measure is important to investors.
Free cash flow (a non-GAAP measure) declined to $16 million for the six months ended June 30, 2023, compared to $551 million in 2022, primarily reflecting an increase in capital expenditures and lower proceeds from used vehicle sales.
The following table provides a
summary of gross capital expenditures:
Six months ended June 30,
(In millions)
2023
2022
Revenue earning equipment:
ChoiceLease
$
1,382
$
810
Commercial
rental
310
364
1,692
1,174
Operating property and equipment
121
133
Gross capital expenditures
1,813
1,307
Changes
to liabilities related to purchases of property and revenue earning equipment
(161)
(112)
Cash paid for purchases of property and revenue earning equipment
$
1,652
$
1,195
Gross capital expenditures increased to $1.8 billion for the six months ended June 30, 2023, reflecting
higher investments in lease partially offset by lower investments in commercial rental.
Financing and Other Funding Transactions
We utilize external capital primarily to support working capital needs and growth in our asset-based product lines. The variety of financing alternatives typically available to fund our capital needs include commercial paper, long-term and medium-term public and private debt, asset-backed securities, bank term loans, leasing arrangements and bank credit facilities. Our principal sources of financing are issuances of unsecured commercial paper and medium-term notes.
Cash and cash equivalents
totaled $218 million as of June 30, 2023. As of June 30, 2023, $181 million was held outside the U.S. and is available to fund operations. Our intention is to permanently reinvest the earnings of our foreign subsidiaries, with the exception of our U.K. and Germany subsidiaries where the assertion was removed in 2021. Federal, state and foreign income taxes, withholding taxes and the tax impact of foreign currency exchange gains or losses were considered on the remaining U.K. and Germany undistributed earnings as of June 30, 2023, and there was no impact
to deferred taxes. In February 2023, we repatriated $38 million of foreign earnings from the U.K.
We believe that our operating cash flows, together with our access to the public unsecured bond market, commercial paper market and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. However, volatility or disruption in the public unsecured debt market or the commercial paper market may impair our ability to access these markets or secure terms commercially acceptable to us. If we cease to have access to public bonds,
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
commercial paper and other sources of unsecured borrowings, we would meet our liquidity needs by drawing upon contractually committed lending agreements or by seeking other funding sources.
In February 2023, we issued an aggregate principal amount of $500 million unsecured medium-terms notes that mature on March 1, 2028. The notes bear interest at a rate of 5.65% per year. In May 2023, we issued an aggregate principal amount of $650 million unsecured medium-terms notes that mature on June 1, 2028. The notes bear interest at a rate of 5.25% per year. Refer to Note 8, "Debt," in the Notes to Condensed
Consolidated Financial Statements for additional information on our global revolving credit facility, trade receivables financing program, medium-term notes, and asset-backed financing obligations.
Our ability to access unsecured debt in the capital markets is impacted by both our short-term and long-term debt ratings. These ratings are intended to provide guidance to investors in determining the credit risk associated with our particular securities based on current information obtained by the rating agencies from us or from other sources. Ratings are not recommendations to buy, sell or hold our debt securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Lower ratings generally result in higher borrowing costs, as well as reduced access to unsecured capital markets. A significant downgrade of our short-term debt ratings would impair our ability
to issue commercial paper and likely require us to rely on alternative funding sources. A significant downgrade would not affect our ability to borrow amounts under our global revolving credit facility described below, assuming ongoing compliance with the terms and conditions of the credit facility.
Our debt ratings and rating outlooks as of June 30, 2023, were as follows:
Rating
Summary
Short-term
Short-term Outlook
Long-term
Long-term Outlook
Standard & Poor’s Ratings Services
A2
—
BBB+
Stable
Moody’s
Investors Service
P2
Stable
Baa2
Stable
Fitch Ratings
F2
—
BBB+
Stable
As of June 30,
2023, we had the following amounts available to fund operations under the following facilities:
(In millions)
Global revolving credit facility
$
754
Trade receivables financing program
$
217
In accordance with our funding philosophy, we attempt
to align the aggregate average remaining re-pricing life of our debt with the aggregate average remaining re-pricing life of our vehicle assets. We utilize both fixed-rate and variable-rate debt to achieve this alignment and generally target a mix of 20% - 40% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total debt (including notional value of swap agreements) was 18% and 19% as of June 30, 2023 and December 31, 2022, respectively.
