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| R > SEC Filings for R > Form 10-Q on 22-Oct-2009 | All Recent SEC Filings |
22-Oct-2009
Quarterly Report
ITEMS AFFECTING COMPARABILITY BETWEEN PERIODS
Accounting Changes
See Note (B), "Accounting Changes," for a discussion of the impact of changes
in accounting guidance.
ACQUISITIONS
We have completed various asset purchases in the past two years, under which
we acquired a company's fleet of vehicles and contractual customers. The FMS
acquisitions operate under Ryder's name and complement our existing market
coverage and service network. FMS acquisitions during 2009 and 2008 were as
follows:
Contractual
Company Acquired Date Vehicles Customers Market
Edart Leasing LLC February 2, 2009 1,600 340 Northeast U.S.
Gordon Truck Leasing August 29, 2008 500 130 Pennsylvania
Gator Leasing, Inc. May 12, 2008 2,300 300 Florida
Lily Transportation Corp. January 11, 2008 1,600 200 Northeast U.S.
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On December 19, 2008, we completed the acquisition of substantially all of
the assets of Transpacific Container Terminal Ltd. and CRSA Logistics Ltd.
(CRSA) in Canada, as well as CRSA's operations in Hong Kong and Shanghai, China.
This strategic acquisition adds complementary solutions to our SCS capabilities
including consolidation services in Asian hubs, as well as deconsolidation
operations in Vancouver, Toronto and Montreal.
The results of these acquisitions have been included in our consolidated
results since the dates of acquisition.
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 2009/2008
Three Nine
2009 2008 2009 2008 Months Months
(In thousands)
Earnings from continuing operations before
income taxes $ 44,254 115,117 $ 113,418 337,213 (62 )% (66 )%
Provision for income taxes 15,752 42,340 45,900 127,737 (63 ) (64 )
Earnings from continuing operations 28,502 72,777 67,518 209,476 (61 ) (68 )
Loss from discontinued operations, net of tax (4,531 ) (2,569 ) (13,821 ) (20,241 ) (76 ) 32
Net earnings $ 23,971 70,208 $ 53,697 189,235 (66 )% (72 )%
Earnings (Loss) per common share - Diluted
Continuing operations $ 0.51 1.29 $ 1.21 3.64 (60 )% (67 )%
Discontinued operations (0.08 ) (0.05 ) (0.25 ) (0.35 ) (60 ) 29
Net earnings $ 0.43 1.24 $ 0.96 3.29 (65 )% (71 )%
Weighted-average shares outstanding - Diluted 55,481 55,949 55,381 56,975 (1 )% (3 )%
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The deterioration in global economic conditions in the past year has resulted
in sharply lower earnings. For the third quarter and first nine months of 2009,
pre-tax earnings from continuing operations reflect significantly lower earnings
in our FMS business segment because of decreased global results in commercial
rental, full service lease and vehicles sales as well as higher pension expense.
Year-to-date results also reflect the impact of lower global automotive industry
volumes, especially in the first half of 2009.
See "Operating Results by Business Segment" for a further discussion of
operating results.
Three months ended September 30, Nine months ended September 30, Change 2009/2008
Three Nine
2009 2008 2009 2008 Months Months
(In thousands)
Revenue:
Fleet Management Solutions $ 911,947 1,166,756 $ 2,665,065 3,473,709 (22 )% (23 )%
Supply Chain Solutions 298,740 380,974 855,097 1,151,911 (22 ) (26 )
Dedicated Contract Carriage 120,627 140,632 351,689 421,542 (14 ) (17 )
Eliminations (74,667 ) (111,526 ) (218,292 ) (349,996 ) 33 38
Total $ 1,256,647 1,576,836 $ 3,653,559 4,697,166 (20 )% (22 )%
Operating revenue (1) $ 1,036,448 1,185,267 $ 3,054,389 3,535,080 (13) % (14 )%
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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.
Total revenue decreased 20% to $1.26 billion in the third quarter of 2009 and decreased 22% to $3.65 billion in the nine months ended September 30, 2009. The decline in total revenue was due to lower fuel services revenue. Fuel services revenue declined due to lower fuel prices as well as lower fuel volumes. Operating revenue decreased 13% in the third quarter of 2009 and decreased 14% in the nine months ended September 30, 2009 primarily due to lower commercial rental revenue, SCS and DCC fuel revenue, and SCS automotive production volumes. Operating revenue was also negatively impacted by an increase in lease fleet downsizing decisions and lower miles driven by existing lease customers. Total revenue and operating revenue in the third quarter of 2009 included an unfavorable foreign exchange impact of 1.1% and 1.2%, respectively, due primarily to the weakening of the Mexican peso and the British pound. Total revenue and operating revenue in the nine months ended September 30, 2009 included an unfavorable foreign exchange impact of 2.3% and 2.7%, respectively, due primarily to the weakening of the British pound and the Canadian dollar.
