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United States
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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 (I.R.S. Employer
incorporation or organization) Identification No.)
3600 N.W. 82 AVENUE, MIAMI, FLORIDA 33166 (305) 500-3726
- ------------------------------------------ --------------------
(Address of principal executive (Telephone number
offices including zip code) including area code)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: YES [x] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [ ]
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant computed by reference to the price at which the
stock was sold as of January 31, 2002, was $1,504,389,326. The number of shares
of Ryder System, Inc. Common Stock ($.50 par value) outstanding as of January
31, 2002, was 60,853,247.
DOCUMENTS INCORPORATED BY PART OF FORM 10-K INTO WHICH
REFERENCE INTO THIS REPORT DOCUMENT IS INCORPORATED
Ryder System, Inc. 2002 Proxy Part III
Statement
- -------------------------------------------------------------------------------
[Cover page 1 of 3 pages]
1
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS OF SECURITIES EXCHANGE ON WHICH REGISTERED
- --------------------------------- ----------------------------
Ryder System, Inc. Common Stock New York Stock Exchange
($.50 par value) and Preferred Pacific Stock Exchange
Share Purchase Rights Chicago Stock Exchange
(the Rights are not currently Berlin Stock Exchange
exercisable, transferable or
exchangeable apart from the
Common Stock)
Ryder System, Inc. 9% Series G Bonds, New York Stock Exchange
due May 15, 2016
Ryder System, Inc. 9 7/8% Series K Bonds, New York Stock Exchange
due May 15, 2017
Ryder System, Inc. 6 1/2% Series O Notes, None
due May 15, 2005
Ryder System, Inc. 6.60% Series P Notes, None
due November 15, 2005
Ryder System, Inc. Medium-Term Notes, None
Series 7, due from 9 months to
30 years from date of issue at
rate based on market rates at time of issuance
Ryder System, Inc. Medium-Term Notes, None
Series 12, due 9 months or more from date
of issue at rate based on market rates
at time of issuance
[Cover page 2 of 3 pages]
2
Ryder System, Inc. Medium-Term Notes, None
Series 13, due 9 months or more from date
of issue at rate based on market rates
at time of issuance
Ryder System, Inc. Medium-Term Notes, None
Series 14, due 9 months or more from date
of issue at rate based on market rates
at time of issuance
Ryder System, Inc. Medium-Term Notes, None
Series 15, due 9 months or more from date
of issue at rate based on market rates
at time of issuance
Ryder System, Inc. Medium-Term Notes, None
Series 16, due 9 months or more from date
of issue at rate based on market rates
at time of issuance
SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT: None
[Cover page 3 of 3 pages]
3
RYDER SYSTEM, INC.
Form 10-K Annual Report
TABLE OF CONTENTS
PAGE NO.
--------
PART I
ITEM 1 Business............................................................... 5
ITEM 2 Properties............................................................. 9
ITEM 3 Legal Proceedings...................................................... 9
ITEM 4 Submission of Matters to a Vote of Security Holders.................... 9
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder
Matters............................................................ 9
ITEM 6 Selected Financial Data................................................ 10
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 11
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk............. 36
ITEM 8 Financial Statements and Supplementary Data............................ 36
ITEM 9 Changes in and Disagreements with Accounts on Accounting
and Financial Disclosure........................................... 75
PART III
ITEM 10 Directors and Executive Officers of the Registrant..................... 75
ITEM 11 Executive Compensation................................................. 75
ITEM 12 Security Ownership of Certain Beneficial Owners and
Management......................................................... 75
ITEM 13 Certain Relationships and Related Transactions......................... 75
PART IV
ITEM 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K........................................................... 76
4
PART I
ITEM 1. BUSINESS
GENERAL
Ryder System, Inc. (the "Company") was incorporated in Florida in 1955. The
Company operates in three reportable business segments: (1) Fleet Management
Solutions (FMS), which provides full service leasing, commercial rental and
programmed maintenance of trucks, tractors and trailers to customers,
principally in the U.S., Canada and the U.K.; (2) Supply Chain Solutions (SCS),
which provides comprehensive supply chain consulting and lead logistics
management solutions that support customers' entire supply chains, from inbound
raw materials through distribution of finished goods throughout North America,
in Latin America, Europe and Asia; and (3) Dedicated Contract Carriage (DCC),
which provides vehicles and drivers as part of a dedicated transportation
solution, principally in North America. As of December 31, 2001, the Company and
its subsidiaries had a fleet of 170,100 vehicles and 29,500 employees./(1)/
On September 13, 1999, the Company sold its public transportation services
business (RPTS). The disposal of this business has been accounted for as
discontinued operations and, accordingly, its operating results and cash flows
are segregated and reported as discontinued operations in the Company's
consolidated financial statements.
Financial information about business segments is included in Item 8 on pages 70
through 73 of this report.
FLEET MANAGEMENT SOLUTIONS
The FMS business segment provides full service truck leasing to over 13,800
customers globally ranging from large national enterprises to small companies,
with a fleet of 126,900 vehicles. Under a full service lease, the Company
provides customers with vehicles, maintenance, supplies and related equipment
necessary for operation, while the customers furnish and supervise their own
drivers, and dispatch and exercise control over the vehicles. Additionally, the
Company provides contract maintenance to service customer vehicles under
maintenance contracts and provides short-term truck rental, which tends to be
seasonal, to commercial customers to supplement their fleets during peak
business periods. A fleet of 40,200 vehicles, ranging from heavy-duty tractors
and trailers to light-duty trucks, is available for commercial short-term
rental. In 2001, the FMS business segment focused on increased pricing
discipline over new business, which has resulted in fewer sales but improved
margins on business sold. The Company also provides additional services for
customers, including fleet management, freight management and insurance
programs.
SUPPLY CHAIN SOLUTIONS
The SCS business segment provides global integrated logistics support of
customers' entire supply chains, from in-bound raw materials supply through
finished goods distribution, the management of carriers, and inventory
deployment and overall supply chain design and management. Services include
varying combinations of logistics system and information technology design, the
provision of vehicles and equipment (including maintenance and drivers),
warehouse management (including cross docking and flow-through distribution),
transportation management, vehicle dispatch, and in-bound and out-bound
just-in-time delivery. Supply chain solutions includes procurement and
management of all modes of transportation, shuttles, interstate long-haul
operations, just-in-time service to assembly plants and factory-to-warehouse-to-
retail facility service. These services are used in major industry sectors
- ----------
/(1)/ This number does include drivers obtained by certain subsidiaries of the
Company under driver leasing agreements.
5
including electronics, high-tech, telecommunications, automotive, industrial,
aerospace, consumer goods, paper and paper products, chemical, office equipment,
news, food and beverage, general retail industries, along with other industries
and the federal sector. Part of Ryder's strategy is to take advantage of, and
build upon, the expertise, market knowledge and infrastructure of strategic
alliance and joint venture partners to complement its own expertise in providing
supply chain solutions to businesses involved in the over-the-road
transportation of goods and to those who move goods around the world using any
mode of transportation.
In 2001, SCS continued to expand its presence in the logistics market through
internal growth, increased emphasis on global account management and initiation
of strategic alliances while exiting from poorly performing customer contracts.
DEDICATED CONTRACT CARRIAGE
The DCC business segment combines the equipment, maintenance and administrative
services of a full service lease with additional services in order to provide a
customer with a dedicated transportation solution. Such additional services
include driver hiring and training, routing and scheduling, fleet sizing and
other technical support. Ryder has sought to expand its DCC operations in 2001
through internal growth.
DISPOSITION OF REVENUE EARNING EQUIPMENT
The Company's FMS segment has historically disposed of used revenue earning
equipment at prices in excess of book value. However, during 2000, an
industry-wide downturn in the market for new and used tractors and trucks,
particularly "Class 8 " vehicles (the largest heavy-duty tractors and straight
trucks), combined with higher average book values per unit, led to the Company
recording reduced gains on the sale of revenue earning equipment. During 2001,
demand for new and used tractors and trucks, particularly class 8 vehicles,
continued to be depressed. The Company has reduced the residual values of its
fleet and increased depreciation and rent expense to account for the reduction
in anticipated sales proceeds and gains on certain used vehicles for the
foreseeable future.
Gains on the sale of revenue earning equipment were approximately 4 percent, 5
percent and 12 percent of earnings from continuing operations before interest,
taxes and unusual items in 2001, 2000 and 1999, respectively. The extent to
which gains will be realized on future disposal of revenue earning equipment is
dependent upon various factors including the general state of the used vehicle
market, the age and condition of vehicles at the time of their disposal and
depreciation methods with respect to vehicles.
COMPETITION
As an alternative to using the Company's services, customers may choose to
provide these services for themselves, or may choose to obtain similar or
alternative services from other third-party vendors.
The FMS and DCC business segments compete with companies providing similar
services on national, regional and local level. Regional and local competitors
may sometimes provide services on a national level through their participation
in various cooperative programs and through their membership in various industry
associations. Competitive factors include price, equipment, maintenance, service
and geographical coverage and, with respect to DCC, driver and operations
expertise. Ryder also competes, to an extent and particularly in the U.K., with
a number of truck and trailer manufacturers who provide truck and trailer
leasing, extended warranty maintenance, rental and other transportation
services. Value-added differentiation of the full service truck leasing, truck
rental, contract and non-contract truck maintenance service and DCC offerings
has been, and will continue to be, Ryder's emphasis.
In the SCS business segment, Ryder competes with companies providing similar
services on an international, national, regional and local level. Additionally,
this business is subject to potential competition in most of the regions it
serves from air cargo, shipping, railroads, motor carriers and other companies
that are expanding logistics services such as freight forwarders, contract
manufacturers and integrators. Competitive factors include price, service,
equipment, maintenance, geographical coverage, market knowledge, expertise in
logistics-related technology, and overall performance (e.g., timeliness,
accuracy and flexibility). Value-added differentiation of these service
offerings across the full global supply chain will continue to be Ryder's
overriding strategy.
6
OTHER DEVELOPMENTS AND FURTHER INFORMATION
Many federal, state and local laws designed to protect the environment, and
similar laws in some foreign jurisdictions, have varying degrees of impact on
the way the Company and its subsidiaries conduct their business operations,
primarily with regard to their use, storage and disposal of petroleum products
and various wastes associated with vehicle maintenance and operating activities.
Based on information presently available, management believes that the ultimate
disposition of such matters, although potentially material to the Company's
results of operations in any one year, will not have a material adverse affect
on the Company's financial condition or liquidity.
For further discussion concerning the business of the Company and its
subsidiaries, see the information included in Items 7 and 8 of this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the executive officers of the Company were elected or re-elected to their
present offices either at or subsequent to the meeting of the Board of Directors
held on May 4, 2001 in conjunction with the Company's 2001 Annual Meeting on the
same date. They all hold such offices, at the discretion of the Board of
Directors, until their removal, replacement or retirement.
NAME AGE POSITION
- --------------------- --- -----------------------------------------------------------
M. Anthony Burns 59 Chairman of the Board
Art A. Garcia 40 Vice President and Controller
Bobby J. Griffin 53 Executive Vice President, Global Supply Chain Operations
Tracy A. Leinbach 42 Executive Vice President, Fleet Management Solutions
Challis M. Lowe 56 Executive Vice President, Human Resources, Public
Affairs and Corporate Communications
Corliss J. Nelson 57 Senior Executive Vice President and Chief Financial Officer
Vicki A. O'Meara 44 Executive Vice President, General Counsel and Secretary
Kathleen S. Partridge 47 Senior Vice President, Business and Accounting Services
Gregory T. Swienton 52 President and Chief Executive Officer
Gene R. Tyndall 62 Executive Vice President, Global Supply Chain Solutions
Eduardo M. Vital 51 Executive Vice President, Information Technology Services
and Chief Information Officer
M. Anthony Burns has been Chairman of the Board since May 1985 and a director
since December 1979. He also served as the Company's Chief Executive Officer
from January 1983 until November 2000 and President from December 1979 until
June 1999.
Art A. Garcia has been Vice President and Controller since February 2002.
Previously, Mr. Garcia served as Group Director - Accounting Services from
September 2000 to February 2002 and from April 2000 to June 2000. Mr. Garcia was
Chief Financial Officer of Blue Dot Services, Inc., a national provider of
heating and air conditioning services, from June 2000 to September 2000. Mr.
Garcia served as Director - Corporate Accounting for Ryder from April 1998 to
April 2000. Mr. Garcia joined Ryder in December 1997 as Senior Manager -
Corporate Accounting. Prior to joining Ryder, Mr. Garcia held various positions
in the audit services practice of Coopers and Lybrand LLP from 1984 to December
1997.
7
Bobby J. Griffin has been Executive Vice President, Global Supply Chain
Operations since March 2001. Prior to this appointment, Mr. Griffin was Senior
Vice President, Field Management West from January 2000 to March 2001. Mr.
Griffin was Vice President, Operations of Ryder Transportation Services from
1997 to December 1999. Mr. Griffin also served Ryder as Vice President and
General Manager of ATE Management and Service Company, Inc. and of Managed
Logistics Systems, Inc. operating units of the former Ryder Public
Transportation Services, positions he held from 1993 to 1997. Mr. Griffin was
Executive Vice President, Western Operations of Ryder/ATE from 1987 to 1993. He
joined Ryder as Executive Vice President, Consulting of ATE in 1986 after Ryder
acquired ATE Management and Service Company.
Tracy A. Leinbach has been Executive Vice President, Fleet Management Solutions
since March 2001. Ms. Leinbach served as Senior Vice President, Sales and
Marketing from September 2000 to March 2001, and she was Senior Vice President
Field Management from July 2000 to September 2000. Ms. Leinbach also served as
Managing Director-Europe of Ryder Transportation Services from January 1999 to
July 2000 and previously she had served Ryder Transportation Services as Senior
Vice President and Chief Financial Officer from 1998 to January 1999, Senior
Vice President, Business Services from 1997 to 1998, and Senior Vice President,
Purchasing and Asset Management for six months during 1996. From 1985 to 1996,
Ms. Leinbach held various financial positions in Ryder subsidiaries.
Challis M. Lowe has served as Executive Vice President, Human Resources, Public
Affairs and Corporate Communications since November 2000. Before joining Ryder,
Ms. Lowe was Executive Vice President, Human Resources and Administrative
Services at Beneficial Management Corp., a financial services company, from 1997
to 1998. Previously, she was Executive Vice President at Heller International, a
financial services company, from 1993 to 1997 where she was responsible for
Human Resources and Communications.
Corliss J. Nelson has been Senior Executive Vice President and Chief Financial
Officer since April 1999. Previously, Mr. Nelson was President of Koch Capital
Services and was a Vice President of Koch Industries, Inc., a diversified
company.
Vicki A. O'Meara has been Executive Vice President and General Counsel since
June 1997 and Secretary since February 1998. Previously, Ms. O'Meara was a
partner with the Chicago office of the law firm of Jones Day Reavis & Pogue.
Kathleen S. Partridge has been Senior Vice President, Business and Accounting
Services since February 2002. Previously, Ms. Partridge served as Senior Vice
President and Controller from April 2001 until February 2002. Ms. Partridge was
Vice President Shared Services Center, from August 1997 to April 2001. In 1994,
Ms. Partridge became District Manager in Bloomington, Ill., and held that
position until she moved to the Ryder Shared Services Center in 1997. In 1989,
she moved to Pittsburgh, Pa., where she was a field controller. Ms. Partridge
joined Ryder in 1982 as a corporate auditor and held positions of increasing
responsibility in the finance and accounting group.
Gregory T. Swienton has been President since June 1999 and Chief Executive
Officer since November 2000. Previously, Mr. Swienton was Chief Operating
Officer from June 1999 to November 2000. Before joining Ryder, Mr. Swienton was
Senior Vice President of Growth Initiatives of Burlington Northern Santa Fe
Corporation (BSNF) and before that Mr. Swienton was BNSF's Senior Vice
President, Coal and Agricultural Commodities Business Unit.
Gene R. Tyndall has been Executive Vice President, Global Supply Chain Solutions
since June 2000. Previously, he served as Senior Vice President, Global Customer
Solutions from 1999 to 2000. Prior to joining Ryder, Mr. Tyndall was senior
partner and leader of the Ernst & Young Global Supply Chain Management
Consulting Practice were he spent twenty years providing logistic consulting
services and developing the global supply chain consulting practice.
Eduardo M. Vital has been Executive Vice President, Information Technology
Services and Chief Financial Officer since February 2002. Previously, Mr. Vital
was a partner with Accenture LLP ("Accenture"), a provider of management and
technology consulting services and solutions. From 1987 to 2002 as part of his
responsibilities at Accenture, Mr. Vital was part of the Ryder System, Inc.
Solutions Operations Unit through which Accenture provided information
technology services to Ryder.