Our debt-to-equity ratio was 211% and 216% as of June 30, 2023 and December 31,
2022, respectively. The debt-to-equity ratio represents total debt divided by total equity.
Share Repurchases and Cash Dividends
As of June 30, 2023, we repurchased and retired 0.8 million shares for $70 million under the 2021 Anti-Dilutive program, and 0.8 million shares for $63 million under the 2023 Discretionary Program.
Refer to Note 9, "Share Repurchase Programs," in the Notes to Condensed Consolidated Financial Statements for a discussion on our share repurchase programs.
In
April 2023 and 2022, our board of directors declared a quarterly cash dividend of $0.62 and $0.58 per share of common stock, respectively. In July 2023, the board of directors declared a regular quarterly cash dividend of $0.71 per share of common stock, an increase of 15% compared to the cash dividend we have paid since July 2022.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
NON-GAAP FINANCIAL
MEASURES
This Quarterly Report on Form 10-Q includes information extracted from condensed consolidated financial information, but not required by generally accepted accounting principles in the United States (GAAP) to be presented in the financial statements. Certain elements of this information are considered "non-GAAP financial measures" as defined by SEC rules. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance or liquidity prepared in accordance with GAAP. Also, our non-GAAP financial measures may not be comparable to financial measures used by other companies. We provide a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure in this non-GAAP financial measures section or in the MD&A above. We
also provide the reasons why management believes each non-GAAP financial measure is useful to investors in this section.
Specifically, we refer to the following non-GAAP financial measures in this Form 10-Q:
Non-GAAP Financial Measure
Comparable GAAP Measure
Operating Revenue Measures:
Operating Revenue
Total Revenue
FMS Operating Revenue
FMS
Total Revenue
SCS Operating Revenue
SCS Total Revenue
DTS Operating Revenue
DTS Total Revenue
FMS EBT as a % of FMS Operating Revenue
FMS EBT as a % of FMS Total Revenue
SCS EBT as a % of SCS Operating Revenue
SCS EBT as a % of SCS Total Revenue
DTS EBT as a % of DTS Operating Revenue
DTS EBT as a % of DTS Total Revenue
Comparable Earnings
Measures:
Comparable Earnings Before Income Tax
Earnings Before Income Tax
Comparable Earnings
Earnings from Continuing Operations
Comparable Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
Net Earnings
Comparable EPS
EPS from Continuing Operations
Comparable Tax Rate
Effective Tax Rate from Continuing Operations
Adjusted
Return on Equity (ROE)
Not Applicable. However, non-GAAP elements of the calculation have been reconciled to the corresponding GAAP measures. A numerical reconciliation of net earnings to adjusted net earnings and average shareholders' equity to adjusted average equity is provided in the following reconciliations.
Cash Flow Measures:
Total Cash Generated and Free Cash Flow
Cash Provided by Operating Activities from Continuing Operations
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Set forth in the table below is an overview of each non-GAAP financial measure and why management believes that the presentation of each non-GAAP financial measure provides useful information to investors.
FMS EBT as a % of FMS Operating Revenue SCS EBT as a % of SCS Operating Revenue DTS EBT as a % of DTS Operating Revenue
Operating revenue is defined as total revenue for Ryder or each business segment (FMS, SCS and DTS) excluding any (1) fuel and (2) subcontracted transportation. We believe operating revenue provides useful information to investors as we use it to evaluate the operating performance of our core businesses and as a measure of sales activity at the consolidated level for Ryder System, Inc., as well as for each of our business
segments. We also use segment EBT as a percentage of segment operating revenue for each business segment for the same reason. Note: FMS EBT, SCS EBT and DTS EBT, our primary measures of segment performance, are not non-GAAP measures.
