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10: R1 Cover HTML 73K
11: R2 Condensed Consolidated Statements of Earnings HTML 128K
12: R3 Condensed Consolidated Statements of Comprehensive HTML 64K
Income
13: R4 Condensed Consolidated Balance Sheets HTML 121K
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(Parenthetical)
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Equity
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(Details)
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(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, 2022 was i51,194,660.
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) required to be consolidated in accordance with generally accepted accounting principles in the United States (GAAP). The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the accounting policies described in our 2021 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. The year-end condensed 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. We included "Other operating expenses" together with "Selling, general and administrative expenses"in the unaudited Condensed Consolidated Statement of Earnings. In the second quarter and first half of 2022, we previously reported certain costs in "Cost of lease & related maintenance and rental" and "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 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, 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. that includes dedicated vehicles, 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 February 2022, we announced our intentions to exit the FMS United Kingdom (U.K.) business. We expect to complete the exit of the FMS U.K. business by mid-2023.
2. iiRECENT
ACCOUNTING PRONOUNCEMENTS /
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848). This update provides optional expedients for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or other rates discontinued at the end of 2021 because of reference rate reform. The update is effective for all transactions from March 12, 2020 through December
31, 2022. We intend to apply this guidance if relevant contracts that include LIBOR or other discontinued rates are modified through December 31, 2022. We continuously evaluate the potential impact on our consolidated financial position, results of operations, and cash flows.
Leases
In July 2021, the FASB issued ASU No. 2021-05, Lessor - Certain Leases with Variable Lease Payments (Topic 842). This update requires lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have selling losses if they were classified as sales-type or direct financing leases. The update is effective for fiscal
years beginning after December 15, 2021, and interim periods within those fiscal years. Entities are permitted to apply this amendment using the retrospective or prospective approach. On January 1, 2022, we adopted the amendment on a prospective basis and it did not have a material impact on our consolidated financial position, results of operations, and cash flows.
3. 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 and certain other items as discussed in Note 14, “Other Items Impacting Comparability.” Segment results are not
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.
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 thousands)
2022
2021
2022
2021
Revenue:
Fleet
Management Solutions:
ChoiceLease
$
i802,577
$
i802,832
$
i1,604,919
$
i1,599,920
Commercial
rental
i340,676
i266,969
i653,830
i489,978
SelectCare
and other
i163,707
i154,872
i330,358
i302,888
Fuel
services and ChoiceLease liability insurance (1)
i314,135
i183,568
i561,216
i350,940
Fleet
Management Solutions
i1,621,095
i1,408,241
i3,150,323
i2,743,726
Supply
Chain Solutions
i1,173,958
i775,630
i2,262,500
i1,482,330
Dedicated
Transportation Solutions
i450,228
i354,711
i875,176
i675,218
Eliminations
(2)
(i211,619)
(i156,345)
(i400,475)
(i297,415)
Total
revenue
$
i3,033,662
$
i2,382,237
$
i5,887,524
$
i4,603,859
Earnings
from continuing operations before taxes:
Fleet Management Solutions
$
i285,322
$
i158,451
$
i533,521
$
i221,853
Supply
Chain Solutions
i52,640
i41,041
i86,859
i73,998
Dedicated
Transportation Solutions
i23,156
i13,162
i43,367
i26,144
Eliminations
(i29,174)
(i19,186)
(i55,764)
(i31,460)
i331,944
i193,468
i607,983
i290,535
Unallocated
Central Support Services
(i23,768)
(i17,864)
(i39,772)
(i36,296)
Non-operating
pension costs, net (3)
(i2,581)
i373
(i5,368)
i382
Other
items impacting comparability, net (4)
i32,776
i27,596
i27,399
i19,219
Earnings
from continuing operations before income taxes
$
i338,371
$
i203,573
$
i590,242
$
i273,840
————————————
(1)In
the first quarter of 2021, we completed the previously announced exit of the extension of our liability insurance coverage for ChoiceLease customers.
(2)Represents the elimination of intercompany revenues in our FMS business segment.
(3)Refer to Note 13, "Employee Benefit Plans," for a discussion on this item.
(4)Refer to Note 14, "Other Items Impacting Comparability," for a discussion of items excluded from our primary measure of segment performance.
/
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 thousands)
2022
2021
2022
2021
Fleet
Management Solutions
$
i560,749
$
i503,874
$
i1,111,839
$
i871,582
Supply
Chain Solutions
i39,625
i14,450
i65,575
i22,980
Dedicated
Transportation Solutions
i1,115
i256
i1,454
i562
Central
Support Services
i9,234
i4,768
i16,144
i9,275
Purchases
of property and revenue earning equipment
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
4. iREVENUE
i
The
following tables present our revenue recognized by primary geographical market by our reportable business segments and by industry for SCS. Refer to Note 3, "Segment Reporting," for the disaggregation of our revenue by major products/service lines.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Industry
i
Our SCS business segment included revenue from the below industries:
Three
months ended June 30,
Six months ended June 30,
(In thousands)
2022
2021
2022
2021
Consumer packaged goods and retail
$
i538,401
$
i286,262
$
i1,038,699
$
i559,486
Automotive
i388,493
i307,499
i742,730
i579,054
Technology
and healthcare
i128,289
i109,950
i249,611
i207,035
Industrial
and other
i118,775
i71,919
i231,460
i136,755
Total
SCS revenues
$
i1,173,958
$
i775,630
$
i2,262,500
$
i1,482,330
/
Lease
& Related Maintenance and Rental Revenues
The non-lease revenue from maintenance services related to our FMS business is recognized in "Lease & related maintenance and rental revenues" in the Condensed Consolidated Statements of Earnings. For the three months ended June 30, 2022 and 2021, we recognized $i262 million and $i260
million, respectively. For the six months ended June 30, 2022 and 2021, we recognized $i519 million and $i510 million, respectively.
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 thousands)
2022
2021
Balance as of beginning of period
$
i593,442
$
i629,739
Recognized
as revenue during period from beginning balance
(i163,168)
(i109,558)
Consideration
deferred during period, net
i123,382
i91,456
Foreign
currency translation adjustment and other
i9,968
i1,499
Balance
as of end of period
$
i563,624
$
i613,136
/
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 primarily includes deferred revenue and amounts for full service ChoiceLease maintenance revenue that will be recognized as revenue in future periods as we provide maintenance services to our customers. Contracted not recognized revenue excludes (1) variable consideration as it is not included in the transaction price consideration allocated at contract inception; (2) revenues from our lease component of our ChoiceLease product and commercial rental product; (3) revenues from contracts with an original
duration of one year or less, including SelectCare contracts; and (4) revenue from SCS, DTS and other contracts where there are remaining performance obligations when we have the right to invoice but the revenue to be recognized in the future corresponds directly with the value delivered to the customer. Contracted not recognized revenue was $i2.3 billion as of June 30,
2022.
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.
iThe
following table provides a summary of incremental depreciation expense that has been recorded related to our previous residual value estimate changes as well as used vehicle sales results (rounded to the closest million):
(1)Used
vehicle sales, net for the second quarter and six months ended June 30, 2022, included $i20 million and $i28
million, respectively, of gains on sales of vehicles in the U.K. Refer to Note 14, "Other Items Impacting Comparability"
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 following table presents revenue earning equipment held for sale that are measured at fair value on
a nonrecurring basis and considered a Level 3 fair value measurement:
(1)Reflects
only the portion where net book values exceeded fair values and valuation adjustments were recorded. The net book value of assets held for sale that were less than fair value was $i92 million and $i43
million as of June 30, 2022 and December 31, 2021, respectively.
/
i
The components of used vehicle sales, net were as follows:
(2)Refer to Note 4, "Revenue," for additional information.
