-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BL+y7XM6+RiLrV+0j63T46pNVpuUiqo/Kr7tegR+uXO9QTfHasAtrl+Z6N9tGqA3 2eGHmcH8GaKgXvvH9+51+g== 0000950170-00-000726.txt : 20000511 0000950170-00-000726.hdr.sgml : 20000511 ACCESSION NUMBER: 0000950170-00-000726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYDER SYSTEM INC CENTRAL INDEX KEY: 0000085961 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 590739250 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04364 FILM NUMBER: 624390 BUSINESS ADDRESS: STREET 1: 3600 NW 82ND AVE CITY: MIAMI STATE: FL ZIP: 33166 BUSINESS PHONE: 3055003283 MAIL ADDRESS: STREET 1: 3600 NW 82 AVENUE CITY: MIAMI STATE: FL ZIP: 33166 10-Q 1 - -------------------------------------------------------------------------------- FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File No. 1-4364 --------------------------------------------- RYDER SYSTEM, INC. (a Florida corporation) 3600 N. W. 82nd Avenue Miami, Florida 33166 Telephone (305) 500-3726 I.R.S. Employer Identification No. 59-0739250 --------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES _X_ NO Ryder System, Inc. had 59,474,612 shares of common stock ($0.50 par value per share) outstanding as of April 26, 2000. - -------------------------------------------------------------------------------- RYDER SYSTEM, INC. TABLE OF CONTENTS Page ------ PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Condensed Statements of Earnings - Three months ended March 31, 2000 and 1999 (unaudited) 3 Consolidated Condensed Balance Sheets - March 31, 2000 (unaudited) and December 31, 1999 4 Consolidated Condensed Statements of Cash Flows - Three months ended March 31, 2000 and 1999 (unaudited) 5 Notes to Consolidated Condensed Financial Statements 6 Independent Accountants' Review Report 10 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 11 ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 21 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 22 Signatures 23 Exhibit 15 24 2 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Ryder System, Inc. and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (unaudited)
- ---------------------------------------------------------------------------------------------------- Three months ended March 31, 2000 and 1999 (In thousands, except per share amounts) 2000 1999 - ---------------------------------------------------------------------------------------------------- REVENUE $1,308,608 1,154,022 ---------- ---------- Operating expense 993,362 832,986 Freight under management expense 98,007 99,119 Depreciation expense, net of gains of $9,217 and $13,765, respectively 143,005 140,842 Interest expense 41,952 45,646 Miscellaneous expense, net 815 3,088 Unusual items: Year 2000 expense -- 13,863 Restructuring and other charges, net -- 831 ---------- ---------- 1,277,141 1,136,375 ---------- ---------- Earnings from continuing operations before income taxes 31,467 17,647 Provision for income taxes 11,643 6,758 ---------- ---------- Earnings from continuing operations 19,824 10,889 Earnings from discontinued operations, less income taxes -- 11,252 ---------- ---------- NET EARNINGS $ 19,824 22,141 ========== ========== Earnings per common share - Basic and Diluted: Continuing operations $ 0.33 0.15 Discontinued operations -- 0.16 ---------- ---------- Net earnings $ 0.33 0.31 ========== ========== Cash dividends per common share $ 0.15 0.15 ========== ==========
See accompanying notes to consolidated condensed financial statements. 3 ITEM 1. Financial Statements (continued) Ryder System, Inc. and Subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------- March 31, December 31, (In thousands, except share amounts) 2000 1999 - -------------------------------------------------------------------------------------------------------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 313,387 112,993 Receivables, net of allowance for doubtful accounts of $9,771 and $10,254, respectively 455,201 725,815 Inventories 71,881 69,845 Tires in service 165,000 162,877 Prepaid expenses and other current assets 260,776 137,861 ----------- ----------- Total current assets 1,266,245 1,209,391 Revenue earning equipment, net of accumulated depreciation of $1,254,836 and $1,483,084, respectively 3,133,936 3,095,451 Operating property and equipment, net of accumulated depreciation of $591,224 and $574,784, respectively 573,985 581,105 Direct financing leases and other assets 691,178 652,270 Intangible assets and deferred charges 226,813 232,233 ----------- ----------- $ 5,892,157 5,770,450 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 579,795 574,253 Accounts payable 415,743 334,103 Accrued expenses 505,794 541,156 ----------- ----------- Total current liabilities 1,501,332 1,449,512 Long-term debt 1,868,201 1,819,136 Other non-current liabilities 284,032 285,802 Deferred income taxes 1,023,419 1,011,095 ----------- ----------- Total liabilities 4,676,984 4,565,545 ----------- ----------- Shareholders' equity: Common stock of $0.50 par value per share (shares outstanding at March 31, 2000 - 59,474,635; December 31, 1999 - 59,395,050) 514,773 513,083 Retained earnings 725,459 714,544 Accumulated other comprehensive income (25,059) (22,722) ----------- ----------- Total shareholders' equity 1,215,173 1,204,905 ----------- ----------- $ 5,892,157 5,770,450 =========== ===========
See accompanying notes to consolidated condensed financial statements. 4 ITEM 1. Financial Statements (continued) Ryder System, Inc. and Subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