Fuel: We exclude FMS, SCS and DTS fuel from the calculation of our operating revenue measures, as fuel is an ancillary service that we provide our customers. Fuel revenue is impacted by fluctuations in market fuel prices and the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time, as customer pricing for fuel services is established based on current market fuel costs.
Subcontracted
transportation: We exclude subcontracted transportation from the calculation of our operating revenue measures, as these services are also typically a pass-through to our customers and, therefore, fluctuations result in minimal changes to our profitability. While our SCS and DTS business segments subcontract certain transportation services to third party providers, our FMS business segment does not engage in subcontracted transportation and, therefore, this item is not applicable to FMS.
Comparable Earnings Measures:
Comparable Earnings before Income Taxes (EBT) Comparable Earnings Comparable Earnings per Diluted Common Share (EPS) Comparable
Tax Rate Adjusted Return on Equity (ROE)
Comparable EBT, Comparable Earnings and Comparable EPS are defined, respectively, as GAAP EBT, earnings and EPS, all from continuing operations, excluding (1) non-operating pension costs, net and (2) other items impacting comparability (as further described below). We believe these comparable earnings measures provide useful information to investors and allow for better year-over-year comparison of operating performance.
Non-operating pension costs, net: Our comparable earnings measures exclude non-operating pension costs, net, which include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit
costs, as well as any significant charges for settlements or curtailments if recognized. We exclude non-operating pension costs, net because we consider these to be impacted by financial market performance and outside the operational performance of our business.
Other Items Impacting Comparability: Our comparable and adjusted earnings measures also exclude other significant items that are not representative of our business operations as detailed in the reconciliation table below. These other significant items vary from period to period and, in some periods, there may be no such significant items.
Comparable Tax Rate is computed using the same methodology as the GAAP provision for income taxes. Income tax effects of non-GAAP adjustments are calculated based on the marginal tax rates to which the non-GAAP
adjustments are related.
Adjusted ROE is defined as adjusted net earnings divided by adjusted average shareholders' equity and represents the rate of return on shareholders' investment. Other items impacting comparability described above are excluded, as applicable, from the calculation of adjusted net earnings and adjusted average shareholders' equity. We use adjusted ROE as an internal measure of how effectively we use the owned capital invested in our operations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS — (Continued)
Comparable Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
Comparable EBITDA is defined as net earnings, first adjusted to exclude discontinued operations and the following items, all from continuing operations: (1) non-operating pension costs, net and (2) any other items that are not representative of our business operations (these items are the same items that are excluded from comparable earnings measures for the relevant periods as described immediately above) and then adjusted further for (1)
interest expense, (2) income taxes, (3) depreciation, (4) used vehicle sales results and (5) amortization.
We believe comparable EBITDA provides investors with useful information, as it is a standard measure commonly reported and widely used by analysts, investors and other interested parties to measure financial performance and our ability to service debt and meet our payment obligations. In addition, we believe that the inclusion of comparable EBITDA provides consistency in financial reporting and enables analysts and investors to perform meaningful comparisons of past, present and future operating results. Other companies may calculate comparable EBITDA differently; therefore, our presentation of comparable EBITDA may not be comparable to similarly-titled measures used by other companies.
Comparable EBITDA should not be considered as an alternative
to net earnings, earnings from continuing operations before income taxes or earnings from continuing operations determined in accordance with GAAP, as an indicator of our operating performance, as an alternative to cash flows from operating activities (determined in accordance with GAAP), as an indicator of cash flows, or as a measure of liquidity.
Cash Flow Measures:
Total Cash Generated Free Cash Flow
We consider total cash generated and free cash flow to be important measures of comparative operating performance, as our principal sources of operating liquidity are cash from operations and proceeds from the sale of revenue earning equipment.
Total
Cash Generated is defined as the sum of (1) net cash provided by operating activities, (2) net cash provided by the sale of revenue earning equipment, (3) net cash provided by the sale of operating property and equipment and (4) other cash inflows from investing activities. We believe total cash generated is an important measure of total cash flows generated from our ongoing business activities.
