Ryder System Earnings 2018-09-30

R 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 ryder3rdquarter201810-q.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 1-4364

RYDER SYSTEM, INC.

(Exact name of registrant as specified in its charter)



Florida	59-0739250
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

11690 N.W. 105th Street
Miami, Florida 33178	(305) 500-3726
(Address of principal executive offices, including zip code)	(Registrant’s telephone number, including area code)

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 þ 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). YES þ NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.



Large accelerated filer þ		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨
Emerging growth company ¨

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 þ NO

The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at September 30, 2018, was 53,088,113.

RYDER SYSTEM, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS




		Page No.

PART I FINANCIAL INFORMATION

ITEM 1 Financial Statements (unaudited)

	Consolidated Condensed Statements of Earnings -- Three and nine months ended September 30, 2018 and 2017	1

	Consolidated Condensed Statements of Comprehensive Income -- Three and nine months ended September 30, 2018 and 2017	2

	Consolidated Condensed Balance Sheets -- September 30, 2018 and December 31, 2017	3

	Consolidated Condensed Statements of Cash Flows -- Nine months ended September 30, 2018 and 2017	4

	Notes to Consolidated Condensed Financial Statements	5

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		32

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk		59

ITEM 4 Controls and Procedures		60

PART II OTHER INFORMATION

ITEM 1A Risk Factors		60

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds		60

ITEM 6 Exhibits		61

SIGNATURE		62

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(unaudited)



	Three months ended September 30,					Nine months ended September 30,
	2018			2017		2018			2017
	(In thousands, except per share amounts)
Lease and rental revenues	$	895,167		823,197		$	2,577,444		2,387,801
Services revenue	1,106,107			888,613		3,106,575			2,595,141
Fuel services revenue	156,787			129,087		466,847			382,966
Total revenues	2,158,061			1,840,897		6,150,866			5,365,908

Cost of lease and rental	649,407			588,626		1,904,973			1,745,777
Cost of services	945,851			753,838		2,639,137			2,186,316
Cost of fuel services	153,420			124,562		455,874			372,016
Other operating expenses	30,344			28,445		94,760			87,122
Selling, general and administrative expenses	215,506			212,249		637,282			614,809
Non-operating pension costs	1,161			6,958		3,241			20,875
Used vehicle sales, net	3,012			(2,727	)	16,434			11,815
Interest expense	47,379			34,854		127,529			104,591
Miscellaneous income, net	(4,472		)	(4,655	)	(10,609		)	(15,062	)
Restructuring and other charges, net	313			4,255		19,722			1,681
	2,041,921			1,746,405		5,888,343			5,129,940
Earnings from continuing operations before income taxes	116,140			94,492		262,523			235,968
Provision for income taxes	26,629			35,452		95,561			86,997
Earnings from continuing operations	89,511			59,040		166,962			148,971
Loss from discontinued operations, net of tax	(760		)	(290	)	(2,448		)	(947	)
Net earnings	$	88,751		58,750		$	164,514		148,024

Earnings (loss) per common share — Basic
Continuing operations	$	1.70		1.12		$	3.18		2.82
Discontinued operations	(0.01		)	(0.01	)	(0.05		)	(0.02	)
Net earnings	$	1.69		1.12		$	3.13		2.80

Earnings (loss) per common share — Diluted
Continuing operations	$	1.69		1.12		$	3.15		2.80
Discontinued operations	(0.01		)	(0.01	)	(0.05		)	(0.02	)
Net earnings	$	1.68		1.11		$	3.11		2.78

Cash dividends declared per common share	$	0.54		0.46		$	1.58		1.34

See accompanying notes to consolidated condensed financial statements.

Note: EPS amounts may not be additive due to rounding.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)



	Three months ended September 30,					Nine months ended September 30,
	2018			2017		2018			2017
	(In thousands)

Net earnings	$	88,751		58,750		$	164,514		148,024

Other comprehensive income:

Changes in currency translation adjustment and other	6,554			27,648		(23,198		)	70,991

Amortization of pension and postretirement items	7,163			7,960		20,793			23,741
Income tax expense related to amortization of pension and postretirement items	(1,897		)	(2,812	)	(4,771		)	(8,324	)
Amortization of pension and postretirement items, net of tax	5,266			5,148		16,022			15,417

Change in net actuarial loss and prior service cost	—			870		(1,211		)	890
Income tax benefit related to change in net actuarial loss and prior service cost	—			(260	)	308			(80	)
Change in net actuarial loss and prior service cost, net of taxes	—			610		(903		)	810

Other comprehensive income (loss), net of taxes	11,820			33,406		(8,079		)	87,218

Comprehensive income	$	100,571		92,156		$	156,435		235,242

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(unaudited)



	September 30, 2018			December 31, 2017
	(Dollars in thousands, except share amounts)
Assets:
Current assets:
Cash and cash equivalents	$	60,688		78,348
Receivables, net of allowance of $18,106 and $13,847, respectively	1,156,674			1,010,908
Inventories	78,119			73,543
Prepaid expenses and other current assets	169,175			160,094
Total current assets	1,464,656			1,322,893
Revenue earning equipment, net	9,186,827			8,355,262
Operating property and equipment, net of accumulated depreciation of $1,244,927 and $1,192,377, respectively	826,183			776,704
Goodwill	493,169			395,504
Intangible assets, net of accumulated amortization of $63,016 and $57,420, respectively	61,221			42,930
Direct financing leases and other assets	652,249			570,706
Total assets	$	12,684,305		11,463,999

Liabilities and shareholders’ equity:
Current liabilities:
Short-term debt and current portion of long-term debt	$	859,530		826,069
Accounts payable	704,613			599,303
Accrued expenses and other current liabilities	618,675			589,603
Total current liabilities	2,182,818			2,014,975
Long-term debt	5,423,580			4,583,582
Other non-current liabilities	828,149			812,642
Deferred income taxes	1,331,360			1,211,129
Total liabilities	9,765,907			8,622,328

Shareholders’ equity:
Preferred stock, no par value per share — authorized, 3,800,917; none outstanding, September 30, 2018 or December 31, 2017	—			—
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, September 30, 2018 — 53,088,113 December 31, 2017 — 52,955,314	26,544			26,478
Additional paid-in capital	1,075,412			1,051,017
Retained earnings	2,632,589			2,471,677
Accumulated other comprehensive loss	(816,147		)	(707,501	)
Total shareholders’ equity	2,918,398			2,841,671
Total liabilities and shareholders’ equity	$	12,684,305		11,463,999

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)



	Nine months ended September 30,
	2018			2017
	(In thousands)
Cash flows from operating activities from continuing operations:
Net earnings	$	164,514		148,024
Less: Loss from discontinued operations, net of tax	(2,448		)	(947	)
Earnings from continuing operations	166,962			148,971
Depreciation expense	1,028,491			932,772
Goodwill impairment charge	15,513			—
Used vehicle sales, net	16,434			11,815
Amortization expense and other non-cash charges, net	21,202			25,152
Non-operating pension costs and share-based compensation expense	22,072			35,509
Deferred income tax expense	103,082			75,820
Changes in operating assets and liabilities, net of acquisitions:
Receivables	(126,848		)	(145,090	)
Inventories	(4,389		)	(985	)
Prepaid expenses and other assets	(27,163		)	255
Accounts payable	3,754			40,734
Accrued expenses and other non-current liabilities	(6,737		)	41,238
Net cash provided by operating activities from continuing operations	1,212,373			1,166,191