8. iiLEASES
/
Leases as Lessor
i
The components of lease income were as follows:
Three
months ended June 30,
Six months ended June 30,
(In thousands)
2022
2021
2022
2021
Operating leases
Lease
income related to ChoiceLease
$
i378,837
$
i386,650
$
i760,382
$
i776,261
Lease
income related to commercial rental (1)
i325,134
i255,098
i623,269
i465,382
Sales-type
leases
Interest income related to net investment in leases
$
i10,227
$
i11,040
$
i20,955
$
i25,455
Variable
lease income excluding commercial rental (1)
$
i71,122
$
i72,129
$
i145,342
$
i144,122
————————————
(1)Lease
income related to commercial rental includes both fixed and variable lease income. Variable income is approximately i15% to i25%
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:
Short-term
debt and current portion of long-term debt
(i1,414,684)
(i1,333,363)
Long-term
debt
$
i5,178,550
$
i5,246,306
————————————
(1)Includes
the impact from the fair market values of hedging instruments on our notes, which was $i31 million as of June 30, 2022, and inot
material as of December 31, 2021. The notional amount of the executed interest rate swaps designated as fair value hedges was $i650 million and $i450
million as of June 30, 2022 and December 31, 2021, respectively.
(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 $ii6.2/
billion for both periods as of June 30, 2022 and December 31, 2021. 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, 2022, there was $i654
million available under the global 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, 2022, the ratio was i172%.
We had letters of credit and surety bonds outstanding of $i465 million and $i456 million as of June 30,
2022 and December 31, 2021, respectively, which primarily guarantee the payment of insurance claims.
As of June 30, 2022, the available proceeds under the trade receivables financing program were $i250 million. In May 2022, we extended the maturity of the trade receivables financing program to expire in May 2023.
In February 2022, we issued an aggregate principal amount of $i450 million unsecured medium terms notes that mature on March 1, 2027. The notes bear interest at a rate of i2.85%
per year. In May 2022, we issued an aggregate principal amount of $i300 million unsecured medium-term notes that mature on June 15, 2027. The notes bear interest at a rate of i4.30%
per year.
10. iSHARE REPURCHASE PROGRAMS
In February 2022, our Board of Directors authorized a new accelerated share repurchase program to repurchase up to $i300 million
of common stock. During February 2022, we remitted $i300 million to our agent for the accelerated share repurchase program. We received an initial share amount of approximately i3.1 million,
representing approximately i80% of the total notional value of the accelerated share repurchase agreement. The remaining amount of shares purchased under the program will be delivered to Ryder when the program ends, no later than October 2022.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
We maintain itwo additional share repurchase programs. The first program grants management discretion to repurchase up to i2.0 million
shares of common stock over a period of itwo years, commencing October 14, 2021 and expiring October 14, 2023 (the "2021 Discretionary Program"). The 2021 Discretionary Program is designed to provide management with capital structure flexibility while concurrently managing objectives related to balance sheet leverage, acquisition opportunities, and shareholder returns. The second program authorizes management to repurchase up to i2.5 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 is designed to mitigate the dilutive impact of shares issued under the company's employee stock plans. The 2021 Anti-Dilutive Program commenced October 14, 2021 and expires October 14, 2023. Share repurchases under both programs can be made from time to time using the company's 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 quality acquisitions and stock price. During the six months ended June 30, 2022, we did not repurchase any shares under these programs. During the six months ended June 30, 2021, we repurchased i638,001
shares for $i49 million under the 2019 anti-dilutive program.
11. iACCUMULATED
OTHER COMPREHENSIVE LOSS
Comprehensive (loss) 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 components of accumulated other comprehensive loss, net of tax:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
12. iEARNINGS PER SHARE
i
The
following table presents the calculation of basic and diluted earnings per common share from continuing operations:
Three months ended June 30,
Six months ended June 30,
(Dollars
in thousands)
2022
2021
2022
2021
Earnings from continuing operations
$
i240,342
$
i149,568
$
i416,164
$
i201,152
Less:
Distributed and undistributed earnings allocated to unvested stock
(ii1,271/)
(ii703/)
(ii2,143/)
(ii940/)
Earnings
from continuing operations available to common shareholders
$
ii239,071/
$
ii148,865/
$
ii414,021/
ii200,212/
Weighted
average common shares outstanding — Basic
i49,852
i52,378
i50,474
i52,333
Effect
of dilutive equity awards
i1,073
i1,213
i1,226
i1,039
Weighted
average common shares outstanding — Diluted
i50,925
i53,591
i51,700
i53,372
Earnings
from continuing operations per common share — Basic
$
i4.80
$
i2.84
$
i8.20
$
i3.83
Earnings
from continuing operations per common share — Diluted
$
i4.72
$
i2.78
$
i8.05
$
i3.75
Anti-dilutive
equity awards not included in diluted EPS
i1,068
i417
i765
i958
————————————
Note:
Amounts may not be additive due to rounding.
/
13.iEMPLOYEE BENEFIT PLANS
iComponents
of net pension expense for defined benefit pension plans were as follows:
Three months ended June 30,
Six months ended June 30,
(In thousands)
2022
2021
2022
2021
Company-administered
plans:
Service cost
$
i198
$
i180
$
i438
$
i548
Interest
cost
i15,785
i14,483
i31,609
i29,018
Expected
return on plan assets
(i18,484)
(i21,791)
(i37,066)
(i43,485)
Amortization
of net actuarial loss and prior service cost
i5,299
i7,031
i10,771
i14,128
Net
pension expense
$
i2,798
$
(i97)
$
i5,752
$
i209
Company-administered
plans:
U.S.
$
i3,324
$
i2,090
$
i6,647
$
i4,453
Non-U.S.
(i526)
(i2,187)
(i895)
(i4,244)
Net
pension expense
$
i2,798
$
(i97)
$
i5,752
$
i209
/
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, 2022, we contributed $i19 million to our pension plans. We do not expect additional contributions to our pension plans for the year 2022. 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.
14. iOTHER ITEMS IMPACTING COMPARABILITY
Our
primary measure of segment performance as shown in Note 3, "Segment Reporting," excludes certain items we do not believe are representative of the ongoing operations of the segment. iExcluding these items from our segment measure of performance allows for better year over year comparison:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Three
months ended June 30,
Six months ended June 30,
(In thousands)
2022
2021
2022
2021
Restructuring and other, net
$
i10,302
$
i2,577
$
i24,556
$
i5,605
ERP
implementation costs
i—
i5,090
i—
i12,721
Restructuring
and other items, net
i10,302
i7,667
i24,556
i18,326
Gains
on sale of U.K. revenue earning equipment
(i20,080)
i—
(i28,371)
i—
Gains
on sale of properties
(i22,998)
(i35,263)
(i23,584)
(i36,768)
ChoiceLease
liability insurance revenue (1)
i—
i—
i—
(i777)
Other
items impacting comparability, net
$
(i32,776)
$
(i27,596)
$
(i27,399)
$
(i19,219)
————————————
(1) Refer
to Note 3, "Segment Reporting," for additional information.
Note: Amounts may not be additive due to rounding.
During the six months ended June 30, 2022 and 2021, other items impacting comparability included:
•Restructuring and other, net — For the second quarter of 2022, this item primarily included professional fees related to the pursuit of a discrete commercial claim of $i5
million and U.K. severance costs as part of our plan to exit the FMS U.K. business of $i4 million. For the six months ended June 30, 2022, this item primarily included professional fees related to the pursuit of a discrete commercial claim and transaction costs related to the acquisition of PLG Investments I, LLC. (Whiplash) of approximately $i16
million and U.K. severance costs as part of our plan to exist the FMS U.K. business of $i7 million. In February 2022, we announced our intention to exit the FMS U.K. business and we expect to complete the exit plan by mid-2023. For the three and six months ended June 30, 2021, this item primarily included professional fees related to the pursuit of a discrete commercial claim.