8
ITEM 2. PROPERTIES
The Company's property consists primarily of vehicles, vehicle maintenance and
repair facilities, and other real estate and improvements. Information regarding
vehicles is included in Item 1 of this Form 10-K. The Company maintains its
property records based on legal entities, which are different from the Company's
business segments.
Ryder Integrated Logistics, Inc. has approximately 240 locations in the United
States and Canada. Almost all of these facilities are leased. Such locations
generally include a warehouse and administrative offices.
Ryder Transportation Services has approximately 810 locations in the United
States, Puerto Rico and Canada; nearly 390 of these facilities are owned and the
remainder are leased. Such locations generally include a repair shop and
administrative offices.
The Company's international operations (locations outside of the United States
and Canada) have over 100 locations. These locations are in the U.K., Germany,
Poland, Mexico, Argentina, Brazil, Taiwan, Malaysia and Singapore. The majority
of these facilities are leased. Such locations generally include a repair shop,
warehouse and administrative offices.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various claims, lawsuits, and
administrative actions arising in the course of their businesses. Some involve
claims for substantial amounts of money and/or claims for punitive damages.
While any proceeding or litigation has an element of uncertainty, management
believes that the disposition of such matters, in the aggregate, will not have a
material impact on the consolidated financial condition, results of operations
or liquidity of the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
There were no matters submitted to a vote of security holders during the quarter
ended December 31, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Information required by Item 5 is included in Item 8, "Supplementary Data."
9
ITEM 6. SELECTED FINANCIAL DATA
Five Year Summary
Ryder System, Inc. and Subsidiaries
In thousands, except per share amounts
- -------------------------------------------------------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999 1998 1997
Revenue $5,006,123 5,336,792 4,952,204 4,606,976 4,368,148
Earnings from continuing operations before unusual items:/(a)/
Before income taxes $ 147,270 183,335 193,637 238,942 213,042
After income taxes/(b)/ $ 99,981 115,501 121,129 149,292 130,019
Per diluted common share/(b)/ $ 1.65 1.93 1.76 2.03 1.66
Earnings from continuing operations:
Before income taxes $ 30,706 141,321 117,494 204,564 209,550
After income taxes/(b)/ $ 18,678 89,032 72,917 127,812 127,888
Per diluted common share/(b)/ $ 0.31 1.49 1.06 1.74 1.64
Net earnings/(b)//(c)/ $ 18,678 89,032 419,678 159,071 175,685
Per diluted common share/(b)//(c)/ $ 0.31 1.49 6.11 2.16 2.25
Cash dividends per common share $ 0.60 0.60 0.60 0.60 0.60
Average common shares - Diluted (in thousands) 60,665 59,759 68,732 73,645 78,192
Average shareholders' equity $1,242,543 1,225,910 1,122,698 1,106,133 1,126,519
Return on average common equity (%) 1.5 7.3 7.2 14.5 12.4
Book value per common share $ 20.24 20.86 20.29 15.37 14.39
Market price - high $ 23.19 25.13 28.75 40.56 37.13
Market price - low $ 16.06 14.81 18.81 19.44 27.13
Total debt $1,708,684 2,016,980 2,393,389 2,583,031 2,568,915
Long-term debt $1,391,597 1,604,242 1,819,136 2,099,697 2,267,554
Debt-to-equity (%) 139 161 199 236 242
Year-end assets $4,923,611 5,474,923 5,770,450 5,708,601 5,509,060
Return on average assets (%)/(d)/ 0.4 1.6 1.3 2.4 2.5
Average asset turnover (%)/(d)/ 97.1 93.8 85.4 86.5 83.7
Cash flow from continuing operating activities and asset sales/(e)/ $ 483,836 1,245,441 671,721 1,212,172 908,845
Capital expenditures including capital leases/(d)/ $ 656,597 1,288,784 1,734,566 1,333,352 992,408
Number of vehicles/(d)/ 170,100 176,300 171,500 162,700 152,800
Number of employees/(d)/ 29,536 33,089 30,340 29,166 27,516
- -------------------------------------------------------------------------------------------------------------------------------
/(a)/ Unusual items represent Year 2000 expense, 2001, 2000 and 1999
restructuring and other charges. Year 2000 expense totaled $24 million ($15
million after-tax, or $0.22 per diluted common share) in 1999, $37 million
($23 million after-tax, or $0.32 per diluted common share) in 1998 and $3
million ($2 million after-tax, or $0.03 per diluted common share) in 1997.
Restructuring and other charges totaled $117 million ($81 million
after-tax, or $1.34 per diluted common share) in 2001, $42 million ($26
million after-tax, or $0.44 per diluted common share) in 2000, $52 million
($33 million after-tax, or $0.48 per diluted common share) in 1999 and $(3)
million ($[2] million after-tax, or $[0.03] per diluted common share) in
1998.
/(b)/ In 2001, earnings from continuing operations, before and after unusual
items, include a one-time reduction in deferred taxes of $7 million, or
$0.11 per diluted common share, as a result of a change in Canadian tax law
that affected the Company's Canadian operations.
/(c)/ Net earnings for 1999 include, in addition to the items discussed in (a)
above, an after-tax extraordinary loss of $4 million, or $0.06 per diluted
common share, relating to the early extinguishment of debt. Net earnings
for 1999, 1998 and 1997 include the results of discontinued operations.
/(d)/ Excludes discontinued operations.
/(e)/ Excludes sale-leaseback transactions.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of the financial condition and results
of operations of Ryder System, Inc. and its subsidiaries (the "Company") should
be read in conjunction with the consolidated financial statements and related
notes.
The Company's operating segments are aggregated into reportable business
segments based primarily upon similar economic characteristics, products,
services and delivery methods. The Company operates in three reportable business
segments: (1) Fleet Management Solutions (FMS), which provides full service
leasing, commercial rental and programmed maintenance of trucks, tractors and
trailers to customers, principally in the U.S., Canada and the U.K.; (2) Supply
Chain Solutions (SCS), which provides comprehensive supply chain consulting and
lead logistics management solutions that support customers' entire supply
chains, from inbound raw materials through distribution of finished goods
throughout North America, in Latin America, Europe and Asia; and (3) Dedicated
Contract Carriage (DCC), which provides vehicles and drivers as part of a
dedicated transportation solution, principally in North America. During 1999,
the Company sold its public transportation services business (RPTS). The
following discussion excludes the results of RPTS, which has been classified as
discontinued operations.
Beginning in the first quarter of 2001, e-Commerce was reported as a
separate business segment. Initial costs to build the e-Commerce platform were
included in Central Support Services (CSS) through December 31, 2000. During the
first and second quarters of 2001, such costs were reclassified from CSS for all
previous periods in order to report e-Commerce results independently. In July
2001, in conjunction with the Company's restructuring initiatives,
responsibility for the Company's e-Commerce operations was transferred to the
leadership of the SCS business segment. Such operations, which had evolved to
provide similar services compared with other SCS operations, were integrated
into the SCS customer base. As such, e-Commerce is no longer considered a
separate reportable business segment.
In addition to the transfer of responsibility for the e-Commerce operations
to the SCS leadership, responsibility for certain SCS accounts that had become
similar to the Company's DCC product was transferred from the SCS leadership to
the DCC leadership in July 2001. Also, costs and personnel associated with the
maintenance of the Company's general web site, previously reported as a
component of e-Commerce, began being reported internally as a component of CSS
in July 2001. The business segment revenue and contribution margin information
furnished herein reflects the aforementioned reclassifications to conform to the
Company's current reporting and presentation.
Certain other prior year amounts have been reclassified to conform to
current presentation.
CONSOLIDATED RESULTS
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Earnings from continuing operations before
unusual items* $99,981 115,501 121,129
Per diluted common share* 1.65 1.93 1.76
Earnings from continuing operations 18,678 89,032 72,917
Per diluted common share 0.31 1.49 1.06
- --------------------------------------------------------------------------------
Weighted average shares outstanding - diluted 60,665 59,759 68,732
- --------------------------------------------------------------------------------
* Unusual items represent Year 2000 expense and restructuring and other charges.
Management believes that pro forma operating results provide additional
information useful in analyzing the underlying business results. However, pro
forma operating results should be considered in addition to, not as a substitute
for, reported results of operations.
In 2001, earnings from continuing operations, before and after unusual items,
include a one-time reduction in deferred taxes of $7 million, or $0.11 per
diluted common share, as a result of a change in Canadian tax law that affected
the Company's Canadian operations.
11
Earnings from continuing operations decreased 79 percent in 2001 and
increased 22 percent in 2000. The decrease in earnings from continuing
operations in 2001 is due primarily to increased restructuring and other charges
as part of the Company's implementation of strategic initiatives during 2001 to
reduce Company expenses and improve profitability. See "Restructuring and Other
Charges, Net" for a further discussion of such initiatives. The 2001 decrease
also resulted from a 6 percent decrease in revenue as discussed below. See
"Operating Results by Business Segment" for a further discussion of operating
results in the past three years.
In 2000, the earnings per share growth rate exceeded the earnings growth
rate because the average number of shares outstanding decreased. The decrease in
average shares outstanding reflects the impact of the Company's various stock
repurchase programs conducted through the end of 1999.
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Revenue:
Fleet Management Solutions $ 3,352,540 3,555,990 3,307,244
Supply Chain Solutions 1,453,881 1,595,252 1,441,029
Dedicated Contract Carriage 534,962 551,706 531,642
Eliminations (335,260) (366,156) (327,711)
- -------------------------------------------------------------------------------
Total revenue $ 5,006,123 5,336,792 4,952,204
===============================================================================
Revenue from continuing operations decreased 6 percent in 2001 compared with
2000. All business segments experienced a revenue decrease in 2001 over 2000.
The decrease was led by SCS, which decreased 9 percent. Such decrease was due to
volume reductions in the U.S. and in Latin America attributable to the continued
worldwide economic slowdown and to the sale of the contracts and related net
assets associated with the disposal of the outbound auto carriage business of
the Company's Brazilian SCS operation ("Vehiculos") (see further details in
"Restructuring and Other Charges, Net"). FMS experienced a revenue decrease of 6
percent due primarily to decreases in fuel sales volumes throughout the year
combined with decreases in fuel prices in the fourth quarter of 2001. For all
years reported, the Company realized minimal changes in margin as a result of
fluctuations in fuel revenue. In addition, FMS experienced decreases in revenue
due to reduced demand for rental vehicles. Revenue was also reduced by the
impact of exchange rates on translation of foreign subsidiary revenues,
particularly those in the U.K. and Brazil where exchange rates with the U.S.
Dollar have decreased by approximately 4.8 percent and 21.5 percent,
respectively, from 2000.
Revenue from continuing operations increased 8 percent in 2000 compared
with 1999, led by SCS, which grew 11 percent. FMS posted revenue gains of 8
percent, due primarily to increased fuel revenue resulting from increases in
related fuel prices.
The FMS segment leases revenue earning equipment, sells fuel and provides
maintenance and other ancillary services to the SCS and DCC segments.
Eliminations relate to inter-segment sales that are accounted for at approximate
fair value as if the sales were made to third parties.
12
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Operating expense $2,132,500 2,324,433 2,074,888
Percentage of revenue 43% 44% 42%
- -------------------------------------------------------------------------------
Operating expense decreased 8 percent in 2001 compared with 2000. The decrease
was a result of a reduction in fuel costs as a result of lower volumes and
prices, a reduction in overheads due to the Company implementing cost
containment actions throughout 2001 and a reduction in fleet maintenance and
licensing costs due to a reduced fleet size. Operating expense increased 12
percent in 2000 compared with 1999. The increase was primarily attributable to
higher fuel costs due to fuel price increases.
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Salaries and employee-related costs $1,212,184 1,226,558 1,178,831
Percentage of revenue 24% 23% 24%
- -------------------------------------------------------------------------------
Salaries and employee-related costs decreased $14 million, or 1 percent, in 2001
compared with 2000. The decrease was a result of planned reductions in headcount
due to the Company implementing its strategic initiatives throughout 2001. The
number of employees at December 31, 2001 was approximately 29,500, compared with
slightly over 33,000 at December 31, 2000. Such salary decrease was largely
offset by a reduction in net pension income in 2001 compared with 2000. Net
pension income was $1 million and $42 million in 2001 and 2000, respectively,
and principally benefits FMS. Pension income from the Company's primary U.S.
pension plan is partially offset by pension expense from the Company's other
pension plans.
The Company has calculated preliminary pension estimates for 2002 based on
interest rate, participation and other assumptions and the market-related value
of plan assets as of December 31, 2001. Based on these estimates, the Company
would anticipate recording $25 million to $30 million in net pension expense in
2002 for all pension plans. Such 2002 estimates are subject to change based upon
the completion of actuarial analysis of all pension plans. The expected increase
in net pension expense is attributable primarily to the U.S. pension plan and
reflects the adverse effect of negative asset returns in 2001 as well as a
declining interest rate environment causing a lower discount rate. The
anticipated net pension expense in 2002 would primarily impact FMS, which
employs the majority of the Company's employees that participate in the
Company's primary U.S. pension plan.
Salaries and employee-related costs increased $48 million, or 4 percent, in
2000 compared with 1999. The increase was due primarily to increased salaries
and wages, specifically in SCS, as a result of higher business volumes and
higher outside driver costs, offset by increased net pension income in 2000.
13
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Freight under management expense $436,413 506,709 496,248
Percentage of revenue 9% 10% 10%
- -------------------------------------------------------------------------------
Freight under management expense (FUM) represents subcontracted freight costs on
logistics contracts for which the Company purchases transportation. FUM expense
decreased $70 million, or 14 percent, in 2001. The decrease was due to revenue
reductions in related operating units of the SCS business segment as a result of
reduced freight volumes, decreases in the U.K. due to lost business and
decreases in South America as a result of the sale of Vehiculos. FUM expense
increased $10 million, or 2 percent, in 2000 compared with 1999. The increase
was due primarily to increased freight volumes in the Vehiculos operation, which
was sold in 2001.
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Depreciation expense $ 545,485 580,356 622,726
Gains on vehicle sales, net (11,968) (19,307) (55,961)
Equipment rental 427,024 373,157 263,484
- -------------------------------------------------------------------------------
Depreciation expense decreased by $35 million, or 6 percent, in 2001 compared
with 2000. Depreciation expense decreased by $42 million, or 7 percent, in 2000
compared with 1999. Decreases in depreciation expense for both years resulted
principally from sale-leaseback and other leasing transactions which increased
the number of leased (compared with owned) vehicles in the Company's fleet. In
2001, the decrease in depreciation expense was partially offset by an increase
in depreciation expense associated with the reduction of estimated residual
values associated with certain classes of tractors.
Gains on vehicle sales decreased $7 million, or 38 percent, in 2001
compared with 2000. Gains on vehicle sales decreased to $19 million in 2000 from
$56 million in 1999. Decreases in gains on vehicle sales for both years were due
to continuing weak demand in the used truck market. Such weakness began to
impact the Company during the second quarter of 2000. During 2001, average sales
proceeds per unit decreased by approximately 5 percent compared with 2000.
However, the average book value per unit of units sold in 2001 was approximately
2 percent lower than that of units sold in 2000 as a result of the
aforementioned increase in depreciation expense due to reductions in estimated
residual values.
The Company periodically reviews and adjusts residual values, reserves for
guaranteed lease termination values and useful lives of revenue earning
equipment based on current and expected operating trends and projected
realizable values. See further discussion on depreciation and residual value
guarantees at "Accounting Matters." The Company believes that its carrying
values and estimated sales proceeds for revenue earning equipment are
appropriate. However, a greater than anticipated decline in the market for used
vehicles may require the Company to further adjust such values and estimates.
Equipment rental primarily consists of rental costs on revenue earning
equipment. Equipment rental costs increased 14 percent in 2001 and 42 percent in
2000. The increases were due to sale-leaseback transactions, including
securitization transactions, as well as increases in reserves for guaranteed
lease termination values to reflect decreases in the estimated residual values
of leased equipment.
14
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Interest expense $118,549 154,009 187,176
Percentage of revenue 2% 3% 4%
- -------------------------------------------------------------------------------
Interest expense decreased 23 percent in 2001 compared with 2000, due primarily
to debt reductions associated with the use of proceeds from the aforementioned
sale-leaseback transactions and generally lower interest rates compared with
2000. Interest expense decreased 18 percent in 2000 due primarily to lower
commercial paper interest rates, debt reductions associated with the use of
proceeds from the RPTS sale and the impact of sale-leaseback transactions
completed beginning in December 1998.