Cash flows from financing activities from continuing operations:
Net change in commercial paper borrowings and revolving credit facilities	(113,666		)	2,153
Debt proceeds	1,467,528			873,302
Debt repaid	(466,081		)	(938,160	)
Dividends on common stock	(83,506		)	(71,564	)
Common stock issued	13,023			10,387
Common stock repurchased	(27,680		)	(65,856	)
Debt issuance costs and other items	(4,763		)	(1,517	)
Net cash provided by (used in) financing activities	784,855			(191,255	)

Cash flows from investing activities from continuing operations:
Purchases of property and revenue earning equipment	(2,200,006		)	(1,312,845	)
Sales of revenue earning equipment	279,751			289,432
Sales of operating property and equipment	11,869			12,541
Acquisitions, net of cash acquired	(167,372		)	(7,240	)
Collections on direct finance leases and other items	57,568			54,227
Net cash used in investing activities	(2,018,190		)	(963,885	)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash	1,464			(5,226	)
(Decrease) increase in cash, cash equivalents, and restricted cash from continuing operations	(19,498		)	5,825


Decrease in cash, cash equivalents, and restricted cash from discontinued operations	(272		)	(1,064	)

(Decrease) increase in cash, cash equivalents, and restricted cash	(19,770		)	4,761
Cash, cash equivalents, and restricted cash at January 1	83,022			62,639
Cash, cash equivalents, and restricted cash at September 30	$	63,252		67,400

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. GENERAL

Interim Financial Statements

The accompanying unaudited Consolidated Condensed 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 (VIEs) required to be consolidated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with the accounting policies described in our 2017 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto except for the update to our revenue recognition significant accounting policies discussed below. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of 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 unaudited and are not necessarily indicative of the results that can be expected for a full year.

Update to Significant Accounting Policies

Our significant accounting policies are detailed in "Note 1: Summary of Significant Accounting Policies" within Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2017. Significant changes to our accounting policies as a result of adopting ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) are discussed below:

Revenue Recognition

We recognize revenue upon the transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and amounts collected from customers for taxes, such as sales tax, that are remitted to the applicable taxing authorities. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectibility of consideration is probable. We generally recognize revenue over time as we perform because of continuous transfer of control to our customers.

We generate revenue primarily through the lease, rental and maintenance of revenue earning equipment and by providing logistics management and dedicated services. We classify our revenues in the categories of lease and rental, services and fuel. Our lease and rental revenues are accounted for in accordance with existing lease guidance in Leases (Topic 840) and our services and fuel revenues are accounted for in accordance with revenue recognition guidance in Topic 606.

Lease and rental

Lease and rental includes ChoiceLease and commercial rental revenues from our Fleet Management Solutions (FMS) business segment. We offer a full service lease as well as a lease with more flexible maintenance options under our ChoiceLease product line, which are marketed, priced and managed as bundled lease arrangements, and include equipment, service and financing components. We do not offer a stand-alone unbundled lease of new vehicles. For these reasons, both the lease and service components of our leases are included within lease and rental revenues.

ChoiceLease revenue is recognized in accordance with existing lease accounting guidance in Topic 840. Our ChoiceLease arrangements include lease deliverables such as the lease of a vehicle and the executory agreement for the maintenance, insurance, taxes and other services related to the leased vehicles during the lease term. Arrangement consideration is allocated between the lease deliverables and non-lease deliverables based on management's best estimate of the relative fair value of each deliverable. The arrangement consideration is accounted for pursuant to accounting guidance on leases. Our ChoiceLease arrangements provide for a fixed charge billing and a variable charge billing based on mileage or time usage. Fixed charges are typically billed at the beginning of the month for the services to be provided that month. Variable charges are typically billed a month in arrears.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Revenue from ChoiceLease and rental agreements is recognized based on the classification of the arrangement, typically as either an operating or direct financing lease (DFL).

The majority of our leases and all of our rental arrangements are classified as operating leases and, therefore, we recognize lease and commercial rental revenue on a straight-line basis as it becomes receivable over the term of the lease or rental arrangement. Lease and rental agreements do not usually provide for scheduled rent increases or escalations. However, most lease agreements allow for rate changes based upon changes in the Consumer Price Index (CPI). ChoiceLease and rental agreements also provide for vehicle usage charges based on a time charge and/or a fixed per-mile charge. The fixed time charge, the fixed per-mile charge and the changes in rates attributed to changes in the CPI are considered contingent rentals and are not considered fixed or determinable until the effect of CPI changes is implemented or the equipment usage occurs.

Leases not classified as operating leases are generally considered direct financing leases. We recognize revenue for direct financing leases using the effective interest method, which provides a constant periodic rate of return on the outstanding investment on the lease. Cash receipts on impaired direct financing lease receivables are first applied to the direct financing lease receivable and then to any unrecognized income. A direct financing lease receivable is considered impaired, based on current information and events, if it is probable that we will be unable to collect all amounts due according to the contractual terms of the lease.

Services

Services include SelectCare and other revenues from our FMS business segment and all Dedicated Transportation Solutions (DTS) and Supply Chain Solutions (SCS) revenues.

Under our SelectCare arrangements, we provide maintenance and repairs required to keep a vehicle in good operating condition, schedule preventive maintenance inspections and provide access to emergency road service and substitute vehicles. The vast majority of our services are routine services performed on a recurring basis throughout the term of the arrangement. From time to time, we provide non-routine major repair services in order to place a vehicle back in service.

Through our SelectCare product line, we provide maintenance services to customers who do not choose to lease vehicles from us. Our maintenance service arrangement provides for a monthly fixed charge and a monthly variable charge based on mileage or time usage. Fixed charges are typically billed at the beginning of the month for the services to be provided that month. Variable charges are typically billed a month in arrears. Most maintenance agreements allow for rate changes based upon changes in the CPI. The fixed per-mile charge and the changes in rates attributed to changes in the CPI are recognized as earned. Costs associated with the activities performed under our maintenance arrangements are primarily comprised of labor, parts and outside work. These costs are expensed as incurred. Non-chargeable maintenance costs have been allocated and reflected within “Cost of services” based on the proportionate maintenance-related labor costs relative to all product lines.

The maintenance service is the only performance obligation in SelectCare contracts. This single performance obligation is satisfied at a point in time for transactional maintenance services or over time for contract maintenance agreements. For contract maintenance agreements, the maintenance performance obligation represents a series of distinct maintenance services performed during the contract period as the services provided are substantially the same and have the same pattern of transfer to our customers. Revenue from SelectCare contracts is recognized as maintenance services are rendered over the terms of the related arrangements. We generally account for long-term maintenance contracts as one-year contracts since our maintenance arrangements are generally cancelable, without penalty, after one year. As a practical expedient, we do not disclose information about remaining performance obligations that have original expected durations of one year or less. For maintenance contracts that are longer than one year (i.e., not cancelable without penalty), the revenue we recognize corresponds with our performance completed to date. We measure the progress of transfer based on the costs incurred to provide the service to the customer. The amount that we have the right to invoice for services performed aligns with this measure. As a practical expedient, we do not disclose information about remaining performance obligations for these contracts since the fixed and variable revenue recognized corresponds to the amount we have the right to invoice for services performed.

