Ryder System Earnings 2019-03-31

R 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 ryder1stquarter201910-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 MARCH 31, 2019



¨	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)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	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 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 March 31, 2019, was 53,300,205.

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 months ended March 31, 2019 and 2018	1

	Consolidated Condensed Statements of Comprehensive Income — Three months ended March 31, 2019 and 2018	2

	Consolidated Condensed Balance Sheets — March 31, 2019 and December 31, 2018	3

	Consolidated Condensed Statements of Cash Flows — Three months ended March 31, 2019 and 2018	4

	Consolidated Condensed Statement of Shareholders' Equity — Three months ended March 31, 2019 and 2018	5

	Notes to Consolidated Condensed Financial Statements	6

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		36

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk		63

ITEM 4 Controls and Procedures		64

PART II OTHER INFORMATION

ITEM 1A Risk Factors		64

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds		64

ITEM 6 Exhibits		65

SIGNATURE		66

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(unaudited)



	Three months ended March 31,
	2019			2018
	(In thousands, except per share amounts)
Lease & related maintenance and rental revenues	$	899,559		824,991
Services revenue	1,132,048			928,144
Fuel services revenue	148,720			151,070
Total revenues	2,180,327			1,904,205

Cost of lease & related maintenance and rental	664,289			615,605
Cost of services	971,690			788,771
Cost of fuel services	143,275			146,903
Other operating expenses	33,626			32,975
Selling, general and administrative expenses	231,325			207,828
Non-operating pension costs	6,462			1,222
Used vehicle sales, net	8,217			7,431
Interest expense	55,336			38,160
Miscellaneous income, net	(8,222		)	(2,510	)
Restructuring and other items, net	6,178			15,121
	2,112,176			1,851,506
Earnings from continuing operations before income taxes	68,151			52,699
Provision for income taxes	22,261			15,386
Earnings from continuing operations	45,890			37,313
Loss from discontinued operations, net of tax	(574		)	(427	)
Net earnings	$	45,316		36,886

Earnings (loss) per common share — Basic
Continuing operations	$	0.87		0.71
Discontinued operations	(0.01		)	(0.01	)
Net earnings	$	0.86		0.70

Earnings (loss) per common share — Diluted
Continuing operations	$	0.87		0.70
Discontinued operations	(0.01		)	(0.01	)
Net earnings	$	0.86		0.70

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 March 31,
	2019			2018
	(In thousands)

Net earnings	$	45,316		36,886

Other comprehensive income:

Changes in currency translation adjustment and other	15,762			11,765

Amortization of pension and postretirement items	7,468			7,215
Income tax expense related to amortization of pension and postretirement items	(2,014		)	(1,609	)
Amortization of pension and postretirement items, net of tax	5,454			5,606

Other comprehensive income, net of taxes	21,216			17,371

Comprehensive income	$	66,532		54,257

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(unaudited)



	March 31, 2019			December 31, 2018
	(Dollars in thousands, except share amounts)
Assets:
Current assets:
Cash and cash equivalents	$	62,787		68,111
Receivables, net of allowance of $17,497 and $17,182, respectively	1,221,769			1,242,058
Inventories	80,082			79,228
Prepaid expenses and other current assets	193,147			178,313
Total current assets	1,557,785			1,567,710
Revenue earning equipment, net	10,009,161			9,415,961
Operating property and equipment, net of accumulated depreciation of $1,277,906 and $1,256,037, respectively	871,524			862,054
Goodwill	474,742			475,206
Intangible assets, net of accumulated amortization of $67,145 and $65,048, respectively	57,068			59,075
Sales-type leases and other assets	978,705			967,802
Total assets	$	13,948,985		13,347,808

Liabilities and shareholders’ equity:
Current liabilities:
Short-term debt and current portion of long-term debt	$	1,117,489		937,131
Accounts payable	839,792			731,876
Accrued expenses and other current liabilities	797,298			847,739
Total current liabilities	2,754,579			2,516,746
Long-term debt	6,025,679			5,712,146
Other non-current liabilities	1,399,273			1,402,625
Deferred income taxes	1,202,650			1,179,723
Total liabilities	11,382,181			10,811,240

Shareholders’ equity:
Preferred stock, no par value per share — authorized, 3,800,917; none outstanding, March 31, 2019 or December 31, 2018	—			—
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, March 31, 2019 — 53,300,205 December 31, 2018 — 53,116,485	26,651			26,559
Additional paid-in capital	1,086,714			1,084,391
Retained earnings	2,343,857			2,337,252
Accumulated other comprehensive loss	(890,418		)	(911,634	)
Total shareholders’ equity	2,566,804			2,536,568
Total liabilities and shareholders’ equity	$	13,948,985		13,347,808

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)



	Three months ended March 31,
	2019			2018
	(In thousands)
Cash flows from operating activities from continuing operations:
Net earnings	$	45,316		36,886
Less: Loss from discontinued operations, net of tax	(574		)	(427	)
Earnings from continuing operations	45,890			37,313
Depreciation expense	377,357			332,768
Goodwill impairment charge	—			15,513
Used vehicle sales, net	8,217			7,431
Amortization expense and other non-cash charges, net	48,522			32,061
Non-operating pension costs and share-based compensation expense	13,861			6,563
Deferred income tax expense	19,729			33,076
Collections on sales-type leases	34,017			21,580
Changes in operating assets and liabilities:
Receivables	26,181			22,265
Inventories	(756		)	(253	)
Prepaid expenses and other assets	(27,645		)	(46,053	)
Accounts payable	18,586			(30,851	)
Accrued expenses and other non-current liabilities	(78,629		)	(94,563	)
Net cash provided by operating activities from continuing operations	485,330			336,850