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Miscellaneous (income) expense, net $ (1,334) 7,542 (8,825)
- -------------------------------------------------------------------------------
The Company had net miscellaneous income of $1 million in 2001 compared with net
miscellaneous expense of $8 million in 2000. The change was primarily due to
lower costs related to the decreased use of the Company's revolving facility for
the sale of trade receivables combined with increased servicing fee income
related to administrative services provided to vehicle lease trusts related to
the Company's securitization transactions. See "Financing and Other Funding
Transactions" for further discussion on securitization transactions. The
increase in servicing fee income in 2001 is a result of growth in serviced
assets due to the securitization transaction executed in the first quarter of
2001. The Company recorded net miscellaneous expense in 2000 compared with net
miscellaneous income in 1999. The growth in expense was due to an increase of $7
million in fees (due to an increase in dollar volume) related to the Company's
trade receivables sale facility in 2000. Additionally, in 1999, such fees were
offset by a $5 million gain on the sale of non-operating property and $4 million
of interest income earned on temporarily investing the proceeds from the RPTS
sale.
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Unusual items:
Restructuring and other charges, net $116,564 42,014 52,093
Year 2000 expense -- -- 24,050
- -------------------------------------------------------------------------------
$116,564 42,014 76,143
===============================================================================
In 2001, restructuring and other charges increased to $117 million from $42
million in 2000. Restructuring and other charges totaled $42 million in 2000
compared with $52 million in 1999. See "Restructuring and Other Charges, Net"
for further discussion.
15
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Provision for income taxes $ 12,028 52,289 44,577
- -------------------------------------------------------------------------------
The effective income tax rate is the provision for income taxes as a percentage
of earnings from continuing operations before income taxes. The Company's
effective tax rate was 39.2 percent in 2001, 37.0 percent in 2000 and 37.9
percent in 1999. The higher effective tax rate in 2001 resulted primarily from
an increase in net non-deductible items, principally the write down of goodwill,
included in restructuring and other charges. The increase in the Company's
effective tax rate was partially offset by a permanent reduction in corporate
tax rates in Canada. This resulted in a one-time reduction in the Company's
related deferred taxes of approximately $7 million. The Company believes the
impact of this tax rate change on its future effective income tax rate will be
nominal. Canadian operations represented approximately 6 percent of the
Company's revenue in 2001.
RESTRUCTURING AND OTHER CHARGES, NET
In 2001, the Company recorded pre-tax restructuring and other charges of $117
million. The components of charges in 2001, 2000 and 1999 were as follows:
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Restructuring charges (recoveries):
Severance and employee-related costs:
Shutdown of U.K. home
delivery network $ 2,593 -- --
Other 27,845 (1,077) 16,500
- -------------------------------------------------------------------------------
Total severance and employee-related costs 30,438 (1,077) 16,500
Facilities and related costs 6,261 (2,009) 4,478
- -------------------------------------------------------------------------------
36,699 (3,086) 20,978
Other charges (recoveries):
Cancellation of IT project 21,727 -- --
Goodwill impairment 13,823 -- --
Shutdown of U.K. home
delivery network 12,862 -- --
Contract termination costs 11,204 -- --
Strategic consulting fees 8,586 958 3,935
Asset write-downs 7,273 41,100 14,215
Write-down of software licenses 5,311 -- --
Loss on the sale of business 3,512 -- --
Start-up costs -- -- 7,970
Other (recoveries) charges, net (4,433) 3,042 4,995
- -------------------------------------------------------------------------------
$ 116,564 42,014 52,093
===============================================================================
16
2001 Charges
During the third quarter of 2001, the Company initiated the shutdown of
Systemcare, Ryder's shared-user home delivery network in the U.K. The shutdown
was initiated as a result of management's review of future prospects for the
operation in light of historical and anticipated operating losses. Such review
was performed in conjunction with its restructuring initiatives. The shutdown
will be completed after meeting contractual obligations to current customers,
which extend to December 31, 2002. The charge related to the Systemcare shutdown
totaled $15 million and included severance and employee-related costs of $3
million. The remainder of the charge, reported in other charges (recoveries),
includes a goodwill impairment of $11 million and asset impairment charges,
primarily for specialized vehicles to be disposed of within 12 months after the
shutdown of Systemcare's operations, of $2 million.
In late 2000, the Company communicated to its employees its planned
strategic initiatives to reduce Company expenses. As part of such initiatives,
the Company reviewed employee functions and staffing levels to eliminate
redundant work or otherwise restructure work in a manner that led to a workforce
reduction. The process resulted in terminations of over 1,400 employees during
2001. Other severance and employee-related costs of $28 million included in 2001
represent termination benefits to employees whose jobs were eliminated as part
of this review.
During 2001, the Company identified more than 55 facilities in the U.S. and
in other countries to be closed in order to improve profitability. Facilities
and related costs of $6 million in 2001 represent contractual lease obligations
for closed facilities.
Other charges (recoveries) represent asset impairments and other unusual
costs associated with the Company's strategic restructuring initiatives.
In the third quarter of 2001, the Company cancelled an information
technology (IT) project in its FMS business segment. The charge of $22 million
represents the write-down of software licenses, development costs and assets
related to the project that had no future economic benefit.
During the fourth quarter of 2001, the Company identified certain operating
units for which current circumstances indicated that the carrying amount of
long-lived assets, in particular, goodwill, may not be recoverable. The Company
assessed the recoverability of these long-lived assets and determined that the
goodwill related to these operating units was not recoverable. See "Summary of
Significant Accounting Policies" in the Notes to Consolidated Financial
Statements for the Company's policy on impairment of long-lived assets. In
addition to the aforementioned goodwill impairment in the Systemcare operations,
goodwill impairment charges in 2001, all of which related to SCS operating
units, are summarized as follows:
In thousands
- --------------------------------------------------------------------------------
Ryder Argentina $ 9,130
Ryder Brazil 3,706
Other 987
- --------------------------------------------------------------------------------
$13,823
================================================================================
Goodwill impairment in Ryder Argentina was triggered by the significant adverse
change in the business climate in Argentina in the fourth quarter of 2001 that
led to a devaluation of the Argentine Peso, breakdowns in the Argentine banking
system and repeated turnover in the country's leadership. These factors,
combined with a history of operating losses and anticipated future operating
losses, led to goodwill impairment. Goodwill of $9 million was considered
impaired and was written-down in December 2001. At December 31, 2001, Ryder
Argentina had total assets of $8 million and total equity of $4 million. The
Company is currently committed to continuing to operate in Argentina in order to
serve its global accounts, which it believes are profitable when considered on a
worldwide basis.
17
During the fourth quarter of 2001, the Company reviewed goodwill associated
with its remaining investment in Ryder Brazil for impairment. Subsequent to the
sale of Vehiculos, as discussed below, the Company made a significant effort to
restructure the operations of Ryder Brazil. However, such restructuring was not
sufficient to offset the impact of lost business, the side effects of the
Argentine economic crisis and the marginal historical and anticipated cash flows
related to the remaining business. At December 31, 2001, Ryder Brazil had total
assets of $18 million and total equity of $6 million. Like Argentina, the
Company is currently committed to operate in Brazil in order to serve its global
accounts, which it believes are profitable when considered on a worldwide basis.
As a result of the Company's analysis, goodwill of $4 million was considered
impaired and was written-down in December 2001.
In 2001, as part of its restructuring initiatives, the Company reached an
agreement with Accenture LLP ("Accenture") to transition certain IT services
previously delivered by Accenture under contract to Ryder. Contract termination
costs of $11 million represent termination penalties and the write-down of
certain prepaid expenses associated with the Accenture relationship.
Strategic consulting fees of $9 million were incurred during 2001 in
relation to the aforementioned strategic initiatives. Such consulting
engagements were completed by the end of 2001.
The Company's strategic initiatives during 2001 resulted in asset
write-downs of $7 million primarily for owned real estate, operating property
and technology that would no longer be used in the business. These assets are
planned to be disposed of within the next 12 months.
An investment of $5 million in certain license agreements for supply chain
management software was written down in 2001 because the software no longer had
a viable business or customer application in light of the Company's
restructuring initiatives.
During the quarter ended March 31, 2001, the Company sold Vehiculos for $14
million and incurred a loss of $4 million on the sale of the business.
Other net recoveries in 2001 primarily represent $3 million in recoveries
from an insurance settlement attributed to a previously sold business combined
with a gain of $2 million recorded in the first quarter of 2001 on the sale of
the corporate aircraft.
The Company estimates pre-tax cost savings of approximately $22 million on
2002 earnings as a result of the 2001 restructuring initiatives. These savings
are expected to be realized primarily in operating expense and salaries and
employee-related costs.
2000 Charges
In 2000, severance and employee-related costs that had been recorded in the
1999 restructuring were reversed due to refinements in estimates. Facilities and
related costs reflect $2 million of recoveries in 2000 for charges recorded in
the 1999 and 1996 restructuring.
A charge of $958,000 for consulting fees was incurred during 2000 related
to the completion of the Company's 1999 profitability improvement study.
In 2000, an asset write-down of $41 million resulted from the rapid
industry-wide downturn in the market for new and used "Class 8" vehicles (the
largest heavy-duty tractors and straight trucks) which led to a decrease in the
market value of used tractors during the second half of 2000. The Company's
unsold Class 8 inventory consists of units previously used by customers of the
FMS segment. Approximately $15 million of the charge related to tractors held
for sale and identified in 2000 as increasingly undesirable and unmarketable due
to lower-powered engines or a potential lack of future support for parts and
service. The remainder of the charge related to other owned and leased tractors
held for sale for which estimated fair value less costs to sell declined below
carrying value (or termination value, which represents the final payment due to
lessors, in the case of leased units) in 2000. These charges were slightly
offset with gains of $570,000 on vehicles sold in the U.K. during 2000, for
which an impairment charge had been recorded in the 1999 restructuring.
18
During 2000, the Company settled long-standing litigation with a former
customer, OfficeMax, relating to a logistics services agreement that was
terminated in 1997. In 2000, other net charges includes $4 million in impairment
charges related to the write-down, net of recoveries, of certain assets related
to the OfficeMax contract offset by $1 million in the reversal of certain other
charges recorded in the 1999 restructuring.
1999 Charges
During 1999, the Company implemented several restructuring initiatives
designed to improve profitability and align the organizational structure with
the strategic direction of the Company. The restructuring initiatives resulted
in identification of approximately 250 employees whose jobs were terminated.
Contractual lease obligations associated with facilities to be closed as a
result of the restructuring amounted to $4 million. Strategic consulting fees of
$4 million were incurred during 1999 in relation to that year's restructuring
initiatives.
The Company also recorded asset impairments of $14 million in 1999 for
certain classes of specialized used vehicles, real estate and other assets held
for sale and software development projects that would not be implemented or
further utilized in the future. The Company also identified certain assets that
would be sold or for which development would be abandoned as a result of the
restructuring. During 1999, the Company also restructured its FMS operations in
the U.K. following the 1998 decision to retain the business.
In conjunction with the 1999 restructuring, the Company formed a captive
insurance subsidiary under which the Company's various self-insurance programs
are administered. Costs incurred related to the start-up of this entity totaled
$8 million. The Company also recorded $5 million for other costs incurred in
connection with the restructuring initiatives.
See "Restructuring and Other Charges, Net" in the Notes to Consolidated
Financial Statements for additional discussion.
OPERATING RESULTS BY BUSINESS SEGMENT
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Revenue:
Fleet Management Solutions:
Full service lease and
program maintenance $ 1,855,865 1,865,345 1,816,599
Commercial rental 468,438 523,776 540,734
Fuel 658,325 773,320 587,193
Other 369,912 393,549 362,718
- -------------------------------------------------------------------------------
3,352,540 3,555,990 3,307,244
Supply Chain Solutions 1,453,881 1,595,252 1,441,029
Dedicated Contract Carriage 534,962 551,706 531,642
Eliminations (335,260) (366,156) (327,711)
- -------------------------------------------------------------------------------
Total revenue $ 5,006,123 5,336,792 4,952,204
===============================================================================
19
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Contribution margin:
Fleet Management Solutions $ 339,326 382,851 372,164
Supply Chain Solutions 51,236 65,484 54,832
Dedicated Contract Carriage 57,679 60,828 59,633
Eliminations (36,989) (41,888) (40,280)
- -------------------------------------------------------------------------------
411,252 467,275 446,349
Central Support Services (263,982) (283,940) (252,712)
Restructuring and other charges, net (116,564) (42,014) (52,093)
Year 2000 expense -- -- (24,050)
Earnings from continuing operations
before income taxes $ 30,706 141,321 117,494
===============================================================================
Management evaluates business segment financial performance based upon several
factors, of which the primary measure relied upon is contribution margin.
Contribution margin represents each business segment's revenue, less direct
costs and direct overheads related to the segment's operations. Business segment
contribution margin for all segments (net of eliminations), less CSS expenses
and restructuring and other charges, is equal to earnings from continuing
operations before income taxes. CSS are those costs incurred to support all
business segments, including sales and marketing, human resources, finance,
shared management information systems, customer solutions, health and safety,
legal and communications.
Contribution margin related to inter-segment equipment and services billed
to customers (equipment contribution) is included in both FMS and the business
segment which served the customer, then eliminated (presented as
"Eliminations"). Equipment contribution included in SCS contribution margin in
2001, 2000 and 1999 was $17 million, $20 million and $19 million, respectively.
Equipment contribution included in DCC contribution margin in 2001, 2000 and
1999 was $20 million, $22 million and $21 million, respectively. Interest
expense is primarily allocated to the FMS business segment since such borrowings
are used principally to fund the purchase of revenue earning equipment used in
FMS.
These 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.
Fleet Management Solutions
FMS revenue decreased 6 percent in 2001 compared with 2000. Full service
lease and program maintenance revenue remained relatively flat in 2001 compared
with 2000. The Company anticipates generally flat to slightly lower full service
lease and program maintenance revenue in 2002 due to negative net sales over
recent periods primarily as a result of the slowing U.S. economy as well as
decreases in variable billings, which are generally a function of total miles
run by leased vehicles. Net sales takes into consideration new business with new
or existing customers and revenue changes with existing customers due to
replacement vehicles or rate changes, net of full service leases that reach the
end of their term during the reported period.
All elements of commercial rental revenue (consisting of pure rental, lease
extra and await new lease revenue) decreased in 2001 compared with 2000. In the
U.S., pure rental revenue (total rental revenue less rental revenue related to
units provided to full service lease customers) decreased 5 percent to $184
million in 2001 compared with 2000 due to the slowing economy. Lease extra
revenue represents revenue on rental vehicles provided to existing full service
20
lease customers generally during peak periods in their operations. In the U.S.,
lease extra revenue decreased 17 percent to $116 million in 2001. Await new
lease revenue represents revenue on rental vehicles provided to new full service
lease customers who have not taken delivery of full service lease units. In
2001, await new lease revenue decreased 47 percent to $18 million in the U.S.
Such revenue declines were due to lower utilization, a decrease in the number of
units in the rental fleet and shorter lead times to place full service lease
vehicles into service compared with 2000. Rental fleet utilization was 66
percent in 2001, compared with 71 percent in 2000. Rental fleet utilization
decreased less than rental revenue as a result of the implementation of planned
reductions in the size of the rental fleet. Pure rental revenue, lease extra,
await new lease and rental fleet utilization statistics are monitored for the
U.S. only; however, management believes such metrics to be indicative of rental
product performance for the Company as a whole. Fuel revenue decreased in 2001
due primarily to decreased sales volume and, secondly, due to reduced sales
prices.
FMS revenue increased 8 percent in 2000 compared with 1999. Full service
lease and program maintenance revenue increased in 2000 compared with 1999 as a
result of growth in both fleet size and average revenue per unit. Commercial
rental revenue decreased in 2000 compared with 1999 due to increased revenue in
1999 as a result of a backlog in the arrival of new vehicles for full service
lease customers. Rental vehicles were provided to these customers until new full
service lease vehicles arrived and were prepared for use. In 2000, fuel revenue
increased as a result of increases in fuel prices. FMS realized minimal changes
in margin as a result of fuel price increases.
Contribution margin as a percentage of dry revenue (revenue excluding fuel)
decreased to 13 percent in 2001 compared with 14 percent in 2000 and was flat in
2000 compared with 1999. The decrease in 2001 was attributable to the decrease
in gains from the sale of equipment due to weakened used truck market demand,
lower net pension income in 2001 compared with 2000 and decreased rental
contribution margin resulting from the decline in rental revenue. In 2000,
improvements in full service lease margins, decreased running costs and the
impact of net pension income on benefits costs were offset by reduced gains in
vehicle sales compared with 1999. Decreased running costs in 2000 were generally
attributable to a decrease in the average age of the fleet. Pension income
attributable to FMS from the Company's principal pension plan in the U.S.
decreased by $33 million in 2001 compared with 2000 and increased by $27 million
in 2000 compared with 1999.