Free Cash Flow is defined as the net amount of cash generated from operating activities and investing activities (excluding changes in restricted cash and acquisitions) from continuing operations. We calculate free cash flow as the sum of (1) net cash provided by operating activities, (2) net cash provided by the sale of revenue earning equipment and operating property and equipment, and (3) other cash inflows from investing activities, less (4) purchases of property
and revenue earning equipment. We believe free cash flow provides investors with an important perspective on the cash available for debt service and for shareholders, after making capital investments required to support ongoing business operations. Our calculation of free cash flow may be different from the calculation used by other companies and, therefore, comparability may be limited.
* See Total Cash Generated and Free Cash Flow reconciliations in the Financial Resources and Liquidity section of Management's Discussion and Analysis.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of GAAP earnings before taxes (EBT), earnings, and earnings per diluted share (Diluted EPS) from continuing operations to comparable EBT, comparable earnings, and comparable EPS. Certain items included in EBT, earnings, and diluted EPS from continuing operations have been excluded from our comparable EBT, comparable earnings and comparable EPS measures. The following table lists a summary of these items, which are discussed in more detail throughout our MD&A and within the Notes to Condensed Consolidated Financial Statements:
Continuing
Operations
Three months ended June 30,
Six months ended June 30,
(In millions, except per share amounts)
2023
2022
2023
2022
EBT
$
44
$
338
$
245
$
590
Non-operating
pension costs, net
10
2
20
5
FMS U.K. exit (1)
(5)
(32)
(36)
(31)
Currency
translation adjustment loss
188
—
188
—
Other, net (1)
—
—
(1)
4
Comparable
EBT
$
237
$
308
$
416
$
568
Earnings
(loss) from continuing operations
$
(18)
$
240
$
122
$
416
Non-operating pension costs, net
8
1
16
3
FMS
U.K. exit (1)
(5)
(32)
(36)
(31)
Currency translation adjustment loss
183
—
183
—
Other,
net (1)
1
1
—
5
Tax adjustments, net (2)
1
16
18
21
Comparable
Earnings
$
170
$
226
$
303
$
414
Diluted
EPS
$
(0.39)
$
4.72
$
2.60
$
8.05
Non-operating pension costs, net
0.17
0.03
0.34
0.07
FMS
U.K. exit (1)
(0.11)
(0.62)
(0.77)
(0.60)
Currency translation adjustment loss
3.90
—
3.87
—
Other,
net (1)
0.02
(0.01)
—
0.07
Tax adjustments, net (2)
0.02
0.31
0.38
0.41
Comparable
EPS (3)
$
3.61
$
4.43
$
6.42
$
8.00
————————————
(1)Refer to Note 13, “Other Items Impacting Comparability,”
in the Notes to Condensed Consolidated Financial Statements for additional information.
(2)Adjustments include the global tax impacts related to the FMS U.K. business exit in 2023, and gains on sales of U.K. revenue earning equipment and properties during 2022.
(3)For the three months ended June 30, 2023, Comparable EPS was calculated using the effect of dilutive equity awards. Diluted EPS did not use the effect of dilutive equity awards because the effect was anti-dilutive during the period. Refer to Note 11. "Earnings Per Share," in the Notes to Condensed Consolidated Financial Statements for detailed calculation of Diluted EPS.
Note: Amounts may not be additive due to rounding.
The
following table provides a reconciliation of the effective tax rate to the comparable tax rate:
Tax adjustments and income tax effects of non-GAAP adjustments (2)
(112.2)
%
(2.2)
%
(22.7)
%
(2.3)
%
Comparable
tax rate on continuing operations (1)
28.6
%
26.8
%
27.3
%
27.2
%
————————————
(1)The effective tax rate on continuing operations and comparable tax rate are based on EBT and comparable EBT, respectively, found on the previous page.