In our DTS business segment, we combine equipment, maintenance, drivers, administrative services and additional services to provide customers with a single integrated dedicated transportation solution. DTS transportation solutions are customized for our customers based on a transportation analysis to create a logistics design that includes the routing and scheduling of vehicles, the efficient use of vehicle capacity and overall asset utilization. In our SCS business, we offer a broad range of logistics management services designed to optimize the supply chain and address the key business requirements of our customers. SCS operates by industry verticals (Automotive, Technology and Healthcare, Consumer Packaged Goods and

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Retail, and Industrial) to enable our teams to focus on the specific needs of their customers. Our SCS services are supported by a variety of information technology and engineering solutions.

Revenues from DTS and SCS service contracts are recognized as services are rendered in accordance with contract terms, which typically include (1) fixed and variable billing rates, (2) cost-plus billing rates (input method based on actual costs incurred to perform services and a contracted mark-up), or (3) variable only or fixed only billing rates for the services. Our billing structure aligns with the value transferred to our customers. As a practical expedient, we do not disclose information about remaining performance obligations for these contracts since the revenue recognized corresponds to the amount we have the right to invoice for services performed.

Our customers contract us to provide an integrated service of transportation or supply chain logistical services into a single transportation or supply chain solution. Therefore, we typically account for DTS and SCS service contracts as one performance obligation satisfied over time. Less commonly, however, we may promise to provide distinct goods or services within a contract, in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone selling prices. More frequently, we sell a customized customer-specific solution, and in these cases we use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Fuel

Fuel services include fuel services revenue from our FMS business segment. We provide our FMS customers with access to fuel at our maintenance facilities across the United States and Canada. Fuel services revenue is invoiced to customers at contracted rates, separate from other services being provided in other contracts, or at retail prices. Revenue from fuel services is recognized when fuel is delivered to customers. As a practical expedient, we do not disclose information about remaining performance obligations for these contracts since the revenue recognized corresponds to the amount we have the right to invoice for services performed. 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 sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on trailing market fuel costs.

Significant Judgments and Estimates

Our contracts with customers often include promises to transfer multiple services to a customer. Determining whether these services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Our DTS and SCS services depend on a significant level of integration and interdependency between the services provided within a contract. Judgment is required to determine whether each service is considered distinct and accounted for separately, or not distinct and accounted for together as a significant integrated service and recognized over time. In making this judgment, we consider whether the services provided, within the context of the contract, represent the transfer of individual services or a combined bundle of services to the customer. This involves evaluating the promises to a customer within a contract to identify the services that need to be performed in order for the promise to be satisfied. Since multiple services that occur at different points in time during a contract may be accounted for as an integrated service, judgment is required to assess the pattern of delivery to our customers.

Our judgments on collectibility are initially established when a business relationship with a customer is initiated and is continuously monitored as services are provided. We have a credit rating system based on internally developed standards and ratings provided by third parties. Our credit rating system, along with monitoring for delinquent payments, allows us to make decisions as to whether collectibility is probable. Factors considered during this process include historical payment trends, industry risks, liquidity of the customer, years in business, and judgments, liens or bankruptcies. When collectibility is not considered reasonably assured (typically when a customer is 120 days past due), revenue is not recognized until it is determined that the customer has the ability and intention to pay.

Contract Balances

We do not have material contract assets as we generally invoice customers as we perform services. Contract receivables are recorded in “Receivables, net” in the Consolidated Condensed Balance Sheets. Payment terms vary by contract type, although

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

terms generally include a requirement of payment within 30 to 90 days. As a practical expedient, we do not assess whether a contract has a significant financing component as the period between the receipt of customer payment and the transfer of service to the customer is less than a year. Our contract liabilities consist of deferred revenue. We record deferred revenues when cash payments are received or due in advance of our performance, including amounts that are refundable. We classify deferred revenue as current as we expect to recognize this revenue within 12 months. Revenue is recognized upon satisfaction of the performance obligation.

Costs to Obtain and Fulfill a Contract

Our incremental direct costs of obtaining a contract, which primarily consist of sales commissions and start-up costs, are capitalized and amortized over the period of contract performance or a longer period, generally the estimated life of the customer relationship if renewals are expected and the renewal commission is not commensurate with the initial commission. We capitalize incremental direct costs of obtaining a contract that i) relate directly to the contract and ii) are expected to be recovered through revenue generated under the contract. This requires an evaluation of whether the costs are incremental and would not have occurred absent the customer contract.

The current and noncurrent portions of incremental costs to obtain and fulfill a contract are included in “Prepaid expenses and other current assets” and “Direct financing leases and other assets” respectively, in the Consolidated Condensed Balance Sheets. Costs are amortized in “Selling, general and administrative expenses” in the Consolidated Condensed Statements of Earnings on a straight-line basis over the expected period of benefit.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Cloud Computing Arrangements

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. ASU 2018-15 aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Entities are permitted to apply either a retrospective or prospective approach to adopt the guidance. We are currently evaluating the impact of the adoption of this update on our consolidated financial position, results of operations, and cash flows.

Income Taxes

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits - but does not require - companies to reclassify stranded tax effects caused by 2017 tax reform from accumulated other comprehensive income to retained earnings. Additionally, the ASU requires new disclosures by all companies, whether they opt to do the reclassification or not. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We adopted this standard using the aggregate portfolio approach and elected to reclassify $101 million of tax benefits resulting from the federal income tax rate change, net of associated state tax effect, from accumulated other comprehensive loss to retained earnings as of the beginning of 2018. This standard did not impact our results of operations or cash flows.

Share-Based Compensation

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The amendments in this update are effective for annual periods, and interim periods within those annual periods,

beginning after December 15, 2017, with early adoption permitted. We adopted the standard during the first quarter of 2018 and it did not have an impact on our consolidated financial position, results of operations, or cash flows.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Business Combinations

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The objective of the update is to add guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. Companies must use a prospective approach to adopt ASU 2017-01, which was effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. We prospectively adopted this standard in the first quarter of 2018. The new standard did not have an impact to the Company's consolidated condensed financial statements during the first, second or third quarters of 2018.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. In November 2016, the FASB issued additional guidance related to the statement of cash flows, which requires companies to explain the change during the period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The standard was effective January 1, 2018, with early adoption permitted. We adopted the standard during the first quarter of 2018. As a result of this update, restricted cash is included within cash and cash equivalents on our statements of consolidated cash flows. As of September 30, 2018 and December 31, 2017, we had $3 million and $5 million, respectively, in prepaid expenses and other current assets associated with our like-kind exchange program for certain of our U.S. based revenue earning equipment.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which sets out the principles for the identification, measurement, recognition, presentation and disclosure of leases. The FASB issued subsequent updates to clarify and improve the standard. The standard impacts the accounting for both lessors and lessees. We will adopt the standard effective January 1, 2019, using the modified retrospective transition method.

