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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q | | | | | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
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 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) |
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Ryder System, Inc. Common Stock ($0.50 par value) | R | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ 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 ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☑ | 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 ☐ No ☑
The number of shares of Ryder System, Inc. Common Stock outstanding at March 31, 2022 was 51,136,680.
RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
| | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| (In thousands, except per share amounts) |
Lease & related maintenance and rental revenues | $ | 1,024,985 | | | $ | 940,422 | |
Services revenue | 1,669,538 | | | 1,165,488 | |
Fuel services revenue | 159,339 | | | 115,712 | |
Total revenues | 2,853,862 | | | 2,221,622 | |
| | | |
Cost of lease & related maintenance and rental | 698,841 | | | 730,144 | |
Cost of services | 1,446,709 | | | 999,792 | |
Cost of fuel services | 157,647 | | | 114,706 | |
Other operating expenses | 38,794 | | | 33,900 | |
Selling, general and administrative expenses | 303,215 | | | 241,742 | |
Non-operating pension costs, net | 2,787 | | | (9) | |
Used vehicle sales, net | (112,994) | | | (28,851) | |
Interest expense | 52,364 | | | 54,706 | |
Miscellaneous (income) loss, net | 374 | | | (5,434) | |
Restructuring and other items, net | 14,254 | | | 10,659 | |
| 2,601,991 | | | 2,151,355 | |
| | | |
Earnings from continuing operations before income taxes | 251,871 | | | 70,267 | |
Provision for income taxes | 76,049 | | | 18,683 | |
Earnings from continuing operations | 175,822 | | | 51,584 | |
Loss from discontinued operations, net of tax | (235) | | | (759) | |
Net earnings | $ | 175,587 | | | $ | 50,825 | |
| | | |
Earnings (loss) per common share — Basic | | | |
Continuing operations | $ | 3.42 | | | $ | 0.98 | |
Discontinued operations | — | | | (0.01) | |
Net earnings | $ | 3.42 | | | $ | 0.97 | |
| | | |
Earnings (loss) per common share — Diluted | | | |
Continuing operations | $ | 3.35 | | | $ | 0.97 | |
Discontinued operations | — | | | (0.01) | |
Net earnings | $ | 3.35 | | | $ | 0.95 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
Note: EPS amounts may not be additive due to rounding.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
| | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
| | | |
Net earnings | $ | 175,587 | | | $ | 50,825 | |
| | | |
Other comprehensive income: | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Changes in cumulative translation adjustment and unrealized losses from cash flow hedges | 2,624 | | | 8,940 | |
| | | |
Amortization of pension and postretirement items | 5,844 | | | 7,016 | |
| | | |
Income tax expense related to amortization of pension and postretirement items | (1,222) | | | (1,518) | |
Amortization of pension and postretirement items, net of taxes | 4,622 | | | 5,498 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Other comprehensive income, net of taxes | 7,246 | | | 14,438 | |
| | | |
Comprehensive income | $ | 182,833 | | | $ | 65,263 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (In thousands, except share amounts) |
Assets: | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 221,886 | | | $ | 233,961 | |
Receivables, net | 1,602,663 | | | 1,464,737 | |
Inventories | 74,827 | | | 68,677 | |
Prepaid expenses and other current assets | 212,792 | | | 693,239 | |
Total current assets | 2,112,168 | | | 2,460,614 | |
Revenue earning equipment, net | 8,390,706 | | | 8,323,039 | |
Operating property and equipment, net of accumulated depreciation of $1,293,186 and $1,273,637 | 1,045,952 | | | 984,978 | |
Goodwill | 844,793 | | | 570,905 | |
Intangible assets, net | 322,120 | | | 170,205 | |
Sales-type leases and other assets | 1,520,512 | | | 1,324,582 | |
Total assets | $ | 14,236,251 | | | $ | 13,834,323 | |
| | | |
Liabilities and shareholders’ equity: | | | |
Current liabilities: | | | |