- --------------------------------------------------------------------------------------------------- Three months ended March 31, 2000 and 1999 (In thousands) 2000 1999 - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Earnings from continuing operations $ 19,824 10,889 Depreciation expense, net of gains 143,004 140,842 Amortization expense and other non-cash charges, net 4,710 3,608 Deferred income tax expense 10,022 11,891 Changes in operating assets and liabilities: Increase (decrease) in balance of trade receivables sold 234,000 (75,000) Receivables 38,346 33,391 Inventories (2,005) (2,387) Prepaid expenses and other assets (58,367) (50,913) Accounts payable 81,640 130,928 Accrued expenses and other non-current liabilities (35,723) (39,014) --------- --------- 435,451 164,235 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in commercial paper borrowings 150,082 138,571 Debt proceeds 5,969 79,128 Debt repaid, including capital lease obligations (193,445) (71,042) Common stock repurchased -- (9,626) Common stock issued 1,609 2,017 Dividends on common stock (8,910) (10,664) --------- --------- (44,695) 128,384 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of operating property and revenue earning equipment (497,267) (554,295) Sales of operating property and revenue earning equipment 78,114 85,472 Sale and leaseback of revenue earning equipment 222,978 78,852 Acquisitions, net of cash acquired (3,551) -- Other, net 9,364 3,043 --------- --------- (190,362) (386,928) --------- --------- NET CASH FLOWS FROM CONTINUING OPERATIONS 200,394 (94,309) NET CASH FLOWS FROM DISCONTINUED OPERATIONS -- 11,200 --------- --------- INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 200,394 (83,109) Cash and cash equivalents at January 1 112,993 138,353 --------- --------- CASH AND CASH EQUIVALENTS AT MARCH 31 $ 313,387 55,244 ========= =========
See accompanying notes to consolidated condensed financial statements. 5 ITEM 1. Financial Statements (continued) NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (A) INTERIM FINANCIAL STATEMENTS The accompanying unaudited consolidated condensed financial statements include the accounts of Ryder System, Inc. and subsidiaries (the "Company") and have been prepared by the Company in accordance with the accounting policies described in the 1999 Annual Report and should be read in conjunction with the consolidated financial statements and notes which appear in that report. These statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included and the disclosures herein are adequate to make the information presented not misleading. Operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. Certain 1999 amounts have been reclassified to conform with current year presentation. (B) EARNINGS PER SHARE INFORMATION Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding. Diluted earnings per share reflects the dilutive effect of potential common shares from securities such as stock options. The dilutive effect of stock options is computed using the treasury stock method, which assumes the repurchase of common shares by the Company at the average market price for the period. A reconciliation of the number of shares used in computing basic and diluted earnings per share follows (in thousands): FOR THE THREE MONTHS ENDED MARCH 31, 2000 1999 ---------------------------------------------------- ------ ----- Weighted average shares outstanding-Basic 59,381 71,188 Common equivalents: Shares issuable under outstanding dilutive options 1,181 2,703 Shares assumed repurchased based on the average market value for the period (1,083) (2,508) Dilutive effect of exercised options prior to being exercised 89 13 ------- ------- 187 208 ------- ------- Weighted average shares outstanding-Diluted 59,568 71,396 ======= ======= Anti-dilutive options not included above 6,178 4,330 ======= ======= 6 ITEM 1. Financial Statements (continued) NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) (C) SEGMENT INFORMATION During the fourth quarter of 1999, the Company implemented several restructuring initiatives designed to improve profitability and align the organizational structure with the strategic direction of the Company (see note "E"). As part of the restructuring, the Company changed how it manages and measures the business during the first quarter of 2000. The principal changes from prior management and measurement are (1) management of the business along product lines, without regard to geography and (2) discrete management and presentation of the Dedicated Contract Carriage business. The business segment information presented below reflects such changes. Prior year information has been restated to conform to the current year presentation. The Company operates in three business segments: (1) Leasing and Rental, which provides full service leasing, commercial rental and programmed maintenance of trucks, tractors and trailers to customers, principally in the U.S., Canada and the United Kingdom; (2) Logistics Solutions, which provides comprehensive supply chain consulting and lead logistics management solutions that support a client's entire supply chain, from inbound raw materials through distribution of finished goods throughout North America, in Latin America, Europe and Asia; and (3) Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution, principally in North America. Management evaluates segment financial performance based upon several factors, of which the primary measure is contribution