The new standard requires lessors to identify and evaluate the lease and non-lease components in arrangements containing a lease, provides clarification on the scope of non-lease components and provides more guidance on how to identify and separate the components. The adoption of the new lease standard will primarily impact our ChoiceLease product line, which includes a vehicle lease as well as maintenance and other services related to the vehicle. The lease component will be accounted for using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. We will generally continue to recognize revenue for the lease portion of the product line on a straight-line basis. The non-lease component will be accounted for in accordance with the revenue recognition guidance, see below section "Revenue Recognition." Revenue from maintenance services will be recognized consistent with the estimated timing pattern of maintenance costs, which will generally require the deferral of some portion of the customer's payments as a contract liability when received, as maintenance services are typically not performed evenly over the life of a ChoiceLease contract.

We are implementing a lessor revenue recognition system, which will both assist in separating the lease and non-lease components, primarily maintenance services, as well as account for the pattern of revenue recognition of the separate lease and non-lease components under our lessor arrangements. Upon adoption, we will record a cumulative-effect adjustment to recognize deferred revenue related to the maintenance services on the opening balance sheet for 2017 and restate all prior periods presented (2017 and 2018).

The standard requires lessees to classify leases as either finance or operating leases. This classification will determine whether the related expense will be recognized based on asset amortization and interest on the obligation or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. We are implementing a lease management system to track and record the right-of-use asset and liability for all leases with a term of greater than 12 months.

We expect the cumulative-effect adjustment, resulting from the adoption of the lessor requirements, will have a significant impact on our consolidated financial position. We continue to evaluate the impact of adoption of the lessor requirements of this standard, however, such requirements may have a significant impact on our results of operations. We do not expect the adoption of the lessor requirements to have an impact on our cash flows. We do not expect the lessee requirements to have a material impact on our consolidated financial position, results of operations or cash flows. We are in the process of completing

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

additional process changes and updating internal controls to ensure the new reporting and disclosure requirements are met upon adoption.

Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which together with related, subsequently issued guidance, requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In addition, Topic 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We adopted Topic 606 in the first quarter of 2018 using the full retrospective method, which required us to restate each prior reporting period presented.

Upon adoption of Topic 606, we applied the standard’s practical expedient that permits the omission of disclosures of the prior period allocation of the transaction price to remaining performance obligations and an explanation of when the entity expects to recognize that amount as revenue.

Adoption of the new revenue recognition standard impacted our previously reported Consolidated Condensed Statements of Operations and Comprehensive Income results as follows (in millions, except per share amounts):



	Three months ended September 30, 2017					Nine months ended September 30, 2017
			New Revenue					New Revenue
	As Previously		Standard			As Previously		Standard
	Reported		Adjustments		As Revised	Reported		Adjustments		As Revised
Services revenue ⁽¹⁾	$	896.2	(7.6	)	888.6	$	2,619.1	(24.0	)	2,595.1
Total revenues	1,848.5		(7.6	)	1,840.9	5,389.9		(24.0	)	5,365.9
Cost of services ⁽¹⁾	761.5		(7.6	)	753.8	2,210.3		(24.0	)	2,186.3
Selling, general and administrative expenses ⁽²⁾	216.7		(4.4	)	212.2	620.0		(5.2	)	614.8
Earnings from continuing operations before income taxes	94.3		0.1		94.5	235.0		1.0		236.0
Provision for income taxes	35.4		—		35.5	86.5		0.5		87.0
Earnings from continuing operations	58.9		0.1		59.0	148.5		0.4		149.0
Net earnings	58.6		0.1		58.8	147.6		0.4		148.0

Comprehensive income	92.0		0.1		92.2	234.8		0.4		235.2

Earnings per common share - Basic
Continuing operations	$	1.12	—		1.12	$	2.81	0.01		2.82

Earnings per common share - Diluted
Continuing operations	$	1.11	0.01		1.12	$	2.79	0.01		2.80

————————————

(1)

Amount includes $8 million and $24 million for the three and nine months ended September 30, 2017, respectively, related to correction of a prior period error. We historically accounted for certain freight brokerage agreements as a principal and presented revenue and costs related to subcontracted transportation on a gross basis in our financial statements. In adopting Topic 606, we reviewed and evaluated our existing revenue contracts and determined that certain of our freight brokerage agreements should have historically been presented on a net basis as an agent. We evaluated the materiality of this revision, quantitatively and qualitatively. We concluded it was not material to any of our previously issued consolidated financial statements and correction as an out of period adjustment in the current period was not material.


(2)	Amount includes $4 million for the three and nine months ended September 30, 2017, related to consulting fees associated with a cost-savings program. The amount was reclassified from "Selling, general and administrative expenses” to "Restructuring and other charges, net" in our Consolidated Condensed Statement of Earnings in order to conform to the current period presentation.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Adoption of the new revenue recognition standard impacted our previously reported Consolidated Condensed Balance Sheet as follows (in millions):



	December 31, 2017
			New Revenue
	As Previously		Standard
	Reported		Adjustment	As Revised
Prepaid expenses and other current assets	$	159.5	0.6	160.1
Total current assets	1,322.3		0.6	1,322.9
Direct financing leases and other assets	559.5		11.2	570.7
Total assets	11,452.2		11.8	11,464.0
Accrued expenses and other current liabilities	587.4		2.2	589.6
Total current liabilities	2,012.8		2.2	2,015.0
Other non-current liabilities	812.1		0.6	812.6
Deferred income taxes	1,208.8		2.4	1,211.1
Total liabilities	8,617.2		5.1	8,622.3
Retained earnings	2,465.0		6.7	2,471.7
Total shareholders' equity	2,835.0		6.7	2,841.7
Total liabilities and shareholders' equity	11,452.2		11.8	11,464.0

3. ACQUISITIONS

On April 2, 2018, we acquired all of the outstanding equity of MXD Group, Inc. (MXD), an e-commerce fulfillment provider with a national network of facilities, including last mile delivery capabilities, for a purchase price of approximately $118 million. The acquisition is included in our SCS business segment. We acquired MXD to build the foundation of e-fulfillment and final mile capabilities for our e-commerce business.

During the nine months ended September 30, 2018, we incurred acquisition transaction costs of $1 million related to the acquisition that are reflected within "Selling, general and administrative expenses" in our Consolidated Condensed Statements of Earnings. The following table provides the preliminary purchase price allocation to the assets and the liabilities assumed as of the closing date of the MXD acquisition.



	(In thousands)
Assets:
Operating property and equipment	$	9,803
Goodwill	81,848
Customer relationships and other intangibles	23,651
Other assets, primarily accounts receivable	31,492
	146,794
Liabilities:
Accrued liabilities	(18,107		)
Deferred income taxes	(5,760		)
Other liabilities, primarily accounts payable	(4,979		)
Net assets acquired	$	117,948

The excess of the purchase consideration over the aggregate estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized reflects e-commerce growth opportunities, opportunities to cross-sell with our existing customer base and expected cost synergies of combining MXD with our business. The goodwill is not expected to be deductible for income tax purposes. Customer relationship intangible assets are expected to be amortized over 8 years.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

The results of operations of MXD were not material to our results of operations and therefore pro forma financial information for the acquisition was not presented.