Short-term debt and current portion of long-term debt | $ | 1,559,928 | | | $ | 1,333,363 | |
Accounts payable | 867,322 | | | 747,898 | |
Accrued expenses and other current liabilities | 1,127,833 | | | 1,119,602 | |
Total current liabilities | 3,555,083 | | | 3,200,863 | |
Long-term debt | 5,220,848 | | | 5,246,306 | |
Other non-current liabilities | 1,436,724 | | | 1,314,404 | |
Deferred income taxes | 1,375,255 | | | 1,274,804 | |
Total liabilities | 11,587,910 | | | 11,036,377 | |
| | | |
Commitments and contingencies (Note 16) | | | |
Shareholders’ equity: | | | |
Preferred stock, no par value per share — authorized, 3,800,917; none outstanding, March 31, 2022 and December 31, 2021 | — | | | — | |
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, March 31, 2022 — 51,136,680 and December 31, 2021 — 53,789,036 | 25,568 | | | 26,896 | |
Additional paid-in capital | 1,134,143 | | | 1,194,334 | |
Retained earnings | 2,170,625 | | | 2,265,957 | |
Accumulated other comprehensive loss | (681,995) | | | (689,241) | |
Total shareholders’ equity | 2,648,341 | | | 2,797,946 | |
Total liabilities and shareholders’ equity | $ | 14,236,251 | | | $ | 13,834,323 | |
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See accompanying Notes to Condensed Consolidated Financial Statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2022 | | 2021 | | |
| (In thousands) | | |
Cash flows from operating activities from continuing operations: | | | | | |
Net earnings | $ | 175,587 | | | $ | 50,825 | | | |
Less: Loss from discontinued operations, net of tax | (235) | | | (759) | | | |
Earnings from continuing operations | 175,822 | | | 51,584 | | | |
Depreciation expense | 429,740 | | | 461,162 | | | |
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Used vehicle sales, net | (112,994) | | | (28,851) | | | |
Amortization expense and other non-cash charges, net | 31,463 | | | 15,133 | | | |
Non-cash lease expense | 45,131 | | | 23,250 | | | |
Non-operating pension costs, net and share-based compensation expense | 13,505 | | | 10,668 | | | |
Deferred income tax expense | 58,187 | | | 15,477 | | | |
Collections on sales-type leases | 33,586 | | | 30,374 | | | |
Changes in operating assets and liabilities: | | | | | |
Receivables | (64,155) | | | (4,597) | | | |
Inventories | (6,078) | | | 1,070 | | | |
Prepaid expenses and other assets | (15,038) | | | 892 | | | |
Accounts payable | 12,994 | | | (25,642) | | | |
Accrued expenses and other non-current liabilities | (136,459) | | | (84,809) | | | |
Net cash provided by operating activities from continuing operations | 465,704 | | | 465,711 | | | |
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Cash flows from investing activities from continuing operations: | | | | | |
Purchases of property and revenue earning equipment | (584,289) | | | (381,051) | | | |
Sales of revenue earning equipment | 222,696 | | | 154,144 | | | |
Sales of operating property and equipment | 2,864 | | | 2,357 | | | |
Acquisitions, net of cash acquired | (424,754) | | | — | | | |
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Other | (157) | | | (1,412) | | | |
Net cash used in investing activities from continuing operations | (783,640) | | | (225,962) | | | |
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Cash flows from financing activities from continuing operations: | | | | | |
Net borrowings (repayments) of commercial paper and other | 63,482 | | | (130,763) | | | |
Debt proceeds | 649,708 | | | — | | | |
Debt repayments | (492,851) | | | (114,317) | | | |
Dividends on common stock | (33,653) | | | (31,257) | | | |
Common stock issued | (11,952) | | | (1,797) | | | |
Common stock repurchased | (300,280) | | | (19,444) | | | |
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Other | (4,122) | | | (519) | | | |
Net cash used in financing activities from continuing operations | (129,668) | | | (298,097) | | | |
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Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (3,846) | | | (1,202) | | | |
Decrease in cash, cash equivalents and restricted cash from continuing operations | (451,450) | | | (59,550) | | | |