margin. Contribution margin represents each business segment's revenue, less direct costs and direct overheads related to the segment's operations. Business segment contribution margin for all segments (net of eliminations), less Central Support Services expenses, is equal to earnings from continuing operations before income taxes. Central Support Services consist primarily of corporate overhead and other expenses not directly attributable to a single business segment, such as shared management information systems, finance, and sales and marketing. Central Support Services also includes expenses of certain new business initiatives, Ryder Capital Services and e-commerce, which may be reported as business segments in the future once such operations begin. The Leasing and Rental segment leases revenue earning equipment, sells fuel and provides maintenance and other ancillary services to the Logistics Solutions and DCC segments. Intersegment sales are accounted for at approximate fair value as if the sales were made to third parties. Interest expense is allocated only to the Leasing and Rental business segment. The following table sets forth the revenue and contribution margin for each of the Company's business segments for the three months ended March 31, 2000 and 1999: Three months ended March 31, In millions 2000 1999 -------- ------- Revenue: Leasing and rental: Full service lease and program maintenance $ 483.5 442.0 Commercial rental 121.2 120.9 Fuel 191.1 126.5 Other 89.7 89.0 --------- -------- Total leasing and rental 885.5 778.4 --------- -------- Logistics solutions 387.4 330.6 Dedicated contract carriage 133.6 123.6 Eliminations (97.9) (78.6) --------- -------- $ 1,308.6 1,154.0 Total revenue ========= ======== 7 ITEM 1. Financial Statements (continued) NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) (C) SEGMENT INFORMATION (continued)
Three months ended March 31, In millions 2000 1999 ------- ------ Contribution margin: Leasing and rental $ 80.9 85.9 Logistics solutions 13.4 7.1 Dedicated contract carriage 15.2 13.0 Eliminations (10.4) (9.5) ------- ------ 99.1 96.5 Central support services (67.6) (64.2) ------- ------ Earnings from continuing operations before unusual items and income taxes 31.5 32.3 Year 2000 expense -- (13.8) Restructuring and other charges -- (0.9) ------- ------ Earnings before income taxes $ 31.5 17.6 ======= ======
Management does not evaluate and the Company does not report total assets by operating segment. Such records are maintained on a legal entity basis, which differs from the Company's operating segments. As such, these amounts are not presented on an operating segment basis. (D) COMPREHENSIVE INCOME Comprehensive income presents a measure of all changes in shareholders' equity except for changes resulting from transactions with shareholders in their capacity as shareholders. The Company's total comprehensive income presently consists of net earnings and currency translation adjustments associated with foreign operations which use the local currency as their functional currency. Total comprehensive income for the three months ended March 31, 2000 and 1999 was $17.5 million and $15.7 million, respectively. 8 ITEM 1. Financial Statements (continued) NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) (E) RESTRUCTURING AND OTHER CHARGES During the fourth quarter of 1999, the Company implemented several restructuring initiatives designed to improve profitability and align the organizational structure with the strategic direction of the Company. The Company also identified certain assets that would be sold or for which development would be abandoned as a result of the restructuring. During 1999, the Company also restructured its lease and rental operations in the United Kingdom in conjunction with the December 1998 decision to retain the business. As a result of these initiatives, the Company recorded pretax restructuring and other charges in 1999 of $52 million. Activity related to the restructuring reserve account for the three months ended March 31, 2000 was as follows:
Dec. 31, First Quarter of 2000 March 31, 1999 ----------------------------- 2000 In thousands Balance Additions Deductions Balance ---------------------------------------- ------------- ------------- -------------- -------------- Employee severance and benefits $ 13,017 - 5,779 7,238 Facilities and related costs 7,182 - 2,994 4,188 ---------------------------------------- ------------- ------------- -------------- -------------- $ 20,199 - 8,773 11,426 ======================================== ============= ============= ============== ==============
Deductions consist of payments and reversals of restructuring reserves related to the 1996 restructuring that were in excess of amounts required. Such reversals consisted of employee severance and benefits and facilities and related costs of $522,000 and $436,000, respectively. In the Consolidated Condensed Statement of Earnings for the three months ended March 31, 2000, such reversals of prior accruals were offset by expenses for other charges of $942,000 for consulting fees incurred during the period related to completion of the Company's profitability improvement study. 