Cash flows from financing activities from continuing operations:
Net change in commercial paper borrowings and revolving credit facilities	158,258			237,960
Debt proceeds	799,300			446,500
Debt repaid	(478,411		)	(414,299	)
Dividends on common stock	(29,301		)	(27,795	)
Common stock issued	(332		)	1,417
Common stock repurchased	(14,156		)	(12,921	)
Debt issuance costs and other items	(1,070		)	(1,259	)
Net cash provided by financing activities from continuing operations	434,288			229,603

Cash flows from investing activities from continuing operations:
Purchases of property and revenue earning equipment	(1,026,711		)	(662,744	)
Sales of revenue earning equipment	101,549			89,023
Sales of operating property and equipment	1,918			933
Net cash used in investing activities from continuing operations	(923,244		)	(572,788	)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1,551		)	3,519
Decrease in cash, cash equivalents, and restricted cash from continuing operations	(5,177		)	(2,816	)


Decrease in cash, cash equivalents, and restricted cash from discontinued operations	(147		)	(348	)

Decrease in cash, cash equivalents, and restricted cash	(5,324		)	(3,164	)
Cash, cash equivalents, and restricted cash at January 1	68,111			83,022
Cash, cash equivalents, and restricted cash at March 31	$	62,787		79,858

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY

(unaudited)



	Preferred Stock		Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss
	Amount		Shares		Par			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	(Dollars in thousands, except share amounts)
Balance at January 1, 2019	$	—	53,116,485		$	26,559		1,084,391		2,337,252		(911,634	)	2,536,568
Comprehensive income	—		—		—			—		45,316		21,216		66,532
Common stock dividends declared and paid—$0.54 per share	—		—		—			—		(29,207	)	—		(29,207	)
Common stock issued under employee stock option and stock purchase plans ⁽¹⁾	—		409,294		205			(547	)	—		—		(342	)
Benefit plan stock sales ⁽²⁾	—		270		—			10		—		—		10
Common stock repurchases	—		(225,844	)	(113		)	(4,539	)	(9,504	)	—		(14,156	)
Share-based compensation	—		—		—			7,399		—		—		7,399
Balance at March 31, 2019	$	—	53,300,205		$	26,651		1,086,714		2,343,857		(890,418	)	2,566,804



	Preferred Stock		Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss
	Amount		Shares		Par			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	(Dollars in thousands, except share amounts)
Balance at January 1, 2018	$	—	52,955,314		$	26,478		1,051,017		2,086,918		(710,836	)	2,453,577
Comprehensive income	—		—		—			—		36,886		17,371		54,257
Common stock dividends declared and paid—$0.52 per share	—		—		—			—		(27,695	)	—		(27,695	)
Common stock issued under employee stock option and stock purchase plans ⁽¹⁾	—		310,173		155			1,195		—		—		1,350
Benefit plan stock sales ⁽²⁾	—		715		—			67		—		—		67
Common stock repurchases	—		(171,304	)	(86		)	(3,354	)	(9,482	)	—		(12,922	)
Share-based compensation	—		—		—			5,341		—		—		5,341
Adoption of new accounting standard ⁽³⁾	—		—		—			—		100,567		(100,567	)	—
Balance at March 31, 2018	$	—	53,094,898		$	26,547		1,054,266		2,187,194		(794,032	)	2,473,975

__________________


(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 Ryder’s deferred compensation plans.


(3)	Reflects the impact of adopting ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in 2018, which resulted in a reclassification of stranded tax effects caused by the 2017 Tax Cuts and Jobs Act from accumulated other comprehensive loss to retained earnings.

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 2018 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 and leases 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, 2018. As discussed in Note 2, "Recent Accounting Pronouncements," effective January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) using the modified retrospective transition comparative method. We have recast all prior period amounts in this Form 10-Q to conform to the current period presentation based on our adoption of this new accounting standard. Refer to Note 2, "Recent Accounting Pronouncements," for additional information on the revised amounts. The significant changes to our accounting policies as a result of adopting Topic 842 are discussed below.

Revenue Recognition

Lease & related maintenance and rental revenues 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. We offer rental of vehicles under our commercial rental product line, which allows customers to supplement their fleet of vehicles on a short-term basis.

Our ChoiceLease arrangements include the lease of a vehicle (lease component) and the executory agreement for the maintenance, insurance, taxes and other services (non-lease components) related to the leased vehicles during the lease term. We generally lease new vehicles to our customers. Arrangement consideration is allocated between the lease component and non-lease component based on management's best estimate of the relative standalone selling price of each component. 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 and variable charges are typically billed a month in arrears. Revenue from the lease component of ChoiceLease agreements is recognized based on the classification of the arrangement, typically as either an operating or a sales-type lease. Our commercial rental arrangements include the short-term rental of a vehicle (one day up to one year in length). All of our rental arrangements are classified as operating leases and revenue is recognized on a straight-line basis.

The majority of our leases are classified as operating leases and we recognize revenue for the lease component of the product line on a straight-line basis. The non-lease component for maintenance services is accounted for in accordance with revenue guidance in Revenue from Contracts with Customers (Topic 606). Maintenance services are not typically performed evenly over the life of a ChoiceLease contract as the level of maintenance provided generally increases as vehicles age. We recognize maintenance revenue using an input method, consistent with the estimated pattern of the costs to maintain the underlying vehicles. This will generally result in the recognition of a contract liability for some portion of the customer's payments allocated to the maintenance service component of the arrangement. Included in lease & related maintenance and rental revenues is non-lease revenue from maintenance services recognized in accordance with Topic 606 of $239 million and $223 million for the three months ended March 31, 2019 and 2018, respectively.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Effective with the adoption of Topic 842, we recorded an after-tax cumulative effect adjustment to decrease retained earnings as of January 1, 2017, by approximately $315 million primarily to recognize a contract liability (deferred revenue) related to maintenance services, and partially offset by costs capitalized related to sales commissions.