•Gains on sale of U.K. revenue earning equipment and
properties —For the three and six months ended June 30, 2022, we recorded gains on the sale of U.K. revenue earning equipment and properties as part of our plan to exit the FMS U.K. business. We recorded gains on sale of properties for the six months ended June 30, 2021, primarily for certain FMS properties in the U.K. that were restructured as part of cost reduction activities in prior periods. The gains on sale of U.K. revenue earning equipment are reflected within "Used Vehicles Sales, net" and the gains on sale of properties are reflected within "Miscellaneous income, net" in our Condensed Consolidated Statements of Earnings.
i
The
following table summarizes the activities within, and components of, restructuring liabilities for 2022:
(2)Included
in "Accrued expenses and other current liabilities" in the Condensed Consolidated Balance Sheets.
15.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.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
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 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 the commencement of trial in June 2024.
As previously disclosed, between June 2020 and February 2, 2021, iifive/
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 complaints are generally based on allegations set forth in the Securities Class Action complaint and allege breach of fiduciary duties, unjust enrichment, and waste of corporate assets. The plaintiffs, on our behalf, are seeking an award of monetary damages and restitution to us, improvements in our corporate governance and internal procedures, and legal fees. iiThree/
of these derivative complaints were filed in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida, which were then consolidated into a single action (the "State Action"). iiTwo/
of the 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 believe the claims asserted in the complaints are without
merit and intend to defend against them vigorously.
16.iSUPPLEMENTAL CASH FLOW INFORMATION
i
Six
months ended June 30,
(In thousands)
2022
2021
Interest paid
$
i100,282
$
i104,417
Income
taxes paid
$
i66,501
$
i15,812
Cash
paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases
$
i86,251
$
i46,482
Right-of-use
assets obtained in exchange for lease obligations:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
17. iACQUISITIONS
On January
1, 2022, we acquired all the outstanding equity of PLG Investments I, LLC (Whiplash), a leading national provider of omnichannel fulfillment and logistics services for an approximate purchase price of $i483 million. The acquisition is included in our SCS business segment, and will expand our e-commerce and omnichannel fulfillment network.
iThe
following table provides the preliminary purchase price allocation of the fair value of the assets and liabilities for Whiplash as of the acquisition date:
Customer
relationships and other intangible assets
i157,400
Other assets, primarily operating lease right-of-use assets
i241,646
Total
assets
i757,892
Liabilities:
Accrued
expenses and other current liabilities
i78,254
Other liabilities, primarily operating lease liabilities
i196,869
Net
assets acquired
$
i482,769
The excess of the purchase consideration over the aggregate estimated fair values of identifiable assets acquired and liabilities
assumed was recorded as goodwill. The goodwill recognized reflects anticipated supply chain services growth opportunities and expected cost synergies of combining Whiplash with our business. iNone of the goodwill is deductible for income tax purposes. Customer relationship intangible assets are expected to be amortized over i13
years. The purchase price included $i439 million of restricted cash placed in escrow and the remaining amount classified as a deposit as of December 31, 2021. These amounts were recorded in "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheet as of December 31, 2021. The cash paid from escrow during the first quarter of 2022 is reflected in "Acquisitions, net of cash acquired" in the Condensed Consolidated Statement
of Cash Flows for the six months ended June 30, 2022.
We believe that we have sufficient information to provide a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. The purchase price allocation excludes certain items to be resolved post-closing with the seller, which may result in additional adjustments to the final purchase price. Therefore, the provisional measurements of estimated fair values reflected are subject to change. We expect to finalize the valuation and complete the purchase consideration allocation no later than December 31, 2022.
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 2021 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform with the current period presentation. We included "Other operating expenses" together with "Selling, general and administrative
expenses"in the unaudited Condensed Consolidated Statement of Earnings. In the second quarter and first half of 2021, we previously reported certain costs in "Cost of lease & related maintenance and rental" and "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
In the second quarter and first half of 2022, supply chain disruptions and labor shortage challenges continue to contribute to increased demand for our services as companies seek long-term outsourcing solutions.In addition, the limited supply of vehicles available
in the market contributed to robust demand and pricing for our rental and used vehicles.
In our Fleet Management Solutions (FMS) business, the used vehicle sales and rental market have benefited from strong demand and pricing trends, resulting in higher year over year performance in both of these areas. Used vehicle market conditions remain strong despite a modest decline in sequential tractor pricing. We continue to anticipate that the historically strong used vehicle sales and rental market environment will moderate in the second half of the year, with slower freight growth partially offset by ongoing tight market capacity. We have benefited from market acceptance for higher lease pricing on new and renewing leases, resulting in improved portfolio returns. If the limited supply of vehicles continues for an extended period, we will likely continue to experience benefits in rental and
used vehicle pricing and overall demand; however, we may experience limited rental and lease fleet growth from OEM delivery delays and lower vehicle sales volumes due to limited used vehicle inventory.
In our Supply Chain Solutions (SCS) business, we are seeing strong outsourcing trends in warehousing and distribution, as well as in e-commerce fulfillment and last mile delivery of big and bulky items. We continue to experience new contract wins in SCS and Dedicated Transportation Solutions (DTS), which combined with recent acquisitions, contributed to significant revenue growth. Our previously announced acquisitions are performing well and above expectations and provide us with enhanced capabilities in fast-growing e-commerce fulfillment and in multi-client warehousing. During the second quarter and first
half of 2022, continued labor shortages, resulted in higher labor costs, impacting all of our business segments, particularly our DTS and SCS segments. In the second quarter, our DTS and SCS pricing adjustments more than covered the negative impact of increased labor costs. In the second half of 2022, we expect these pricing adjustments to help DTS and SCS return to their target earnings levels.
While we are experiencing positive momentum in our businesses, other unknown effects of the pandemic, extended higher fuel prices, inflationary cost pressures, prolonged labor shortages, extended disruptions in vehicle and vehicle part production and rising interest rates may negatively impact demand for our business, financial results, and significant judgments and estimates.
SELECTED OPERATING PERFORMANCE ITEMS
•Total
revenue of $3.0 billion and operating revenue (a non-GAAP measure) of $2.3 billion for second quarter of 2022 increased 27% and 20%, respectively as compared to prior year, reflecting revenue growth across all business segments
•Diluted EPS from continuing operations of $4.72 in the second quarter of 2022 versus $2.78 in prior year, reflecting significantly improved results in FMS and higher results in DTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
•Comparable
EPS (a non-GAAP measure) from continuing operations of $4.43 in the second quarter of 2022 versus $2.40 in prior year
•Adjusted Return on Equity (ROE) (a non-GAAP measure) of 28.0% in the second quarter of 2022
•Net cash provided by operating activities from continuing operations of $1.1 billion and free cash flow (a non-GAAP measure) of $551 million in the second quarter of 2022
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 2022/2021
(Dollars in thousands, except per share)
2022
2021
2022
2021
Three Months
Six Months
Total
revenue
$
3,033,662
$
2,382,237
$
5,887,524
$
4,603,859
27%
28%
Operating revenue (1)
2,307,106
1,922,820
4,522,693
3,740,183
20%
21%
Earnings
from continuing operations before income taxes (EBT)
$
338,371
$
203,573
$
590,242
$
273,840
66%
116%
Comparable EBT (1)
308,176
175,604
568,211
254,239
75%
123%
Earnings
from continuing operations
240,342
149,568
416,164
201,152
61%
107%
Comparable earnings from continuing operations (1)
225,544
129,138
413,843
187,328
75%
121%
Net
earnings
239,400
149,105
414,987
199,930
61%
108%
Comparable EBITDA (1)
688,107
624,055
1,335,159
1,191,470
10%
12%
Earnings
per common share (EPS) — Diluted
Continuing operations
$
4.72
$
2.78
$
8.05
$
3.75
70%
115%
Comparable
(1)
4.43
2.40
8.00
3.49
85%
129%
Net earnings
4.70
2.77
8.03
3.73
70%
115%
(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.