(2)Refer
to the table above for more information on tax adjustments. Income tax effects of non-GAAP adjustments are calculated based on the marginal tax rates to which the non-GAAP adjustments are related.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of earnings to comparable EBITDA:
Three
months ended June 30,
Six months ended June 30,
(In millions)
2023
2022
2023
2022
Net earnings (loss)
$
(18)
$
239
$
121
$
415
Loss
from discontinued operations, net of tax
—
1
1
1
Provision for income taxes
62
98
123
174
EBT
44
338
245
590
Non-operating
pension costs, net
10
2
20
5
FMS U.K. exit (1)
(5)
(32)
(36)
(31)
Currency
translation adjustment loss (1)
188
—
188
—
Other, net (1)
—
—
(1)
4
Comparable
EBT
237
308
416
568
Interest expense
72
56
137
108
Depreciation
412
424
857
854
Used
vehicle sales, net (2)
(55)
(109)
(125)
(214)
Amortization
8
9
17
19
Comparable
EBITDA
$
674
$
688
$
1,302
$
1,335
————————————
(1)Refer
to the table above in the Operating Results by Segment for a discussion on items excluded from our comparable measures and their classification within our Condensed Consolidated Statements of Earnings and Note 13,"Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements for additional information.
(2)Refer to Note 5, "Revenue Earning Equipment, net," in the Notes to Condensed Consolidated Financial Statements for additional information.
The following table provides a reconciliation of total revenue to operating revenue:
Three
months ended June 30,
Six months ended June 30,
(In millions)
2023
2022
2023
2022
Total revenue
$
2,884
$
3,034
$
5,836
$
5,888
Subcontracted
transportation and fuel
(558)
(727)
(1,164)
(1,365)
Operating revenue
$
2,326
$
2,307
$
4,672
$
4,523
The
following table provides a reconciliation of FMS total revenue to FMS operating revenue:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of SCS total revenue to SCS operating revenue:
Three
months ended June 30,
Six months ended June 30,
Twelve months ended June 30,
(Dollars in millions)
2023
2022
2023
2022
2023
2022
SCS
total revenue
$
1,179
$
1,174
$
2,380
$
2,263
$
4,837
$
3,935
Subcontracted
transportation and fuel
(314)
(376)
(636)
(727)
(1,375)
(1,225)
SCS operating revenue
$
865
$
798
$
1,744
$
1,536
$
3,462
$
2,710
SCS
EBT
$
76
$
62
$
93
$
105
$
207
$
152
SCS
EBT as a % of SCS total revenue
6.4%
5.3%
3.9%
4.6%
4.3%
3.9%
SCS EBT as a % of SCS operating revenue
8.7%
7.8%
5.3%
6.8%
6.0%
5.6%
The
following table provides a reconciliation of DTS total revenue to DTS operating revenue:
Three
months ended June 30,
Six months ended June 30,
Twelve months ended June 30,
(Dollars in millions)
2023
2022
2023
2022
2023
2022
DTS
total revenue
$
440
$
450
$
894
$
875
$
1,805
$
1,657
Subcontracted
transportation and fuel
(113)
(144)
(245)
(273)
(519)
(493)
DTS operating revenue
$
327
$
306
$
649
$
602
$
1,286
$
1,164
DTS
EBT
$
33
$
23
$
62
$
43
$
122
$
66
DTS
EBT as a % of DTS total revenue
7.6%
5.1%
7.0%
4.9%
6.8%
4.0%
DTS EBT as a % of DTS operating revenue
10.3%
7.5%
9.6%
7.1%
9.5%
5.7%
The
following tables provide numerical reconciliations of net earnings to adjusted net earnings and average shareholders' equity to adjusted average shareholders' equity (Adjusted ROE), and of the non-GAAP elements used to calculate the adjusted return on equity to the corresponding GAAP measures:
Twelve months ended June 30,
(Dollars
in millions)
2023
2022
Net earnings
$
574
$
734
Other
items impacting comparability, net (1)
96
(18)
Income taxes (2)
302
272
Adjusted earnings
before income taxes
972
988
Adjusted income taxes (3)
(264)
(251)
Adjusted net earnings
$
708
$
737
Average
shareholders' equity
$
2,976
$
2,642
Average adjustments to shareholders' equity (4)
(19)
(7)
Adjusted
average shareholders' equity
$
2,957
$
2,635
Adjusted return on equity (5)
24%
28%
————————————
(1)Refer
to the table below for a composition of Other items impacting comparability, net for the 12-month rolling period.