Increase (decrease) in cash, cash equivalents, and restricted cash from discontinued operations | 11 | | | (6) | | | |
Decrease in cash, cash equivalents, and restricted cash | (451,439) | | | (59,556) | | | |
Cash, cash equivalents, and restricted cash at beginning of period | 673,325 | | | 151,294 | | | |
Cash, cash equivalents, and restricted cash at end of period | $ | 221,886 | | | $ | 91,738 | | | |
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See accompanying Notes to Condensed Consolidated Financial Statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
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| | Three months ended March 31, 2022 |
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | |
| | Amount | | Shares | | Par | | | | | Total |
| | (In thousands, except share amounts) |
Balance as of January 1, 2022 | | $ | — | | | 53,789,036 | | | $ | 26,896 | | | $ | 1,194,334 | | | $ | 2,265,957 | | | $ | (689,241) | | | $ | 2,797,946 | |
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Comprehensive income | | — | | | — | | | — | | | — | | | 175,587 | | | 7,246 | | | 182,833 | |
Common stock dividends declared —$0.58 per share | | — | | | — | | | — | | | — | | | (30,924) | | | — | | | (30,924) | |
Common stock purchased under employee stock award and stock purchase plans and other (1) (2) | | — | | | 399,914 | | | 200 | | | (12,152) | | | — | | | — | | | (11,952) | |
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Common stock repurchases | | — | | | (3,052,270) | | | (1,528) | | | (58,757) | | | (239,995) | | | — | | | (300,280) | |
Share-based compensation | | — | | | — | | | — | | | 10,718 | | | — | | | — | | | 10,718 | |
Balance as of March 31, 2022 | | $ | — | | | 51,136,680 | | | $ | 25,568 | | | $ | 1,134,143 | | | $ | 2,170,625 | | | $ | (681,995) | | | $ | 2,648,341 | |
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| | Three months ended March 31, 2021 |
| | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | |
| | Amount | | Shares | | Par | | | | | Total |
| | (In thousands, except share amounts) |
Balance as of January 1, 2021 | | $ | — | | | 53,732,033 | | | $ | 26,866 | | | $ | 1,132,954 | | | $ | 1,912,942 | | | $ | (817,205) | | | $ | 2,255,557 | |
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Comprehensive income | | — | | | — | | | — | | | — | | | 50,825 | | | 14,438 | | | 65,263 | |
Common stock dividends declared —$0.56 per share | | — | | | — | | | — | | | — | | | (30,569) | | | — | | | (30,569) | |
Common stock purchased under employee stock award and stock purchase plans and other (1) (2) | | — | | | 426,311 | | | 213 | | | (2,010) | | | — | | | — | | | (1,797) | |
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Common stock repurchases | | — | | | (287,957) | | | (144) | | | (5,977) | | | (13,323) | | | — | | | (19,444) | |
Share-based compensation | | — | | | — | | | — | | | 10,677 | | | — | | | — | | | 10,677 | |
Balance as of March 31, 2021 | | $ | — | | | 53,870,387 | | | $ | 26,935 | | | $ | 1,135,644 | | | $ | 1,919,875 | | | $ | (802,767) | | | $ | 2,279,687 | |
(1)Net of common shares delivered as payment for the exercise price or to satisfy the holders’ withholding tax liability upon exercise of options.
(2)Represents open-market transactions of common shares by the trustee of our deferred compensation plans.
See accompanying Notes to Condensed Consolidated Financial Statements.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
Interim Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Ryder System, Inc. (Ryder) and all entities in which Ryder has a controlling voting interest (subsidiaries) and variable interest entities (VIE) required to be consolidated in accordance with generally accepted accounting principles in the United States (GAAP). The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the accounting policies described in our 2021 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. The year-end condensed balance sheet data was derived from our audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair statement have been included and the disclosures herein are adequate. The operating results for interim periods are not necessarily indicative of the results that can be expected for a full year.