The Company's fleet of owned and leased revenue earning equipment is
summarized as follows:
Number of Units
- --------------------------------------------------------------------------------
December 31 2001 2000
By type:
Trucks 66,000 66,800
Tractors 52,400 56,400
Trailers 46,700 48,500
Other 5,000 4,600
- --------------------------------------------------------------------------------
170,100 176,300
================================================================================
By business:
Full service lease 126,900 130,700
Commercial rental 40,200 42,200
Service and other vehicles 3,000 3,400
- --------------------------------------------------------------------------------
170,100 176,300
================================================================================
21
The totals in each of the tables above include the following non-revenue earning
equipment:
Number of Units
- --------------------------------------------------------------------------------
December 31 2001 2000
Not yet earning revenue (NYE) 1,200 2,400
No longer earning revenue (NLE):
Units held for sale 5,200 5,100
Other NLE units 4,700 3,200
- --------------------------------------------------------------------------------
11,100 10,700
================================================================================
NYE units represent new units on hand that are being prepared for deployment to
a lease customer or into the rental fleet. Preparations include activities such
as adding lift gates, paint, decals, cargo area and refrigeration units.
NLE units represent units held for sale, as well as other units for which
no revenue has been earned in the previous 30 days. These vehicles may be
temporarily out of service, being prepared for sale or not rented due to lack of
demand.
Supply Chain Solutions
SCS revenue decreased 9 percent in 2001 compared with 2000 mostly due to
volume reductions in North America and Latin America as a result of the
continued worldwide economic slowdown. In North America, volume reductions
experienced in the Company's automotive operating unit were the result of
reduced auto production. The electronics and high tech operating units saw
reduced volumes due to slowed consumer demand in those sectors combined with
lost business in 2001. Volume decreases in Latin America were due to the slowing
economies in Brazil and Argentina and to the sale of Vehiculos in 2001.
Additionally, revenue reductions occurred in 2001 due to the impact of exchange
rates on translation of foreign subsidiaries, particularly in the U.K. and
Brazil, as well as to lost business in the U.K. Such revenue decreases were
partially offset by business expansion in Mexico and Asia. The Company's Asian
operating unit was acquired at the end of the third quarter of 2000.
SCS revenue increased 11 percent in 2000 compared with the previous year.
Revenue growth in 2000 was due to expansion of business with existing customers
and addition of new customers, particularly automotive suppliers, aerospace,
electronics and technology companies.
Contribution margin as a percentage of operating revenue decreased to 5
percent in 2001 compared with 6 percent in 2000. The decrease in contribution
margin was due primarily to the previously mentioned volume reductions as a
result of the current economic downturn, lost business and increased operating
costs, particularly related to the Company's transportation management
operations.
Contribution margin as a percentage of operating revenue increased to 6
percent in 2000 compared with 5 percent in 1999. The improved contribution
margin percentage in 2000 compared with 1999 was the result of improved
performance in the Company's operations outside the U.S.
Dedicated Contract Carriage
DCC revenue decreased 3 percent in 2001 compared with 2000 due primarily to
volume reductions as a result of the current economic downturn and lost
business. DCC revenue increased 4 percent in 2000 compared with 1999. In 2000,
such revenue growth was due to increased fuel costs billed to customers and net
business growth. Contribution margin as a percentage of operating revenue
remained relatively flat in 2001 compared with 2000 as a result of expanded
business with certain existing customers partially offset by the impact of lost
business and volume reductions in 2001. DCC contribution margin as a percentage
of operating revenue was flat in 2000 compared with 1999.
22
Central Support Services
CSS expenses were as follows:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Sales and marketing $ 27,071 39,202 47,840
Human resources 21,911 21,001 17,775
Finance 53,464 57,097 53,600
Corporate services/public affairs 8,023 10,099 13,308
MIS 98,373 99,471 84,862
Customer solutions 20,909 19,297 15,845
Health and safety 9,046 9,840 8,964
Other 25,185 27,933 10,518
- --------------------------------------------------------------------------------
Total CSS $263,982 283,940 252,712
================================================================================
CSS decreased 7 percent in 2001 compared with 2000. The decrease in total CSS
expense was due primarily to spending reductions in sales and marketing,
corporate services and MIS expense as a result of the Company's expense
reduction initiatives. Such initiatives in these areas included ending the
Company's sponsorship of the Doral Ryder Open, the sale of the Company's
corporate jet and reducing the spending rate for new technology projects,
respectively.
CSS increased 12 percent in 2000 compared with 1999 due to increased
spending for MIS. Additionally, in 1999, CSS was reduced by a $5 million gain on
a real estate sale as well as $4 million of interest income earned on
temporarily investing the proceeds from the RPTS sale.
Currently, contribution margin is the measure of segment financial
performance that is primarily relied upon by management. In 2001, the Company
began a project to allocate CSS expenses to each business segment, as
appropriate. The objective is to provide management more clarity on the
profitability of each business segment (similar to a "earnings before income
taxes" or "NBT" measure) and, ultimately, to hold leadership of each business
segment, and each operating segment within each business segment, accountable
for their allocated share of CSS expenses. This new measure of segment
profitability, "contribution margin after allocated CSS," is still under
refinement by the Company and is being reported to the Company's chief operating
decision-maker periodically. Beginning in 2002, the Company intends to complete
its refinement of the allocation methodology and will utilize contribution
margin after allocated CSS as its primary measurement of segment financial
performance. However, the Company has decided to provide contribution margin
after allocated CSS by business segment as additional information through the
end of its refinement period which is year-end 2001.
Certain costs are considered to be overhead not attributable to any segment
and as such, remain unallocated in CSS. Included among the unallocated overhead
remaining within CSS are the costs for investor relations, corporate
communications, public affairs and certain executive compensation. Those CSS
costs attributable to the business segments are generally allocated to FMS, SCS
and DCC as follows:
. Sales and marketing, finance, corporate services and health and safety
- allocated based upon estimated and planned resource utilization.
. Human resources - individual costs within this category are allocated
in several ways, including allocation based on estimated utilization
and number of personnel supported.
. MIS - allocated principally based upon utilization-related metrics
such as number of users or minutes of CPU time.
. Customer Solutions - represents project costs and expenses incurred in
excess of amounts billable to a customer during the period. Expenses
are allocated to the business segment responsible for the project.
. Other - where allocated, the allocation is based on the number of
personnel supported.
23
The following table sets forth contribution margin for each of the Company's
business segments after CSS allocation for 2001 and 2000 (such information is
not available for 1999):
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000
Contribution margin after allocated CSS:
Fleet Management Solutions $ 187,965 219,759
Supply Chain Solutions (12,851) 3,918
Dedicated Contract Carriage 34,541 37,068
Eliminations (36,989) (41,888)
- --------------------------------------------------------------------------------
172,666 218,857
Central Support Services (unallocated) (25,396) (35,522)
Restructuring and other charges, net (116,564) (42,014)
- --------------------------------------------------------------------------------
Earnings before income taxes $ 30,706 141,321
================================================================================
DISCONTINUED OPERATIONS
On September 13, 1999, the Company completed the sale of RPTS for $940 million
in cash and realized a $339 million after-tax gain ($4.94 per diluted common
share). After-tax earnings from discontinued operations amounted to $12 million
in 1999. The transaction generated gains from the settlement and curtailment of
certain employee benefit and postretirement plans, offset by provisions for
severance and direct transaction and other costs. The RPTS disposal has been
accounted for as discontinued operations and accordingly, its operating results
and cash flows are segregated and reported as discontinued operations in the
accompanying consolidated financial statements.
FINANCIAL RESOURCES AND LIQUIDITY
Cash Flows
The following is a summary of the Company's cash flows from continuing
operating, financing and investing activities:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Net cash provided by (used in):
Operating activities $ 308,702 1,015,533 269,819
Financing activities (319,699) (363,599) (527,848)
Investing activities 6,893 (642,957) 228,067
- --------------------------------------------------------------------------------
Net cash flows from continuing operations $ (4,104) 8,977 (29,962)
================================================================================
A summary of the individual items contributing to the cash flow changes is
included in the Consolidated Statements of Cash Flows.
24
The decrease in cash flow from operating activities in 2001 compared with
2000 was primarily attributable to decreases in the aggregate balance of trade
receivables sold. As a result of the decrease in the aggregate balance of trade
receivables sold, the Company's accounts receivable balance increased 39 percent
to $556 million at December 31, 2001 compared with December 31, 2000. Cash used
in financing activities slightly decreased in 2001 compared with 2000 as the
Company's increased net borrowings were almost offset by decreased use of its
commercial paper program due primarily to interest rate decreases in the
Company's other funding facilities compared with the Company's commercial paper
program. The increase in cash provided by investing activities in 2001 compared
with 2000 was attributable to lower capital expenditures in 2001. Higher
proceeds provided from the sale-leaseback of revenue earning equipment in 2001
(see "Financing and Other Funding Transactions") were offset by decreased
proceeds from the sales of property and revenue earning equipment primarily due
to continued weak demand in the used truck market.
Cash provided by operating activities increased in 2000 compared with 1999
primarily due to increases in trade receivables sold in 2000 and lower working
capital needs in 1999. Cash used in financing activities decreased in 2000
compared with 1999. During 1999, cash of $528 million was used in financing
activities, primarily to repurchase $275 million of common stock and reduce debt
by $220 million. The stock repurchase program was completed in 1999 and there
was no such program in 2001 or 2000. Cash used in investing activities was $643
million compared with cash provided by investing activities of $228 million in
1999. In 1999, cash provided by investing activities was the result of proceeds
from the RPTS sale. After adjusting for such proceeds, cash used in investing
activities decreased in 2000 compared with 1999 primarily as a result of reduced
levels of capital expenditures.
The following is a summary of capital expenditures:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Revenue earning equipment $ 579,320 1,186,787 1,627,206
Operating property and equipment 77,277 101,997 107,013
- --------------------------------------------------------------------------------
$ 656,597 1,288,784 1,734,219
================================================================================
The decrease in capital expenditures in 2001 was principally due to reduced
demand for new units as well as increased pricing discipline over new business,
which has resulted in fewer sales but improved margins on business sold. The
Company has worked to improve controls over capital expenditures and reduce the
volume of early terminations of full service leases compared with 2000. In
contrast to 2000, the Company is pursuing a strategy of extending certain full
service leases rather than leasing new units. This allows the Company to further
control capital expenditures while frequently providing customers with vehicles
at favorable pre-owned rates compared with rates on new units. The Company
expects to fund 2002 capital expenditures with internally generated funds and
borrowings. Such capital expenditures are anticipated to be approximately $580
million in 2002.
The decrease in capital spending in 2000 was planned based upon the
significant increase in capital spending and fleet replacement in FMS that took
place during the first half of 1999. Capital spending for 1999 was consistent
with management's expectations of anticipated growth and fleet replacement in
full service leasing and commercial rental. However, capital spending was
significantly above plan during the first half of 1999. The excess spending
reflected higher than anticipated requirements for replacement.
No acquisitions were completed in 2001. During 2000 and 1999, the Company
completed a few immaterial acquisitions, each of which was accounted for using
the purchase method of accounting. Total consideration for these acquisitions
was $28 million in 2000 and $13 million in 1999. The Company will continue to
evaluate selective acquisitions in FMS and SCS in 2002.
25
Financing and Other Funding Transactions
Ryder utilizes external capital to support growth in its asset-based
product lines. The Company has a variety of financing alternatives available to
fund its capital needs. These alternatives include long-term and medium-term
public and private debt, including asset-backed securities, bank term loans and
leasing arrangements as well as fixed-rate and variable-rate financing available
through bank credit facilities, commercial paper and receivable conduits. The
Company also periodically enters into sale-leaseback agreements on revenue
earning equipment, which are primarily accounted for as operating leases.
Debt totaled $1.7 billion at the end of 2001 compared with $2.0 billion at
the end of 2000. The decrease in debt in 2001 was principally due to repayment
of $100 million in debentures in addition to a decrease of $231 million in
commercial paper borrowings, which were repaid with proceeds of sale-leaseback
transactions described below. In addition to the Company's reduced debt in 2001,
receivables sold decreased $235 million in 2001 compared with 2000. Decreased
debt levels and reduced overall funding needs were generally the result of
reduced levels of capital expenditures on revenue-earning equipment.
Debt totaled $2.0 billion at the end of 2000 compared with $2.4 billion at
the end of 1999. The decrease in debt in 2000 was principally due to repayment
of $426 million in medium-term notes, net of an increase of $108 million in
commercial paper borrowing. The Company's reduced debt in 2000 was also due to
an increase of $270 million of trade receivables sold in 2000 compared with
1999.
The Company's debt ratings as of December 31, 2001 were as follows:
- -----------------------------------------------------------------------------
Short Long
Term Term
Moody's Investors Service P2 Baa1
Standard & Poor's Ratings Group A2 BBB
Fitch Ratings F2 BBB+
- -----------------------------------------------------------------------------
A downgrade of the Company's debt below investment grade level would limit the
Company's ability to issue commercial paper and would result in the Company no
longer having the ability to sell trade receivables under the agreement
described below. As a result, the Company would have to rely on other
established funding sources described below.
The Company's debt-to-equity and related ratios were as follows:
- --------------------------------------------------------------------------------
December 31 2001 2000
Debt to equity 139% 161%
Total obligations to equity 199% 258%
Total obligations to equity, including securitizations 234% 275%
- --------------------------------------------------------------------------------
Debt to equity consists of the Company's on-balance sheet debt for the period
divided by total equity. Total obligations to equity represents debt plus the
following off-balance sheet funding, all divided by total equity:
. Receivables sold
. The present value of minimum lease payments and guaranteed residual
values under operating leases for equipment, discounted at the
interest rate implicit in the lease
Total obligations to equity, including securitizations consists of total
obligations, described above, plus the present value of contingent rentals under
the Company's securitizations (assuming customers make all lease payments on
securitized vehicles when contractually due), discounted at the average interest
rate paid to investors in the trust, all divided by total equity.
26
The decrease in all of the above ratios in 2001 was driven by the Company's
reduced funding needs as a result of decreases in purchases of revenue earning
equipment. For 2002, the Company anticipates additional reductions in each of
these ratios due to expected improvements in operating cash flow and reduced
cash needs due to planned further reductions in capital expenditures.
During 2001, the Company replaced its $720 million global revolving credit
facility with a new $860 million global revolving credit facility. The new
facility is composed of $300 million which matures in May 2002 and is renewable
annually (and is in the process of being renewed), and $560 million which
matures in May 2006. The primary purposes of the credit facility are to finance
working capital and provide support for the issuance of commercial paper. At the
Company's option, the interest rate on borrowings under the credit facility is
based on libor, prime, federal funds or local equivalent rates. The credit
facility's annual facility fee ranges from 12.5 to 15.0 basis points applied to
the total facility of $860 million based on the Company's current credit
ratings. Foreign borrowings of $100 million were outstanding under the facility
at December 31, 2001. In order to maintain availability of funding, the global
revolving credit facility requires the Company to maintain a ratio of debt to
consolidated tangible net worth, as defined, of less than or equal to 300
percent. The ratio at December 31, 2001 was 117 percent.
In September 1998, the Company filed an $800 million shelf registration
statement with the Securities and Exchange Commission (SEC). Proceeds from debt
issues under the shelf registration are available for capital expenditures, debt
refinancing and general corporate purposes.
The Company participates in an agreement, as amended from time to time, to
sell with limited recourse up to $375 million of trade receivables on a
revolving basis. This agreement expires in July 2004. The Company sells the
receivables in order to fund the Company's operations, particularly when the
cost of such sales is cost effective compared with other means of funding,
notably, commercial paper. The receivables are sold first to a bankruptcy remote
special purpose entity, Ryder Receivables Funding LLC ("RRF LLC"), that is
included in the Company's consolidated financial statements. RRF LLC then sells
certain receivables to unrelated commercial entities at a loss, which
approximates the purchaser's financing cost of issuing its own commercial paper
backed by the trade receivables over the period of anticipated collection. The
Company is responsible for servicing receivables sold but has no retained
interests. At December 31, 2001 and 2000, the outstanding balance of receivables
sold pursuant to this agreement was $110 million and $345 million, respectively.
Losses on receivable sales associated with this program were $9 million in 2001,
$17 million in 2000 and $10 million in 1999 and are included in miscellaneous
(income) expense, net. The Company maintains an allowance for doubtful
receivables based on the expected collectibility of all receivables, including
receivables sold. The decrease in trade receivables sold since December 31, 2000
is due to a reduced need for cash as a result of the sale-leaseback transaction
completed in 2001 (described below) as well as increased use of the Company's
other funding facilities. See "Receivables" in the Notes to Consolidated
Financial Statements for a further discussion on the Company's sale of
receivables.