(2)Includes income taxes on discontinued operations.
(3)Represents provision for income taxes plus income taxes on other items impacting comparability.
(4)Represents the impact of other items impacting comparability, net of tax, to equity for the respective period.
(5)Adjusted return on equity is calculated by dividing Adjusted net earnings into Adjusted average shareholders' equity.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Twelve months ended June 30,
(In
millions)
2023
2022
FMS U.K. exit
$
(87)
$
(31)
Currency translation adjustment loss
188
—
Other,
net
(5)
13
Other items impacting comparability (1)
$
96
$
(18)
————————————
(1)Refer
to Note 13, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements for additional information.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements (within the meaning of the Federal Private Securities Litigation Reform Act of 1995) are statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. These statements are often preceded by or include the words "believe,""expect,""intend,""estimate,""anticipate,""will,""may,""could,""should" or similar expressions. This Quarterly Report contains forward-looking statements including statements regarding:
•our expectations with respect to the effects of outsourcing trends in warehousing and distribution on our business and financial results;
•our expectations with respect to a softening macroeconomic and freight environment;
•our expectations regarding supply of vehicles and its effect on pricing and demand;
•the expected pricing for used vehicles and sales channel mix;
•our expectations regarding used vehicle sales and
rental;
•our expectations regarding the impact of labor shortages and subcontracted transportation costs;
•our expectations in our FMS business segment regarding ChoiceLease;
•our expectations in our SCS and DTS business segments related to revenue and earnings growth and contract sales activity;
•our expectations with respect to weakening trends in our omnichannel retail vertical;
•our expectations of cash flow from operating activities, free cash flow and capital expenditures;
•the
adequacy of our accounting estimates and reserves for goodwill and other asset impairments, residual values and other depreciation assumptions, deferred income taxes and annual effective tax rates, variable revenue considerations, the valuation of our pension plans, allowance for credit losses, and self-insurance loss reserves;
•the adequacy of our fair value estimates of publicly traded debt and other debt;
•our ability to fund all of our operating, investing and financial needs for the foreseeable future through internally generated funds and outside funding sources;
•our expected level of use and availability of outside funding sources, anticipated future payments under debt and lease agreements, and risk of losses resulting from counterparty default under hedging
and derivative agreements;
•our ability to meet our objectives with the share repurchase programs;
•the anticipated impact of fuel and energy prices, interest rate movements and exchange rate fluctuations;
•our expectations as to return on pension plan assets, future pension expense and estimated contributions;
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
•our
expectations regarding the scope and anticipated outcomes with respect to certain claims, proceedings and lawsuits;
•our ability to access commercial paper and other available debt financing in the capital markets;
•our intent to permanently reinvest the earnings of our non U.K. & Germany foreign subsidiaries indefinitely;
•our expectations regarding the benefits from our strategic investments and initiatives, including our maintenance and lease pricing initiatives;
•our expectations regarding the achievement of our return on equity improvement initiatives;
•our
expectations with respect to the asset impairment charge related to a customer bankruptcy;
•the anticipated impact of inflationary pressures;
•our expectations of the long-term residual values of revenue earnings equipment, including the probability of incurring losses or having to decrease residual value estimates in the event of a potential cyclical downturn or changes to the estimated useful lives; and
•our expectations regarding the U.S. federal, state and foreign tax positions and realizability of deferred tax assets.
These statements, as well as other forward-looking statements contained in this Quarterly Report, are based on our current plans and expectations and are subject to risks, uncertainties and assumptions.
We caution readers that certain important factors could cause actual results and events to differ significantly from those expressed in any forward-looking statements. These risk factors, among others, include the following:
•Market Conditions:
◦Changes in general economic and financial conditions in the U.S. and worldwide leading to decreased demand for our services and products, lower profit margins, increased levels of bad debt, and reduced access to credit and financial markets.