On June 15, 2018, we acquired all of the outstanding equity of Metro Truck & Tractor Leasing (Metro), a full service leasing, rental and maintenance company for a purchase price of approximately $52 million. The acquisition is included in our FMS business segment. We acquired Metro to expand our presence in the Baltimore, Maryland area. The preliminary purchase accounting for this acquisition resulted in $0.4 million of the purchase price allocated to customer relationships and other intangible assets, $20 million allocated to tangible assets net of liabilities assumed and the remaining $31 million represents goodwill. The goodwill recognized reflects expected cost synergies and operational improvements in the combined companies and expected growth opportunities with Metro's current customers and prospects in the Maryland market. The goodwill is not expected to be deductible for income tax purposes. Transaction costs related to the acquisition were $0.5 million during the nine months ended September 30, 2018 and were reflected within "Selling, general and administrative expenses" in our Consolidated Condensed Statements of Earnings.

The assets, liabilities and results of operations of Metro were not material to our consolidated financial position or results of operations and therefore pro forma financial information for the acquisition was not presented.

The estimated fair values of assets acquired and liabilities assumed in the acquisitions of both MXD and Metro are preliminary and are based on the information that was available as of the acquisition date. We believe that we have sufficient information to provide a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, we are currently obtaining additional information which will be necessary to finalize our estimate of fair values. Therefore, the preliminary 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 one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to fixed assets, income and non-income taxes, the valuation of intangible assets acquired and residual goodwill, as well as certain contingent liabilities. The preliminary amounts assigned to intangible assets by type for the MXD and Metro acquisitions are based on our preliminary valuation model.

4. REVENUE

Disaggregation of Revenue

The following tables disaggregate our revenue by primary geographical market, major product/service lines, and industry:

Primary Geographical Markets



	Three months ended September 30, 2018
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
United States	$	1,180,337	340,604	508,196	(141,874	)	1,887,263
Canada	75,571		—	45,587	(5,761	)	115,397
Europe	80,640		—	—	—		80,640
Mexico	—		—	68,705	—		68,705
Singapore	—		—	6,056	—		6,056
Total revenue	$	1,336,548	340,604	628,544	(147,635	)	2,158,061

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)



	Three months ended September 30, 2017
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
United States	$	1,041,610	272,201	384,414	(110,715	)	1,587,510
Canada	73,755			42,620	(4,892	)	111,483
Europe	80,432		—	—	—		80,432
Mexico	—		—	53,427	—		53,427
Singapore	—		—	8,045	—		8,045
Total revenue	$	1,195,797	272,201	488,506	(115,607	)	1,840,897



	Nine months ended September 30, 2018
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
United States	$	3,395,291	970,196	1,384,044	(405,159	)	5,344,372
Canada	225,903		—	136,428	(16,526	)	345,805
Europe	253,386		—	—	—		253,386
Mexico	—		—	189,181	—		189,181
Singapore	—		—	18,122	—		18,122
Total revenue	$	3,874,580	970,196	1,727,775	(421,685	)	6,150,866



	Nine months ended September 30, 2017
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
United States	$	3,048,742	811,277	1,106,226	(329,367	)	4,636,878
Canada	207,577		—	125,116	(13,671	)	319,022
Europe	235,527		—	—	—		235,527
Mexico	—		—	151,169	—		151,169
Singapore	—		—	23,312	—		23,312
Total revenue	$	3,491,846	811,277	1,405,823	(343,038	)	5,365,908

Major Products/Service Lines



	Three months ended September 30, 2018
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
ChoiceLease	$	716,728	—	—	(64,295	)	652,433
SelectCare	125,850		—	—	(10,418	)	115,432
Commercial rental	257,909		—	—	(15,175	)	242,734
Fuel	214,534		—	—	(57,747	)	156,787
Other	21,527		—	—	—		21,527
DTS	—		340,604	—	—		340,604
SCS	—		—	628,544	—		628,544
Total revenue	$	1,336,548	340,604	628,544	(147,635	)	2,158,061

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)



	Three months ended September 30, 2017
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
ChoiceLease	$	673,882	—	—	(57,265	)	616,617
SelectCare	116,985		—	—	(8,206	)	108,779
Commercial rental	216,016		—	—	(9,436	)	206,580
Fuel	169,787		—	—	(40,700	)	129,087
Other	19,127		—	—	—		19,127
DTS	—		272,201	—	—		272,201
SCS	—		—	488,506	—		488,506
Total revenue	$	1,195,797	272,201	488,506	(115,607	)	1,840,897



	Nine months ended September 30, 2018
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
ChoiceLease	$	2,107,938	—		(187,822	)	1,920,116
SelectCare	372,989		—		(29,603	)	343,386
Commercial rental	694,864		—		(37,536	)	657,328
Fuel	633,571		—		(166,724	)	466,847
Other	65,218		—	—	—		65,218
DTS	—		970,196	—	—		970,196
SCS	—		—	1,727,775	—		1,727,775
Total revenue	$	3,874,580	970,196	1,727,775	(421,685	)	6,150,866



	Nine months ended September 30, 2017
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
ChoiceLease	$	1,992,656	—	—	(167,382	)	1,825,274
SelectCare	347,978		—	—	(26,732	)	321,246
Commercial rental	589,362		—	—	(26,835	)	562,527
Fuel	505,055		—	—	(122,089	)	382,966
Other	56,795		—	—	—		56,795
DTS	—		811,277	—	—		811,277
SCS	—		—	1,405,823	—		1,405,823
Total revenue	$	3,491,846	811,277	1,405,823	(343,038	)	5,365,908

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Industry

Our SCS business segment includes revenue from the below industries:



	Three months ended September 30,			Nine months ended September 30,
	2018		2017	2018		2017
	(In thousands)
Automotive	$	250,499	193,284	$	690,177	578,087
Technology and healthcare	123,045		99,078	340,528		274,030
CPG and retail	210,965		136,590	544,019		381,967
Industrial and other	44,035		59,554	153,051		171,739
Total revenue	$	628,544	488,506	$	1,727,775	1,405,823

Contract Balances

We record a receivable related to revenue recognized when we have an unconditional right to invoice. There were no material contract assets as of September 30, 2018 or December 31, 2017. Trade receivables were $1.04 billion and $899 million at September 30, 2018 and December 31, 2017, respectively. Impairment losses on receivables were not material during the third quarters of 2018 and 2017.

Contract liabilities relate to payments received in advance of performance under the contract. Changes in contract liabilities are due to our performance under the contract. The amount of revenue recognized during the nine months ended September 30, 2018 that was included within deferred revenue at January 1, 2018 was $13 million.

5. REVENUE EARNING EQUIPMENT



	September 30, 2018					December 31, 2017
	Cost		Accumulated Depreciation		Net Book Value ⁽¹⁾	Cost	Accumulated Depreciation		Net Book Value ⁽¹⁾
	(In thousands)
Held for use:
ChoiceLease	$	10,559,956	(3,623,781	)	6,936,175	10,002,981	(3,367,431	)	6,635,550
Commercial rental	3,163,603		(1,030,908	)	2,132,695	2,616,706	(1,001,965	)	1,614,741
Held for sale	413,677		(295,720	)	117,957	403,229	(298,258	)	104,971
Total	$	14,137,236	(4,950,409	)	9,186,827	13,022,916	(4,667,654	)	8,355,262

————————————


(1)	Revenue earning equipment, net includes vehicles under capital leases of $19 million, less accumulated depreciation of $10 million, at September 30, 2018, and $29 million, less accumulated depreciation of $14 million, at December 31, 2017.

