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| R > SEC Filings for R > Form 10-Q on 22-Oct-2008 | All Recent SEC Filings |
22-Oct-2008
Quarterly Report
ACQUISITIONS
We have completed various asset purchase agreements in the past year, under
which we acquired a company's fleet and contractual customers. The combined
networks operate under Ryder's name and complement our existing market coverage
and service network. The results of these acquisitions have been included in our
consolidated results since the dates of acquisition.
All acquisitions during the past year were as follows:
Business Contractual
Company Acquired Segment Date Vehicles Customers Market
Gordon Truck Leasing FMS August 29, 2008 500 130 Pennsylvania
Gator Leasing, Inc. FMS May 12, 2008 2,300 300 Florida
Lily Transportation Corp. FMS January 11, 2008 1,600 200 Northeast U.S.
Pollock NationaLease FMS/SCS October 5, 2007 2,000 200 Canada
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
CONSOLIDATED RESULTS
Three months ended September 30, Nine months ended September 30, Change 2008/2007
Three Nine
2008 2007 2008 2007 Months Months
(In thousands, except per share amounts)
Earnings before income taxes $ 111,982 104,493 $ 316,744 293,667 7 % 8
Provision for income taxes 41,774 38,960 127,509 111,752 7 14
Net earnings $ 70,208 65,533 $ 189,235 181,915 7 % 4
Per diluted common share (EPS) $ 1.25 1.11 $ 3.31 3.01 13 % 10
Weighted-average shares outstanding - Diluted 56,226 59,026 57,221 60,427 (5 )% (5 )
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Earnings before income taxes and net earnings in the third quarter of 2008
increased 7%. The growth in operating results in the third quarter of 2008 was
driven primarily by better operating performance in our FMS business segment and
a Canadian pension curtailment gain, and was partially offset by reduced
profitability in our SCS segment. Earnings in the third quarter of 2008 included
a net income tax benefit of $1.6 million or $0.03 per diluted common share
primarily due to a tax law change in Massachusetts. Earnings in the third
quarter of 2007 were negatively impacted by a restructuring charge of $11.9
million ($7.8 million after-tax or $0.13 per diluted common share) offset
partially by a gain on sale of property of $10.0 million ($6.1 million after-tax
or $0.10 per diluted common share). See Note (F), "Restructuring and Other
Charges (Recoveries)," and Note (P), "Gain on Sale of Property," in the Notes to
Consolidated Condensed Financial Statements for additional information.
Earnings before income taxes for the nine months ended September 30, 2008
increased 8% and net earnings increased 4%. The growth in operating results in
the nine months ended September 30, 2008 was driven primarily by better
operating performance in our FMS business segment and was partially offset by
reduced profitability in our SCS segment mostly as a result of our Brazil
operations. Refer to Note (A), "Interim Financial Statements," for a discussion
of the second quarter 2008 adjustments related to our Brazil operations. Net
earnings for 2008 have been favorably impacted by the Massachusetts tax law
change and negatively impacted by non-deductible foreign losses.
EPS growth in the third quarter of 2008 and nine months ended September 30,
2008 exceeded the net earnings growth reflecting the impact of share repurchase
programs. See "Operating Results by Business Segment" for a further discussion
of operating results.
Three months ended September 30, Nine months ended September 30, Change 2008/2007
Three Nine
2008 2007 2008 2007 Months Months
(In thousands)
Revenue:
Fleet Management Solutions $ 1,166,744 1,051,866 $ 3,473,697 3,077,278 11 % 13
Supply Chain Solutions 430,779 554,045 1,285,860 1,704,445 (22 ) (25 )
Dedicated Contract Carriage 140,632 143,796 421,542 423,362 (2 ) -
Eliminations (112,034 ) (101,983 ) (351,154 ) (305,290 ) (10 ) (15 )
Total $ 1,626,121 1,647,724 $ 4,829,945 4,899,795 (1 )% (1 )
Operating revenue (1) $ 1,209,819 1,170,684 $ 3,595,037 3,446,958 3 % 4
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(1) We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our businesses and as a measure of sales activity. FMS fuel services revenue net of related intersegment billings, which is directly impacted by fluctuations in market fuel prices, is excluded from the operating revenue computation as fuel is largely a pass-through to our customers for which we realize minimal changes in 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 market fuel costs. Subcontracted transportation is deducted from total revenue to arrive at operating revenue as subcontracted transportation is typically a pass-through to our customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Operating revenue is also a primary internal operating metric used to measure segment performance. Refer to the section titled "Non-GAAP Financial Measures" for a reconciliation of total revenue to operating revenue.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Total revenue decreased 1% to $1.63 billion in the third quarter of 2008 and
decreased 1% to $4.83 billion in the nine months ended September 30, 2008. Total
revenue in 2008 was impacted by a change, effective January 1, 2008, in our
contractual relationship with a significant customer that required a change in
revenue recognition from a gross basis to a net basis for subcontracted
transportation. This change did not impact operating revenue or net earnings. In
the third quarter of 2007 and nine months ended September 30, 2007, we recorded
revenue of $152.6 million and $506.7 million, respectively, related to this
contractual relationship. Excluding this item, total revenue increased in the
third quarter of 2008 and nine months ended September 30, 2008 primarily as a
result of higher fuel services revenue. Operating revenue increased 3% in the
third quarter of 2008 primarily due to FMS contractual revenue growth, including
acquisitions, which more than offset a decline in commercial rental revenue.