9 KPMG LLP CERTIFIED PUBLIC ACCOUNTANTS One Biscayne Tower Telephone 305-358-2300 2 South Biscayne Boulevard Fax 305-913-2692 Suite 2900 Miami, Florida 33131 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Shareholders Ryder System, Inc.: We have reviewed the accompanying consolidated condensed balance sheet of Ryder System, Inc. and subsidiaries as of March 31, 2000, and the related consolidated condensed statements of earnings and cash flows for the three months ended March 31, 2000 and 1999. These consolidated condensed financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Ryder System, Inc. and subsidiaries as of December 31, 1999, and the related consolidated statements of earnings, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 2, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 1999, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /S/ KPMG LLP Miami, Florida April 20, 2000 10 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition -- Three months ended March 31, 2000 and 1999 OVERVIEW The following discussion should be read in conjunction with the unaudited consolidated condensed financial statements and notes thereto included under ITEM 1. In addition, reference should be made to the Company's audited consolidated financial statements and notes thereto and related Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's most recent Annual Report on Form 10-K. On September 13, 1999, the Company completed the sale of its Public Transportation Services business to FirstGroup plc for $940 million in cash and realized a $339 million after-tax gain. The Company used the proceeds from the sale for working capital needs, repurchase of common stock, and for debt reduction. The following discussion excludes the results of the Public Transportation Services business, which has been classified as discontinued operations. The Company operates in three business segments: (1) Leasing and Rental, which provides full service leasing, commercial rental and programmed maintenance of trucks, tractors and trailers to customers, principally in the U.S., Canada and the United Kingdom; (2) Logistics Solutions, which provides comprehensive supply chain consulting and lead logistics management solutions that support a client's entire supply chains, from inbound raw materials through distribution of finished goods throughout North America, in Latin America, Europe and Asia and (3) Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution, principally in North America. Revenue from continuing operations increased 14% to $1.31 billion for the three months ended March 31, 2000, as compared to $1.15 billion in the comparable period last year. All operating segments experienced revenue gains over the same period in 1999. Revenue growth was due to higher fuel revenue and revenue growth in the Leasing and Rental and Logistics Solutions operating segments. The increase in fuel revenue was driven by higher fuel costs. 11 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued)-- Three months ended March 31, 2000 and 1999 OVERVIEW (continued) Operating expense increased $160.4 million, or 19.3%, to $993.4 million in the first quarter of 2000. The growth in operating expense was primarily attributable to an increase in the cost of fuel due to higher market prices, growth in equipment rental expense as a result of sale-leaseback transactions completed in the fourth quarter of 1999, and an increase in salaries and payroll due primarily to headcount growth related to growth in the Company's Logistics Solutions business. Such increases in salaries and payroll were partially offset by reduced employee benefit costs associated with income recognized from the Company's pension plan and income from investments related to certain other benefit plans. Freight under management expense remained relatively flat compared to the same period in 1999. Depreciation expense in the first quarter of 2000 was comparable to the first quarter of 1999. However, gains on vehicle sales decreased from $13.8 million in 1999 to $9.2 million in 2000. The decrease in gains was due to unit sales proceeds in 2000 remaining relatively flat compared with the first quarter of 1999, while the average book value of units sold was greater in 2000 than in 1999. Interest expense decreased $3.7 million or 8.1% to $42.0 million during the first quarter of 2000. The decrease in interest expense principally reflects the aforementioned sale-leaseback transactions, partially offset by increased borrowings to support capital expenditures. The Company's effective income tax rate for the first quarter of 2000 was 37.0% compared to 38.3% for the same period in 1999. Earnings from continuing operations were $19.8 million for the three months ended March 31, 2000, as compared to $10.9 million (which includes the net of tax impact of $9.1 million for unusual items) for the same period in 1999. Earnings from discontinued operations of $11.3 million in 1999 represent the results of operations of the Public Transportation business that was divested in September, 1999. Net income for the first quarter of 2000 totaled $19.8 million, or $0.33 per diluted share, compared with $22.1 million, including discontinued operations, or $0.31 per diluted share during the first quarter of 1999. 12 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued)-- Three months ended March 31, 2000 and 1999 OPERATING RESULTS BY BUSINESS SEGMENT