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 2009/2008
Three Nine
2009 2008 2009 2008 Months Months
(Dollars in thousands)
Operating expense
(exclusive of items shown
separately) $576,059 790,609 $1,656,765 2,368,368 (27)% (30)%
Percentage of revenue 46% 50% 45% 50%
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Operating expense and operating expense as a percentage of revenue decreased
in 2009 primarily as a result of lower fuel costs. The reduction in fuel costs
was driven by a decline in fuel prices as well as lower fuel volumes.
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,
2009 and 2008, we recorded a charge of $0.2 million and a benefit of
$3.5 million, respectively, from development in estimated prior years'
self-insured loss reserves for the reasons noted above. During the nine months
ended September 30, 2009 and 2008, we recorded a benefit of $3.1 million and
$13.8 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 2009/2008
Three Nine
2009 2008 2009 2008 Months Months
(Dollars in thousands)
Salaries and $313,526 344,897 $926,403 1,038,946 (9)% (11)%
employee-related costs
Percentage of revenue 25% 22% 25% 22%
Percentage of operating 30% 29% 30% 29%
revenue
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Salaries and employee-related costs decreased $31.4 million in the third quarter of 2009 because of lower headcount, lower incentive-based compensation, commissions, and foreign exchange rate changes. Salaries and employee-related costs decreased $112.5 million in the nine months ended September 30, 2009 because of lower headcount, changes in foreign exchange rates, lower incentive-based compensation, commissions and savings plan costs. Lower headcount was driven by reduced volumes in our SCS and DCC business segments and workforce reductions made as part of restructuring initiatives announced in the fourth quarter of 2008. The decrease in salaries and employee-related costs was partially offset by an increase in pension expense of $18.6 million and $48.5 million in the three and nine months ended September 30, 2009, respectively, caused by significant negative pension asset returns in 2008 and the positive impact of a $3.6 million Canadian pension curtailment gain recorded in the third quarter of 2008.
Three months ended September 30, Nine months ended September 30, Change 2009/2008
Three Nine
2009 2008 2009 2008 Months Months
(Dollars in thousands)
Subcontracted transportation $52,901 64,684 $140,122 185,623 (18)% (25)%
Percentage of revenue 4% 4% 4% 4%
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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. Subcontracted transportation expense decreased $11.8 million and $45.5 million in the three and nine months ended September 30, 2009, respectively, as a result of decreased freight volumes in the current economic environment.
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 2009/2008
Three Nine
2009 2008 2009 2008 Months Months
(In thousands)
Depreciation expense $ 220,455 213,263 $ 665,939 625,766 3% 6%
Gains on vehicle sales, net (3,326 ) (10,400 ) (9,092 ) (32,990 ) (68) (72)
Equipment rental 16,283 18,750 48,128 59,580 (13) (19)
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Depreciation expense relates primarily to FMS revenue earning equipment.
Revenue earning equipment held for sale is recorded at the lower of fair value
less costs to sell or net carrying value. Depreciation expense increased
$7.2 million in the third quarter because of increased write-downs in the
carrying value of vehicles held for sale of $4.7 million, accelerated
depreciation of $4.0 million on certain classes of vehicles expected to be sold
through 2010, the impact of recent acquisitions, higher average vehicle
investments, partially offset by the impact of foreign exchange rates and a
lower number of owned vehicles. Depreciation expense increased $40.2 million in
the nine months ended September 30, 2009 because of increased write-downs in the
carrying value of vehicles held for sale of $20.4 million, the impact of recent
acquisitions, accelerated depreciation of $6.3 million on certain classes of
vehicles expected to be sold through 2010, higher average vehicle investments
and an impairment charge of $4.1 million on a Singapore facility, partially
offset by the impact of foreign exchange rates and a lower number of owned
vehicles.
Gains on vehicle sales, net decreased $7.1 million in the third quarter of
2009 because of lower average pricing on vehicles sold. Gains on vehicle sales,
net decreased $23.9 million in the nine months ended September 30, 2009 because
of lower average pricing on vehicles sold and, to a lesser extent, a decline in
the number of vehicles sold.