◦Decreases in freight demand which would impact both our transactional and variable-based contractual business.
◦Changes in our customers' operations, financial condition or business environment that
may limit their demand for, or ability to purchase, our services and products.
◦Decreases in market demand affecting the commercial rental market and used vehicle sales as well as global economic conditions.
◦Volatility in customer volumes and shifting customer demand in the industries we service.
◦Changes in current financial, tax or other regulatory requirements that could negatively impact our financial and operating results.
•Competition:
◦Advances in technology may impact demand for our services or may require increased investments to remain competitive, and our customers may not be willing to accept
higher prices to cover the cost of these investments.
◦Competition from other service providers, some of which may have greater capital resources or lower capital costs, or from our customers, who may choose to provide services themselves.
◦Continued consolidation in the markets where we operate, which may create large competitors with greater financial resources.
◦Our inability to maintain current pricing levels due to economic conditions, demand for services, customer acceptance or competition.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
•Profitability:
◦Lower than expected sales volumes or customer retention levels.
◦Decreases in commercial rental fleet utilization and pricing.
◦Lower than expected used vehicle sales pricing levels and fluctuations in the anticipated proportion of retail versus wholesale sales.
◦Loss of key customers in our SCS and DTS business segments.
◦Decreases
in volume in our omnichannel retail vertical.
◦Our inability to adapt our product offerings to meet changing consumer preferences on a cost-effective basis.
◦The inability of our information technology systems to provide timely access to data.
◦The inability of our information security program to safeguard our data.
◦Sudden changes in market fuel prices and fuel shortages.
◦Higher prices for vehicles, diesel engines and fuel as a result of new regulations or inflationary cost pressures.
◦Higher than expected maintenance costs
and lower than expected benefits associated with our maintenance initiatives.
◦Lower than expected revenue growth due to production delays at our automotive SCS customers, primarily related to the worldwide semiconductor supply shortage, and supply chain disruptions.
◦The inability of an original equipment manufacturer or supplier to provide vehicles or components as originally scheduled.
◦Our inability to successfully execute our strategic returns and asset management initiatives, maintain our fleet at normalized levels and right-size our fleet in line with demand.
◦Our key assumptions and pricing structure, including any assumptions made with respect to inflation, of our
SCS and DTS contracts prove to be inaccurate.
◦Increased unionizing, labor strikes and work stoppages.
◦Difficulties in attracting and retaining professional drivers, warehouse personnel and technicians due to labor shortages, which may result in higher costs to procure drivers and technicians and higher turnover rates affecting our customers.
◦Our inability to manage our cost structure.
◦Our inability to limit our exposure for customer claims.
◦Unfavorable or unanticipated outcomes in legal or regulatory proceedings
or uncertain positions.
◦Business interruptions or expenditures due to severe weather or other natural occurrences.
•Financing Concerns:
◦Higher borrowing costs.
◦Increased inflationary pressures.
◦Unanticipated interest rate and currency exchange rate fluctuations.
◦Negative funding status of our pension plans caused by lower than expected returns on invested assets and unanticipated changes in interest rates.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
◦Instability in U.S. and worldwide credit markets, resulting in higher borrowing costs and/or reduced access to credit.
•Accounting Matters:
◦Reductions in residual values or useful lives of revenue earning equipment.
◦Increases in compensation levels, retirement rate and mortality resulting in higher pension expense; regulatory changes affecting pension estimates, accruals and expenses.
◦Changes
in accounting rules, assumptions and accruals.
•Other risks detailed from time to time in our SEC filings including our 2022 Annual Report on Form 10-K and in "Item 1A.-Risk Factors" of this Quarterly Report.