Total revenue increased 27% in the second quarter of 2022 and 28% for the six months ended June 30, 2022. Operating revenue (a non-GAAP measure excluding fuel, subcontracted transportation and ChoiceLease liability insurance revenues) increased 20% in the second quarter of 2022 and 21% in the six months ended June
30, 2022. The increases in total and operating revenue for both the second quarter and six months ended June 30, 2022, were primarily due to higher revenue across all of our business segments and the SCS acquisitions of PLG Investments I, LLC (Whiplash) and Midwest Warehouse & Distribution System (Midwest). Total revenue in both periods also increased from higher subcontracted transportation and fuel revenue.
EBT and comparable EBT (a non-GAAP measure) increased to $338 million and $308 million, respectively, in the second quarter of 2022 from $204 million and $176 million, respectively, in the prior year period. For the six months ended June 30, 2022, EBT and comparable EBT (a non-GAAP measure) increased to $590 million and $568 million, respectively, as compared to earnings
of $274 million and $254 million, respectively in the prior year period. The increases in both periods were primarily due to higher gains on used vehicles sold in North America, higher commercial rental results and a declining impact of depreciation expense from prior residual value estimate changes.
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 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Lease
& related maintenance and rental revenues
$
1,049,604
$
986,694
$
2,074,589
$
1,927,116
6%
8%
Cost of lease & related maintenance and rental
687,894
702,444
1,386,735
1,432,588
(2)%
(3)%
Gross
margin
$
361,710
$
284,250
$
687,854
$
494,528
27%
39%
Gross margin %
34%
29%
33%
26%
Lease
& related maintenance and rental revenues represent revenues from our ChoiceLease and commercial rental product offerings within our FMS business segment. Revenues increased 6% in the second quarter of 2022 and 8% for the six months ended June 30, 2022, driven primarily by increases in commercial rental demand and pricing.
Cost of lease & related maintenance and rental represents the direct costs related to lease & related maintenance and rental revenues 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 2% in the second quarter of 2022 and 3% for the six months ended June 30, 2022, due to declining depreciation expense impacts from prior residual value estimate changes.
Lease & related maintenance and rental gross margin increased in the second quarter of 2022 and for the six months ended June 30, 2022, primarily due to higher commercial rental pricing and utilization, a declining impact of depreciation expense from prior residual value estimate changes, and higher ChoiceLease pricing.
Services
Three
months ended June 30,
Six months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Services
revenue
$
1,777,586
$
1,276,140
$
3,447,124
$
2,441,628
39%
41%
Cost of services
1,520,121
1,090,015
2,966,830
2,089,807
39%
42%
Gross
margin
$
257,465
$
186,125
$
480,294
$
351,821
38%
37%
Gross margin %
14%
15%
14%
14%
Services
revenue represents all the revenues associated with our SCS and DTS business segments, as well as SelectCare and fleet support services associated with our FMS business segment. Services revenue increased 39% in the second quarter of 2022 and 41% for the six months ended June 30, 2022, due to increases in revenue in SCS and DTS growth from acquisitions, new business, higher volumes and higher pricing.
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 increased 39% in the second quarter and 42% for the six months ended June 30, 2022, primarily due to the
growth in revenues and higher subcontracted transportation and labor costs in SCS and DTS.
Services gross margin increased 38% in the second quarter of 2022 and increased 37% for the six months ended June 30, 2022, due to the increase in revenue. Services gross margin as a percentage of revenue declined slightly in the second quarter of 2022 due to higher labor costs and remained consistent for the six months ended June 30, 2022.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Fuel
Three
months ended June 30,
Six months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Fuel
services revenue
$
206,472
$
119,403
$
365,811
$
235,115
73%
56%
Cost of fuel services
202,524
117,453
360,171
232,159
72%
55%
Gross
margin
$
3,948
$
1,950
$
5,640
$
2,956
102%
91%
Gross margin %
2%
2%
2%
1%
Fuel
services revenue represents fuel services provided to our FMS customers. Fuel services revenue increased 73% in the second quarter of 2022 and 56% for the six months ended June 30, 2022, primarily reflecting higher fuel prices passed through to customers.
Cost of fuel services includes the direct costs associated with providing our customers with fuel. These costs include fuel, salaries and employee-related costs of fuel island attendants and depreciation of our fueling facilities and equipment. Cost of fuel services increased 72% in the second quarter of 2022 and 55% for the six months ended June 30, 2022, as a result of higher fuel prices.
Fuel services gross margin increased in the second quarter of 2022 and
for the six months ended June 30, 2022. Fuel services gross margin as a percentage of revenue remained flat at 2% in the second quarter of 2022 and increased to 2% for the six months ended June 30, 2022. 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 2022 and six months ended June 30, 2022, was not significantly impacted by these price change dynamics as fuel prices fluctuated during the period.
Selling,
General and Administrative Expenses
Three months ended June 30,
Six
months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Selling,
general and administrative expenses (SG&A)
$
360,687
$
302,749
$
702,696
$
578,391
19%
21%
Percentage of total revenue
12%
13%
12%
13%
SG&A
expenses increased 19% and 21%in the second quarter and six months ended June 30, 2022, respectively. The increase in both periods is mainly due to higher incentive-based compensation costs, higher bad debt expense, amortization of intangibles from the Whiplash and Midwest acquisitions and higher travel expense, offset by decreased deferred compensation. The increase in SG&A expenses for the six months ended June 30, 2022, also included increased strategic investments in information technology. SG&A expenses as a percentage of total revenue decreased to 12% for the second quarter of 2022 and for the six months ended June 30, 2022.
Non-Operating Pension Costs, net
Three
months ended June 30,
Six months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Non-operating
pension costs, net
$
2,581
$
(373)
$
5,368
$
(382)
NM
NM
_______________________________
NM
- Denotes Not Meaningful throughout the MD&A
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 lower return on assets from a shift in mix of assets and higher interest expense from a higher discount rate partially offset by lower amortization expense.
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 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Gains
on used vehicle sales, net
$
(129,566)
$
(51,634)
$
(242,560)
$
(80,485)
151%
201%
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 increase in the second quarter of 2022 and six months ended June 30, 2022, due to higher proceeds per unit on sales of used vehicles.
Average proceeds per unit increased in the second quarter of 2022 and for the six months ended June 30, 2022, primarily reflecting higher retail pricing and retail channel mix. The following table presents the average used vehicle pricing changes for North America compared to the prior year:
Proceeds
per unit change 2022/2021 (1)
Three Months
Six Months
Tractors
91%
117%
Trucks
81%
94%
————————————
(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 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Interest
expense
$
55,324
$
54,155
$
107,688
$
108,861
2%
(1)%
Effective interest rate
3.4%
3.4%
3.3%
3.4%
Interest
expense in the second quarter of 2022 increased 2% from the prior year and decreased 1% for the six months ended June 30, 2022, reflecting a lower effective interest rate due to a higher mix of variable rate debt partially offset by higher average outstanding debt.
Miscellaneous income, net
Three
months ended June 30,
Six months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Miscellaneous
income, net
$
(14,576)
$
(43,812)
$
(14,202)
$
(49,246)
(67)%
(71)%
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 income of $15 million in the second quarter of 2022 compared to income of $44 million in the prior year period and $14 million for the six months ended June 30, 2022, compared to income of $49 million in the prior year period, primarily due to higher gains on sale of properties in the prior year.