Equipment rental consists primarily of rent expense for FMS revenue earning
equipment under lease. Equipment rental decreased $2.5 million and $11.5 million
in the three and nine months ended September 30, 2009, respectively, because of
a reduction in the average number of vehicles leased from third parties.
Three months ended September 30, Nine months ended September 30, Change 2009/2008
Three Nine
2009 2008 2009 2008 Months Months
(Dollars in thousands)
Interest expense $35,749 39,206 $110,520 112,357 (9)% (2)%
Effective interest rate 5.5% 5.4% 5.4% 5.3%
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Interest expense decreased $3.5 million and $1.8 million in the three and nine months ended September 30, 2009, respectively, because of lower average debt balances partially offset by a higher effective interest rate.
Three months ended September 30, Nine months ended September 30,
2009 2008 2009 2008
Miscellaneous (income) expense, net $(2,375) 710 $(3,117) 2,336
Miscellaneous (income) expense, net consists of investment (income) losses on securities used to fund certain benefit plans, interest income, (gains) losses from sales of operating property, foreign currency transaction (gains) losses, and other non-operating items. Miscellaneous (income) expense, net improved $3.1 million and $5.5 million in the three and nine months ended September 30, 2009, respectively, primarily due to better performance in our investment securities. Miscellaneous (income) expense, net in the nine months ended September 30, 2009 also benefited from foreign currency exchange gains.
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,
2009 2008 2009 2008
(In thousands)
Restructuring and other charges $3,121 - $4,473 (33)
(recoveries), net
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Refer to Note (G), "Restructuring and Other Charges (Recoveries)," for a discussion of the restructuring and other charges recorded during the three and nine months ended September 30, 2009. We eliminated approximately 30 positions in 2009 as part of our continued cost containment initiatives. We expect to realize annual savings of approximately $5 million from the 2009 workforce reductions in addition to the annual savings of approximately $38 million from actions taken in the fourth quarter of 2008.
Three months ended September 30, Nine months ended September 30, Change 2009/2008
Three Nine
2009 2008 2009 2008 Months Months
(Dollars in thousands)
Provision for income taxes $15,752 42,340 $45,900 127,737 (63)% (64)%
Effective tax rate from continuing operations 35.6% 36.8% 40.5% 37.9%
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Our effective income tax rate from continuing operations for the third quarter of 2009 decreased mainly due to the favorable settlement of a foreign tax audit resulting in a $2.2 million tax benefit (or 5.1% of pre-tax earnings from continuing operations), partially offset by the impact of non-deductible expenses on lower comparable projected pre-tax earnings from continuing operations. During the third quarter of 2008, the State of Massachusetts enacted a new tax law which resulted in a favorable adjustment of $1.8 million. Our effective tax rate for the nine months ended September 30, 2009 increased mainly due to the impact of non-deductible expenses on lower comparable projected pre-tax earnings and the benefit in the prior year from the new tax law, partially offset by the favorable settlement of the foreign tax audit.
Three months ended September 30, Nine months ended September 30,
2009 2008 2009 2008
Loss from discontinued operations, net of tax $(4,531) (2,569) $(13,821) (20,241)
Loss from discontinued operations in the third quarter of 2009 and 2008 includes $2.4 million and $3.1 million, respectively, of operating losses and 2009 includes $2.2 million of exit-related restructuring and other items incurred in the wind down of our SCS South America operations and certain European operations. Loss from discontinued operations in the nine months ended September 30, 2009 and 2008 includes $7.9 million and $14.0 million, respectively, of operating losses and $6.4 million and $6.5 million, respectively, of restructuring charges and other items. Refer to Note (D), "Discontinued Operations," for a further discussion of discontinued operations. Accumulated foreign currency translation losses will be recognized in earnings upon substantial liquidation of our investment in the foreign subsidiaries. We expect to recognize accumulated foreign currency translation losses of $12.3 million in earnings related to discontinued operations in the fourth quarter of 2009 when we expect to have substantially liquidated our investments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
OPERATING RESULTS BY BUSINESS SEGMENT
Three months ended September 30, Nine months ended September 30, Change 2009/2008
Three Nine
2009 2008 2009 2008 Months Months
(In thousands)
Revenue:
Fleet Management Solutions $ 911,947 1,166,756 $ 2,665,065 3,473,709 (22 )% (23 )%
Supply Chain Solutions 298,740 380,974 855,097 1,151,911 (22 ) (26 )
. . .
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