New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. As a result, we cannot provide assurance as to our future results or achievements. You should not place undue reliance on the forward-looking statements contained herein, which speak only as of the date of this Quarterly Report. We do not intend, or assume any obligation, to update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of new information, future events or otherwise.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to Ryder's exposures to market risks since December 31, 2022. Please refer to the 2022 Annual Report on Form 10-K for a complete discussion of Ryder's exposures to market risks.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the second quarter of 2023, we carried out an evaluation, under the supervision and with the participation of management, including Ryder's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of Ryder's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the second quarter of 2023, Ryder's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective.
Changes in Internal Control over Financial Reporting
During the three months ended June 30, 2023, there were no changes in Ryder's internal control over financial reporting that have materially affected or are reasonably likely to materially affect such internal control over financial reporting.
For a description of our material pending legal proceedings, please refer to Note 14, "Contingencies and Other Matters," in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
To
our knowledge and except to the extent additional factual information disclosed in this Quarterly Report on Form 10-Q relates to such risk factors, there have been no material changes in the risk factors described in "Item 1A. Risk Factors" in our Form 10-K for the year ended December 31, 2022, filed with the SEC on February 15, 2023. Our operations could also be affected by additional risk factors that are not presently known to us or by factors that we currently consider not material to our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The
following table provides information with respect to purchases we made of our common stock during the three months ended June 30, 2023:
(Dollars in millions, except per share)
Total
Number
of
Shares
Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs
(1)During
the three months ended June 30, 2023, we purchased an aggregate of 5,641 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock withheld as payment for the exercise price of options exercised or to satisfy the tax withholding liability associated with our share-based compensation programs and (ii) open-market purchases by the trustee of Ryder's deferred compensation plans relating to investments by employees in our stock, one of the investment options available under the plans.
(2)Our board of directors authorized management to repurchase up to 2.5 million shares of common stock, issued to employees under the company's employee stock plans since September
1, 2021 (the "2021 Anti-Dilutive Program"). The 2021 Anti-Dilutive Program was designed to mitigate the dilutive impact of shares issued under our employee stock plans. The 2021 Anti-Dilutive Repurchase Program commenced on October 14, 2021. In February 2023, our board of directors authorized a new discretionary share repurchase program to grant management discretion to repurchase up to 2 million shares of common stock over a period of two years (the "2023 Discretionary Program"). Share repurchases under both programs can be made from time to time using our working capital and a variety of methods, including open-market transactions and trading plans established pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and actual number of shares repurchased are subject to market conditions, legal requirements and other factors, including balance sheet leverage, availability of acquisitions
and stock price.
Rule 10b5-1 iiTrading
Plans/ and Non-Rule 10b5-1 iiTrading Arrangements/
Certain of our officers or directors,
as applicable, have made elections to participate in, and are participating in, our dividend reinvestment plan and 401(k) savings plan, and have made, and may from time to time make, elections to purchase shares, have shares withheld to cover withholding taxes, or pay the exercise price of options, which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On July 21, 2023, our board of directors approved entering into amended and restated severance agreements (the “Severance
Agreements”) with named executive officers Robert C. Sanchez, John J. Diez, Robert D. Fatovic, Thomas M. Havens and J. Steve Sensing (together, the “Executives”).
The Severance Agreements have an effective date of August 1, 2023, and amend and restate each Executive’s existing severance agreement to: (1) remove the requirement for each Executive to be employed for one year before they are eligible to receive benefits under the Severance Agreement; (2) revise the definition of “Good Reason” to include any material and adverse change in the Executive’s position or reporting relationship; (3) provide that, in the event that an Executive terminates his employment for “Good Reason” (as defined in the Severance Agreements) within the two-year period
commencing on a Change of Control (as defined in the Severance Agreements), the pro-rata bonus provided to each Executive will be based on target performance; and (4) implement other ministerial changes (collectively, the “Amendments”).
The foregoing description of the Amendments do not purport to be complete and are qualified in their entirety by reference to the Form of Amended and Restated Severance Agreement for Executive Officers (other than the Chief Executive Officer), attached hereto as Exhibit 10.3, and the Amended and Restated Severance Agreement for the Chief Executive Officer, attached hereto as Exhibit 10.4, in each case, incorporated by reference herein.
XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.