Restructuring and other items, net
Three
months ended June 30,
Six months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Restructuring
and other items, net
$
10,302
$
7,667
$
24,556
$
18,326
34%
34%
Refer to Note 14, "Other Items Impacting Comparability" in the Notes to Condensed Consolidated
Financial Statements for a discussion of restructuring charges and other items.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Provision for income taxes
Three
months ended June 30,
Six months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Provision
for income taxes
$
98,029
$
54,005
$
174,078
$
72,688
82%
139%
Effective tax rate on continuing operations
29.0%
26.5%
29.5%
26.5%
Comparable
tax rate on continuing operations (1)
26.8%
26.5%
27.2%
26.3%
————————————
(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 29.0% in the second quarter of 2022 compared to 26.5% in the prior year, and 29.5% for the six months ended June 30, 2022, compared to 26.5% in the prior period. The increase in the effective tax rate for both periods was due to incremental U.S. tax on higher foreign earnings related to the exit of our U.K. FMS business.
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 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Revenue:
Fleet
Management Solutions
$
1,621,095
$
1,408,241
$
3,150,323
$
2,743,726
15%
15%
Supply Chain Solutions
1,173,958
775,630
2,262,500
1,482,330
51%
53%
Dedicated
Transportation Solutions
450,228
354,711
875,176
675,218
27%
30%
Eliminations
(211,619)
(156,345)
(400,475)
(297,415)
(35)%
(35)%
Total
$
3,033,662
$
2,382,237
$
5,887,524
$
4,603,859
27%
28%
Operating
Revenue: (1)
Fleet Management Solutions
$
1,306,960
$
1,224,673
$
2,589,107
$
2,392,786
7%
8%
Supply
Chain Solutions
798,430
534,558
1,536,521
1,037,156
49%
48%
Dedicated Transportation Solutions
305,564
255,849
602,019
492,688
19%
22%
Eliminations
(103,848)
(92,260)
(204,954)
(182,447)
(13)%
(12)%
Total
$
2,307,106
$
1,922,820
$
4,522,693
$
3,740,183
20%
21%
Earnings
from continuing operations before income taxes:
Fleet Management Solutions
$
285,322
$
158,451
$
533,521
$
221,853
80%
140%
Supply
Chain Solutions
52,640
41,041
86,859
73,998
28%
17%
Dedicated Transportation Solutions
23,156
13,162
43,367
26,144
76%
66%
Eliminations
(29,174)
(19,186)
(55,764)
(31,460)
52%
77%
331,944
193,468
607,983
290,535
72%
109%
Unallocated
Central Support Services
(23,768)
(17,864)
(39,772)
(36,296)
33%
10%
Non-operating pension costs, net (2)
(2,581)
373
(5,368)
382
NM
NM
Other
items impacting comparability, net (3)
32,776
27,596
27,399
19,219
19%
43%
Earnings from continuing operations before income taxes
$
338,371
$
203,573
$
590,242
$
273,840
66%
116%
————————————
(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 13, "Employee Benefit Plans," for a discussion on this item.
(3)Refer to Note 14, "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 and certain other items as discussed in Note 14, "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 segment and, ultimately, to hold leadership of each business segment accountable for their allocated share of CSS costs. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Certain costs are not attributable
to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation.
Our FMS segment leases revenue earning equipment, as well as 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”).
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
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 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Equipment
Contribution:
Supply Chain Solutions
$
10,971
$
7,822
$
21,201
$
13,045
40%
63%
Dedicated
Transportation Solutions
18,203
11,364
34,563
18,415
60%
88%
Total
$
29,174
$
19,186
$
55,764
$
31,460
52%
77%
The
increase in SCS and DTS equipment contribution in the second quarter of 2022 and in the six months ended June 30, 2022, is primarily related to higher proceeds on sales of used vehicles, fleet growth and increased fuel margins due to rapid fluctuations in fuel prices.
Items excluded from our segment EBT measure and their classification within our Condensed Consolidated Statements of Earnings are as follows (in thousands):
Three
months ended June 30,
Six months ended June 30,
Description
Classification
2022
2021
2022
2021
Restructuring and other, net (1)
Restructuring
and other items, net
$
(10,302)
$
(2,577)
$
(24,556)
$
(5,605)
ERP
implementation costs (1)
Restructuring and other items, net
—
(5,090)
—
(12,721)
Gain
on sale of U.K. revenue earning equipment
Used vehicles sales, net
20,080
—
28,371
—
Gains on sale of properties (1)
Miscellaneous income, net
22,998
35,263
23,584
36,768
ChoiceLease
liability insurance revenue (1)
Revenue
—
—
—
777
Other items impacting comparability, net
32,776
27,596
27,399
19,219
Non-operating
pension costs, net (2)
Non-operating pension costs
(2,581)
373
(5,368)
382
$
30,195
$
27,969
$
22,031
$
19,601
———————————
(1)Refer
to Note 14, “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 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
ChoiceLease
$
802,577
$
802,832
$
1,604,919
$
1,599,920
—%
—%
Commercial
rental (1)
340,676
266,969
653,830
489,978
28%
33%
SelectCare and other
163,707
154,872
330,358
302,888
6%
9%
Fuel
services and ChoiceLease liability insurance(2)
314,135
183,568
561,216
350,940
71%
60%
FMS
total revenue
$
1,621,095
$
1,408,241
$
3,150,323
$
2,743,726
15%
15%
FMS
operating revenue (3)
$
1,306,960
$
1,224,673
$
2,589,107
$
2,392,786
7%
8%
FMS
EBT
$
285,322
$
158,451
$
533,521
$
221,853
80%
140%
FMS
EBT as a % of FMS total revenue
17.6%
11.3%
16.9%
8.1%
630 bps
880 bps
FMS
EBT as a % of FMS operating revenue (3)
21.8%
12.9%
20.6%
9.3%
890 bps
122 bps
Twelve
months ended June 30,
Change 2022/2021
2022
2021
FMS EBT as a % of FMS total revenue
16.0%
5.5%
1,050
bps
FMS EBT as a % of FMS operating revenue (3)
19.0%
6.3%
1,270 bps
————————————
(1)For
the three months ended June 30, 2022 and 2021, rental revenue from lease customers in place of a lease vehicle represented 32% and 29% of commercial rental revenue, respectively. For the six months ended June 30, 2022 and 2021, rental revenue from lease customers in place of a lease vehicle represented 33% and 30% of commercial rental revenue, respectively.
(2)In the first quarter of 2021, we completed the previously announced exit of the extension of our liability insurance coverage for ChoiceLease customers.
(3)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 increased 15% in the second quarter of 2022 and for the six months ended June 30, 2022, due to higher operating revenue (a non-GAAP measure excluding fuel and ChoiceLease liability insurance revenues) and higher fuel service revenue primarily reflecting higher fuel prices passed through to customers. FMS operating revenue increased 7% in the second quarter and 8% for the six months ended June 30, 2022, primarily due
to higher commercial rental revenue driven by strong demand and higher pricing.
FMS EBT in the second quarter of 2022 increased to $285 million from $158 million in the prior year period. FMS EBT in the six months ended June 30, 2022, increased to $534 million from $222 million in the prior year period. FMS EBT increased primarily from higher used vehicle sales and rental results, reflecting benefits from tight truck capacity and initiatives to improve returns in these areas. Lease pricing and maintenance cost initiatives also contributed to higher results. Increased gains on used vehicles sold and a declining impact of depreciation expense from prior vehicle residual value estimate changes contributed $84 million and $200 million for thethree and six months ended June 30, 2022, respectively, in higher year-over-year earnings. Used vehicle pricing in North America significantly increased from the prior year for both trucks and tractors and global ending inventory levels declined to 4,200 vehicles, remaining below the target range of 7,000 - 9,000 vehicles. Commercial rental results benefited from higher utilization and increased power fleet pricing. Rental power fleet utilization increased to 85% from 80% in the second quarter of 2022 compared to prior period and increased to 83% from 76% in the six months ended June 30, 2022, compared to prior period.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Our global 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 global commercial rental power fleet (excludes trailers):
Quarterly
commercial rental utilization - power fleet (2)
84.5
%
85.2
%
79.6
%
(70)
bps
490
bps
Year-to-date commercial rental utilization - power fleet (2)
83.1
%
85.2
%
76.4
%
(210)
bps
670
bps
———————————
(1)Active ChoiceLease vehicles are calculated as those units currently earning revenue and not classified as not yet earning or no longer earning units.