Three months ended March 31, In millions 2000 1999 INCREASE (DECREASE) ---- ---- ------------------- Revenue: Leasing and Rental: Full Service Lease and program maintenance $ 483.5 442.0 41.5 9.4% Commercial Rental 121.2 120.9 0.3 0.2% Fuel 191.1 126.5 64.6 51.1% Other 89.7 89.0 0.7 0.8% ------------ ------------- ------------- ------------ Total Leasing and Rental 885.5 778.4 107.1 13.8% ------------ ------------- ------------- ------------ Logistics Solutions 387.4 330.6 56.8 17.2% Dedicated Contract Carriage 133.6 123.6 10.0 8.1% Eliminations (97.9) (78.6) (19.3) 24.5% ------------ ------------- ------------- ------------ Total Revenue $ 1,308.6 1,154.0 154.6 13.4% ============ ============= ============= ============ Contribution margin: Leasing and Rental $ 80.9 85.9 (5.0) (5.8%) Logistics solutions 13.4 7.1 6.3 88.7% Dedicated contract carriage 15.2 13.0 2.2 16.9% Eliminations (10.4) (9.5) (0.9) 9.5% ------------ ------------- ------------- ------------ 99.1 96.5 2.6 2.7% Central support services (67.6) (64.2) (3.4) 5.3% ------------ ------------- ------------- ------------ Pretax earnings from continuing operations before unusual items 31.5 32.3 (0.8) (2.5%) Year 2000 expense - (13.8) 13.8 (100.0%) Restructuring and other charges - (0.9) 0.9 (100.0%) ------------ ------------- ------------- ------------ Earnings from continuing operations before $ 31.5 17.6 13.9 79.0% income taxes ============ ============= ============= ============
13 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued)-- Three months ended March 31, 2000 and 1999 OPERATING RESULTS BY BUSINESS SEGMENT (continued)
Three months ended March 31, In millions 2000 1999 CHANGE ---- ---- ------ LEASING AND RENTAL Total revenue $ 885.5 778.4 13.8% Fuel revenue (191.1) (126.5) 51.1% ------------ ------------ ------------ Dry revenue $ 694.4 651.9 6.5% ============ ============ ============ Contribution margin $ 80.9 85.9 (5.9%) ============ ============ ============ Contribution margin as % of total revenue 9.1% 11.0% ============ ============ Contribution margin as % of dry revenue 11.6% 13.2% ============ ============ LOGISTICS SOLUTIONS Total revenue $ 387.4 330.6 17.2% Freight Under Management (FUM) expense (96.4) (98.0) (1.6%) ------------ ------------ ------------ Operating revenue $ 291.0 232.6 25.1% ============ ============ ============ Contribution margin $ 13.4 7.1 88.7% ============ ============ ============ Contribution margin as % of total revenue 3.5% 2.1% ============ ============ Contribution margin as % of operating revenue 4.6% 3.1% ============ ============ DEDICATED CONTRACT CARRIAGE Total revenue $ 133.6 123.6 8.1% Freight Under Management (FUM) expense (1.6) (1.1) 45.5% ------------- ------------ ------------ Operating revenue $ 132.0 122.5 7.8% ============= ============ ============ Contribution margin $ 15.2 13.0 16.9% ============= ============ ============ Contribution margin as % of total revenue 11.3% 10.5% ============= ============ Contribution margin as % of operating revenue 11.5% 10.6% ============= ============
14 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued)-- Three months ended March 31, 2000 and 1999 Management evaluates segment financial performance based upon several factors, of which the primary measure is Contribution Margin. Contribution Margin represents each business segment's revenue, less direct costs and direct overheads related to the segment's operations. Business segment contribution margin for all segments (net of eliminations), less Central Support Services expenses, is equal to consolidated pre-tax earnings. Expenses recorded in Central Support Services consist primarily of corporate overhead and other expenses not directly attributable to a single business segment, such as expenses related to shared management information systems, finance and sales and marketing. Central Support Services also includes expenses of certain new business initiatives, Ryder Capital Services and e-commerce, which may be reported as business segments in the future once such operations begin. The Leasing and Rental segment leases revenue earning equipment, sells fuel and provides maintenance and other ancillary services to the Logistics Solutions and Dedicated Contract Carriage (DCC) segments. Intersegment sales are accounted for at approximate fair value as if the sales were made to third parties. Interest expense is allocated only to the Leasing and Rental business segment. LEASING AND RENTAL In the Leasing and Rental business segment, dry revenue (revenue excluding fuel) in the first quarter of 2000 totaled $694.4 million, an increase of 6.5% from the first quarter of 1999. Full service lease revenue increased 9.4% as a result of a significant number of vehicles being placed in service, while rental revenue was essentially flat compared with the first quarter of 1999. Rental growth slowed due to the arrival of new full service lease vehicles, which replaced rental vehicles that had been used by clients awaiting new full service lease deliveries. Due to the recent increases in fuel prices, fuel revenue was up 51.1% over the first quarter of 1999. The contribution margin as a percentage of dry revenue was 11.6% in the first quarter of 2000 compared with 13.2% in 1999. Contribution margins were impacted by higher fixed costs on non-revenue-earning equipment and lower gains on the sale of equipment. At March 31, 2000 there were approximately 11,900 non-revenue earning units as compared to 10,700 non-revenue units at March 31, 1999. LOGISTICS SOLUTIONS In the Logistics Solutions business segment, first quarter 2000 gross revenue totaled $387.4 million, an increase of 17.2% from the comparable period in 1999. First quarter 2000 operating revenue was $291.0 million, an increase of 25.1% from the comparable period a year ago. Revenue growth was principally due to increased business with existing accounts and revenue from customers in the electronics and high technology industries that have been added in the last 12 months. 