We recorded deferred revenue of approximately $564 million and $566 million as of March 31, 2019 and December 31, 2018, respectively, related to the maintenance services component of our ChoiceLease product line. Refer to Note 3, "Revenue," and Note 5, "Accrued Expenses and Other Liabilities." In addition, we recorded an asset of approximately $92 million and $93 million as of March 31, 2019 and December 31, 2018, respectively; related to incremental sales commissions paid to our sales force as a result of obtaining ChoiceLease contracts. Capitalized sales commissions includes initial direct costs of our leases in the amount of $53 million at March 31, 2019 and December 31, 2018, respectively, accounted for in accordance with Topic 842. Refer to Note 3, "Revenue."

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 time charge, the 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 CPI change or the equipment usage occurs. This consideration is allocated to the lease and non-lease components of the contract as it is billed to the customer based on the allocation determined at contract inception. Variable consideration allocated to the lease component is recognized in revenue on a straight-line basis for the remainder of the contract term and variable consideration allocated to the non-lease component is recognized in revenue using an input method, consistent with the estimated pattern of maintenance costs for the remainder of the contract term.

Leases not classified as operating leases are generally considered sales-type leases. We recognize revenue for sales-type leases using the effective interest method, which provides a constant periodic rate of return on the outstanding investment in the lease. We generally lease new vehicles under our sales-type lease arrangements. Therefore, there is generally not a difference between the net investment in the lease and the carrying value of the vehicles, and we do not recognize selling profit or loss at lease commencement. Revenue is recognized net of amounts collected from customers for taxes, such as sales tax, that are remitted to the applicable taxing authorities.

Significant Judgments and Estimates

Allocating consideration between lease and non-lease components in our ChoiceLease arrangements requires significant judgment. We do not sell the components of our ChoiceLease product offering on a stand-alone basis. Judgment is required to determine the standalone selling prices of the lease and non-lease components in order to allocate the consideration on a relative standalone selling price basis.

We determine the standalone price of the lease component using the projected cash flows of the lease assuming a certain targeted return. We consider a number of factors to determine the targeted return, including the net present value of the projected cash flows in a ChoiceLease arrangement discounted at our weighted average cost of capital.

Our ChoiceLease arrangements include maintenance as a non-lease component of the contract. We determine the standalone price of the maintenance component using an expected cost plus margin approach. The expected costs are based on our historical costs of providing maintenance services in our ChoiceLease arrangements. The margin is based on historical margin percentages for our full service maintenance contracts in the SelectCare product line, as the maintenance performance obligation in those contracts is similar to maintenance in our ChoiceLease arrangements. Full service maintenance arrangements in SelectCare are priced based on targeted margin percentages for new and used vehicles by type of vehicle (trucks, tractors, and trailers), considering the fixed and variable costs of providing maintenance services. Certain ChoiceLease arrangements include liability and/or physical damage insurance coverage to our customers. We charge a separate fixed monthly rate for these insurance offerings, which represents the standalone selling price.

We allocate the contract consideration (excluding insurance) between the lease and maintenance components based on the relative standalone selling prices of each of those services and allocate contract consideration for insurance based on the price of insurance, which is priced separately. If the lessee elects to obtain insurance coverage from us, the consideration for the fixed monthly rate is allocated to the insurance performance obligations.

Variable consideration, such as billings for mileage and from changes in CPI, is excluded from the allocation of consideration at the inception of the contract. Revenues associated with licensing and operating taxes that are billed as incurred

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

based on the contract arrangement are also excluded from the allocation of consideration at contract inception and allocated as earned. The variable consideration and licensing and operating tax revenues are allocated to the lease and maintenance components based on the same allocation percentages at contract inception (or the most recent contract modification) when earned.

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 terms generally include a requirement of payment within 15 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 related to maintenance services. 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 for performance obligations we expect to perform within 12 months as current liabilities and for performance obligations to be performed later than 12 months as other non-current liabilities. Revenue is recognized upon satisfaction of the performance obligation.

As practical expedients, 1) we do not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less, and 2) we do not disclose information about remaining performance obligations when we have the right to invoice the customer and the revenue recognized corresponds directly with the value to the customer of our performance completed to date.

Leases

Leases as Lessor

We lease revenue earning equipment to customers for periods ranging from three to seven years for trucks and tractors and up to ten years for trailers. We determine if an arrangement is or contains a lease at inception. The standard lease agreement for revenue earning equipment provides both parties the right to terminate; therefore, we evaluate whether the lessee is reasonably certain to exercise the termination option in order to determine the appropriate lease term. If we terminate, the customer has the right (but not obligation) to purchase the vehicle. If the customer terminates, we have the option to require the customer to purchase the vehicle or pay a termination penalty. Our leases generally do not provide either party an option to renew the lease. We also rent revenue earning equipment to customers on a short-term basis, from one day up to one year in length. From time to time, we may also lease facilities to third parties. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as sales-type leases.

Our determination of the residual values (i.e., the price at which we ultimately expect to dispose of revenue earning equipment) is established with a long-term view considering historical market price changes, current and expected future market price trends, expected lives of vehicles and extent of alternative uses. Factors that could cause actual results to materially differ from estimates include, but are not limited to, unforeseen changes in technology innovations, sudden changes in supply and demand, and competitor pricing. We have developed disciplines related to the management and maintenance of our leased vehicles designed to manage the risk associated with the residual values of our revenue earning equipment. In addition, we also monitor market trends throughout the year and assess residual values of vehicles expected to be sold in the near term and may adjust residual values for these vehicles.