(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
Three
months ended June 30,
Six months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Consumer packaged goods and retail
$
423,383
$
233,791
$
818,519
$
454,277
81%
80%
Automotive
217,384
179,849
412,024
351,721
21%
17%
Technology
and healthcare
73,840
57,529
144,249
112,234
28%
29%
Industrial and other
83,823
63,389
161,729
118,924
32%
36%
Subcontracted
transportation and fuel
375,528
241,072
725,979
445,174
56%
63%
SCS
total revenue
$
1,173,958
$
775,630
$
2,262,500
$
1,482,330
51%
53%
SCS
operating revenue (1)
$
798,430
$
534,558
$
1,536,521
$
1,037,156
49%
48%
SCS
EBT
$
52,640
$
41,041
$
86,859
$
73,998
28%
17%
SCS EBT as a % of SCS total revenue
4.5%
5.3%
3.8%
5.0%
(80)
bps
(120) bps
SCS EBT as a % of SCS operating revenue (1)
6.6%
7.7%
5.7%
7.1%
(110) bps
(140) bps
Memo:
End
of period fleet count
11,700
10,000
11,700
10,000
17%
17%
Twelve
months ended June 30,
Change 2022/2021
2022
2021
SCS EBT as a % of SCS total revenue
3.3%
5.8%
(250)
bps
SCS EBT as a % of SCS operating revenue (1)
4.8%
8.2%
(340) 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.
(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.
SCS total revenue increased 51% in the second quarter of 2022 and 53% in the six months ended June 30, 2022, primarily as a result of higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation). SCS operating revenue increased 49% in the second quarter of 2022 and 48% for the six months ended June 30, 2022, primarily due to the acquisitions of Whiplash and Midwest and strong revenue growth in all industry verticals from new business, higher volumes and increased pricing.
SCS EBT increased 28% in the second quarter of 2022 and 17% for the six months ended June 30,
2022, primarily due to revenue growth from new business, higher pricing and acquisitions. This increase was partially offset by customer accommodation charges, bad debt and incentive-based compensation costs. The positive impact of acquisitions included non-cash amortization expense of $7 million and $15 million during the three and six months ended June 30, 2022, respectively. EBT was also negatively impacted by lower earnings in the automotive vertical as a result of supply chain disruptions and labor challenges during the six months ended June 30, 2022.
Dedicated
Transportation Solutions
Three months ended June 30,
Six
months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
DTS
total revenue
$
450,228
$
354,711
$
875,176
$
675,218
27%
30%
DTS
operating revenue (1)
$
305,564
$
255,849
$
602,019
$
492,688
19%
22%
DTS
EBT
$
23,156
$
13,162
$
43,367
$
26,144
76%
66%
DTS EBT as a % of DTS total revenue
5.1%
3.7%
5.0%
3.9%
140
bps
110 bps
DTS EBT as a % of DTS operating revenue (1)
7.6%
5.1%
7.2%
5.3%
250
bps
190 bps
Memo:
End
of period fleet count
11,600
10,400
11,600
10,400
12%
12%
Twelve
months ended June 30,
Change 2022/2021
2022
2021
DTS EBT as a % of DTS total revenue
4.0%
5.2%
(120)
bps
DTS EBT as a % of DTS operating revenue (1)
5.7%
6.9%
(120) 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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
DTS total revenue increased 27% in the second quarter of 2022 and 30% for the six months ended June 30, 2022, primarily
due to higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation). DTS operating revenue increased 19% in the second quarter of 2022 and 22% in the six months ended June 30, 2022, primarily due to new business, increased pricing and volumes.
DTS EBT increased 76% in second quarter of 2022 and 66% for the six months ended June 30, 2022, primarily due to pricing increases, new business and gains on sales of vehicles partially offset by strategic investments.
Central
Support Services
Three months ended June 30,
Six
months ended June 30,
Change 2022/2021
(Dollars in thousands)
2022
2021
2022
2021
Three Months
Six Months
Total
CSS
107,144
93,584
204,087
182,142
14%
12%
Allocation of CSS to business segments
(83,376)
(75,720)
(164,315)
(145,846)
10%
13%
Unallocated
CSS
$
23,768
$
17,864
$
39,772
$
36,296
33%
10%
Total CSS costs increased 14% and 12%in the second quarter and six months
ended June 30, 2022, respectively, due to strategic investments in technology and marketing, higher incentive-based compensation-related expenses and higher professional fees. Total CSS costs were partially offset by investment income from Ryder Ventures, our corporate venture capital fund. Unallocated CSS costs increased 33% in the second quarter of 2022 primarily reflecting increased professional fees and incentive-based compensation costs. Unallocated CSS costs increased 10% for the six months ended June 30, 2022, primarily reflecting increased professional fees partially offset by Ryder Ventures investment income.
FINANCIAL RESOURCES AND LIQUIDITY
Cash
Flows
The following is a summary of our cash flows from continuing operations:
Six months ended June 30,
(In thousands)
2022
2021
Net
cash provided by (used in):
Operating activities
$
1,102,776
$
1,131,233
Investing activities
(982,412)
(533,408)
Financing activities
(330,026)
(478,971)
Effect
of exchange rate changes on cash
(15,482)
(2,369)
Net change in cash, cash equivalents, and restricted cash
$
(225,144)
$
116,485
Six months ended June
30,
(In thousands)
2022
2021
Net cash provided by operating activities
Earnings from continuing operations
$
416,164
$
201,152
Non-cash and other, net
906,161
950,869
Collections
on sales-type leases
64,404
62,778
Changes in operating assets and liabilities
(283,953)
(83,566)
Cash
flows from operating activities from continuing operations
$
1,102,776
$
1,131,233
Cash
provided by operating activities remained at $1.1 billion for the six months ended June 30, 2022, as higher earnings were offset by higher working capital needs. For the six months ended June 30, 2022, the increase in working capital needs was primarily attributed to an increase in receivables from higher revenues partially offset by an increase in accounts payable due to the timing of payments. Cash used in investing activities increased to $982 million for the six months ended June 30, 2022 compared with $533 million in 2021 primarily due to the acquisition of Whiplash and an increase in cash paid for capital expenditures partially offset by higher proceeds from the sale of revenue earning equipment. Cash used in financing activities
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
decreased to $330 million for the six months ended June 30, 2022 compared to $479 million in 2021 due to higher debt borrowing needs partially offset by an increase in common stock repurchases.
The following table shows our free cash flow computation:
Six
months ended June 30,
(In thousands)
2022
2021
Net cash provided by operating activities
$
1,102,776
$
1,131,233
Sales of revenue earning equipment (1)
600,822
330,277
Sales
of operating property and equipment (1)
35,342
44,409
Other (1)
7,332
691
Total
cash generated (2)
1,746,272
1,506,610
Purchases of property and revenue earning equipment (1)
(1,195,012)
(904,399)
Free cash flow (2)
$
551,260
$
602,211
————————————
(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) decreased to $551 million for the six months ended June 30, 2022, from $602 million in 2021 primarily due to an increase in cash paid for capital expenditures partially offset by higher proceeds from the sale of revenue earning equipment, including the sale of U.K. vehicles related to our exit plan.