Operating revenue increased 4% in the nine months ended September 30, 2008
primarily due to FMS contractual revenue growth, including acquisitions. Total
revenue in the third quarter of 2008 and nine months ended September 30, 2008
included an unfavorable foreign exchange impact of 0.1% due primarily to the
British pound and a favorable foreign exchange impact of 0.9% due primarily to
the Canadian dollar. Operating revenue in the third quarter of 2008 and nine
months ended September 30, 2008 included an unfavorable foreign exchange impact
of 0.3% due primarily to the British pound and a favorable foreign exchange
impact of 0.8% due primarily to the Canadian dollar.
Three months ended September 30, Nine months ended September 30, Change 2008/2007
Three Nine
2008 2007 2008 2007 Months Months
(Dollars in thousands)
Operating expense (exclusive of
items shown separately) $ 804,376 694,702 $ 2,411,251 2,063,261 16% 17
Percentage of revenue 49% 42% 50% 42%
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Operating expense and operating expense as a percentage of revenue increased
in 2008 primarily as a result of higher average fuel costs.
We retain a portion of the accident risk under vehicle liability and
workers' compensation insurance programs. Our self-insurance accruals are based
on actuarially estimated, undiscounted cost of claims, which includes claims
incurred but not reported. While we believe that our estimation processes are
well designed, every estimation process is inherently subject to limitations.
Fluctuations in the frequency or severity of accidents make it difficult to
precisely predict the ultimate cost of claims. In recent years, our development
has been favorable compared to historical selected loss development factors
because of improved safety performance, payment patterns and settlement
patterns; however, there is no assurance we will continue to have similar
favorable development in the future. During the three months ended September 30,
2008 and 2007, we recorded a benefit of $3.5 million and $6.5 million,
respectively, from favorable development in estimated prior years' self-insured
loss reserves for the reasons noted above. During the nine months ended
September 30, 2008 and 2007, we recorded a benefit of $13.8 million and
$16.2 million, respectively, from favorable development in estimated prior
years' self-insured loss reserves for the reasons noted above.
Three months ended September 30, Nine months ended September 30, Change 2008/2007
Three Nine
2008 2007 2008 2007 Months Months
(Dollars in thousands)
Salaries and employee-related costs $ 355,230 348,405 $ 1,067,643 1,047,271 2% 2
Percentage of revenue 22% 21% 22% 21%
Percentage of operating revenue 29% 30% 30% 30%
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Salaries and employee-related costs increased in the third quarter of 2008
and nine months ended September 30, 2008 primarily due to higher incentive-based
compensation and savings plan costs partially offset by lower pension costs.
Headcount as of September 30, 2008 was flat compared to the prior year.
Pension expense decreased $9.0 million in the third quarter of 2008 and
$20.6 million in the nine months ended September 30, 2008 primarily as a result
of the freeze of the U.S. pension plans and Canadian defined benefit plan.
During the third quarter of 2008, the Board of Directors approved the freeze of
the defined benefit portion of the Canada retirement plan which resulted in a
curtailment gain of $3.6 million. In connection with the freeze of the U.S.
pension plans on January 1, 2008, we provided an enhanced 401(k) savings plan to
employees. Refer to Note (O), "Employee Benefit Plans," in the Notes to
Consolidated Condensed Financial Statements for additional information. Total
savings plan costs increased $5.2 million and $15.7 million in the third quarter
of 2008
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
and nine months ended September 30, 2008, respectively, primarily as a result of
the enhanced 401(k) plan. The net impact of pension and savings plan costs was a
net decrease of $3.8 million and $4.9 million for the three and nine months
ended September 30, 2008.
We apply actuarial methods to determine the annual net periodic pension
expense and pension plan liabilities on an annual basis. Each December, we
review actual experience compared with the more significant assumptions used and
make adjustments to our assumptions, if warranted. In determining our annual
estimate of periodic pension cost, we are required to make an evaluation of
critical factors, such as discount rate and the expected long-term rate of
return on assets. Accounting guidance applicable to pension plans does not
require immediate recognition of the current year effects of a deviation between
these assumptions and actual experience. We have experienced significant
negative pension asset returns in 2008 in light of current equity market
conditions, which would materially increase pension expense for 2009. Actual
pension expense in 2009 will depend, among other items, on pension asset returns
and discount rates at December 31.