We lease revenue earning equipment to customers for periods typically ranging from three to seven years for trucks and tractors and up to ten years for trailers. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as direct financing leases and, to a lesser extent, sales-type leases. As of September 30, 2018 and December 31, 2017, the net investment in direct financing and sales-type leases was $461 million and $447 million, respectively. Our direct financing lease customers operate in a wide variety of industries, and we have no significant customer concentrations in any one industry. We assess credit risk for all of our customers including those who lease equipment under direct financing leases prior to signing a ChoiceLease contract. For those customers who are designated as high risk, we typically require deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicles, which further mitigates our credit risk.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

As of September 30, 2018 and December 31, 2017, the amount of direct financing lease receivables past due was not significant, and there were no impaired receivables. Accordingly, we do not believe there is a material risk of default with respect to the direct financing lease receivables.

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 are recognized at the time they arrive at our used truck sales centers and are presented within “Used vehicle sales, net” in the Consolidated Condensed 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 a certain population of our revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for sales of each class of similar assets and vehicle condition. Expected declines in market prices were also considered when valuing the vehicles held for sale. These vehicles held for sale were classified within Level 3 of the fair value hierarchy.

The following table presents our assets held for sale that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:



				Total Losses ⁽²⁾
	September 30,		December 31,	Three months ended September 30,			Nine months ended September 30,
	2018		2017	2018		2017	2018		2017
	(In thousands)
Assets held for sale:
Revenue earning equipment ⁽¹⁾:
Trucks	$	40,950	33,208	$	9,713	6,215	$	28,609	22,942
Tractors	24,897		27,976	1,317		1,127	6,795		18,444
Trailers	1,770		2,100	502		1,871	3,700		5,044
Total assets at fair value	$	67,617	63,284	$	11,532	9,213	$	39,104	46,430

————————————


(1)	Assets held for sale in the above table only include the portion of revenue earning equipment held for sale where net book values exceeded fair values and fair value adjustments were recorded. The net book value of assets held for sale that were less than fair value was $50 million and $42 million as of September 30, 2018 and December 31, 2017, respectively.


(2)	Total losses represent fair value adjustments for all vehicles reclassified to held for sale throughout the period for which fair value was less than net book value.

For the three and nine months ended September 30, 2018 and 2017, the components of used vehicle sales, net were as follows:



	Three months ended September 30,					Nine months ended September 30,
	2018			2017		2018			2017
	(In thousands)
Gains on vehicle sales, net	$	(8,520	)	(11,940	)	$	(22,670	)	(34,615	)
Losses from fair value adjustments	11,532			9,213		39,104			46,430
Used vehicle sales, net	$	3,012		(2,727	)	$	16,434		11,815

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

6. GOODWILL

The carrying amount of goodwill attributable to each reportable business segment was as follows:



	Fleet Management Solutions			Dedicated Transportation Solutions	Supply Chain Solutions		Total
	(In thousands)
Balance at December 31, 2017
Goodwill	$	237,176		40,808	146,741		424,725
Accumulated impairment losses	(10,322		)	—	(18,899	)	(29,221	)
	226,854			40,808	127,842		395,504
Acquisitions ⁽¹⁾	31,209			—	81,848		113,057
Foreign currency translation adjustments	279			—	(158	)	121
Balance at September 30, 2018
Goodwill	268,664			40,808	228,431		537,903
Accumulated impairment losses	(25,835		)	—	(18,899	)	(44,734	)
	$	242,829		40,808	209,532		493,169

———————————


(1)	See Note 3, "Acquisitions," in the Notes to Consolidated Condensed Financial Statements for additional information.

On October 1, 2017, we completed our annual goodwill impairment test and determined there was no impairment. However, based on market conditions impacting our FMS Europe reporting unit's financial performance in the first quarter of 2018, we performed an interim impairment test as of March 31, 2018. Based on our analysis, we determined that all goodwill associated with our FMS Europe reporting unit was impaired and recorded an impairment charge of $16 million. The impairment charge was recorded within “Restructuring and other charges, net” in our Consolidated Condensed Statements of Earnings.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

7. ACCRUED EXPENSES AND OTHER LIABILITIES



	September 30, 2018				December 31, 2017
	Accrued Expenses		Non-Current Liabilities	Total	Accrued Expenses		Non-Current Liabilities	Total
	(In thousands)
Salaries and wages	$	134,016	—	134,016	$	135,930	—	135,930
Deferred compensation	5,172		63,194	68,366	4,269		58,411	62,680
Pension benefits	3,855		400,197	404,052	3,863		412,417	416,280
Other postretirement benefits	1,476		18,631	20,107	1,481		19,760	21,241
Other employee benefits	23,034		—	23,034	28,636		3,279	31,915
Insurance obligations ⁽¹⁾	148,736		260,357	409,093	130,848		242,473	373,321
Operating taxes	94,004		—	94,004	95,848		—	95,848
Income taxes	5,883		20,843	26,726	8,550		23,888	32,438
Interest	34,521		—	34,521	30,003		—	30,003
Deposits, mainly from customers	81,200		3,391	84,591	69,903		3,638	73,541
Deferred revenue	21,500		—	21,500	14,004		—	14,004
Restructuring liabilities ⁽²⁾	4,372		—	4,372	13,074		—	13,074
Other	60,906		61,536	122,442	53,194		48,776	101,970
Total	$	618,675	828,149	1,446,824	$	589,603	812,642	1,402,245

————————————


(1)	Insurance obligations are primarily comprised of self-insured claim liabilities.


(2)	The reduction in restructuring liabilities from December 31, 2017, principally represents cash payments for employee termination costs. The majority of the balance remaining in restructuring liabilities is expected to be paid by the second quarter of 2019.

8. INCOME TAXES

Tax Law Changes

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act made broad and complex changes to the U.S. tax code and it will take time to fully interpret the changes. The Act significantly impacted 2018 earnings, and will impact earnings in future periods; however, we have not fully completed the accounting under Income Taxes (Topic 740) for certain of the Act’s new provisions. In accordance with Topic 740, to the extent the accounting for certain income tax effects of the Act was incomplete, but we were able to determine a reasonable estimate of those effects, a provisional amount (“provisional amount”) has been included in our financial statements. Conversely, where a reasonable estimate of the tax effects of the Act cannot be determined, no related provisional amounts have been included in the financial statements. We intend to adjust the tax effects for the relevant items during the allowed 2018 measurement period as we finalize our U.S. income tax return.

The Act also requires companies to pay a one-time transition tax on unremitted earnings of certain foreign subsidiaries that had not been subject to U.S. income tax and creates new taxes on certain foreign earnings. We included a $33 million provisional estimate for the transition tax in the December 31, 2017 financial statements. On April 2, 2018, the Internal Revenue Service issued Notice 2018-26, which required us to increase the provisional estimate related to the one-time transition tax. We estimated the additional tax provision to be approximately $29 million. The transition tax estimate will be further adjusted during the fourth quarter of 2018 as we refine our determination of historical earnings and profits and the amount of cash and cash equivalents held in foreign entities.