15 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued)-- Three months ended March 31, 2000 and 1999 The Logistics Solutions business segment contribution margin increased 88.7% in the first quarter of 2000 compared with the first quarter of 1999. The contribution margin as a percentage of operating revenue was 4.6% in the first quarter of 2000, compared with 3.1% in the same quarter of 1999. Improvements in contribution margin were due to improved performance on start-up accounts, as well as increased efficiency and expansion with existing clients. Additionally, contribution margin related to certain accounts outside of North America improved compared to the same period in 1999. First quarter 2000 revenue and contribution margin were negatively impacted by reduced production volumes at one significant customer account for which certain revenue is contingent based upon production volume. Management is currently in discussion with this customer to renegotiate this contract. DEDICATED CONTRACT CARRIAGE In the Dedicated Contract Carriage business segment (formerly reported under Integrated Logistics), first quarter gross revenue totaled $133.6 million, an increase of 8.1% from the first quarter of 1999. First quarter operating revenue was $132.0 million, an increase of 7.8% from the comparable period a year ago. Contribution margin increased 16.9% in the first quarter of 2000 compared with the first quarter of 1999. The contribution margin as a percentage of operating revenue was 11.5%, compared with 10.6% in the first quarter of 1999. The improvements in revenue were largely influenced by the successful efforts to minimize lost business in the segment. Contribution margin growth was generally related to the termination of certain targeted unprofitable contracts. CENTRAL SUPPORT SERVICES Central support services are those costs incurred to support all operating segments, including sales and marketing, human resources, finance, shared management information systems, customer solutions, health and safety, legal, and communications. In the first quarter of 2000, central support services expenses were $67.6 million, compared with $64.2 million in the first quarter of 1999. The increase was due primarily to additional spending on management information systems, training costs and incremental spending for customer solutions. Such increases were partially offset by a reduction in interest expense attributed to central support services. 16 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued)-- Three months ended March 31, 2000 and 1999 LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS The following is a summary of the Company's cash flows from continuing operating, financing and investing activities for the three months ended March 31, (in thousands): 2000 1999 ---- ---- Net cash provided by (used in): Operating activities $435,201 164,235 Financing activities (44,695) 128,384 Investing activities (190,112) (386,928) --------- --------- Net cash flows from continuing operations $200,394 (94,309) --------- --------- A summary of the individual items contributing to the cash flow changes is included in the Consolidated Condensed Statements of Cash Flows. The improvement in cash flow from operating activities in the first quarter of 2000, compared with the same period last year, was attributable to increases in the aggregate balance of trade receivables sold. The decrease in cash provided by financing activities in the first quarter of 2000, compared to the same period last year, is due primarily to repayment of debt using a portion of the cash received from the sale of trade receivables. The decrease in cash used for investing activities in the first quarter of 2000 compared with the same period last year is attributable to increased proceeds from the sale and leaseback of revenue earning equipment. Such proceeds were used to reduce commercial paper borrowings on April 3, 2000. A summary of capital expenditures for continuing operations for the three months ended March 31 follows (in thousands): 2000 1999 ---- ---- Revenue earning equipment $ 479,568 529,435 Operating property and equipment 17,699 24,861 ---------- --------- $497,267 554,296 ========== ========= 17 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued)-- Three months ended March 31, 2000 and 1999 The decrease in capital expenditures for revenue earning equipment was due principally to improved controls over capital expenditures and a reduction in the volume of early terminations of full service leases compared to the first quarter of 1999. Such decrease was partially offset by purchases of revenue earning equipment during the three months ended March 31, 2000 that had been postponed from the fourth quarter of 1999. Management expects capital expenditures for 2000 will be less than 1999 levels. The Company expects to fund its 2000 capital expenditures with both internally generated funds and additional financing. FINANCING Ryder utilizes external capital to support growth in its asset-based product lines. The Company has a variety of financing alternatives available to fund its capital needs. These alternatives include long- and medium-term public and private debt, as well as variable-rate financing available through bank credit facilities and commercial paper. The Company also periodically enters into sale and leaseback agreements of revenue earning equipment, the majority of which are accounted for as operating leases. The Company's