Leases as Lessee

We lease facilities, revenue earning equipment, material handling equipment, automated washing machines, vehicles and office equipment. We determine if an arrangement is or contains a lease at inception. Effective with the adoption of Topic 842, we have established right-of-use (ROU) assets, which represent our right to use an underlying asset for the lease term and lease liabilities, which represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate of return, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Operating lease ROU assets also exclude lease incentives received. We pay variable lease charges related

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

to property taxes, insurance and maintenance as well as changes in CPI for leased facilities; equipment usage for revenue earning equipment, automated washing machines, vehicles and office equipment; and hours of operation for material handling equipment. For leases with a term of 12 months or less, with the exception of our real estate leases, we recognize lease payments in our income statement on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

Lease terms for the facilities are generally three to five years with one or more five-year renewal options and the lease terms for revenue earning equipment, material handling equipment, automated washing machines and vehicles typically range from three to seven years typically with no extension options. For purposes of calculating ROU assets and operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Macroeconomic conditions is the primary factor used to estimate whether an option to extend a lease term will be exercised or not. None of our leasing arrangements contain restrictive financial covenants. Certain of our material handling equipment leases have residual value guarantees. We recorded operating lease ROU assets and finance lease assets totaling approximately $235 million and $245 million as of March 31, 2019 and December 31, 2018, respectively, related to leases as lessee. Refer to Note 6, "Leases".

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

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.

Derivatives and Hedging

In August 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2017-12, Derivatives and Hedging (Topic 815), which simplifies and clarifies the accounting and disclosure for hedging

activities by more closely aligning the results of cash flow and fair value hedge accounting with the risk management activities of an entity. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. We adopted this standard during the first quarter of 2018 and it did not impact our consolidated financial position, results of operations or cash flows.

Leases

In February 2016, the FASB issued Topic 842, which sets out the principles for the identification, measurement, recognition, presentation and disclosure of leases. The FASB issued a number of subsequent updates to the standard. Topic 842 impacts the accounting for both lessors and lessees. We have adopted the standard effective January 1, 2019, using the modified retrospective transition method and initial application date of January 1, 2017. For all our facilities and equipment that we lease, we have elected the practical expedient to combine lease and non-lease components. For our existing operating and finance leases that commenced before the date of initial application, we have made an accounting policy election, as lessee, to use the incremental borrowing rate for our leases considering the remaining lease term and remaining minimum rental payments. After lease commencement of our operating leases as lessee, unless the ROU assets are impaired, we have made an accounting policy election to subsequently measure operating lease ROU assets by amortizing the ROU assets calculated as the difference between the straight line cost for the period (including amortization of initial direct costs) and the periodic accretion of the lease liability using the effective interest method. In calculating the change in ROU assets from a lease modification that decreases our rights as lessee to use one or more underlying assets, we have made an accounting policy election of remeasuring the ROU asset based on how much of the original right of use remains after modification.

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. From a lessor perspective, the adoption of the new lease standard primarily impacts our ChoiceLease product line, which includes a vehicle lease as well as maintenance and other services.

The standard requires lessees to classify leases as either finance or operating leases. This classification determines whether the related expense is recognized based on asset amortization and interest on the obligation (finance leases) or on a straight-line basis over the term of the lease (operating lease). We recorded a ROU asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. We have elected the practical expedient in Topic 842 to not apply these recognition requirements to leases with a term of 12 months or less with the exception of our real estate leases. Instead we recognize the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

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



	Three months ended March 31, 2018

	As Previously		Lessor		Lessee and Other
	Reported		Adjustments ⁽¹⁾		Adjustments ⁽¹⁾		As Revised
Lease & related maintenance and rental revenues	$	824.3	0.5		0.3		825.0
Total revenues	1,903.5		0.5		0.3		1,904.2
Cost of lease & related maintenance and rental	619.2		(3.6	)	—		615.6
Cost of services ⁽²⁾	787.2		—		1.5		788.8
Other operating expenses	33.5		—		(0.5	)	33.0
Selling, general and administrative expenses ⁽²⁾	208.6		(0.4	)	(0.4	)	207.8
Interest expense	37.8		—		0.4		38.2
Restructuring and other items, net ⁽²⁾	16.0		—		(0.9	)	15.1
Earnings from continuing operations before income taxes	48.1		4.5		0.1		52.7
Provision for income taxes	14.2		1.2		—		15.4
Earnings from continuing operations	33.9		3.3		0.1		37.3
Net earnings	33.5		3.3		0.1		36.9

Comprehensive income	51.0		3.4		—		54.3

Earnings per common share - Basic
Continuing operations	$	0.65	0.06		—		0.71
Net earnings	$	0.64	0.06		—		0.70

Earnings per common share - Diluted
Continuing operations	$	0.64	0.06		—		0.70
Net earnings	$	0.63	0.06		—		0.70

————————————

(1)

Amounts include the correction of a prior period error. The primary components of the error correction are a reduction of "Lease & related maintenance and rental revenues" of approximately $4.7 million and an offsetting reduction in depreciation expense (included in "Cost of lease & related maintenance and rental") of approximately $4.7 million. We determined certain lessor arrangements of revenue earning equipment historically accounted for as operating leases should have been accounted for as direct financing leases. Additionally, we evaluated our leases for classification and determined that certain lessee arrangements, primarily real estate leases, historically accounted for as operating leases should have been accounted for as capital leases. We concluded these errors were not material to any of our previously issued consolidated financial statements.


(2)	Adjustments primarily reflects the reclassification of our Singapore operations into "Restructuring and other items, net," that we will shut down during 2019.