As of December 31, 2001 the Company had the following amounts available to
fund operations under the aforementioned facilities:
In millions
- --------------------------------------------------------------------------------
Global revolving credit facility ($300 limited to less than one year) $550
Shelf registration statement 337
Trade receivables facility 265
- --------------------------------------------------------------------------------
The Company believes such facilities, along with the Company's commercial paper
program and other funding sources, will be sufficient to fund operations in
2002.
27
In addition to the financing activities described above, the Company
executes sale-leaseback transactions with third-party financial institutions as
well as with substantive special purpose entities ("SPEs") which facilitate
sale-leaseback transactions with multiple third-party investors
("securitizations"). In general, sale-leaseback transactions result in a
reduction in revenue earning equipment and debt on the balance sheet, as
proceeds from the sale of revenue earning equipment are primarily used to repay
debt. Accordingly, sale-leaseback transactions will result in reduced
depreciation and interest expense and increased equipment rental expense.
Sale-leaseback transactions (including securitizations) are generally
executed from time to time for the following reasons:
. To lower the total cost of funding the Company's operations
. To diversify the Company's funding among different classes of
investors (e.g. regional banks, pension plans, insurance companies,
etc.)
. To diversify the Company's funding among different types of funding
instruments
Proceeds from sale-leaseback transactions were $411 million, $373 million and
$594 million in 2001, 2000 and 1999, respectively. Included in the
sale-leaseback transactions in 2001 and 1999 were vehicle securitization
transactions in which the Company sold a beneficial interest in certain leased
vehicles to separately rated and unconsolidated vehicle lease trusts and
subsequently entered into an operating lease ("program operating lease") with
those trusts. A prospectus for each transaction is on file with the SEC. Such
securitizations generated cash proceeds of $411 million and $294 million in 2001
and 1999, respectively. The vehicles were sold for approximately their carrying
value. The Company retained an interest in the vehicle lease trusts in the form
of subordinated notes issued at the date of each sale. The Company has provided
credit enhancement for each sale in the form of a one-time up front cash reserve
deposit and a pledge of the subordinated notes, including interest thereon, as
additional security for the trusts to the extent that payments under the program
operating leases are not made due to delinquencies and incurred losses under the
program operating leases and related vehicle sales. The trusts rely on
collections from the program operating leases, sales proceeds from the
disposition of such vehicles and cash reserve funds to make payments to
investors. The trusts are solely liable for such payments to investors, who are
all independent of the Company. Other than the credit enhancement noted above,
the Company does not guarantee investors' interests in the securitization
trusts. See "Leases" in the Notes to Consolidated Financial Statements for a
further discussion on the Company's securitization transactions.
The following table summarizes the Company's undiscounted on and
off-balance sheet contractual cash obligations and contingent rentals at
December 31, 2001:
In thousands
- ----------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total
Long-term debt $312,531 118,694 161,194 201,545 491,736 407,347 1,693,047
Capital leases 4,556 3,609 4,075 3,115 282 -- 15,637
- ----------------------------------------------------------------------------------------------------
Total debt 317,087 122,303 165,269 204,660 492,018 407,347 1,708,684
Operating leases /(a)/ 364,419 280,123 120,765 66,990 47,831 97,227 977,355
- ----------------------------------------------------------------------------------------------------
Total contractual
cash obligations 681,506 402,426 286,034 271,650 539,849 504,574 2,686,039
Contingent
rentals /(b)/ 128,191 118,932 102,082 74,342 33,590 8,227 465,364
- ----------------------------------------------------------------------------------------------------
Total $809,697 521,358 388,116 345,992 573,439 512,801 3,151,403
====================================================================================================
/(a)/ The amounts in the previous table are based upon the assumption that
revenue earning equipment will remain on lease for the length of time specified
by the respective lease agreements. No effect has been given to renewals,
cancellations, contingent rentals or future rate changes, except as described
below for vehicle securitization transactions.
28
/(b)/ Contingent rentals relate to the Company's vehicle securitization
transactions. The timing and amount of payment of rent by the Company for
securitized vehicles is dependent on the timing and amount of payments received
from the Company's customers for use of such vehicles, as stipulated by the
program operating lease. For purposes of this presentation, the Company has
assumed that the full monthly payment for each vehicle is received from the
customer exactly when such payment is due, and that there are no defaults,
prepayments or early termination of leases between the Company and its
customers. Contingent rentals in the table above are estimated based upon this
assumption. The actual amount and timing of contingent rentals paid by the
Company may vary from that assumed above.
Certain of the Company's agreements for the sale and operating leaseback of
revenue earning equipment contain purchase and/or renewal options as well as
limited guarantees of the lessor's residual value ("residual value guarantees").
The Company's reserve for residual value guarantees was $44 million at December
31, 2001. See discussion on depreciation and rental of revenue earning equipment
at "Accounting Matters" for a further discussion on residual value guarantees.
At December 31, 2001, the Company had letters of credit outstanding
totaling $115 million, which primarily guarantee certain insurance activities.
Certain of these letters of credit guarantee insurance activities associated
with insurance claim liabilities transferred in conjunction with the sale of
certain businesses reported as discontinued operations in previous years. To
date, such insurance claims, representing per claim deductibles payable under
third-party insurance policies, have been paid by the companies that assumed
such liabilities. However, if all or a portion of such assumed claims of
approximately $20 million are unable to be paid, the third-party insurers may
have recourse against certain of the outstanding letters of credit provided by
the Company in order to satisfy the unpaid claim deductibles.
Market Risk
In the normal course of business, the Company is exposed to fluctuations in
interest rates, foreign exchange rates and fuel prices. The Company manages such
exposures in several ways, including, in certain circumstances, the use of a
variety of derivative financial instruments when deemed prudent. The Company
does not enter into leveraged derivative financial transactions or use
derivative financial instruments for trading purposes.
Exposure to market risk for changes in interest rates relates primarily to
debt obligations. The Company's interest rate risk management program objective
is to limit the impact of interest rate changes on earnings and cash flows and
to lower overall borrowing costs. The Company manages its exposure to interest
rate risk through the proportion of fixed rate and variable rate debt in the
total debt portfolio. From time to time, the Company also uses an interest rate
swap and cap agreements to manage its fixed rate and variable rate exposure and
to better match the repricing of its debt instruments to that of its portfolio
of assets. At December 31, 2001, an interest rate swap agreement with a notional
value of $22 million was outstanding, which was accounted for as a cash flow
hedge of fixed rate debt. No interest rate swap or cap agreements were
outstanding at December 31, 2000.
The following tables summarize debt obligations outstanding as of December
31, 2001 and 2000 expressed in U.S. dollar equivalents. The tables show the
amount of debt, including current portion, and related weighted average interest
rates by contractual maturity dates. Weighted average variable rates are based
on implied forward rates in the yield curve at December 31, 2001 and 2000. This
information should be read in conjunction with the "Debt" note to the
consolidated financial statements.
29
Expected Maturity Date
- ------------------------------------------------------------------------------------------------------------------------------
2001 Years ended December 31
In thousands 2002 2003 2004 2005 2006 Thereafter Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------
Fixed-rate debt:
Dollar denominated $ 166,227 75,591 72,099 199,995 150,317 407,347 1,071,576 1,065,624
Average interest rate 6.93% 7.00% 7.07% 7.12% 7.25% 7.42%
Pound Sterling denominated 50,960 -- -- -- 21,840 -- 72,800 73,907
Average interest rate 7.05% 6.39% 6.39% 6.39% 6.39% --
Canadian Dollar denominated 15,705 40,833 15,705 -- -- -- 72,243 77,156
Average interest rate 6.58% 6.43% 6.51% -- -- --
Other 2,128 2,124 1,550 1,550 9,999 -- 17,351 17,098
Average interest rate 4.90% 4.85% 4.79% 4.84% 4.72% --
Variable-rate debt:
Dollar denominated/(a)/ 25,000 -- 50,000 -- 215,309 -- 290,309 290,309
Average interest rate 2.90% 4.94% 6.18% 6.54% 6.79% --
Pound Sterling denominated 42,952 -- 21,840 -- 36,400 -- 101,192 101,192
Average interest rate 5.32% 6.30% 6.51% 6.38% 6.17% --
Canadian Dollar denominated -- -- -- -- 57,871 -- 57,871 57,871
Average interest rate 2.47% 3.93% 5.29% 5.94% 6.16% --
Other 9,559 146 -- -- -- -- 9,705 9,705
Average interest rate 5.74% 10.00% -- -- -- --
-----------------------
Total Debt (excluding capital leases) $1,693,047 1,692,862
=======================
/(a)/ Includes commercial paper which is assumed to be renewed through May 2006
. As discussed in the "Debt" note to the consolidated financial statements, the
commercial paper program is supported by the Company's $860 million global
credit facility which is composed of $300 million which matures in May 2002 and
is renewable annually, and $560 million which matures in March 2006 . The
Company classified commercial paper borrowings as long-term debt in the
consolidated balance sheets at December 31, 2001 and 2000.
30
Expected Maturity Date
- ------------------------------------------------------------------------------------------------------------------------------
2000 Years ended December 31
In thousands 2001 2002 2003 2004 2005 Thereafter Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------
Fixed-rate debt:
Dollar denominated $264,300 166,324 75,591 72,099 199,962 406,973 1,185,249 1,120,611
Average interest rate 7.00% 6.96% 7.04% 7.13% 7.21% 7.52%
Pound Sterling denominated 22,397 74,655 -- -- -- -- 97,052 98,186
Average interest rate 8.13% 7.91% -- -- -- --
Canadian Dollar denominated 10,008 33,360 30,024 13,344 -- -- 86,736 90,325
Average interest rate 6.64% 6.57% 6.24% 6.25% -- --
Other 4,238 1,363 1,360 723 723 723 9,130 9,070
Average interest rate 6.77% 5.97% 6.11% 6.31% 6.31% 6.31%
Variable-rate debt:
Dollar denominated -- 447,340 5,000 -- -- -- 452,340 452,340
Average interest rate 6.21% 5.61% 6.26% -- -- --
Pound Sterling denominated 8,212 61,217 -- -- -- -- 69,429 69,429
Average interest rate 5.78% 5.64% -- -- -- --
Canadian Dollar denominated 67,387 -- -- -- -- -- 67,387 67,387
Average interest rate 6.22% -- -- -- -- --
Other 27,440 1,596 123 -- -- -- 29,159 29,159
Average interest rate 6.77% 6.64% 9.25% -- -- --
----------------------
Total Debt (excluding capital leases) $1,996,482 1,936,507
======================
Exposure to market risk for changes in foreign exchange rates relates primarily
to foreign operations' buying, selling and financing in currencies other than
local currencies and to the carrying value of net investments in foreign
subsidiaries. The Company manages its exposure to foreign exchange rate risk
related to foreign operations' buying, selling and financing in currencies other
than local currencies by naturally offsetting assets and liabilities not
denominated in local currencies. The Company also uses foreign currency option
contracts and forward agreements from time to time to hedge foreign currency
transactional exposure. No foreign currency option contracts or forward
agreements were outstanding at December 31, 2001 or 2000.
31
The Company does not generally hedge the translation exposure related to
its net investment in foreign subsidiaries, since the Company generally has no
near-term intent to repatriate funds from such subsidiaries. Based on the
overall level of transactions denominated in other than local currencies, the
lack of transactions between the Company and its foreign subsidiaries and the
level of net investment in foreign subsidiaries, the exposure to market risk for
changes in foreign exchange rates is not material.
Exposure to market risk for fluctuations in fuel prices relates to a
portion of the Company's service contracts for which the cost of fuel is
integral to service delivery and the service contract does not have a mechanism
to adjust for increases in fuel prices. As of December 31, 2001, the Company had
various fuel purchase arrangements in place to ensure delivery of fuel at market
rates in the event of fuel shortages. None of the Company's current fuel
purchase arrangements fix the price of fuel to be purchased and as such the
Company is exposed to fluctuations in fuel prices. Increases and decreases in
the price of fuel are generally passed on to customers and have only a minor
effect on contribution margins. The Company believes the exposure to fuel price
fluctuations would not materially impact the Company's results of operations,
cash flows or financial position.
ENVIRONMENTAL MATTERS
The operations of the Company involve storing and dispensing petroleum products,
primarily diesel fuel, regulated under environmental protection laws. These laws
require the Company to eliminate or mitigate the effect of such substances on
the environment. In response to these requirements, the Company has upgraded
operating facilities and implemented various programs to detect and minimize
contamination.
Capital expenditures related to these programs totaled approximately $2
million in 2001 and 2000. The Company incurred environmental expenses of $7
million, $5 million and $10 million in 2001, 2000 and 1999, respectively, which
included remediation costs as well as normal recurring expenses, such as
licensing, testing and waste disposal fees. The increase in expenses in 2001
reflected the impact of lower claim recoveries compared with 2000. Lower
environmental expenses in 2000 resulted from increased claim recoveries and a
decrease in the number of projects compared with 1999.
The ultimate cost of the Company's environmental liabilities cannot
presently be projected with certainty due to the presence of several unknown
factors, primarily the level of contamination, the effectiveness of selected
remediation methods, the stage of management's investigation at individual sites
and the recoverability of such costs from third parties. Based upon information
presently available, management believes that the ultimate disposition of these
matters, although potentially material to the results of operations in any
single year, will not have a material adverse effect on the Company's financial
condition or liquidity. See "Environmental Matters" in the Notes to Consolidated
Financial Statements for further discussion.
EURO CONVERSION
On January 1, 1999, the participating countries of the European Union adopted
the Euro as their common legal currency. On January 1, 2002, the Euro began
circulation within the participating countries, with the existing national
currencies continuing as legal tender through February 28, 2002, at which time
the existing national currencies were completely removed from circulation. The
Euro was adopted as functional currency in the operations of the Company's
subsidiaries in Germany and Netherlands. At December 31, 2001, total assets were
$22 million and $2 million in Germany and Netherlands, respectively, and equity
was $16 million and $1 million in Germany and Netherlands, respectively. Due to
the nature and small magnitude of current international operations affected by
the Euro conversion, conversion to the Euro did not have a material impact on
the Company's results of operations, cash flows or financial position.
32
ACCOUNTING MATTERS
Critical Accounting Policies
The Company's significant accounting policies are described in the
footnotes to the Company's financial statements. Certain of these policies are
considered to be "critical." That is, they are both the most important to the
financial presentation of the Company's financial condition and results, and
they require management's most difficult, subjective or complex judgements,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.
The following discussion, which should be read in conjunction with the
descriptions in the Notes to Consolidated Financial Statements, is furnished for
additional insight into certain accounting policies that management considers to
be critical.
Self-Insurance Reserves: Management uses a variety of statistical and actuarial
methods that are widely used and accepted in the insurance industry to estimate
required self-insurance reserves. In applying these methods and assessing their
results, management considers such factors as frequency and severity of claims,
claim development and payment patterns and changes in the nature of the
Company's business, among other factors. On an annual basis, the Company's
self-insurance reserves are reviewed for reasonableness by third-party
actuaries. The Company's estimates may be impacted by such factors as increases
in the market price for medical services, unpredictability of the size of jury
awards and limitations inherent in the estimation process, among other factors.
While management believes that self-insurance reserves are adequate, there can
be no assurance that changes to management's estimates may not occur. At
December 31, 2001, self-insurance reserves were $219 million.
Depreciation and Residual Value Guarantees: The Company periodically reviews and
adjusts the residual values and useful lives of revenue earning equipment as
described in "Revenue Earning Equipment, Operating Property and Equipment and
Depreciation" and "Residual Value Guarantees" in the Notes to Consolidated
Financial Statements. Reductions in residual values - the price at which the
Company ultimately expects to dispose of revenue earning equipment - or useful
lives will result in an increase in depreciation expense over the life of the
equipment. The Company reviews residual values and useful lives of revenue
earning equipment on an annual basis or more often if deemed necessary for
specific groups of revenue earning equipment. Reviews are performed based on
vehicle class, generally subcategories of trucks, tractors and trailers by
weight and usage. The Company considers such factors as current and expected
future market price trends on used vehicles, expected life of vehicles included
in the fleet and extent of alternative uses for leased vehicles (e.g. rental
fleet, SCS and DCC applications). Future depreciation expense rates are subject
to change based upon changes in these factors.
The Company also leases vehicles under operating lease agreements. Certain
of these agreements contain limited guarantees for a portion of the residual
values of the equipment. Results of the reviews described above for owned
equipment are also applied to equipment under operating lease. The amount of
residual value guarantees expected to be paid is recognized as rent expense over
the expected remaining term of the lease. At December 31, 2001, total
liabilities for residual value guarantees of $44 million were included in
accrued expenses (for those payable in less than one year) and in other
non-current liabilities. While management believes that the amounts are
adequate, changes to management's estimates of residual value guarantees may
occur due to changes in the market for used vehicles, the condition of the
vehicles at the end of the lease and inherent limitations in the estimation
process.