We report our financial performance based on three business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing and leasing with flexible maintenance options, commercial rental and maintenance services of trucks, tractors and trailers to customers principally in the United States (U.S.) and Canada; (2) Supply Chain Solutions (SCS), which provides integrated logistics solutions, including distribution management, dedicated transportation, transportation management, e-commerce and last mile and professional services in North America; and (3) Dedicated Transportation Solutions (DTS), which provides turnkey transportation solutions in the U.S. that includes dedicated vehicles, drivers, management, and administrative support. Dedicated transportation services provided as part of an operationally integrated, multi-service, supply chain solution to SCS customers are primarily reported in the SCS business segment. In February 2022, we announced our intentions to exit the FMS United Kingdom (U.K.) business. We expect to complete the exit of the FMS U.K. business by mid-2023.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848). This update provides optional expedients for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another rate expected to be discontinued at the end of 2021 because of reference rate reform. The update is effective for all transactions from March 12, 2020 through December 31, 2022. We will continue to adopt this update as alternative reference rates in relevant contracts are modified through December 31, 2022. We continuously evaluate the potential impact on our consolidated financial position, results of operations, and cash flows.
Leases
In July 2021, the FASB issued ASU No. 2021-05, Lessor - Certain Leases with Variable Lease Payments (Topic 842).
This update requires lessors to classify leases as operating leases if they have variable lease payments that do not depend on an
index or rate and would have selling losses if they were classified as sales-type or direct financing leases. The update is
effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Entities are
permitted to apply this amendment using the retrospective or prospective approach. On January 1, 2022 we adopted the amendment on a prospective basis and it did not have a material impact on our consolidated financial position, results of operations, and cash flows.
Business Combinations
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities - Business
Combinations (Topic 805). This update requires companies to apply Revenue from Contracts with Customers (Topic 606) to
recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination.
Additionally, the update clarifies that companies should apply the definition of a performance obligation in Topic 606 when
recognizing contract liabilities assumed in a business combination. The standard is effective for fiscal years beginning after
December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. We will adopt this update on January 1, 2023 and are currently evaluating the impact on our consolidated financial position, results of operations, and cash flows.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
3. SEGMENT REPORTING
Our primary measurement of segment financial performance, defined as segment “Earnings from continuing operations before income taxes” (EBT), includes an allocation of costs from Central Support Services (CSS) and excludes non-operating pension costs, net and certain other items as discussed in Note 15, “Other Items Impacting Comparability.” Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.
The following table sets forth financial information for each of our segments and provides a reconciliation between segment EBT and earnings from continuing operations before income taxes:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
Revenue: | | | |
Fleet Management Solutions: | | | |
ChoiceLease | $ | 802,342 | | | $ | 797,088 | |
| | | |
Commercial rental | 313,154 | | | 223,009 | |
SelectCare and other | 166,651 | | | 148,016 | |
Fuel services and ChoiceLease liability insurance (1) | 247,081 | | | 167,372 | |
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Fleet Management Solutions | 1,529,228 | | | 1,335,485 | |
Supply Chain Solutions | 1,088,542 | | | 706,700 | |
Dedicated Transportation Solutions | 424,948 | | | 320,507 | |
Eliminations (2) | (188,856) | | | (141,070) | |
Total revenues | $ | 2,853,862 | | | $ | 2,221,622 | |
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Earnings From Continuing Operations Before Income Taxes: | | | |
Fleet Management Solutions | $ | 248,199 | | | $ | 63,402 | |
Supply Chain Solutions | 34,219 | | | 32,957 | |
Dedicated Transportation Solutions | 20,211 | | | 12,982 | |
Eliminations | (26,590) | | | (12,274) | |
| 276,039 | | | 97,067 | |
Unallocated Central Support Services | (16,004) | | | (18,432) | |
Non-operating pension costs, net (3) | (2,787) | | | 9 | |
Other items impacting comparability, net (4) | (5,377) | | | (8,377) | |
Earnings from continuing operations before income taxes | $ | 251,871 | | | $ | 70,267 | |
————————————
(1)In the first quarter of 2021, we completed the previously announced exit of the extension of our liability insurance coverage for ChoiceLease customers.