Note: Amounts may not be additive due to rounding.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

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



	December 31, 2018

	As Previously			Lessor		Lessee
	Reported			Adjustments ⁽¹⁾		Adjustments ⁽¹⁾		As Revised
Receivables, net	$	1,219.4		22.6		—		1,242.1
Prepaid expenses and other current assets	201.6			(23.3	)	—		178.3
Total current assets	1,568.4			(0.7	)	—		1,567.7
Revenue earning equipment, net	9,498.0			(84.2	)	2.2		9,416.0
Operating property and equipment, net	843.8			—		18.2		862.1
Sales-type leases and other assets	606.6			156.8		204.3		967.8
Total assets	13,051.1			72.0		224.7		13,347.8
Short-term debt and current portion of long term-debt	930.0			—		7.2		937.1
Accrued expenses and other current liabilities	630.5			145.1		72.2		847.7
Total current liabilities	2,292.3			145.1		79.3		2,516.7
Long-term debt	5,693.6			—		18.5		5,712.1
Other non-current liabilities	849.9			421.2		131.5		1,402.6
Deferred income taxes	1,304.8			(124.6	)	(0.5	)	1,179.7
Total liabilities	10,140.8			441.7		228.8		10,811.2
Retained earnings	2,710.7			(369.6	)	(3.8	)	2,337.3
Accumulated other comprehensive loss	(911.3		)	(0.1	)	(0.2	)	(911.6	)
Total shareholders' equity	2,910.3			(369.7	)	(4.1	)	2,536.6
Total liabilities and shareholders' equity	13,051.1			72.0		224.7		13,347.8

————————————

(1)

Amounts include the correction of a prior period error. The primary components of the error correction are an increase in "Receivables, net" of approximately $24 million, an increase in sales-type leases and other assets of approximately $65 million and a reduction in "Revenue earning equipment, net" of $83 million. We determined certain lessor arrangements of revenue earning equipment historically accounted for as operating leases should have been accounted for as direct financing leases. Additionally, we evaluated our leases for classification and determined that certain lessee arrangements, primarily real estate leases, historically accounted for as operating leases should have been accounted for as capital leases. We concluded these errors were not material to any of our previously issued consolidated financial statements.

Note: Amounts may not be additive due to rounding.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Adoption of the new lease standard impacted our previously reported Consolidated Condensed Statements of Cash Flows as follows (in millions):



	Three months ended March 31, 2018
	As Previously Reported		New Lease Standard Adjustments		As Revised
Net earnings	33.5		3.4		36.9
Earnings from continuing operations	33.9		3.4		37.3
Depreciation expense	336.7		(3.9	)	332.8
Amortization expense and other non-cash charges, net	13.6		18.5		32.1
Deferred income tax expense	31.9		1.2		33.1
Collections on sales-type leases and other items	—		21.6		21.6
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(26.0	)	(20.1	)	(46.1	)
Accrued expenses and other non-current liabilities	(95.9	)	1.3		(94.6	)
Net cash provided by operating activities from continuing operations	314.9		22.0		336.9
Debt repaid	(412.1	)	(2.2	)	(414.3	)
Net cash provided by financing activities from continuing operations	231.8		(2.2	)	229.6
Collections on direct finance leases and other items	19.7		(19.7	)	—
Net cash used in investing activities from continuing operations	(553.0	)	(19.7	)	(572.8	)

Note: Amounts may not be additive due to rounding.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

3. REVENUE

Disaggregation of Revenue

The following tables disaggregate our revenue by primary geographical market, major product/service lines, and industry. During 2019, we adopted Topic 842 and have retrospectively adjusted 2018 for the impact of this new standard.

Primary Geographical Markets



	Three months ended March 31, 2019
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
United States	$	1,198,943	349,621	529,393	(151,163	)	1,926,794
Canada	74,014		—	49,708	(5,401	)	118,321
Europe	78,642		—	—	—		78,642
Mexico	—		—	53,277	—		53,277
Singapore	—		—	3,293	—		3,293
Total revenue	$	1,351,599	349,621	635,671	(156,564	)	2,180,327



	Three months ended March 31, 2018
	FMS	DTS	SCS	Eliminations		Total
	(In thousands)
United States ⁽¹⁾	1,085,446	298,970	401,883	(127,716	)	1,658,583
Canada	74,808	—	43,093	(4,806	)	113,095
Europe	82,796	—	—	—		82,796
Mexico ⁽¹⁾	—	—	44,032	—		44,032
Singapore	—	—	5,699	—		5,699
Total revenue	1,243,050	298,970	494,707	(132,522	)	1,904,205

————————————

(1) 2018 SCS total revenue amounts for the United States and Mexico include reclassifications to conform to the current period presentation.

Major Products/Service Lines



	Three months ended March 31, 2019
	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
ChoiceLease	$	748,579	—	—	(68,191	)	680,388
SelectCare	135,779		—	—	(12,250	)	123,529
Commercial rental	236,148		—	—	(16,977	)	219,171
Fuel	207,866		—	—	(59,146	)	148,720
Other	23,227		—	—	—		23,227
DTS	—		349,621	—	—		349,621
SCS	—		—	635,671	—		635,671
Total revenue	$	1,351,599	349,621	635,671	(156,564	)	2,180,327

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)



	Three months ended March 31, 2018
	FMS	DTS	SCS	Eliminations		Total
	(In thousands)
ChoiceLease	690,902	—	—	(60,377	)	630,525
SelectCare	121,873	—	—	(9,344	)	112,529
Commercial rental	204,530	—	—	(10,064	)	194,466
Fuel	203,807	—	—	(52,737	)	151,070
Other	21,938	—	—	—		21,938
DTS	—	298,970	—	—		298,970
SCS	—	—	494,707	—		494,707
Total revenue	1,243,050	298,970	494,707	(132,522	)	1,904,205

Industry

Our SCS business segment includes revenue from the below industries:



	Three months ended March 31,
	2019		2018
	(In thousands)
Automotive	$	253,679	207,792
Technology and healthcare	113,668		103,097
CPG and retail	217,098		135,358
Industrial and other	51,226		48,460
Total revenue	$	635,671	494,707

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 March 31, 2019 or December 31, 2018. Trade receivables were $1.06 billion and $1.09 billion at March 31, 2019 and December 31, 2018, respectively. Impairment losses on receivables were not material during the first quarters of 2019 and 2018.