Three months ended September 30, Nine months ended September 30, Change 2008/2007
Three Nine
2008 2007 2008 2007 Months Months
(Dollars in thousands)
Subcontracted transportation $ 89,417 233,638 $ 258,447 737,853 (62)% (65)
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Subcontracted transportation expense represents freight management costs on logistics contracts for which we purchase transportation from third parties. Subcontracted transportation expense is directly impacted by whether we are acting as an agent or principal in our transportation management contracts. To the extent that we are acting as a principal, revenue is reported on a gross basis and carriage costs to third parties are recorded as subcontracted transportation expense. The impact to net earnings is the same whether we are acting as an agent or principal in the arrangement. Effective January 1, 2008, our contractual relationship with a significant customer changed, and we determined, after a formal review of the terms and conditions of the services, we are acting as an agent based on the revised terms of the arrangement. As a result, the amount of total revenue and subcontracted transportation expense decreased by $152.6 million in the third quarter and by $506.7 million in the nine months ended September 30, 2008 due to the reporting of revenue net of subcontracted transportation expense for this particular customer contract. The decrease in subcontracted transportation expense as a result of net revenue reporting in the third quarter of 2008 and nine months ended September 30, 2008 was slightly offset by increased volumes of freight management activity from new and expanded business.
Three months ended September 30, Nine months ended September 30, Change 2008/2007
Three Nine
2008 2007 2008 2007 Months Months
(In thousands)
Depreciation expense $ 214,594 207,814 $ 629,803 606,268 3 % 4
Gains on vehicle sales, net (10,400 ) (8,111 ) (32,990 ) (36,677 ) 28 (10 )
Equipment rental 19,326 25,088 61,147 67,929 (23 ) (10 )
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Depreciation expense relates primarily to FMS revenue earning equipment.
Depreciation expense increased in the third quarter of 2008 and nine months
ended September 30, 2008 reflecting the impact of recent acquisitions. The
increases were partially offset by lower adjustments in the carrying value of
vehicles held for sale of $2.6 million and $6.8 million during the third quarter
of 2008 and nine months ended September 30, 2008, respectively.
Gains on vehicle sales, net increased in the third quarter of 2008 primarily
due to higher pricing on expanded retail activity. Gains on vehicles sales, net
decreased in the nine months ended September 30, 2008 primarily due to a decline
in the number of vehicles sold.
Equipment rental consists primarily of rent expense for FMS revenue earning
equipment under lease. The decrease in equipment rental in the third quarter of
2008 and nine months ended September 30, 2008 reflects a reduction in the
average number of leased vehicles.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Three months ended September 30, Nine months ended September 30, Change 2008/2007
Three Nine
2008 2007 2008 2007 Months Months
(Dollars in thousands)
Interest expense $ 40,639 40,199 $ 115,655 120,410 1% (4)
Effective interest rate 5.5% 5.6% 5.3% 5.6%
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Interest expense increased in the third quarter of 2008 due to higher average debt balances. Interest expense decreased in the nine months ended September 30, 2008 due to a lower average cost of debt. The lower effective interest rate in 2008 primarily resulted from lower commercial paper borrowing rates. A hypothetical 10 basis point change in short-term market interest rates would decrease or increase annual pre-tax earnings by $0.8 million.
Three months ended September 30, Nine months ended September 30,
2008 2007 2008 2007
Miscellaneous expense (income), net $ 957 (10,407 ) $ 2,278 (13,781 )
Miscellaneous expense (income), net consists of investment losses (income) on securities used to fund certain benefit plans, interest income, losses (gains) from sales of operating property, foreign currency transaction losses (gains), and other non-operating items. Miscellaneous expense (income), net decreased in the third quarter of 2008 and nine months ended September 30, 2008 primarily due to a $10.0 million gain recognized in 2007 on the sale of property and declining market performance in 2008 of investments classified as trading securities. These declines were slightly offset by lower foreign currency transaction losses.
Three months ended September 30, Nine months ended September 30,
2008 2007 2008 2007
(In thousands)
Restructuring and other charges (recoveries), net $ - 11,903 $ (33 ) 13,594
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Restructuring and other charges (recoveries), net in the three months ended September 30, 2007 primarily related to $11.0 million of employee severance and benefit costs incurred in connection with global cost savings initiatives and $0.9 million of facility and related costs. Restructuring and other charges (recoveries), net in the nine months ended September 30, 2007 also included a charge of $1.3 million incurred to extinguish debentures that were originally set to mature in 2017. The charge included the premium paid on the early extinguishment of debt and the write-off of related debt discount and issuance costs.
Three months ended September 30, Nine months ended September 30, Change 2008/2007
Three Nine
2008 2007 2008 2007 Months Months
(Dollars in thousands)
Provision for income taxes $ 41,774 38,960 $ 127,509 111,752 7% 14
Effective tax rate 37.3% 37.3% 40.3% 38.1%
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Our effective income tax rate for the nine months ended September 30, 2008 increased as the favorable impacts from the tax law changes in Massachusetts . . .
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