(2)Represents the elimination of intercompany revenues in our FMS business segment.
(3)Refer to Note 14, "Employee Benefit Plans," for a discussion on these items.
(4)Refer to Note 15, “Other Items Impacting Comparability,” for a discussion of items excluded from our primary measure of segment performance.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
The following table sets forth the capital expenditures paid for each of our segments:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
Fleet Management Solutions | $ | 551,090 | | | $ | 367,708 | |
Supply Chain Solutions | 25,950 | | | 8,530 | |
Dedicated Transportation Solutions | 339 | | | 306 | |
Central Support Services | 6,910 | | | 4,507 | |
Purchases of property and revenue earning equipment | $ | 584,289 | | | $ | 381,051 | |
4. REVENUE
Disaggregation of Revenue
The following tables disaggregate our revenue recognized by primary geographical market by our reportable business segments and by industry for SCS. Refer to Note 3, "Segment Reporting," for the disaggregation of our revenue by major products/service lines.
Primary Geographical Markets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2022 |
| FMS | | SCS | | DTS | | Eliminations | | Total |
| (In thousands) |
United States | $ | 1,388,043 | | | $ | 971,200 | | | $ | 424,948 | | | $ | (179,400) | | | $ | 2,604,791 | |
Canada | 77,529 | | | 59,628 | | | — | | | (9,456) | | | 127,701 | |
Europe (1) | 63,656 | | | — | | | — | | | — | | | 63,656 | |
Mexico | — | | | 57,714 | | | — | | | — | | | 57,714 | |
| | | | | | | | | |
Total revenues | $ | 1,529,228 | | | $ | 1,088,542 | | | $ | 424,948 | | | $ | (188,856) | | | $ | 2,853,862 | |
(1)Refer to Note 15, "Other Items Impacting Comparability," for further information on the exit of the FMS U.K. business.
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| Three months ended March 31, 2021 |
| FMS | | SCS | | DTS | | Eliminations | | Total |
| (In thousands) |
United States | $ | 1,197,984 | | | $ | 601,298 | | | $ | 320,507 | | | $ | (136,727) | | | $ | 1,983,062 | |
Canada | 70,413 | | | 56,088 | | | — | | | (4,343) | | | 122,158 | |
Europe | 67,088 | | | — | | | — | | | — | | | 67,088 | |
Mexico | — | | | 49,314 | | | — | | | — | | | 49,314 | |
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Total revenues | $ | 1,335,485 | | | $ | 706,700 | | | $ | 320,507 | | | $ | (141,070) | | | $ | 2,221,622 | |
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Industry
Our SCS business segment included revenue from the below industries: | | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
Consumer packaged goods and retail | $ | 500,298 | | | $ | 273,224 | |
Automotive | 354,237 | | | 271,555 | |
Technology and healthcare | 121,322 | | | 97,085 | |
Industrial and other | 112,685 | | | 64,836 | |
Total SCS Revenues | $ | 1,088,542 | | | $ | 706,700 | |
Lease & Related Maintenance and Rental Revenues
The non-lease revenue from maintenance services related to our ChoiceLease product is recognized in "Lease & related maintenance and rental revenues" in the Condensed Consolidated Statements of Earnings. For the three months ended March 31, 2022 and 2021, we recognized $257 million and $250 million, respectively.