The
following table provides a summary of gross capital expenditures:
Six months ended June 30,
(In thousands)
2022
2021
Revenue earning equipment:
ChoiceLease
$
810,249
$
501,053
Commercial
rental
363,921
397,092
1,174,170
898,145
Operating property and equipment
132,699
64,886
Gross capital expenditures
1,306,869
963,031
Changes
in accounts payable related to purchases of property and revenue earning equipment
(111,857)
(58,632)
Cash paid for purchases of property and revenue earning equipment
$
1,195,012
$
904,399
Gross capital expenditures increased to $1.3 billion for the six months ended June
30, 2022 primarily reflecting higher planned investments in the ChoiceLease fleet.
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 $448 million as of June 30, 2022.
As of June 30, 2022, approximately $355 million was held outside the U.S. and is available to fund operations. We have historically asserted our intent to permanently reinvest foreign earnings outside of the U.S. In 2021, we reevaluated our historic assertion with respect to our U.K. and Germany operations and no longer consider these earnings to be indefinitely reinvested. The deferred tax liability recorded on the U.K. and Germany undistributed earnings is not material. We intend to continue to permanently reinvest the earnings of our remaining foreign subsidiaries indefinitely.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
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, 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 2022, we issued an aggregate principal amount of $450 million unsecured medium terms notes that mature on March 1, 2027. The notes bear interest at a rate of 2.85% per year. In May 2022, we issued an aggregate principal amount of $300 million unsecured medium terms notes that mature on June 15, 2027. The notes bear interest at a rate of 4.30% per year. Refer to Note 9, “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, 2022 were as follows:
Rating Summary
Short-term
Short-term Outlook
Long-term
Long-term
Outlook
Standard & Poor’s Ratings Services
A2
—
BBB
Positive
Moody’s Investors Service
P2
Stable
Baa2
Stable
Fitch Ratings
F2
—
BBB+
Stable
DBRS
R-1
(Low)
Stable
A (Low)
Stable
As of June 30, 2022, we had the following amounts available to fund operations under the following facilities:
(In millions)
Global revolving credit facility
$
654
Trade
receivables financing program
$
250
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 23% and 16% as of June 30, 2022 and December 31, 2021, respectively.
Our debt to equity ratio was 233% and 235% as of June 30, 2022 and December 31, 2021, respectively. The debt to equity ratio represents total debt divided by total equity. The decrease in the debt to equity ratio from year-end 2021 primarily reflects increased earnings partially offset by higher share repurchases.
Share Repurchases and Cash Dividends
In February 2022, we repurchased 3.1 million shares for $300 million pursuant to our accelerated share repurchase program, with final settlement
scheduled to occur no later than the end of October 2022. The number of shares ultimately to be repurchased will be based on the average of Ryder's daily volume-weighted average price per share of common stock during a repurchase period, less a discount and subject to the terms and conditions of the program agreement.
Refer to Note 10, “Share Repurchase Programs,” in the Notes to Condensed Consolidated Financial Statements for a discussion on our share repurchase programs.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
In May 2022 and 2021, our Board of Directors declared a quarterly cash dividend of $0.58 and $0.56 per share of common stock, respectively. The dividends were paid during the second quarter of each respective year. In July 2022, the Board of Directors declared a regular quarterly cash dividend of $0.62 per share of common stock, an increase of 7% compared to the cash dividend we have paid since July 2021.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 2, “Recent Accounting Pronouncements,"
in the Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.
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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
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 System, Inc. or each business segment (FMS, SCS and DTS) excluding any (1) fuel and (2) subcontracted transportation, as well as (3) revenue from our ChoiceLease liability insurance program which was discontinued in early 2020. 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.
ChoiceLease liability insurance: We exclude ChoiceLease liability insurance as we announced our plan in the first quarter of 2020 to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program was completed in the first quarter of 2021. We are excluding the revenues associated with this program for better comparability of our on-going operations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
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) any other significant items that are not representative of our business operations. 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, 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 net earnings and 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 the Company’s 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 from continuing operations, 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 diluted 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 thousands, except per share amounts)
2022
2021
2022
2021
EBT
$
338,371
$
203,573
$
590,242
$
273,840
Non-operating
pension costs, net
2,581
(373)
5,368
(382)
Restructuring and other, net (1)
10,302
2,577
24,556
5,605
ERP
implementation costs (1)
—
5,090
—
12,721
Gains
on sale of U.K. revenue earning equipment (1)
(20,080)
—
(28,371)
—
Gains on sale of properties (1)
(22,998)
(35,263)
(23,584)
(36,768)
ChoiceLease
liability insurance revenue (1)
—
—
—
(777)
Comparable EBT
$
308,176
$
175,604
$
568,211
$
254,239
Earnings
from continuing operations
$
240,342
$
149,568
$
416,164
$
201,152
Non-operating pension costs, net
1,629
(1,031)
3,391
(1,786)
Restructuring
and other, net (including ChoiceLease liability insurance results) (1)
10,665
3,204
24,955
5,784
ERP implementation costs (1)
—
3,779
—
9,444
Gains
on sale of U.K. revenue earning equipment (1)
(20,080)
—
(28,371)
—
Gains on sale of properties (1)
(22,997)
(26,812)
(23,580)
(27,999)
Tax
adjustments, net (2)
15,985
430
21,284
733
Comparable Earnings
$
225,544
$
129,138
$
413,843
$
187,328
Diluted
EPS
$
4.72
$
2.78
$
8.05
$
3.75
Non-operating pension costs, net
0.03
(0.02)
0.07
(0.03)
Restructuring
and other, net (including ChoiceLease liability insurance results) (1)
0.21
0.06
0.48
0.10
ERP implementation costs (1)
—
0.07
—
0.18
Gains
on sale of U.K. revenue earning equipment (1)
(0.39)
—
(0.55)
—
Gains on sale of properties (1)
(0.45)
(0.50)
(0.46)
(0.52)
Tax
adjustments, net (2)
0.31
0.01
0.41
0.01
Comparable EPS
$
4.43
$
2.40
$
8.00
$
3.49
————————————
(1)Refer
to Note 14, “Other Items Impacting Comparability,” in the Notes to Condensed Consolidated Financial Statements for additional information.
(2)Adjustments include the global tax impact related to gains on sales of U.K. revenue earning equipment and properties in the second quarter and six months ended June 30, 2022, and expiring state net operating losses in the second quarter and six months ended June 30, 2021.
Note: Amounts may not be additive due to rounding.
Tax adjustments and income tax effects of non-GAAP adjustments (2)
(2.2)
%
—
%
(2.3)
%
(0.2)
%
Comparable
tax rate on continuing operations (1)
26.8
%
26.5
%
27.2
%
26.3
%
————————————
(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.
The following table provides a reconciliation of earnings to comparable EBITDA:
Three
months ended June 30,
Six months ended June 30,
(In thousands)
2022
2021
2022
2021
Net earnings
$
239,400
$
149,105
$
414,987
$
199,930
Loss
from discontinued operations, net of tax
942
463
1,177
1,222
Provision for income taxes
98,029
54,005
174,078
72,688
EBT
338,371
203,573
590,242
273,840
Non-operating
pension costs, net
2,581
(373)
5,368
(382)
Other items impacting comparability, net (1)
(32,776)
(27,596)
(27,399)
(19,219)
Comparable
EBT
308,176
175,604
568,211
254,239
Interest expense
55,324
54,155
107,688
108,861
Depreciation
424,892
444,259
854,229
905,420
Used
vehicle sales, net (2)
(109,487)
(51,634)
(214,190)
(80,485)
Amortization
9,202
1,671
19,221
3,435
Comparable
EBITDA(3)
$
688,107
$
624,055
$
1,335,159
$
1,191,470
————————————
(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 14,“Other Items Impacting Comparability” in the Notes to Condensed Consolidated Financial Statements for additional information.