debt ratings as of March 31, 2000 were as follows: COMMERCIAL UNSECURED PAPER NOTES ----- ------- Moody's Investors Service P2 Baa1 Standard & Poor's Ratings Group A2 BBB+ Duff & Phelps Credit Rating Co. D2 A- On May 9, 2000 the Company was informed by Standard & Poor's Ratings Group that it was lowering the Company's debt rating on unsecured notes to "BBB" from "BBB+". Debt totaled $2.4 billion at March 31, 2000, or an increase of 2.3% from December 31, 1999. During the first quarter of 2000, the Company made $11.0 million of scheduled unsecured note payments, $17.1 million of payments in accordance with sinking fund requirements, and retired $136.5 million of medium-term notes. U.S. commercial paper outstanding at March 31, 2000 increased to $452.1 million, compared with $320.0 million at December 31, 1999, primarily to fund capital expenditures. The Company's foreign debt decreased approximately $1.3 million from December 31, 1999 to $398.7 million at March 31, 2000. The Company's percentage of variable-rate financing obligations was 24.3% at March 31, 2000 which is slightly below the Company's targeted level of 25%-30% and higher than 19.2% at December 31, 1999. The Company's debt-to-equity ratio at March 31, 2000 increased to 201% from 199% at December 31, 1999. On April 3, 2000 the Company used the proceeds from a sale-leaseback transaction completed on March 31, 2000 to repay $231.0 million of commercial paper. 18 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued)-- Three months ended March 31, 2000 and 1999 As of March 31, 2000, $210.6 million was available under the Company's $720.0 million global revolving credit facility, which expires in 2002. Foreign borrowings of $57.3 million were outstanding under the facility as of March 31, 2000. In September 1998, the Company filed an $800.0 million shelf registration statement with the Securities and Exchange Commission. Proceeds from debt issues under the shelf registration are expected to be used for capital expenditures, debt refinancing and general corporate purposes. The Company has $487.0 million of debt securities available for issuance under this shelf registration statement. The Company also participates in an agreement to sell, with limited recourse, up to $375 million of trade receivables on a revolving basis through July 2002. At March 31, 2000, the outstanding balance of receivables sold pursuant to this agreement increased to $309.0 million from $75.0 million at December 31, 1999. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" which requires all derivatives to be recognized at fair value as either assets or liabilities on the balance sheet. Any gain or loss resulting from changes in such fair value is required to be recognized in earnings to the extent the derivatives are not effective as hedges. This Statement, as amended, is effective for fiscal years beginning after June 15, 2000, and is effective for interim periods in the initial year of adoption. Adoption of this Statement is not expected to have a material impact on the Company's results of operations or financial position. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation--an interpretation of APB Opinion No. 25" (FIN 44). This Interpretation provides guidance for issues that have arisen in applying APB Opinion No. 25, "Accounting for Stock Issued to Employees." FIN 44 applies prospectively to new stock awards, exchanges of stock awards in a business combination, modifications to outstanding stock awards, and changes in grantee status that occur on or after July 1, 2000, except for the provisions related to repricings of stock awards and the definition of an employee which apply to stock awards issued after December 15, 1998. The provisions related to modifications to fixed stock option awards to add a reload feature are effective for awards modified after January 12, 2000. Management has not yet determined the impact of FIN 44 on the Company and the results of its operations. 19 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition (continued)-- Three months ended March 31, 2000 and 1999 Recently, the SEC issued SEC Staff Accounting Bulletin No. 101, "Revenue Recognition," and Staff Accounting Bulletin No. 101A. This guidance adds new Topic 13, "Revenue Recognition," to the SEC Codification of Staff Accounting Bulletins. SAB 101 impacts a broad range of revenue recognition practices, including, but not limited to, issues relating to initial fees received in multi-part arrangements, reporting revenues net versus gross, and consignment and layaway arrangements. As amended, SAB 101 is required to be adopted by the Company as of April 1, 2000. Adoption is not anticipated to have a material impact on results of the Company's operations. FORWARD-LOOKING STATEMENTS This management's discussion and analysis of results of operations and financial condition contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current plans and expectations of Ryder System, Inc. and involve risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. Important factors that could cause such differences include, among others, general economic conditions in the United States and worldwide, the highly competitive environment applicable to the Company's operations (including competition in logistics solutions from other logistics companies as well as from air cargo, shipping, railroads and motor carriers and competition in full service truck leasing and commercial rental from companies providing similar services as well as from truck and trailer manufacturers who provide leasing, extended warranty maintenance, rental and other transportation services), greater than expected expenses associated with the Company's personnel needs or activities (including increased cost of freight and transportation), availability of equipment, changes in clients' business environments (or the loss of a significant client), or changes in government regulations. The risks included here are not exhaustive. 