Deferred Revenue
The following table includes the changes in deferred revenue due to the collection and deferral of cash or the satisfaction of our performance obligation under the contract: | | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
Balance as of beginning of period | $ | 593,442 | | | $ | 629,739 | |
Recognized as revenue during period from beginning balance | (59,659) | | | (59,031) | |
Consideration deferred during period, net | 48,007 | | | 51,759 | |
Foreign currency translation adjustment and other | (994) | | | 709 | |
Balance as of end of period | $ | 580,796 | | | $ | 623,176 | |
Contracted Not Recognized Revenue
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (contracted not recognized revenue). Contracted not recognized revenue was $2.4 billion as of March 31, 2022, and primarily includes deferred revenue and amounts for full service ChoiceLease maintenance revenue that will be recognized as revenue in future periods as we provide maintenance services to our customers. Contracted not recognized revenue excludes (1) variable consideration as it is not included in the transaction price consideration allocated at contract inception, (2) revenues from the lease component of our ChoiceLease product and all the revenue from the commercial rental product, (3) revenues from contracts with an original duration of one year or less, including SelectCare contracts, and (4) revenue from SCS, DTS and other contracts where there are remaining performance obligations when we have the right to invoice but the revenue to be recognized in the future corresponds directly with the value delivered to the customer.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
5. RECEIVABLES, NET
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| March 31, 2022 | | December 31, 2021 |
| (In thousands) |
Trade | $ | 1,431,315 | | | $ | 1,280,766 | |
Sales-type leases | 145,874 | | | 148,134 | |
Other, primarily warranty and insurance | 53,607 | | | 67,141 | |
| 1,630,796 | | | 1,496,041 | |
Allowance for credit losses and other | (28,133) | | | (31,304) | |
Total | $ | 1,602,663 | | | $ | 1,464,737 | |
The following table provides a reconciliation of our allowance for credit losses and other: | | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
| | | |
Balance as of beginning of period | $ | 31,304 | | | $ | 43,024 | |
Changes to provisions for credit losses | 3,533 | | | (1,800) | |
Write-offs and other | (6,704) | | | (4,024) | |
Balance as of end of period | $ | 28,133 | | | $ | 37,200 | |
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6. REVENUE EARNING EQUIPMENT, NET
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| | Estimated Useful Lives | | March 31, 2022 | | December 31, 2021 |
| | | Cost | | Accumulated Depreciation | | Net | | Cost | | Accumulated Depreciation | | Net |
| | (In years) | | (In thousands) |
Held for use: | | | | |
Trucks | | 3 — 7 | | $ | 5,288,297 | | | $ | (2,089,227) | | | $ | 3,199,070 | | | $ | 5,223,127 | | | $ | (2,055,135) | | | $ | 3,167,992 | |
Tractors | | 4 — 7.5 | | 7,247,049 | | | (3,071,862) | | | 4,175,187 | | | 7,256,002 | | | (3,059,206) | | | 4,196,796 | |
Trailers and other | | 9.5 — 12 | | 1,839,053 | | | (894,753) | | | 944,300 | | | 1,780,487 | | | (868,820) | | | 911,667 | |
Held for sale | | | | 273,321 | | | (201,172) | | | 72,149 | | | 209,506 | | | (162,922) | | | 46,584 | |
Total | | | | $ | 14,647,720 | | | $ | (6,257,014) | | | $ | 8,390,706 | | | $ | 14,469,122 | | | $ | (6,146,083) | | | $ | 8,323,039 | |
Residual Value Estimate Changes
We periodically review and adjust, as appropriate, the estimated residual values and useful lives of existing revenue
earning equipment for the purposes of recording depreciation expense. Reductions in estimated residual values or useful lives
will increase depreciation expense over the remaining useful life of the vehicle. Conversely, an increase in estimated residual
values or useful lives will decrease depreciation expense over the remaining useful life of the vehicle. Our review of the
estimated residual values and useful lives of revenue earning equipment is based on vehicle class, (i.e., generally subcategories
of trucks, tractors and trailers by weight and usage), historical and current market prices, third-party expected future market
prices, expected lives of vehicles, and expected sales in the wholesale or retail markets, among other factors. A variety of
factors, many of which are outside of our control, could cause residual value estimates to differ from actual used vehicle sales
pricing, such as changes in supply and demand of used vehicles; volatility in market conditions; changes in vehicle technology;
competitor pricing; regulatory requirements; driver shortages; customer requirements and preferences; and changes in underlying assumption factors. We have disciplines related to the management and maintenance of our vehicles designed to
manage the risk associated with the residual values of our revenue earning equipment.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
The following table provides a summary of incremental depreciation expense that has been recorded related to our previous residual value estimate changes as well as used vehicle sales results (rounded to the closest million):
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| | Three months ended March 31, |
| | 2022 | | 2021 |
| | (In thousands) |
Depreciation expense related to estimate changes | | $ | 49,000 | | | $ | 88,000 | |
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Used vehicle sales, net (1) | | (113,000) | | | (29,000) | |
(1)Used vehicle sales, net in the first quarter of 2022 included $8M of gains on sales of vehicles in the U.K. Refer to Note 15, "Other Items Impacting Comparability,"
Used Vehicle Sales and Valuation Adjustments
Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Losses on vehicles held for sale for which carrying values exceeded fair value, which we refer to as "valuation adjustments," are recognized at the time they are deemed to meet the held for sale criteria and are presented within “Used vehicle sales, net” in the Condensed Consolidated Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. For revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for each class of similar assets and vehicle condition if available or third-party market pricing. In addition, we also consider expected declines in market prices when valuing the vehicles held for sale, as well as forecasted sales channel mix (retail/wholesale).