As of September 30, 2018, we have alternative minimum tax (AMT) credit carryforwards of $24 million, which do not expire and can be used to offset regular income taxes in future years. Under the Act, the AMT was repealed and taxpayers may claim a refund of 50% of their remaining AMT credit carryforwards (to the extent the credits exceed regular tax for the year) in 2018, 2019 and 2020. Any AMT credits remaining after 2020 will be refunded in 2021. Pursuant to the requirements of the

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Balanced Budget and Emergency Deficit Control Act of 1985, refundable AMT credits will be subject to sequestration, which is currently 6.2% for refunds after 2019. Furthermore, during the first quarter of 2018, the Internal Revenue Service confirmed that sequestration would apply to refundable AMT credits under the Act. We reclassified our credits to a receivable and recorded a charge of $1 million to account for the sequestration reduction. The reclassification and provision for sequestration are adjustments to provisional estimates of the tax effects of the Act.

Uncertain Tax Positions

We are subject to tax audits in numerous jurisdictions in the U.S. and foreign countries. Tax audits by their very nature are often complex and can require several years to complete. In the normal course of business, we are subject to challenges from the Internal Revenue Service (IRS) and other tax authorities regarding amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. As part of our calculation of the provision for income taxes on earnings, we recognize the tax benefit from uncertain tax positions that are at least more likely than not of being sustained upon audit, based on the technical merits of the tax position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Such calculations require management to make estimates and judgments with respect to the ultimate outcome of a tax audit. Actual results could vary materially from these estimates. We reevaluate uncertain tax positions each quarter based on factors including, but not limited to, changes in facts or circumstances, expiration of statutes of limitations, changes in tax law, effectively settled issues under audit, and new audit activity. Depending on the jurisdiction, such a change in recognition or measurement may result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

The following is a summary of tax years that are no longer subject to examination:

Federal — audits of our U.S. federal income tax returns are closed through fiscal year 2008.

State — for the majority of states, tax returns are closed through fiscal year 2011 with the exception of states with net operating loss carryforwards that are generally closed through 1997.

Foreign — we are no longer subject to foreign tax examinations by tax authorities for tax years before 2010 in Canada and 2013 in Brazil, Mexico and the U.K., which are our major foreign tax jurisdictions.

At September 30, 2018 and December 31, 2017, the total amount of gross unrecognized tax benefits (including interest and penalties, excluding the federal benefit on state issues) was $64 million and $68 million, respectively. During the first quarter of 2018, we determined that reserves for certain uncertain tax positions should have been reversed in prior periods when the statutes of limitations expired. As the amounts were not material to our consolidated financial statements in any individual period, and the cumulative amount is not material to 2018 results, we recognized in total a $3 million benefit in our provision for income taxes related to this reversal in the first quarter. In the third quarter of 2018, we recorded an additional $1 million benefit to our provision.

Effective Tax Rate

Our effective income tax rates from continuing operations for the third quarter of 2018 and the nine months ended September 30, 2018, were 22.9% and 36.4%, respectively, compared with 37.5% in the third quarter and 36.9% in the nine months ended September 30, 2017. The effective income tax rate for the third quarter of 2018 reflects a lower federal tax rate due to the Act and a $2 million tax benefit, recorded on a discrete basis, resulting from a state tax law change. The effective income tax rate for the nine months ended September 30, 2018, reflects a lower federal tax rate due to the Act offset by an additional tax provision recorded to adjust the provisional estimate for the one-time transition tax.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

9. DEBT



	Weighted-Average Interest Rate
	September 30, 2018	December 31, 2017	Maturities	September 30, 2018			December 31, 2017
				(In thousands)
Short-term debt and current portion of long-term debt:
Short-term debt	—%	1.79%		$	—		35,509
Current portion of long-term debt				859,530			790,560
Total short-term debt and current portion of long-term debt				859,530			826,069
Long-term debt:
U.S. commercial paper ⁽¹⁾	2.30%	1.56%	2023	410,273			570,218
Canadian commercial paper ⁽¹⁾	1.83%	—%	2023	94,427			—
Global revolving credit facility	3.34%	2.80%	2023	3,250			17,328
Unsecured U.S. notes — Medium-term notes⁽¹⁾	3.09%	2.73%	2018-2025	4,863,427			4,014,091
Unsecured U.S. obligations	3.21%	2.79%	2019	50,000			50,000
Unsecured foreign obligations	1.61%	1.50%	2020-2021	222,489			230,380
Asset-backed U.S. obligations ⁽²⁾	2.34%	1.85%	2018-2025	657,819			491,899
Capital lease obligations	3.57%	3.53%	2018-2023	15,019			20,871
Total before fair market value adjustment				6,316,704			5,394,787
Fair market value adjustment on notes subject to hedging ⁽³⁾				(16,126		)	(7,192	)
Debt issuance costs				(17,468		)	(13,453	)
				6,283,110			5,374,142
Current portion of long-term debt				(859,530		)	(790,560	)
Long-term debt				5,423,580			4,583,582
Total debt				$	6,283,110		5,409,651

————————————


(1)	Amounts are net of unamortized original issue discounts of $7 million and $6 million at September 30, 2018 and December 31, 2017.


(2)	Asset-backed U.S. obligations are related to financing transactions involving revenue earning equipment.


(3)	The notional amount of the executed interest rate swaps designated as fair value hedges was $825 million at September 30, 2018 and December 31, 2017.

We maintain a $1.4 billion global revolving credit facility with a syndicate of twelve lending institutions led by Bank of America N.A., MUFG Bank, Ltd., BNP Paribas, Mizuho Bank, Ltd., Royal Bank of Canada, Lloyds Bank Plc, U.S. Bank N.A. and Wells Fargo Bank, N.A. The credit facility size increased from $1.2 billion to $1.4 billion during the third quarter of 2018. The facility expires in September 2023. The agreement provides for annual facility fees that range from 7.5 basis points to 20 basis points based on Ryder's long-term credit ratings. The annual facility fee is currently 10 basis points, which applies to the total facility size of $1.4 billion.

The credit facility is primarily used to finance working capital but can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at September 30, 2018). At our option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The credit facility contains no provisions limiting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions and certain affirmative and negative covenants.

In order to maintain availability of funding, we must maintain a ratio of debt to consolidated net worth of less than or equal to 300%. Net worth, as defined in the credit facility, represents shareholders' equity excluding any accumulated other comprehensive income or loss associated with our pension and other postretirement plans. The ratio at September 30, 2018 was 177%. At September 30, 2018, there was $892 million available under the credit facility.

Our global revolving credit facility enables us to refinance short-term obligations on a long-term basis. Short-term commercial paper obligations not required for working capital needs are classified as long-term as we have both the intent and

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

ability to refinance on a long-term basis. In addition, we have the intent and ability to refinance the current portion of certain long-term debt on a long-term basis. At September 30, 2018, we classified $505 million of short-term commercial paper, $550 million of the current portion of long-term debt and $50 million of short-term debt as long-term debt. At December 31, 2017, we classified $570 million of short-term commercial paper and $16 million of the current portion of long-term debt as long-term debt.