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 the Company's business. 20 PART I. FINANCIAL INFORMATION (CONTINUED) ITEM 3. Quantitative and Qualitative Disclosure About Market Risk In the normal course of business, the Company is exposed to fluctuations in interest rates, fuel prices and foreign exchange rates. The Company manages such exposures in several ways including the use of a variety of derivative financial instruments when deemed prudent. The Company does not enter into leveraged financial transactions or use derivative financial instruments for trading purposes. The Company's quantitative and qualitative disclosures about market risk for changes in interest rates and foreign exchange rates have not materially changed since December 31, 1999. The Company's disclosures about market risk are contained in the Annual Report on Form 10-K for the year ended December 31, 1999. 21 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K: (a) EXHIBITS (3.1) The Ryder System, Inc. Restated Articles of Incorporation, dated November 8, 1985, as amended through May 18, 1990, previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, are incorporated by reference into this report. (3.2) The Ryder System, Inc. By-Laws, as amended through November 23, 1993, previously filed with the Commission as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, are incorporated by reference into this report. (15) Letter regarding unaudited interim financial statements. (27.1) Financial data schedule (for SEC use only). (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed by the Registrant during the period covered by this report. 22 SIGNATURES 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. RYDER SYSTEM, INC. (Registrant) Date: May 10, 2000 /S/ CORLISS J. NELSON ----------------------------- Corliss J. Nelson Senior Executive Vice President-Finance and Chief Financial Officer (Principal Financial Officer) Date: May 10, 2000 /S/ RICHARD G. RODICK ----------------------------- Richard G. Rodick Vice President and Controller (Principal Accounting Officer) 23 EXHIBIT DESCRIPTION - ------- ----------- (15) Letter regarding unaudited interim financial statements. (27.1) Financial data schedule (for SEC use only). EX-15 2 EXHIBIT 15 KPMG LLP CERTIFIED PUBLIC ACCOUNTANTS One Biscayne Tower Telephone 305-358-2300 2 South Biscayne Boulevard Fax 305-913-2692 Suite 2900 Miami, Florida 33131 The Board of Directors and Shareholders Ryder System, Inc.: We acknowledge our awareness of the incorporation by reference in the following Registration Statements of our report dated April 20, 2000 related to our review of interim financial information: Form S-3: /bullet/ Registration Statement No. 33-20359 covering $1,000,000,000 aggregate principal amount of debt securities. /bullet/ Registration Statement No. 33-50232 covering $800,000,000 aggregate principal amount of debt securities. /bullet/ Registration Statement No. 33-58667 covering $800,000,000 aggregate principal amount of debt securities. /bullet/ Registration Statement No. 333-63049 covering $800,000,000 aggregate principal amount of debt securities. Form S-8: /bullet/ Registration Statement No. 33-20608 covering the Ryder System Employee Stock Purchase Plan. /bullet/ Registration Statement No. 33-4333 covering the Ryder Employee Savings Plan. /bullet/ Registration Statement No. 1-4364 covering the Ryder System Profit Incentive Stock Plan. /bullet/ Registration Statement No. 33-69660 covering the Ryder System, Inc. 1980 Stock Incentive Plan. /bullet/ Registration Statement No. 33-37677 covering the Ryder System UK Stock Purchase Scheme. /bullet/ Registration Statement No. 33-63990 covering the Ryder System, Inc. Directors' Stock Plan. /bullet/ Registration Statement No. 33-58001 covering the Ryder System, Inc. Employee Savings Plan A. /bullet/ Registration Statement No. 33-58003 covering the Ryder System, Inc. Employee Savings Plan B. /bullet/ Registration Statement No. 33-61509 covering the Ryder System, Inc. Stock for Merit Increase Replacement Plan. EXHIBIT 15 (continued) /bullet/ Registration Statement No. 33-62013 covering the Ryder System, Inc. 1995 Stock Incentive Plan. /bullet/ Registration Statement No. 333-19515 covering the Ryder System, Inc. 1997 Deferred Compensation Plan. /bullet/ Registration Statement No. 333-26653 covering the Ryder System, Inc. Board of Directors Stock Award Plan. /bullet/ Registration Statement No. 333-57593 covering the Ryder System, Inc. Stock Purchase Plan for Employees. /bullet/ Registration Statement No. 333-57595 covering the Ryder System, Inc. 1995 Stock Incentive Plan. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. /S/ KPMG LLP Miami, Florida May 9, 2000 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RYDER SYSTEM, iNC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 313,387 0 455,201 0 71,881 1,266,245 5,553,981 1,846,060 5,892,157 1,501,332 1,868,201 0 0 514,773 700,400 5,892,157 0 1,308,608 0 1,235,189 0 0 41,952 31,467 11,643 19,824 0 0 0 19,824 0.33 0.33
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