The following table presents revenue earning equipment held for sale that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:
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| | | Losses from Valuation Adjustments |
| | | | | Three months ended March 31, |
| March 31, 2022 | | December 31, 2021 | | 2022 | | 2021 |
| (In thousands) |
Revenue earning equipment held for sale (1): | | | | | | | |
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Trucks | $ | 507 | | | $ | 931 | | | $ | 526 | | | $ | 890 | |
Tractors | 590 | | | 1,485 | | | 690 | | | 84 | |
Trailers and other | 263 | | | 1,309 | | | 280 | | | 2,047 | |
Total assets at fair value | $ | 1,360 | | | $ | 3,725 | | | $ | 1,496 | | | $ | 3,021 | |
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(1)Reflects only the portion where net book values exceeded fair values and valuation adjustments were recorded. The net book value of assets held for sale that were less than fair value was $71 million and $43 million as of March 31, 2022 and December 31, 2021, respectively.
The components of used vehicle sales, net were as follows:
| | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
Gains on vehicle sales, net | $ | (114,490) | | | $ | (31,872) | |
Losses from valuation adjustments | 1,496 | | | 3,021 | |
Used vehicle sales, net | $ | (112,994) | | | $ | (28,851) | |
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
7. ACCRUED EXPENSES AND OTHER LIABILITIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Accrued Expenses | | Non-Current Liabilities | | Total | | Accrued Expenses | | Non-Current Liabilities | | Total |
| (In thousands) |
Salaries and wages | $ | 155,887 | | | $ | — | | | $ | 155,887 | | | $ | 210,350 | | | $ | — | | | $ | 210,350 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Insurance obligations (1) | 186,592 | | | 303,288 | | | 489,880 | | | 186,449 | | | 311,209 | | | 497,658 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Operating taxes (2) | 171,496 | | | — | | | 171,496 | | | 165,680 | | | — | | | 165,680 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Deposits, mainly from customers | 95,153 | | | — | | | 95,153 | | | 94,547 | | | — | | | 94,547 | |
Operating lease liabilities | 152,211 | | | 384,846 | | | 537,057 | | | 100,232 | | | 255,573 | | | 355,805 | |
Deferred revenue (3) | 181,316 | | | 399,480 | | | 580,796 | | | 182,785 | | | 410,657 | | | 593,442 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other | 185,178 | | | 349,110 | | | 534,288 | | | 179,559 | | | 336,965 | | | 516,524 | |
Total | $ | 1,127,833 | | | $ | 1,436,724 | | | $ | 2,564,557 | | | $ | 1,119,602 | | | $ | 1,314,404 | | | $ | 2,434,006 | |
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(1)Insurance obligations primarily represent self-insured claim liabilities.
(2)Operating taxes include the deferral of certain payroll taxes in current and non-current liabilities allowed under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
(3)Refer to Note 4, "Revenue," for additional information.