(2)Refer to Note 6, "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 thousands)
2022
2021
2022
2021
Total revenue
$
3,033,662
$
2,382,237
$
5,887,524
$
4,603,859
Subcontracted
transportation and fuel
(726,556)
(459,417)
(1,364,831)
(862,899)
ChoiceLease liability insurance revenue (1)
—
—
—
(777)
Operating
revenue
$
2,307,106
$
1,922,820
$
4,522,693
$
3,740,183
————————————
(1)In
the first quarter of 2021, we completed the previously announced exit of the extension of our liability insurance coverage for ChoiceLease customers.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of FMS total revenue to FMS operating revenue:
Three
months ended June 30,
Six months ended June 30,
Twelve months ended June 30,
(Dollars in thousands)
2022
2021
2022
2021
2022
2021
FMS
total revenue
$
1,621,095
$
1,408,241
$
3,150,323
$
2,743,726
$
6,085,545
$
5,375,779
Fuel
services and ChoiceLease liability insurance (1)
(314,135)
(183,568)
(561,216)
(350,940)
(948,693)
(636,476)
FMS operating revenue
$
1,306,960
$
1,224,673
$
2,589,107
$
2,392,786
$
5,136,852
$
4,739,303
FMS
EBT
$
285,322
$
158,451
$
533,521
$
221,853
$
974,758
$
298,205
FMS
EBT as a % of FMS total revenue
17.6%
11.3%
16.9%
8.1%
16.0%
5.5%
FMS EBT as a % of FMS operating revenue
21.8%
12.9%
20.6%
9.3%
19.0%
6.3%
————————————
(1)In
the first quarter of 2021, we completed the previously announced exit of the extension of our liability insurance coverage for ChoiceLease customers.
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 thousands)
2022
2021
2022
2021
2022
2021
SCS
total revenue
$
1,173,958
$
775,630
$
2,262,500
$
1,482,330
$
3,934,968
$
2,878,985
Subcontracted
transportation and fuel
(375,528)
(241,072)
(725,979)
(445,174)
(1,225,087)
(843,831)
SCS operating revenue
$
798,430
$
534,558
$
1,536,521
$
1,037,156
$
2,709,881
$
2,035,154
SCS
EBT
$
52,640
$
41,041
$
86,859
$
73,998
$
130,212
$
165,997
SCS
EBT as a % of SCS total revenue
4.5%
5.3%
3.8%
5.0%
3.3%
5.8%
SCS EBT as a % of SCS operating revenue
6.6%
7.7%
5.7%
7.1%
4.8%
8.2%
The
following table provides a reconciliation of DTS total revenue to DTS operating revenue:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
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 thousands)
2022
2021
Net earnings
$
734,261
$
261,392
Other
items impacting comparability, net (1)
(18,617)
19,779
Income taxes (2)
272,418
79,930
Adjusted earnings before
income taxes
988,062
361,101
Adjusted income taxes (3)
(251,091)
(80,094)
Adjusted net earnings
$
736,971
$
281,007
Average
shareholders’ equity
$
2,642,143
$
2,252,610
Average adjustments to shareholders’ equity (4)
(6,765)
44,961
Adjusted
average shareholders’ equity
$
2,635,378
$
2,297,571
Adjusted return on equity (5)
28.0%
12.2%
————————————
(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)
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 ongoing effects of the COVID-19 pandemic or any future variants, including the global supply chain disruption on our business and financial results;
•our expectations regarding the effects of OEM delivery delays;
•the cyclical nature of the industries in which we compete;
•our expectations regarding supply and demand of vehicles and its effect on pricing;
•our expectations of the long-term residual values of revenue earning equipment, including the probability of incurring losses or having to decrease residual value estimates in the event of a potential cyclical downturn;
•the expected pricing
for used vehicles and sales channel mix;
•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, and allowance for credit losses;
•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 price and exchange rate fluctuations;
•our expectations as to return on pension plan assets, future pension expense and estimated contributions;
•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 expectations regarding the benefits from our strategic investments, including Whiplash;
•our expectations regarding the benefits of our pricing adjustments with respect to labor shortage costs in SCS and DTS;
•our expectations regarding the timeline for the exit of the FMS U.K. business;
•our expectations regarding the achievement of our return on equity improvement initiatives;
•our expectations regarding the diminishing impact of prior residual value estimate changes on return on equity improvement;
•our
expectations regarding the labor shortages impact on labor and subcontracted transportation costs;
•our expectations regarding the U.S. federal, state and foreign tax positions;
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
•our expectations regarding the finalized valuation and purchase price consideration allocation for the acquisition of Whiplash; and
•the
anticipated impact of recent accounting pronouncements.
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, include the following:
•Market Conditions:
◦Changes in general economic and financial conditions globally 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 that 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 serviced by our SCS business.
◦Changes in current financial, tax or regulatory requirements that could negatively impact our financial results.
◦Ongoing
developments related to geopolitical events, including the ongoing armed conflict between Russia and Ukraine, and its impact on the global economy and our business.
•Competition:
◦Advances in technology may impact demand for our services or may require increased investments to remain competitive.
◦Competition from other service providers, who 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 in which 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.
•Profitability:
◦Our inability to obtain adequate profit margins for our services.
◦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.
◦Our
inability to adapt our product offerings to meet changing consumer preferences on a cost-effective basis.
◦The inability of our legacy information technology systems to provide timely access to data.
◦Sudden changes in fuel prices and fuel shortages.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
◦Higher prices for vehicles, diesel
engines and fuel as a result of new regulations.
◦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.
◦The inability of an original equipment manufacturer or supplier to provide vehicles or components, primarily related to the worldwide semiconductor supply shortage.
◦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 of our SCS and DTS contracts prove to be inaccurate.
◦Increased unionizing, labor strikes and work stoppages.
◦Difficulties in attracting and retaining drivers and technicians due to driver and technician 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 natural occurrences.
•Financing Concerns:
◦Higher borrowing costs.
◦Unanticipated or increasing 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.
◦Withdrawal liability as a result of our participation in multi-employer plans.
◦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 2021 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, 2021. Please refer to the 2021 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 2022, 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 2022, 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 six months ended June 30, 2022, 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 15, “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, 2021, filed with the SEC on February 17, 2022.
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, 2022:
(Dollars
in thousands, 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
Maximum Number of Shares That May Yet Be Purchased Under the Discretionary and Anti-Dilutive Programs (2) and the Accelerated Share Repurchase Program (3)
(1)During
the three months ended June 30, 2022, we purchased an aggregate of 6,963 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)In October 2021, our Board of Directors authorized two new share repurchase programs. The first program grants management discretion to repurchase up to 2.0 million shares of common stock over a period of two years, commencing on October
14, 2021 and expiring on October 14, 2023 (the "2021 Discretionary Program"). The 2021 Discretionary Program is designed to provide management with capital structure flexibility while concurrently managing objectives related to balance sheet leverage, acquisition opportunities, and shareholder returns. The second program authorizes 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 is designed to mitigate the dilutive impact of shares issued under the company's employee stock plans. The 2021 Anti-Dilutive Repurchase Program
commenced on October 14, 2021 and expires on October 14, 2023. Share repurchases under both programs can be made from time to time using the company's 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 quality acquisitions and stock price.
(3)In February 2022, our Board of Directors authorized a new accelerated share repurchase program (ASR) to repurchase up to $300 million of common stock, with final settlement
scheduled to occur no later than the end of October 2022. The number of shares to be repurchased will be based on the average of Ryder's daily volume-weighted average price per share of common stock during a repurchase period, less a discount and subject to adjustments pursuant to the terms and conditions of the program agreement. During the six months ended June 30, 2022, we repurchased 3,052,270 shares for $300 million under the ASR.
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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.