33
Income Taxes: The Company records a valuation allowance for deferred income tax
assets to reduce such assets to amounts expected to be realized. In determining
the required level of such allowance, the Company considers whether it is more
likely than not that all or some portion of deferred tax assets will not be
realized. This assessment is based on management's expectations as to whether
sufficient taxable income of an appropriate character will be realized within
tax carryback and carryforward periods. Such assessment, and thus the related
valuation allowance, is subject to change based on changes in anticipated future
taxable earnings.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations." SFAS 141 requires the purchase method of accounting for all
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. Adoption of this statement did not have an impact
on the Company's financial position, cash flows or results of operations as no
business combinations were initiated after June 30, 2001.
In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets," which requires, among other things, the discontinuance of goodwill
amortization. SFAS 142 is required to be applied for fiscal years beginning
after December 15, 2001, with certain early adoption permitted. The Company will
adopt SFAS 142 effective January 1, 2002 and is currently assessing its impact
on the Company's financial statements, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect of
a change in accounting principle. However, at the date of this report, it is not
practicable to reasonably estimate the impact of adopting this statement on the
Company's results of operations, cash flows or financial position.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
retirement costs. The Company is in the process of assessing the impact of
adopting SFAS 143, which will be effective for 2003, on its results of
operations, cash flows or financial position.
In August 2001, the FASB issued SFAS No. 144, which amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. SFAS 144 also
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued operations and changes the timing of recognizing losses on such
operations. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001 and will be adopted by the Company effective January 1, 2002. The
Company is currently evaluating the potential impact, if any, the adoption of
SFAS No. 144 will have on its results of operations, cash flows or financial
position.
For further details regarding the above recent accounting pronouncements,
see "Recent Accounting Pronouncements Affecting Future Periods" in the Notes to
Consolidated Financial Statements.
Other Accounting Matters
In January 2001, the Company revised its vacation policy in the U.S.
Starting January 1, 2001, employees earn vacation based on the calendar year
rather than their anniversary date. Additionally, unused earned vacation may not
be carried forward into the next calendar year. At December 31, 2000, the
Company's vacation accrual for U.S. employees was approximately $22 million. As
a result of the policy change, the balance was approximately $3 million at
December 31, 2001 which represents vacation accrual for California employees
where local law did not permit the adoption of the revised policy.
34
FORWARD-LOOKING STATEMENTS
This Annual Report contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based
on the Company's current plans and expectations and involve risks and
uncertainties that may cause actual results to differ materially from the
forward-looking statements. Generally, the words "believe," "expect," "intend,"
"estimate," "anticipate," "will," "may" and similar expressions identify
forward-looking statements.
Important factors that could cause such differences include, among others:
general economic conditions in the U.S. and worldwide; the market for the
Company's used equipment; the highly competitive environment applicable to the
Company's operations (including competition in supply chain solutions from other
logistics companies as well as from air cargo, shippers, railroads and motor
carriers and competition in full service leasing and commercial rental from
companies providing similar services as well as truck and trailer manufacturers
that provide leasing, extended warranty maintenance, rental and other
transportation services); greater than expected expenses associated with the
Company's activities (including increased cost of fuel, freight and
transportation) or personnel needs; availability of equipment; changes in
customers' business environments (or the loss of a significant customer) or
changes in government regulations.
The risks included here are not exhaustive. New risk factors emerge from
time to time and it is not possible for management to predict all such risk
factors or to assess the impact of such risk factors on the Company's business.
Accordingly, the Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by ITEM 7A is included in ITEM 7 (pages 29 through 32)
of PART II of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
Page No.
Independent Auditors' Report.................................. 37
Consolidated Statements of Earnings........................... 38
Consolidated Balance Sheets................................... 39
Consolidated Statements of Cash Flows......................... 40
Consolidated Statements of Shareholders' Equity............... 41
Notes to Consolidated Financial Statements.................... 42
SUPPLEMENTARY DATA
Quarterly Financial and Common Stock Data..................... 74
36
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RYDER SYSTEM, INC.:
We have audited the accompanying consolidated balance sheets of Ryder System,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ryder
System, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Miami, Florida
February 7, 2002
37
Consolidated Statements of Earnings
Ryder System, Inc. and Subsidiaries
In thousands, except per share amounts
- ------------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Revenue $ 5,006,123 5,336,792 4,952,204
- ------------------------------------------------------------------------------------
Operating expense 2,132,500 2,324,433 2,074,888
Salaries and employee-related costs 1,212,184 1,226,558 1,178,831
Freight under management expense 436,413 506,709 496,248
Depreciation expense 545,485 580,356 622,726
Gains on vehicle sales, net (11,968) (19,307) (55,961)
Equipment rental 427,024 373,157 263,484
Interest expense 118,549 154,009 187,176
Miscellaneous (income) expense, net (1,334) 7,542 (8,825)
Unusual items:
Restructuring and other charges, net 116,564 42,014 52,093
Year 2000 expense -- -- 24,050
- ------------------------------------------------------------------------------------
4,975,417 5,195,471 4,834,710
- ------------------------------------------------------------------------------------
Earnings from continuing operations
before income taxes 30,706 141,321 117,494
Provision for income taxes 12,028 52,289 44,577
- ------------------------------------------------------------------------------------
Earnings from continuing operations 18,678 89,032 72,917
Earnings from discontinued operations,
less income taxes -- -- 11,831
Gain on disposal of discontinued
operations, less income taxes -- -- 339,323
- ------------------------------------------------------------------------------------
Earnings before extraordinary loss 18,678 89,032 424,071
Extraordinary loss on early
extinguishment of debt -- -- (4,393)
- ------------------------------------------------------------------------------------
Net earnings $ 18,678 89,032 419,678
====================================================================================
Earnings per common share - Basic:
Continuing operations $ 0.31 1.49 1.06
Discontinued operations -- -- 0.17
Gain on sale of discontinued operations -- -- 4.95
Extraordinary loss on early
extinguishment of debt -- -- (0.06)
- ------------------------------------------------------------------------------------
Net earnings $ 0.31 1.49 6.12
====================================================================================
Earnings per common share - Diluted:
Continuing operations $ 0.31 1.49 1.06
Discontinued operations -- -- 0.17
Gain on sale of discontinued operations -- -- 4.94
Extraordinary loss on early
extinguishment of debt -- -- (0.06)
- ------------------------------------------------------------------------------------
Net earnings $ 0.31 1.49 6.11
====================================================================================
See accompanying notes to consolidated financial statements.
38
Consolidated Balance Sheets
Ryder System, Inc. and Subsidiaries
In thousands, except per share amounts
- --------------------------------------------------------------------------------------------------
December 31 2001 2000
Assets:
Current assets:
Cash and cash equivalents $ 117,866 121,970
Receivables, net of allowance for doubtful accounts of
$10,286 and $9,236, respectively 556,309 399,623
Inventories 65,366 77,810
Tires in service 131,068 158,854
Prepaid expenses and other current assets 111,884 170,019
- --------------------------------------------------------------------------------------------------
Total current assets 982,493 928,276
Revenue earning equipment, net of accumulated depreciation of
$1,590,860 and $1,416,062, respectively 2,479,114 3,012,806
Operating property and equipment, net of accumulated depreciation
of $684,207 and $632,216, respectively 566,883 612,626
Direct financing leases and other assets 705,958 693,097
Intangible assets and deferred charges 189,163 228,118
- --------------------------------------------------------------------------------------------------
$ 4,923,611 5,474,923
==================================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Current portion of long-term debt $ 317,087 412,738
Accounts payable 255,924 379,155
Accrued expenses 440,915 510,411
- --------------------------------------------------------------------------------------------------
Total current liabilities 1,013,926 1,302,304
Long-term debt 1,391,597 1,604,242
Other non-current liabilities 284,274 298,365
Deferred income taxes 1,003,145 1,017,304
- --------------------------------------------------------------------------------------------------
Total liabilities 3,692,942 4,222,215
- --------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock of no par value per share - authorized, 900,000;
none outstanding December 31, 2001 or 2000 -- --
Common stock of $0.50 par value per share -
authorized, 400,000,000; outstanding,
2001 - 60,809,628; 2000 - 60,044,479 537,556 524,432
Retained earnings 750,232 767,802
Deferred compensation (5,304) (3,818)
Accumulated other comprehensive loss (51,815) (35,708)
- --------------------------------------------------------------------------------------------------
Total shareholders' equity 1,230,669 1,252,708
- --------------------------------------------------------------------------------------------------
$ 4,923,611 5,474,923
==================================================================================================
See accompanying notes to consolidated financial statements.
39
Consolidated Statements of Cash Flows
Ryder System, Inc. and Subsidiaries
In thousands
- ----------------------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Continuing operations:
Cash flows from operating activities:
Earnings from continuing operations $ 18,678 89,032 72,917
Depreciation expense 545,485 580,356 622,726
Gains on vehicle sales, net (11,968) (19,307) (55,961)
Amortization expense and other
non-cash charges, net 90,913 32,927 26,236
Deferred income tax (benefit) expense (1,889) 73,239 250,041
Changes in operating assets and liabilities,
net of acquisitions:
(Decrease) increase in aggregate balance
of trade receivables sold (235,000) 270,000 (125,000)
Receivables 78,040 57,250 (129,516)
Inventories 12,444 (7,809) (10,380)
Prepaid expenses and other assets 17,186 (73,299) (33,285)
Accounts payable (136,210) 48,064 (56,261)
Accrued expenses and other
non-current liabilities (68,977) (34,920) (291,698)
- ----------------------------------------------------------------------------------------------
308,702 1,015,533 269,819
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in commercial paper
borrowings (261,732) 109,317 147,671
Debt proceeds 381,901 121,027 314,821
Debt repaid, including capital lease
obligations (413,465) (565,424) (682,517)
Dividends on common stock (36,248) (35,774) (40,878)
Common stock issued 9,845 7,255 7,949
Common stock repurchased -- -- (274,894)
- ----------------------------------------------------------------------------------------------
(319,699) (363,599) (527,848)
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and revenue
earning equipment (656,597) (1,288,784) (1,734,219)
Sales of property and revenue
earning equipment 175,134 229,908 401,902
Sale and leaseback of revenue
earning equipment 410,739 372,953 593,680
Acquisitions, net of cash acquired -- (28,127) (12,699)
Collections on direct finance leases 66,204 67,462 78,408
Proceeds from sale of business 14,113 -- 940,000
Other, net (2,700) 3,631 (39,005)
- ----------------------------------------------------------------------------------------------
6,893 (642,957) 228,067
- ----------------------------------------------------------------------------------------------
Net cash flows from continuing operations (4,104) 8,977 (29,962)
Net cash flows from discontinued operations -- -- 4,602
- ----------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents (4,104) 8,977 (25,360)
Cash and cash equivalents at January 1 121,970 112,993 138,353
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 117,866 121,970 112,993
==============================================================================================
See accompanying notes to consolidated financial statements.
40
Consolidated Statements of Shareholders' Equity
Ryder System, Inc. and Subsidiaries
Accumulated Other
Comprehensive Loss
-----------------------
Currency Minimum
Preferred Common Retained Deferred Translation Pension
Stock Stock Earnings Compensation Adjustments Liability Total
--------- -------- -------- ------------ ----------- --------- -----
In thousands, except per share amounts
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1999 $ -- 610,543 504,105 -- (19,034) -- 1,095,614
- ---------------------------------------------------------------------------------------------------------------------------------
Components of comprehensive income:
Net earnings -- -- 419,678 -- -- -- 419,678
Foreign currency translation
adjustments -- -- -- -- (3,688) -- (3,688)
---------
Total comprehensive income 415,990
Common stock dividends declared
- $0.60 per share -- -- (40,878) -- -- -- (40,878)
Common stock issued under
employee stock option and stock
purchase plans (417,410
shares) -- 8,687 -- -- -- -- 8,687
Common stock repurchased
(12,302,607 shares) -- (106,533) (168,361) -- -- -- (274,894)
Tax benefit from employee
stock options -- 386 -- -- -- -- 386
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 -- 513,083 714,544 -- (22,722) -- 1,204,905
- ---------------------------------------------------------------------------------------------------------------------------------
Components of comprehensive income:
Net earnings -- -- 89,032 -- -- -- 89,032
Foreign currency translation
adjustments -- -- -- -- (12,986) -- (12,986)
---------
Total comprehensive income 76,046
Common stock dividends
declared - $0.60 per share -- -- (35,774) -- -- -- (35,774)
Common stock issued under
employee stock option and stock
purchase plans (649,528 shares) -- 10,957 -- (4,315) -- -- 6,642
Tax benefit from employee
stock options -- 392 -- -- -- -- 392
Amortization of restricted stock -- -- -- 497 -- -- 497
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 -- 524,432 767,802 (3,818) (35,708) -- 1,252,708
- ---------------------------------------------------------------------------------------------------------------------------------
Components of comprehensive income:
Net earnings -- -- 18,678 -- -- -- 18,678
Foreign currency translation
adjustments -- -- -- -- (14,862) -- (14,862)
Additional minimum pension
liability adjustment -- -- -- -- -- (1,245) (1,245)
---------
Total comprehensive income 2,571
Common stock dividends
declared - $0.60 per share -- -- (36,248) -- -- -- (36,248)
Common stock issued under
employee stock option and stock
purchase plans (779,919, shares)* -- 12,444 -- (2,825) -- -- 9,619
Tax benefit from employee
stock options -- 680 -- -- -- -- 680
Amortization of restricted stock -- -- -- 1,339 -- -- 1,339
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ -- 537,556 750,232 (5,304) (50,570) (1,245) 1,230,669
=================================================================================================================================
* Net of common stock purchased from employees exercising stock options.
See accompanying notes to consolidated financial statements.
41
Notes to Consolidated Financial Statements
Ryder System, Inc. and Subsidiaries
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Ryder System,
Inc. and its subsidiaries (the "Company"). All significant inter-company
accounts and transactions have been eliminated. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash Equivalents
All investments in highly liquid debt instruments with maturities of three
months or less at the date of purchase are classified as cash equivalents.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the revenue amount is fixed or determinable and
collectibility is probable. Operating lease and rental revenue is recognized as
vehicles are used over the terms of the related agreements. Direct financing
lease revenue is recognized by the interest method over the terms of the lease
agreements. Fuel revenue is recognized when fuel is delivered to customers.
Revenue from Supply Chain Solutions (SCS) and Dedicated Contract Carriage (DCC)
contracts is recognized as services are provided at billing rates specified in
the underlying contracts.
Inventories
Inventories, which consist primarily of fuel and vehicle parts, are valued
using the lower of cost (specific identification or average cost) or market.
Tires in Service
The Company allocates a portion of the acquisition costs of revenue earning
equipment to tires in service and amortizes such tire costs to expense over the
lives of the vehicles and equipment. The cost of replacement tires and tire
repairs are expensed as incurred.
Revenue Earning Equipment, Operating Property and Equipment and Depreciation
Revenue earning equipment, principally vehicles, and operating property and
equipment are stated at cost. Revenue earning equipment and operating property
and equipment under capital lease is stated at the present value of minimum
payments. Vehicle repairs and maintenance that extend the life or increase the
value of a vehicle are capitalized, whereas ordinary maintenance and repairs are
expensed as incurred. Direct development costs incurred in connection with
developing or obtaining internal use software are capitalized. Costs incurred
during the preliminary project stage, as well as maintenance and training costs
are expensed as incurred.
42
Provision for depreciation is computed using the straight-line method on
substantially all depreciable assets. Annual straight-line depreciation rates
range from 10 to 33 percent for revenue earning equipment, 2.5 to 10 percent for
buildings and improvements and 10 to 33 percent for machinery and equipment. The
Company periodically reviews and adjusts the residual values and useful lives of
revenue earning equipment based on current and expected operating trends and
projected realizable values. Gains on operating property and equipment sales are
reflected in miscellaneous (income) expense, net.
The Company routinely disposes of revenue earning equipment as part of its
business. Revenue earning equipment held for sale is stated at the lower of
carrying amount or fair value less costs to sell. Adjustments to the carrying
value of assets are reported as depreciation expense. The Company stratifies its
revenue earning equipment to be disposed of by vehicle type (tractors, trucks,
trailers), weight class, age and other characteristics, as relevant, and creates
classes of similar assets for analysis purposes. Fair value is determined based
upon recent market prices for sales of each class of similar assets, vehicle
condition, as well as projected trends in market prices up to the anticipated
date of sale. The net carrying value for revenue earning equipment held for sale
was $45 million and $49 million in 2001 and 2000, respectively.