8. LEASES
Leases as Lessor
The components of revenue from leases were as follows:
| | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2022 | | 2021 |
| | (In thousands) |
Operating leases | | | | |
Lease income related to ChoiceLease | | $ | 381,545 | | | $ | 389,611 | |
Lease income related to commercial rental (1) | | 298,135 | | | 210,284 | |
| | | | |
Sales-type leases | | | | |
| | | | |
Interest income related to net investment in leases | | $ | 10,728 | | | $ | 14,415 | |
| | | | |
| | | | |
| | | | |
| | | | |
Variable lease income excluding commercial rental (1) | | $ | 74,220 | | | $ | 71,993 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
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(1)Lease income related to commercial rental includes both fixed and variable lease income. Variable lease income is approximately 15% to 25% of total commercial rental income.
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
The components of net investment in sales-type leases, which are included in "Receivables, net" and "Sales-type leases and other assets" in the Condensed Consolidated Balance Sheets, were as follows:
| | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | |
| (In thousands) |
Net investment in the lease — lease payment receivable | $ | 576,109 | | | $ | 583,008 | | | |
Net investment in the lease — unguaranteed residual value in assets | 45,855 | | | 46,740 | | | |
| | | | | |
| $ | 621,964 | | | 629,748 | | | |
Estimated loss allowance | (2,506) | | | (3,705) | | | |
Total | $ | 619,458 | | | $ | 626,043 | | | |
9. DEBT
| | | | | | | | | | | | | | | | | | | | | | | |
| Weighted Average Interest Rate | | | | | | |
| March 31, 2022 | | Maturities | | March 31, 2022 | | December 31, 2021 |
| | | | | (In thousands) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Debt: | | | | | | | |
U.S. commercial paper | 0.69% | | 2026 | | $ | 601,711 | | | $ | 531,157 | |
Canadian commercial paper | —% | | 2026 | | — | | | 7,087 | |
Trade receivables financing program | 0.44% | | 2022 | | 50,000 | | | — | |
Global revolving credit facility | —% | | 2026 | | — | | | — | |
Unsecured U.S. obligations | 3.41% | | 2024 | | 200,000 | | | 200,000 | |
Unsecured U.S. notes — Medium-term notes (1) | 3.21% | | 2022-2027 | | 5,279,035 | | | 5,149,893 | |
Unsecured foreign obligations | 2.31% | | 2022-2024 | | 117,487 | | | 140,265 | |
Asset-backed U.S. obligations (2) | 2.63% | | 2022-2026 | | 510,275 | | | 526,712 | |
Finance lease obligations and other | | | 2022-2030 | | 44,102 | | | 44,595 | |
| | | | | 6,802,610 | | | 6,599,709 | |
Debt issuance costs and original issue discounts | | | | | (21,834) | | | (20,040) | |
Total debt | | | | | 6,780,776 | | | 6,579,669 | |
Short-term debt and current portion of long-term debt | | | | | (1,559,928) | | | (1,333,363) | |
Long-term debt | | | | | $ | 5,220,848 | | | $ | 5,246,306 | |
| | | | | | | |
| | | | | | | |
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(1)Includes the impact from the fair market values of hedging instruments on our notes, which was $21 million as of March 31, 2022 and not material as of December 31, 2021. The notional amount of the executed interest rate swaps designated as fair value hedges was $650 million and $450 million as of March 31, 2022 and December 31, 2021, respectively.
(2)Asset-backed U.S. obligations are related to financing transactions backed by a portion of our revenue earning equipment.
The fair value of total debt (excluding finance lease and asset-backed U.S. obligations) was approximately $6.4 billion and $6.2 billion as of March 31, 2022 and December 31, 2021, 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 our other debt were classified within Level 2 of the fair value hierarchy.
As of March 31, 2022, there was $798 million available under the global credit facility. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated net worth of less than or equal to 300%, as defined in the credit facility agreement. As of March 31, 2022, the ratio was