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 three months ended March 31, 2019, that was included within deferred revenue at January 1, 2019, was $58 million. In addition, we deferred $57 million of revenue during the first quarter of 2019. Refer to Note 5, "Accrued Expenses and Other Liabilities," for additional information on deferred revenue.

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not recognized revenue”). Contracted not recognized revenue includes deferred revenue and amounts for full service ChoiceLease maintenance revenue that will be invoiced and recognized as revenue in future periods as we provide maintenance services to our customers. Contracted not recognized revenue excludes variable revenue as it is not included in the transaction price consideration allocated at contract inception. Contracted not recognized revenue was $2.7 billion as of March 31, 2019. As a practical expedient, revenue related to our insurance performance obligations is excluded from contracted not recognized revenue since insurance coverage is provided over time, and we recognize revenue in the amount we have the right to bill the customer, which corresponds directly with the value to the customer of our performance completed to date.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Costs to Obtain and Fullfill a Contract

We capitalize incremental sales commissions paid to our sales force as a result of obtaining ChoiceLease, DTS and SCS service contracts as contract costs. We recorded capitalized sales commissions of $106 million and $107 million at March 31, 2019 and December 31, 2018, respectively. Capitalized sales commissions includes initial direct costs of our leases in the amount of $53 million at March 31, 2019 and December 31, 2018, respectively, accounted for in accordance with Topic 842. Capitalized sales commissions are presented in “Prepaid expenses and other current assets” and “Sales-type leases and other assets” in our Consolidated Condensed Balance Sheets.

Capitalized sales commissions related to our ChoiceLease product are amortized based on the same pattern that the revenue is recognized for the underlying lease or non-lease components of the contract. Incremental sales commissions capitalized in connection with our ChoiceLease contracts relate to the lease component and non-lease maintenance components of our contracts. We allocate the ChoiceLease commissions to the lease and non-lease components based on the same allocation of the contract consideration. The portion of capitalized commissions related to the lease component is amortized on a straight-line basis and the portion of the capitalized commissions related to the maintenance portion is amortized consistent with the estimated pattern of maintenance costs. The amortization period aligns with the term of our contract, which typically ranges from three to seven years, and amortization expense is included in “Selling, general and administrative expenses” in our Consolidated Condensed Statements of Earnings.

Capitalized commissions related to our DTS and SCS service contracts are amortized based on the same patten that the revenue is recognized for the underlying contracts. This generally results in a straight-line amortization as the amount of revenue billed to the customer under DTS and SCS contracts corresponds directly with the value to the customer of our performance completed to date. The amortization period aligns with the term of the contract, which typically ranges from three to five years, and amortization expense is included in “Selling, general and administrative expenses” in our Consolidated Condensed Statement of Earnings.

For the three months ended March 31, 2019 and 2018, the amount of amortization was $11 million and $6 million, respectively. As a practical expedient, we recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

4. REVENUE EARNING EQUIPMENT, NET



	March 31, 2019					December 31, 2018
	Cost		Accumulated Depreciation		Net Book Value ⁽¹⁾	Cost	Accumulated Depreciation		Net Book Value ⁽¹⁾
	(In thousands)
Held for use:
ChoiceLease	$	11,331,946	(3,743,391	)	7,588,555	10,824,989	(3,645,655	)	7,179,334
Commercial rental	3,315,660		(1,047,437	)	2,268,223	3,152,908	(1,047,346	)	2,105,562
Held for sale	537,173		(384,790	)	152,383	467,093	(336,028	)	131,065
Total	$	15,184,779	(5,175,618	)	10,009,161	14,444,990	(5,029,029	)	9,415,961

————————————


(1)	Revenue earning equipment, net includes vehicles under finance leases of $12 million, less accumulated depreciation of $6 million, at March 31, 2019, and $23 million, less accumulated depreciation of $13 million, at December 31, 2018.

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⁾
	March 31,		December 31,	Three months ended March 31,
	2019		2018	2019		2018
	(In thousands)
Assets held for sale:
Revenue earning equipment ⁽¹⁾:
Trucks	$	41,813	44,325	$	11,546	8,601
Tractors	43,269		35,397	4,968		3,377
Trailers	1,547		1,507	180		1,593
Total assets at fair value	$	86,629	81,229	$	16,694	13,571

————————————


(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 $66 million and $50 million as of March 31, 2019 and December 31, 2018, 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.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

The components of used vehicle sales, net were as follows:



	Three months ended March 31,
	2019			2018
	(In thousands)
Gains on vehicle sales, net	$	(8,477	)	(6,140	)
Losses from fair value adjustments	16,694			13,571
Used vehicle sales, net	$	8,217		7,431

We own the majority of our revenue earning equipment. Revenue earning equipment that we lease as a lessee are immaterial, and are therefore not separately disclosed from owned revenue earning equipment.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