Intangible Assets
Intangible assets consist principally of goodwill totaling $166 million in
2001 and $206 million in 2000. Goodwill, which represents the excess of purchase
price over fair value of net assets acquired, is amortized on a straight-line
basis over appropriate periods ranging from 10 to 40 years. Accumulated
amortization was approximately $134 million and $121 million at December 31,
2001 and 2000, respectively. Amortization expense was $13 million, $12 million
and $14 million in 2001, 2000 and 1999, respectively.
Impairment of Long-Lived Assets
Long-lived assets, including intangible assets, are reviewed for impairment
when circumstances indicate that the carrying amount of assets may not be
recoverable. The Company assesses the recoverability of long-lived assets by
determining whether the depreciation or amortization of the asset over its
remaining life can be recovered based upon management's best estimate of the
undiscounted future operating cash flows (excluding interest charges) related to
the asset. If the sum of such undiscounted cash flows is less than the carrying
value of the asset, the asset is considered impaired. The amount of impairment,
if any, represents the excess of the carrying value of the asset over fair
value. Fair value is determined by quoted market price, if available, or an
estimate of projected future operating cash flows, discounted using a rate that
reflects the Company's average cost of funds.
Long-lived assets, including intangible assets, to be disposed of are
reported at the lower of carrying amount or fair value less costs to sell. Fair
value is determined based upon quoted market prices, if available, or the
results of applicable valuation techniques such as discounted cash flows and
independent appraisal.
Self-insurance Reserves
The Company retains a portion of the accident risk under vehicle liability,
workers' compensation and other insurance programs. Under the Company's
insurance programs, it retains the risk of loss in various amounts up to $1
million on a per occurrence basis. The Company maintains additional insurance at
certain amounts in excess of its respective underlying retention.
Reserves have been recorded which reflect the undiscounted estimated
liabilities, including claims incurred but not reported. Such liabilities are
necessarily based on estimates. While management believes that the amounts are
adequate, there can be no assurance that changes to management's estimates may
not occur due to limitations inherent in the estimation process. Changes in the
estimates of these reserves are charged or credited to earnings in the period
determined. Amounts estimated to be paid within one year have been classified as
accrued expenses with the remainder included in other non-current liabilities.
43
Residual Value Guarantees
The Company periodically enters into agreements for the sale and operating
leaseback of revenue earning equipment. These leases contain purchase and/or
renewal options as well as limited guarantees of the lessor's residual value
("residual value guarantees").
The Company periodically reviews the residual values of revenue earning
equipment that it leases from third parties and its exposures under residual
value guarantees. The review is conducted in a similar manner to that used to
analyze residual values and fair values of revenue earning equipment that the
Company owns. The amount of residual value guarantees expected to be paid is
recognized as rent expense over the expected remaining term of the lease.
Adjustments in the estimate of residual value guarantees are recognized
prospectively over the expected remaining lease term. While management believes
that the amounts are adequate, changes to management's estimates of residual
value guarantees may occur due to changes in the market for used vehicles, the
condition of the vehicles at the end of the lease and inherent limitations in
the estimation process.
Income Taxes
Deferred taxes are provided using the asset and liability method for
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Environmental Expenditures
Liabilities are recorded for environmental assessments and/or cleanup when
it is probable a loss has been incurred and the costs can be reasonably
estimated. The liability may include costs such as anticipated site testing,
consulting, remediation, disposal, post-remediation monitoring and legal fees,
as appropriate. Estimates are not discounted. The liability does not reflect
possible recoveries from insurance companies or reimbursement of remediation
costs by state agencies, but does include estimates of cost-sharing with other
potentially responsible parties. Claims for reimbursement of remediation costs
are recorded when recovery is deemed probable.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as amended,
requires all derivatives, including certain derivatives embedded in other
contracts, to be recognized at fair value as either assets or liabilities on the
balance sheet and establishes new accounting rules for hedging activities. The
Company adopted SFAS No. 133 on January 1, 2001. Adoption of this statement did
not have an impact on the Company's financial position, cash flows or results of
operations.
All derivatives are recognized on the balance sheet at their fair value. On
the date a derivative contract is entered into, the Company designates the
derivative as either a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment ("fair value" hedge), a hedge of
a forecasted transaction or the variability of cash flows to be received or paid
related to a recognized asset or liability ("cash flow" hedge), a foreign
currency fair value or cash flow hedge ("foreign currency" hedge) or a hedge of
a net investment in a foreign operation. The Company formally documents all
relationships between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions.
This process includes linking all derivatives that are designated as fair value,
cash flow or foreign currency hedges to specific assets and liabilities on the
balance sheet or to specific firm commitments or forecasted transactions. The
Company also formally assesses, both at the hedge's inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
When it is determined that a derivative is not highly effective as a hedge or
that it has ceased to be a highly effective hedge, the Company discontinues
hedge accounting prospectively.
44
Changes in the fair value of a derivative that is highly effective and that
is designated and qualifies as a fair value hedge, along with the loss or gain
on the hedged asset or liability or unrecognized firm commitment of the hedged
item that is attributable to the hedged risk are recorded in interest expense.
Changes in the fair value of a derivative that is highly effective and that is
designated and qualifies as a cash flow hedge are recorded in other
comprehensive income until earnings are affected by the variability in cash
flows of the designated hedged item. Changes in the fair value of derivatives
that are highly effective as hedges and that are designated and qualify as
foreign currency hedges are recorded in either earnings or other comprehensive
income, depending on whether the hedge transaction is a fair value hedge or a
cash flow hedge. However, if a derivative is used as a hedge of a net investment
in a foreign operation, its changes in fair value, to the extent effective as a
hedge, are recorded in the cumulative translation adjustments account within
other comprehensive income. Changes in the fair value of derivative instruments
that are not designated as a hedge or do not qualify for hedge accounting are
reported in current-period earnings.
The Company discontinues hedge accounting prospectively when it is
determined that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of the hedged item, the derivative expires or is
sold, terminated or exercised, the derivative is redesignated as a hedging
instrument because it is unlikely that a forecasted transaction will occur, a
hedged firm commitment no longer meets the definition of a firm commitment or
management determines that designation of the derivative as a hedging instrument
is no longer appropriate.
When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair-value hedge, the Company
continues to carry the derivative on the balance sheet at its fair value and no
longer adjusts the hedged asset or liability for changes in fair value. The
adjustment of the carrying amount of the hedged asset or liability is accounted
for in the same manner as other components of the carrying amount of that asset
or liability. When hedge accounting is discontinued because the hedged item no
longer meets the definition of a firm commitment, the Company continues to carry
the derivative on the balance sheet at its fair value, removes any asset or
liability that was recorded pursuant to recognition of the firm commitment from
the balance sheet and recognizes any gain or loss in earnings. In all other
situations in which hedge accounting is discontinued, the Company continues to
carry the derivative at its fair value on the balance sheet and recognizes any
changes in its fair value in earnings.
At December 31, 2001, the only derivative instrument the Company held was
an interest rate swap with a notional value of $22 million. The swap was
accounted for as a cash flow hedge and the fair value was immaterial. No
interest rate swaps were outstanding at December 31, 2000. The Company uses
foreign currency option contracts and forward agreements from time to time to
hedge foreign currency transactional exposure. No foreign currency option
contracts or forward agreements or any other derivative instruments were
outstanding at December 31, 2001 or 2000 or entered into during the three year
period ended December 31, 2001, other than the interest rate swap noted above.
Derivative financial instruments are not leveraged or held for trading purposes.
Foreign Currency Translation
The Company's foreign operations generally use the local currency as their
functional currency. Assets and liabilities of these operations are translated
at the exchange rates in effect on the balance sheet date. If exchangeability
between the functional currency and the U.S. Dollar is temporarily lacking at
the balance sheet date, the first subsequent rate at which exchanges can be made
is used to translate assets and liabilities. Income statement items are
translated at the average exchange rates for the year. The impact of currency
fluctuations is included in accumulated other comprehensive loss as a currency
translation adjustment. For subsidiaries whose economic environment is highly
inflationary, the U.S. Dollar is the functional currency and gains and losses
that result from translation are included in earnings.
45
Stock Repurchases
The cost of stock repurchases is allocated between common stock and
retained earnings based on the amount of capital surplus at the time of the
stock repurchase.
Stock-based Compensation
Stock-based compensation is recognized using the intrinsic value method.
Under this method, compensation cost is recognized based on the excess, if any,
of the quoted market price of the stock at the date of grant (or other
measurement date) and the amount an employee must pay to acquire the stock.
Earnings Per Share
Basic earnings per share are computed by dividing net earnings by the
weighted average number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of potential common shares from securities such as
stock options and restricted stock grants.
Comprehensive Income
Comprehensive income presents a measure of all changes in shareholders'
equity except for changes resulting from transactions with shareholders in their
capacity as shareholders. The Company's total comprehensive income presently
consists of net earnings, currency translation adjustments associated with
foreign operations that use the local currency as their functional currency and
a minimum pension liability.
Fair Value of Financial Instruments
The fair value of debt is presented in the "Debt" note. The fair values of
all other financial instruments approximate their carrying amounts.
Accounting Changes
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities (the "Transfer" provisions) occurring after March 31, 2001, and is
effective for recognition and reclassification of collateral and for disclosures
relating to sale-leaseback transactions and collateral (the "Disclosure")
provisions for fiscal years ending after December 15, 2000. The Company adopted
the Disclosure provisions of SFAS No. 140 in the fiscal year ended December 31,
2000 and adopted the Transfer provisions for transactions subsequent to March
31, 2001. Adoption of this statement did not have a material impact on the
Company's financial position and did not impact cash flows or results of
operations.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. SFAS No. 141 also specifies
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. The
Company adopted the provisions of SFAS No. 141 as of July 1, 2001. Adoption of
SFAS 141 did not have any impact on the Company's financial position, cash flows
or results of operations as no business combinations were initiated after June
30, 2001.
46
Recent Accounting Pronouncements Affecting Future Periods
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but rather, be tested for impairment at
least annually. SFAS No. 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values. Additionally, a review for impairment is required to
be made consistent with the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
The Company will adopt the provisions of SFAS No. 142 effective January 1,
2002. As part of the adoption of SFAS No. 142, the Company is first required to
evaluate its existing intangible assets and goodwill that were acquired in prior
purchase business combinations and make any necessary reclassifications in order
to conform with the new criteria in SFAS No. 141 for recognition apart from
goodwill. The Company is then required to reassess the useful lives and residual
values of all intangible assets acquired in purchase business combinations,
including those reclassified from goodwill, and make any necessary amortization
period adjustments by March 31, 2002. To the extent an intangible asset is
identified as having an indefinite useful life, SFAS No. 142 requires the
Company to test the intangible asset for impairment consistent with the
provisions of SFAS No. 142 within the first quarter of 2002. Any impairment loss
representing the excess of carrying amount over fair value will be measured as
of January 1, 2002 and recognized as a cumulative effect of a change in
accounting principle in the Company's Consolidated Statements of Earnings for
the first quarter of 2002.
After identifying and assessing intangible assets, as discussed above, SFAS
No. 142 requires the Company to perform an assessment of whether there is an
indication that the remaining recorded goodwill is impaired as of the date of
adoption. This involves a two-step transitional impairment test. To accomplish
this, the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of
January 1, 2002. The first step of the transitional impairment test requires the
Company, within the first six months of 2002, to determine the fair value of
each reporting unit and compare it to the reporting unit's carrying amount. To
the extent that a reporting unit's carrying amount exceeds its fair value, an
indication exists that the reporting unit's goodwill may be impaired and the
Company must perform the second step of the transitional impairment test. The
second step of the transitional impairment test requires the Company to compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its recognized and
unrecognized assets and liabilities in a manner similar to a purchase price
allocation consistent with SFAS No. 141, to its carrying amount, both of which
would be measured as of January 1, 2002. The residual fair value after this
allocation is the implicit fair value of the reporting unit's goodwill. This
second step is required to be completed as soon as possible, but no later than
December 31, 2002. Any transitional impairment loss will be recognized as a
cumulative effect of a change in accounting principle in the Company's
Consolidated Statements of Earnings for 2002.
At December 31, 2001, intangible assets and deferred charges included
goodwill and intangible assets of $177 million subject to SFAS No. 142.
Amortization expense related to goodwill and intangible assets was $13 million
for the year ended December 31, 2001. The Company is currently assessing the
impact of the adoption of SFAS No. 142, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect of
a change in accounting principle. However, at the date of this report, it is not
practicable to reasonably estimate the impact of adopting this statement on the
Company's results of operations, cash flows or financial position.
47
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development and/or normal use of
the assets. When the liability is initially recorded, the Company is required to
capitalize a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period and
the capitalized cost is depreciated over the useful life of the related asset.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 and
will be adopted by the Company effective January 1, 2003. The Company is
currently evaluating the potential impact, if any, the adoption of SFAS No. 143
will have on its results of operations, cash flows or financial position.
In August 2001, the FASB issued SFAS No. 144, which amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. SFAS 144 also
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued operations and changes the timing of recognizing losses on such
operations. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001 and will be adopted by the Company effective January 1, 2002. The
Company is currently evaluating the potential impact, if any, the adoption of
SFAS No. 144 will have on its results of operations, cash flows or financial
position.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
ACQUISITIONS
No acquisitions were completed in 2001. In 2000 and 1999, the Company completed
a few immaterial acquisitions, all of which have been accounted for using the
purchase method of accounting. The consolidated financial statements reflect the
results of operations of the acquired businesses from the acquisition dates. Pro
forma results of operations have not been presented because the effects of these
acquisitions were not significant. The fair value of assets acquired and
liabilities assumed in connection with these acquisitions, and related purchase
prices, were as follows:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2000 1999
Net assets acquired $ 9,024 10,413
Goodwill 19,103 2,286
- --------------------------------------------------------------------------------
Purchase price $28,127 12,699
================================================================================
48
DIVESTITURES
On September 13, 1999, the Company completed the sale of its public
transportation services business (RPTS) for $940 million in cash and realized a
$339 million after-tax gain ($4.94 per diluted common share). The RPTS disposal
has been accounted for as discontinued operations and accordingly, its operating
results and cash flows are segregated and reported as discontinued operations in
the accompanying consolidated financial statements.
Summarized results of discontinued operations in 1999 were as follows:
In thousands
- --------------------------------------------------------------------------------
Revenue $ 411,743
================================================================================
Earnings before income taxes $ 20,050
Provision for income taxes 8,219
- --------------------------------------------------------------------------------
Earnings from discontinued operations $ 11,831
================================================================================
Gain on disposal $ 573,178
Income taxes 233,855
- --------------------------------------------------------------------------------
Net gain on disposal $ 339,323
================================================================================
Interest expense was allocated to discontinued operations based upon an assumed
debt-to-equity ratio consistent with the Company's historical interest
allocation method for segment reporting. Interest expense of $8 million was
included in the operating results of discontinued operations in 1999. The
results of discontinued operations exclude management fees and branch overhead
charges allocated by the Company and previously included in segment reporting.
The gain on disposal of discontinued operations is net of direct transaction
costs, gains on the settlement and curtailment of certain employee benefit plans
and exit costs to separate the discontinued business.
49
RESTRUCTURING AND OTHER CHARGES, NET
The components of restructuring and other charges and the allocation across
business segments were as follows:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Restructuring charges (recoveries):
Severance and employee-
related costs:
Shutdown of U.K. home
delivery network $ 2,593 -- --
Other 27,845 (1,077) 16,500
- --------------------------------------------------------------------------------
Total severance and
employee-related costs 30,438 (1,077) 16,500
Facilities and related costs 6,261 (2,009) 4,478
- --------------------------------------------------------------------------------
36,699 (3,086) 20,978
Other charges (recoveries):
Cancellation of IT project 21,727 -- --
Goodwill impairment 13,823 -- --
Shutdown of U.K. home
delivery network 12,862 -- --
Contract termination costs 11,204 -- --
Strategic consulting fees 8,586 958 3,935
Asset write-downs 7,273 41,100 14,215
Write-down of
software licenses 5,311 -- --
Loss on the sale of business 3,512 -- --
Start-up costs -- -- 7,970
Other (recoveries) charges, net (4,433) 3,042 4,995
- --------------------------------------------------------------------------------
$ 116,564 42,014 52,093
================================================================================
Allocation of restructuring and other charges across business segments in 2001,
2000 and 1999 is as follows:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Fleet Management Solutions $ 38,268 38,992 24,403
Supply Chain Solutions 56,221 2,422 5,773
Dedicated Contract Carriage 964 -- --
Central Support Services 21,111 600 21,917
- --------------------------------------------------------------------------------
$116,564 42,014 52,093
================================================================================
50
2001 Charges
During the third quarter of 2001, the Company initiated the shutdown of
Systemcare, Ryder's shared-user home delivery network in the U.K. The shutdown
was initiated as a result of management's review of future prospects for the
operation in light of historical and anticipated operating losses. Such review
was performed in conjunction with its restructuring initiatives. The shutdown
will be completed after meeting contractual obligations to current customers,
which extend to December 31, 2002. The charge related to the Systemcare shutdown
totaled $15 million and included severance and employee-related costs of $3
million. The remainder of the charge, reported in other charges (recoveries),
includes a goodwill impairment of $11 million and asset impairment charges,
primarily for specialized vehicles to be disposed of within 12 months after the
shutdown of Systemcare's operations, of $2 million.