In August 2018, we issued $300 million of unsecured medium-term notes maturing in June 2021. In June 2018, we issued $450 million of unsecured medium-term notes maturing in June 2023. In February 2018, we issued $450 million of unsecured medium-term notes maturing in March 2023. The proceeds from these notes were used to pay off maturing debt and for general corporate purposes. If these notes are downgraded below investment grade following, and as a result of, a change in control, the note holders can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of principal value plus accrued and unpaid interest.

In July and June 2018, we received $125 million and $100 million, respectively, from financing transactions backed by a portion of our revenue earning equipment. The proceeds from these transactions were used for general corporate purposes. We have provided end of term guarantees for the residual value of the revenue earning equipment in these transactions. The transaction proceeds, along with the end of term residual value guarantees, have been included within "asset-backed U.S. obligations" in the preceding table.

We have a trade receivables purchase and sale program, pursuant to which we sell certain of our domestic trade accounts receivable to a bankruptcy remote, consolidated subsidiary of Ryder, that in turn sells, on a revolving basis, an ownership interest in certain of these accounts receivable to a committed purchaser. The subsidiary is considered a VIE and is consolidated based on our control of the entity’s activities. We use this program to provide additional liquidity to fund our operations, particularly when it is cost effective to do so. The costs under the program may vary based on changes in interest rates. The available proceeds that may be received under the program are limited to $225 million. The program was renewed in June 2018. If no event occurs which causes early termination, the 364-day program will expire on June 12, 2019. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the collateralized receivables. Sales of receivables under this program are accounted for as secured borrowings based on our continuing involvement in the transferred assets. No amounts were outstanding under the program at September 30, 2018 or December 31, 2017.

At September 30, 2018 and December 31, 2017, we had letters of credit and surety bonds outstanding totaling $347 million and $350 million, respectively, which primarily guarantee the payment of insurance claims.

The fair value of total debt (excluding capital lease and asset-backed U.S. obligations) at September 30, 2018 and December 31, 2017 was approximately $5.60 billion and $4.95 billion, respectively. For publicly-traded debt, estimates of fair value were based on market prices. For other debt, fair value was estimated based on a model-driven approach using rates currently available to us for debt with similar terms and remaining maturities. The fair value measurements of our publicly-traded debt and other debt were classified within Level 2 of the fair value hierarchy. The carrying amounts reported in the Consolidated Condensed Balance Sheets for “Cash and cash equivalents,” “Receivables, net” and “Accounts payable” approximate fair value because of the immediate or short-term maturities of these financial instruments.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

10. DERIVATIVES

From time to time, we enter into interest rate derivatives to manage our fixed and variable interest rate exposure and to better match the repricing of debt instruments to that of our portfolio of assets. We assess the risk that changes in interest rates will have either on the fair value of debt obligations or on the amount of future interest payments by monitoring changes in interest rate exposures and by evaluating hedging opportunities. We regularly monitor interest rate risk attributable to both our outstanding or forecasted debt obligations as well as any offsetting hedge positions. This risk management process involves the use of analytical techniques, including cash flow sensitivity analyses, to estimate the expected impact of changes in interest rates on our future cash flows.

As of September 30, 2018, we had interest rate swaps outstanding that are designated as fair value hedges for certain debt obligations, with a total notional value of $825 million and maturities through 2022. Interest rate swaps are measured at fair value on a recurring basis using Level 2 fair value inputs. The fair value of these interest rate swaps was a liability of $16 million and $7 million as of September 30, 2018 and December 31, 2017, respectively. The amounts are presented in "Accrued expenses and other current liabilities" and "Other non-current liabilities" in our Consolidated Condensed Balance Sheets. Changes in the fair value of our interest rate swaps were offset by changes in the fair value of the hedged debt instruments. Accordingly, there was no ineffectiveness related to the interest rate swaps.

As of September 30, 2018, we had an interest rate swap outstanding that was designated as a cash flow hedge for a certain debt obligation, with a total notional value of $15 million and maturity through 2021. The interest rate swap is measured at fair value on a recurring basis using Level 2 fair value inputs. The fair value of this interest rate swap was not material as of September 30, 2018. The amounts are presented in "Other non-current liabilities" in our Consolidated Condensed Balance Sheets. The effective portion of the change in the fair value of the hedging instrument is reported in other comprehensive income. The amounts accumulated in other comprehensive income are reclassified to earnings when the related interest payments affect earnings. There was no ineffectiveness related to the interest rate swap.

11. SHARE REPURCHASE PROGRAMS

In December 2017, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our employee stock plans (the program). Under the program, management is authorized to repurchase up to 1.5 million shares of common stock, the sum of which will not exceed the number of shares issued to employees under the Company’s employee stock plans from December 31, 2017 to December 13, 2019. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan.

During the nine months ended September 30, 2018 and September 30, 2017, we repurchased approximately 369,000 shares for $28 million and 933,000 shares for $66 million, respectively.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following summary sets forth the components of accumulated other comprehensive loss, net of tax:



	Currency Translation Adjustments and Other			Net Actuarial Loss ⁽¹⁾		Prior Service (Cost)/ Credit ⁽¹⁾		Accumulated Other Comprehensive Loss
	(In thousands)
December 31, 2017	$	(140,438	)	(560,153	)	(6,910	)	(707,501	)
Amortization	—			15,784		238		16,022
Other current period change	(23,198		)	(903	)	—		(24,101	)
Adoption of new accounting standard ⁽²⁾	—			(98,987	)	(1,580	)	(100,567	)
September 30, 2018	$	(163,636	)	(644,259	)	(8,252	)	(816,147	)



	Currency Translation Adjustments and Other			Net Actuarial Loss ⁽¹⁾		Prior Service Credit ⁽¹⁾		Accumulated Other Comprehensive Loss
	(In thousands)
December 31, 2016	$	(206,610	)	(620,292	)	(7,130	)	(834,032	)
Amortization	—			15,252		165		15,417
Other current period change	70,991			810		—		71,801
September 30, 2017	$	(135,619	)	(604,230	)	(6,965	)

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$57.91	53	$3,070

10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31

8-K	2019-02-14	Earnings, Regulation FD, Exhibits
8-K	2018-10-26	Earnings, Regulation FD, Exhibits
8-K	2018-09-28	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2018-09-25	Officers, Regulation FD, Exhibits
8-K	2018-07-25	Earnings, Regulation FD, Exhibits
8-K	2018-05-09	Shareholder Vote, Exhibits
8-K	2018-04-24	Earnings, Regulation FD, Exhibits
8-K	2018-02-16	Earnings, Regulation FD, Exhibits
8-K	2018-02-09	Officers, Exhibits
8-K	2018-01-29	Earnings

MAR	Marriott
DRI	Darden Restaurants
UHAL	AMERCO
TWO	Two Harbors Investment
CAR	Avis Budget Group
HTZ	Hertz Global Holdings
TDW	Tidewater
SP	SP Plus
EHIC	EHI Car Services
HYRE	Hyrecar

EX-10.3	ryderex103-q32018.htm
EX-12	ryderex12-q32018.htm
EX-31.1	ryderex311-q32018.htm
EX-31.2	ryderex312-q32018.htm
EX-32	ryderex32-q32018.htm