5. ACCRUED EXPENSES AND OTHER LIABILITIES



	March 31, 2019				December 31, 2018
	Accrued Expenses		Non-Current Liabilities	Total	Accrued Expenses	Non-Current Liabilities	Total
	(In thousands)
Salaries and wages	$	93,355	—	93,355	149,629	—	149,629
Deferred compensation	5,730		57,876	63,606	4,524	55,279	59,803
Pension benefits	3,764		455,989	459,753	3,754	456,979	460,733
Other postretirement benefits	1,391		18,114	19,505	1,387	18,097	19,484
Other employee benefits	7,728		—	7,728	28,370	—	28,370
Insurance obligations ⁽¹⁾	149,946		254,270	404,216	139,314	247,552	386,866
Operating taxes	108,343		—	108,343	100,399	—	100,399
Income taxes	2,872		19,655	22,527	3,491	18,477	21,968
Interest	40,373		—	40,373	39,522	—	39,522
Deposits, mainly from customers	81,930		3,460	85,390	80,401	3,390	83,791
Operating lease liabilities	71,992		134,784	206,776	73,422	137,384	210,806
Deferred revenue ⁽²⁾	168,271		415,166	583,437	160,902	421,176	582,078
Restructuring liabilities ⁽³⁾	4,566		—	4,566	7,595	—	7,595
Other	57,037		39,959	96,996	55,029	44,291	99,320
Total	$	797,298	1,399,273	2,196,571	847,739	1,402,625	2,250,364

————————————


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


(2)	Deferred revenue is primarily related to the non-lease maintenance services component of our ChoiceLease product line.


(3)	The reduction in restructuring liabilities from December 31, 2018, principally represents cash payments for employee termination costs. The majority of the balance remaining in restructuring liabilities is expected to be paid by the end of 2019.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

6. LEASES

Leases as Lessor

The components of lease income were as follows:



	Three months ended March 31,
	2019		2018
	(In thousands)
Operating leases
Lease income related to lease payments	$	360,309	334,367
Lease income related to commercial rental ⁽¹⁾	219,171		194,466

Sales type leases
Interest income related to net investment in leases	11,456		9,797

Variable lease income excluding commercial rental ⁽¹⁾	55,439		52,227

————————————


(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 based on management's internal estimates.

The components of net investment in sales-type leases were as follows:



	March 31, 2019		December 31, 2018
	(In thousands)
Net investment in the lease — lease payment receivable	$	514,531	505,057
Net investment in the lease — unguaranteed residual assets	46,828		46,209
	$	561,359	551,266

————————————

Note: The net investment in the sales-type lease shown above are included in "Accounts receivables, net" and "Sales-type leases and other assets" in the Consolidated Condensed Balance Sheets.

Maturities of sales-type lease receivables were as follows:



	March 31, 2019			December 31, 2018
	(In thousands)
2019 (excluding three months ended March 31, 2019)	$	103,957		133,557
2020	143,811			136,924
2021	121,433			114,983
2022	92,028			85,146
2023	58,175			52,161
Thereafter	91,033			78,935

Total undiscounted cash flows	610,437			601,706
Present value of lease payments (recognized as lease receivables)	(514,531		)	(505,057	)
Difference between undiscounted cash flows and discounted cash flows	95,906			96,649

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Maturities of operating lease payments were as follows:



	March 31, 2019		December 31, 2018
	(In thousands)
2019 (excluding three months ended March 31, 2019)	$	936,560	1,159,851
2020	1,008,773		892,721
2021	756,134		646,008
2022	507,429		421,050
2023	319,320		249,255
Thereafter	291,636		203,632

Total undiscounted cash flows	$	3,819,852	3,572,517

Leases as Lessee

The components of lease expense were as follows:



		Three months ended March 31,
	Classification	2019			2018
		(In thousands)
Finance lease cost
Amortization of right-of-use assets	Other operating expenses, SG&A	$	7,788		5,143
Interest on lease liabilities	Interest expense	643			597
Operating lease cost	Other operating expenses, SG&A	23,218			19,687
Short-term lease and other	Other operating expenses, SG&A	1,124			982
Variable lease cost	Other operating expenses, SG&A	3,016			2,353
Sublease income	Cost of lease & related maintenance and rental, cost of services	(5,824		)	(6,364	)
Total lease cost		$	29,965		22,398

Supplemental cash flow information related to leases was as follows:



	Three months ended March 31,
	2019		2018
	(In thousands)
Cash paid for amounts included in measurement of liabilities
Operating cash flows from finance leases	$	643	597
Operating cash flows from operating leases	22,974		19,303
Financing cash flows from finance leases	7,466		5,039
Right-of-use assets obtained in exchange for lease obligations:
Finance leases	2,418		2,006
Operating leases	16,605		16,908

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Supplemental balance sheet information relates to leases was as follows:



	Classification	March 31, 2019		December 31, 2018
		(In thousands)
Assets
Operating lease right-of-use assets	Sales-type leases and other assets	$	199,048	203,834
Finance lease assets	Operating property and equipment, net and revenue earning equipment, net	36,007		41,647

Total leased assets		$	235,055	245,481

Liabilities
Current
Operating	Accrued expenses and other current liabilities	$	71,992	73,422
Finance	Short-term debt and current portion of long-term debt	11,256		14,543

Noncurrent
Operating	Other non-current liabilities	134,784		137,384
Finance	Long-term debt	32,446		32,909

Total lease liabilities		$	250,478	258,258



	March 31, 2019		December 31, 2018
	(In thousands)
Weighted-average remaining lease term
Operating	4 years		4 years
Finance	7 years		7 years
Weighted-average discount rate
Operating	3.7	%	3.7	%
Finance	8.3	%	8.0	%

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Maturities of lease liabilities were as follows:



	Operating Leases			Finance Leases		Total
	(In thousands)
2019 (excluding three months ended March 31, 2019)	$	61,234		10,527		71,761
2020	58,772			10,523		69,295
2021	39,367			8,790		48,157
2022	29,231			6,112		35,343
2023	14,302			3,786		18,088
Thereafter	20,022			13,688		33,710
Total lease payments	222,928			53,426		276,354
Less: Imputed Interest	(16,152		)	(9,724	)	(25,876	)
Present value of lease liabilities	$	206,776		43,702		250,478

As of March 31, 2019, we have additional facility operating leases that have not yet commenced of $8 million. The operating leases will commence in 2019 with lease terms of 3 to 5 years.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

7. DEBT



	Weighted-Average Interest Rate
	March 31, 2019	December 31, 2018	Maturities	March 31, 2019			December 31, 2018
				(In thousands)
Short-term debt and current portion of long-term debt:
Short-term debt	1.46%	2.69%		$	210,185		81,522
Current portion of long-term debt, including finance leases				907,304			855,609
Total short-term debt and current portion of long-term debt				1,117,489			937,131
Long-term debt:
U.S. commercial paper ⁽¹⁾	2.76%	2.78%	2023	695,272			454,397
Canadian commercial paper ⁽¹⁾	1.99%	2.28%	2023	105,169			123,491
Trade receivables program	—%	3.15%	2019	—			200,000
Global revolving credit facility	2.28%	2.25%	2023	13,224			12,581
Unsecured U.S. notes — Medium-term notes⁽¹⁾⁽²⁾	3.30%	3.22%	2019-2025	5,207,369			4,853,496
Unsecured U.S. obligations	3.49%	3.50%	2019-2024	250,000			50,000
Unsecured foreign obligations	2.67%	1.61%	2020-2021	33,710			216,719
Asset-backed U.S. obligations ⁽³⁾	2.36%	2.37%	2019-2025	605,634			627,707
Finance lease obligations	8.32%	7.97%	2019-2073	43,702			47,452
Total long-term debt				6,954,080			6,585,843
Debt issuance costs				(21,097		)	(18,088	)
				6,932,983			6,567,755
Current portion of long-term debt, including finance leases				(907,304		)	(855,609	)
Long-term debt				6,025,679			5,712,146
Total debt				$	7,143,168		6,649,277

————————————


(1)	Amounts are net of unamortized original issue discounts of $7 million at March 31, 2019 and December 31, 2018, respectively.


(2)	Amounts are inclusive of fair market value adjustments on notes subject to hedging of $6 million and $10 million at March 31, 2019 and December 31, 2018, respectively. The notional amount of the executed interest rate swaps designated as fair value hedges was $725 million at March 31, 2019 and December 31, 2018. Refer to Note 8, "Derivatives," for additional information.


(3)	Asset-backed U.S. obligations are related to financing transactions backed by a portion of our revenue earning equipment.

We maintain a $1.4 billion global revolving credit facility with a syndicate of twelve lending institutions led by Bank of America N.A., BNP Paribas, Lloyds Bank Plc, Mizuho Bank, Ltd., MUFG Bank, Ltd., Royal Bank of Canada, U.S. Bank N.A. and Wells Fargo Bank, N.A. The facility matures 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 March 31, 2019). 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 March 31, 2019, was 197%. At March 31, 2019, there was $572 million available under the credit facility.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

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 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 March 31, 2019, we classified $800 million of short-term commercial paper, $350 million of the current portion of long-term debt and $69 million of short-term debt as long-term debt. At December 31, 2018, we classified $578 million of short-term commercial paper, $200 million of trade receivables borrowings, $250 million of the current portion of long-term debt and $50 million of short-term debt as long-term debt.

In February 2019, we issued $600 million of unsecured medium-term notes maturing in March 2024. 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 the first quarter of 2019, we executed two $100 million bank term loans maturing in February and March 2024, respectively. The proceeds from these loans were used to pay off maturing debt and for general corporate purposes.

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. If no event occurs that 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 March 31, 2019. At December 31, 2018, $200 million was outstanding under the program.

At March 31, 2019 and December 31, 2018, we had letters of credit and surety bonds outstanding totaling $373 million and $375 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 March 31, 2019 and December 31, 2018, was approximately $6.57 billion and $5.97 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)

8. 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 March 31, 2019, we had interest rate swaps outstanding that are designated as fair value hedges for certain debt obligations, with a total notional value of $725 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 $6 million

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$61.33	53	$3,270

10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
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
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-05-08	Shareholder Vote, Exhibits
8-K	2019-04-30	Earnings, Regulation FD, Exhibits
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

ES	Eversource Energy	22,350
HEI	Heico	13,880
VRNT	Verint Systems	4,030
SJI	South Jersey Industries	2,950
RH	RH	2,090
SFUN	Fang Holdings	590
ASMB	Assembly Biosciences	414
SFAS	Steadfast Apartment REIT III	0
MCCX	McorpCX	0
ANAV	Alpha Network Alliance Ventures	0

EX-3.1	ryderex31-q12019.htm
EX-3.2	bylawsex32-q12019.htm
EX-10.1	ryderex101-q12019.htm
EX-10.2	ryderex102-q12019.htm
EX-10.3	ryderex103-q12019.htm
EX-10.4	ryderex104-q12019.htm
EX-10.5	ryderex105-q12019.htm
EX-10.6	ryderex106-q12019.htm
EX-10.7	ryderex107-q12019.htm
EX-10.8	ryderex108-q12019.htm
EX-31.1	ryderex311-q12019.htm
EX-31.2	ryderex312-q12019.htm
EX-32	ryderex32-q12019.htm