In late 2000, the Company communicated to its employees its planned
strategic initiatives to reduce Company expenses. As part of such initiatives,
the Company reviewed employee functions and staffing levels to eliminate
redundant work or otherwise restructure work in a manner that led to a workforce
reduction. The process resulted in terminations of over 1,400 employees during
2001. Other severance and employee-related costs of $28 million included in 2001
represent termination benefits to employees whose jobs were eliminated as part
of this review.
During 2001, the Company identified more than 55 facilities in the U.S. and
in other countries to be closed in order to improve profitability. Facilities
and related costs of $6 million in 2001 represent contractual lease obligations
for closed facilities.
Other charges (recoveries) represent asset impairments and other unusual
costs associated with the Company's strategic restructuring initiatives.
The Company's strategic initiatives during 2001 resulted in the
cancellation of certain information technology projects, incurred strategic
consulting fees, planned shutdown and sale of certain operating units, contract
terminations and abandonment of certain assets, primarily technology, that will
no longer be used.
During the fourth quarter of 2001, the Company identified certain operating
units for which current circumstances indicated that the carrying amount of
long-lived assets, in particular goodwill, may not be recoverable. The Company
assessed the recoverability of these long-lived assets and determined that the
goodwill related to these operating units was not recoverable. See "Summary of
Significant Accounting Policies" for the Company's policy on impairment of
long-lived assets. In addition to the aforementioned goodwill impairment in the
Systemcare operations, goodwill impairment charges in 2001, all of which related
to SCS operating units, are summarized as follows:
In thousands
- --------------------------------------------------------------------------------
Ryder Argentina $ 9,130
Ryder Brazil 3,706
Other 987
- --------------------------------------------------------------------------------
$ 13,823
================================================================================
Goodwill impairment in Ryder Argentina was triggered by the significant adverse
change in the business climate in Argentina in the fourth quarter of 2001 that
led to a devaluation of the Argentine Peso, breakdowns in the Argentine banking
system and repeated turnover in the country's leadership. These factors,
combined with a history of operating losses and anticipated future operating
losses, led to goodwill impairment. Goodwill of $9 million was considered
impaired and was written-down in December 2001. At December 31, 2001, Ryder
Argentina had total assets of $8 million and total equity of $4 million. The
Company is currently committed to continuing to operate in Argentina in order to
serve its global accounts, which it believes are profitable when considered on a
worldwide basis.
51
During the fourth quarter of 2001, the Company reviewed goodwill associated
with its remaining investment in Ryder Brazil for impairment. Subsequent to the
sale of the contracts and related net assets associated with the disposal of the
Company's outbound auto carriage business in Ryder Brazil, the Company made a
significant effort to restructure the operations of Ryder Brazil. However, such
restructuring was not sufficient to offset the impact of lost business, the
side-effects of the Argentine economic crisis and the marginal historical and
anticipated cash flows related to the remaining business. At December 31, 2001,
Ryder Brazil had total assets of $18 million and total equity of $6 million.
Like Argentina, the Company is currently committed to operate in Brazil in order
to serve its global accounts, which it believes are profitable when considered
on a worldwide basis. As a result of the Company's analysis, goodwill of $4
million was considered impaired and was written-down in December 2001.
2000 Charges
In 2000, severance and employee-related costs that had been recorded in the
1999 restructuring were reversed due to refinements in estimates. Facilities and
related costs reflect $2 million of recoveries in 2000 for charges recorded in
the 1999 and 1996 restructuring.
A charge of $958,000 for consulting fees was incurred during 2000 related
to the completion of the Company's 1999 profitability improvement study.
In 2000, an asset write-down of $41 million resulted from the rapid
industry-wide downturn in the market for new and used "Class 8" vehicles (the
largest heavy-duty tractors and straight trucks) which led to a decrease in the
market value of used tractors during the second half of 2000. The Company's
unsold Class 8 inventory consists of units previously used by customers of the
Fleet Management Solutions (FMS) segment. Approximately $15 million of the
charge related to tractors held for sale and identified in 2000 as increasingly
undesirable and unmarketable due to lower-powered engines or a potential lack of
future support for parts and service. The remainder of the charge related to
other owned and leased tractors held for sale for which estimated fair value
less costs to sell declined below carrying value (or termination value, which
represents the final payment due to lessors, in the case of leased units) in
2000. These charges were slightly offset with gains of $570,000 on vehicles sold
in the U.K. during 2000, for which an impairment charge had been recorded in the
1999 restructuring.
During 2000, the Company settled long-standing litigation with a former
customer, OfficeMax, relating to a logistics services agreement that was
terminated in 1997. In 2000, other net charges includes $4 million in impairment
charges related to the write-down, net of recoveries, of certain assets related
to the OfficeMax contract offset by $1 million in the reversal of certain other
charges recorded in the 1999 restructuring.
1999 Charges
During 1999, the Company implemented several restructuring initiatives
designed to improve profitability and align the organizational structure with
the strategic direction of the Company. The restructuring initiatives resulted
in identification of approximately 250 employees whose jobs were terminated.
Contractual lease obligations associated with facilities to be closed as a
result of the restructuring amounted to $4 million. Strategic consulting fees of
$4 million were incurred during 1999 in relation to that year's restructuring
initiatives.
The Company also recorded asset impairments of $14 million in 1999 for
certain classes of specialized used vehicles, real estate and other assets held
for sale and software development projects that would not be implemented or
further utilized in the future. The Company also identified certain assets that
would be sold or for which development would be abandoned as a result of the
restructuring. During 1999, the Company also restructured its FMS operations in
the U.K. following the 1998 decision to retain the business.
52
In conjunction with the 1999 restructuring, the Company formed a captive
insurance subsidiary under which the Company's various self-insurance programs
are administered. Costs incurred related to the start-up of this entity totaled
$8 million. The Company also recorded $5 million for other costs incurred in
connection with the restructuring initiatives.
The following tables present a rollforward of the activity and balances of
the restructuring reserve account for the years ended December 31, 2001 and
2000:
In thousands
- --------------------------------------------------------------------------------
Dec. 31 Dec. 31
2000 2001 2001
- --------------------------------------------------------------------------------
Balance Additions Deductions Balance
Employee severance
and benefits $ 3,908 30,438 20,296 14,050
Facilities and related costs 2,012 6,261 2,506 5,767
- --------------------------------------------------------------------------------
$ 5,920 36,699 22,802 19,817
================================================================================
In thousands
- --------------------------------------------------------------------------------
Dec. 31 Dec. 31
1999 2000 2000
- --------------------------------------------------------------------------------
Balance Additions Deductions Balance
Employee severance
and benefits $13,017 -- 9,109 3,908
Facilities and related costs 7,182 -- 5,170 2,012
- --------------------------------------------------------------------------------
$20,199 -- 14,279 5,920
================================================================================
Additions relate to liabilities for employee severance and benefits and lease
obligations on facility closures, all incurred in 2001. Deductions include cash
payments of $21 million and $11 million and prior year charge reversals of $2
million and $3 million in 2001 and 2000, respectively. At December 31, 2001,
employee severance and benefits obligations are required to be paid over the
next three years. At December 31, 2001, lease obligations are noncancelable and
contractually required to be paid principally over the next three years.
RECEIVABLES
In thousands
- --------------------------------------------------------------------------------
December 31 2001 2000
Trade receivables, prior to sale $ 614,306 667,953
Receivable sold (110,000) (345,000)
- --------------------------------------------------------------------------------
Trade receivables 504,306 322,953
Financing lease 62,211 60,534
Other 78 25,372
- --------------------------------------------------------------------------------
566,595 408,859
Allowance (10,286) (9,236)
- --------------------------------------------------------------------------------
$ 556,309 399,623
================================================================================
53
The Company sells certain trade receivables (the "Receivables") in order to fund
the Company's operations, particularly when the cost of such sales is cost
effective compared with other means of funding, notably, commercial paper. The
Receivables are sold by the Company to a special purpose entity, Ryder
Receivables Funding LLC ("RRF LLC"). RRF LLC, a bankruptcy remote, consolidated
subsidiary of the Company, is a single-member limited liability corporation
established in the state of Florida and represents a separate corporate entity
whose separate existence is relied upon by third parties choosing to enter into
transactions with RRF LLC.
Under the terms of a trade receivables purchase and sales agreement (the
"Trade Receivables Agreement") entered into between RRF LLC and certain
unrelated commercial entities, RRF LLC may sell up to a maximum of $375 million
of the Receivables, on a revolving basis, to these entities (the "Purchasers").
Upon a sale, the Purchasers receive undivided percentage ownership interests in
the Receivables sold. The Receivables are sold at a loss, which approximates the
Purchaser's financing cost of issuing its own commercial paper. The Purchaser's
commercial paper is backed by its collective investment in pooled receivables
purchased from multiple entities, including RRF LLC. The Company is responsible
for servicing the Receivables but has no retained interests in the Receivables.
The Trade Receivables Agreement contains certain defined events, including
a specified downgrade in any of the Company's unsecured long-term public senior
debt securities, which in the event of occurrence, would terminate any future
sales under the Trade Receivables Agreement. The Receivables are sold to the
Purchasers with limited recourse for uncollectible receivables. RRF LLC records
estimates of losses under the recourse provision, the amount of which is
included in the allowance for doubtful accounts. The total amount of available
recourse as of December 31, 2001 was approximately $14 million.
At December 31, 2001 and 2000, the outstanding balance of receivables sold
was $110 million and $345 million, respectively. The losses on the sale of the
Receivables were $9 million in 2001, $17 million in 2000 and $10 million in 1999
and are included in miscellaneous (income) expense, net.
REVENUE EARNING EQUIPMENT
In thousands
- --------------------------------------------------------------------------------
December 31 2001 2000
Full service lease $ 2,901,623 3,227,830
Commercial rental 1,168,351 1,201,038
- --------------------------------------------------------------------------------
4,069,974 4,428,868
Accumulated depreciation (1,590,860) (1,416,062)
- --------------------------------------------------------------------------------
$ 2,479,114 3,012,806
================================================================================
54
OPERATING PROPERTY AND EQUIPMENT
In thousands
- --------------------------------------------------------------------------------
December 31 2001 2000
Land $ 106,441 107,853
Buildings and improvements 574,539 559,707
Machinery and equipment 494,388 462,631
Other 75,722 114,651
- --------------------------------------------------------------------------------
1,251,090 1,244,842
Accumulated depreciation (684,207) (632,216)
- --------------------------------------------------------------------------------
$ 566,883 612,626
================================================================================
DIRECT FINANCING LEASES AND OTHER ASSETS
In thousands
- --------------------------------------------------------------------------------
December 31 2001 2000
Direct financing leases $413,075 427,862
Prepaid pension benefit cost 159,214 145,546
Vehicle securitization credit
enhancement 60,477 27,741
Investments held in Rabbi Trust 37,133 37,661
Other 36,059 54,287
- --------------------------------------------------------------------------------
$705,958 693,097
================================================================================
ACCRUED EXPENSES AND OTHER NON-CURRENT LIABILITIES
In thousands
- --------------------------------------------------------------------------------
December 31 2001 2000
Salaries and wages $ 84,815 104,166
Employee benefits 31,000 22,397
Interest 17,403 19,682
Operating taxes 79,110 75,595
Income taxes 2,124 --
Self-insurance reserves 218,786 228,452
Postretirement benefits
other than pensions 37,916 38,274
Vehicle rent and related accruals 105,813 160,579
Environmental liabilities 12,182 14,174
Restructuring 19,817 5,920
Other 116,223 139,537
- --------------------------------------------------------------------------------
725,189 808,776
Non-current portion (284,274) (298,365)
- --------------------------------------------------------------------------------
Accrued expenses $ 440,915 510,411
================================================================================
55
LEASES
Operating Leases as Lessor
One of the Company's major product lines is full service leasing of
commercial trucks, tractors and trailers. These lease agreements provide for a
fixed time charge plus a fixed per-mile charge. A portion of these charges is
often adjusted in accordance with changes in the Consumer Price Index.
Contingent rentals included in income during 2001, 2000 and 1999 were $259
million, $268 million and $263 million, respectively.
Direct Financing Leases
The Company also leases revenue earning equipment to customers as direct
financing leases. The net investment in direct financing leases consisted of:
In thousands
- --------------------------------------------------------------------------------
December 31 2001 2000
Minimum lease payments receivable $ 868,373 915,914
Executory costs and unearned income (476,722) (506,880)
Unguaranteed residuals 83,635 79,362
- --------------------------------------------------------------------------------
Net investment in direct financing leases 475,286 488,396
Current portion (62,211) (60,534)
- --------------------------------------------------------------------------------
Non-current portion $ 413,075 427,862
================================================================================
Contingent rentals included in income were $29 million in 2001, $30 million in
2000 and $26 million in 1999.
Operating Lease as Lessee
The Company leases vehicles, facilities and office equipment under
operating lease agreements. The majority of these agreements are vehicle leases
which specify that rental payments be adjusted periodically based on changes in
interest rates and provide for early termination at stipulated values.
During 2001, 2000 and 1999, the Company entered into several agreements for
the sale and operating leaseback of revenue earning equipment. Proceeds from
these transactions totaled $411 million in 2001, $373 million in 2000 and $594
million in 1999. The leases contain purchase and/or renewal options, as well as
limited guarantees of the lessor's residual value. The reserve for residual
value guarantees was $44 million and $55 million at December 31, 2001 and 2000,
respectively. Such amounts are included in accrued expenses (for those payable
in less than one year) and in other non-current liabilities.
Included in the sale-leaseback transactions in 2001 and 1999 were vehicle
securitization transactions in which the Company sold a beneficial interest in
certain leased vehicles to separately rated and unconsolidated vehicle lease
trusts. Such securitizations generated cash proceeds of $411 million and $294
million in 2001 and 1999, respectively (which are included in the proceeds from
sale-leaseback transactions in the previous paragraph). The vehicles were sold
for approximately their carrying value. The Company is obligated to make lease
payments only to the extent of collections on the related vehicle leases and
vehicle sales.
56
The Company retained an interest in the cash flows related to the vehicles
in the form of a subordinated note issued at the date of each sale. The Company
has provided credit enhancement in the form of cash reserve funds and a pledge
of the subordinated notes, including interest thereon, as additional security
for the trusts to the extent that delinquencies and losses on the truck leases
and related vehicle sales are incurred. As of December 31, 2001 and 2000, credit
enhancements maintained by the Company totaled $60 million and $28 million,
respectively, and are included in direct financing leases and other assets. The
trusts rely on collections from the leases on the vehicles in which the trusts
have beneficial ownership, sales proceeds from the disposition of such vehicles
and cash reserve funds to make payments to investors. The trusts are solely
liable for such payments to investors, who are all independent of the Company.
Other than the credit enhancements noted above, the Company does not guarantee
investors' interests in the securitization trusts.
During 2001, 2000 and 1999, rent expense (including rent of facilities
included in operating expense, but excluding contingent rentals) was $304
million, $328 million and $279 million, respectively. Contingent rentals on
securitized vehicles were $124 million in 2001, $65 million in 2000 and $28
million in 1999. Contingent rentals on all other leased vehicles were $41
million in 2001, $16 million in 2000 and $6 million in 1999.
Lease Payments
Future minimum payments for leases in effect at December 31, 2001 were as
follows:
In thousands
- --------------------------------------------------------------------------------
As Lessor As Lessee
- --------------------------------------------------------------------------------
Direct
Operating Financing Operating
Leases Leases Leases
2002 $1,004,847 157,003 364,419
2003 814,042 146,365 280,123
2004 637,572 134,324 120,765
2005 449,081 118,275 66,990
2006 241,374 97,921 47,831
Thereafter 107,574 214,262 97,227
- --------------------------------------------------------------------------------
$3,254,490 868,150 977,355
================================================================================
The amounts in the previous table are based upon the assumption that revenue
earning equipment will remain on lease for the length of time specified by the
respective lease agreements. This is not a projection of future lease revenue or
expense; no effect has been given to renewals, new business, cancellations,
contingent rentals or future rate changes.
57
INCOME TAXES
The components of earnings before income taxes and the provision for income
taxes attributable to continuing operations were as follows:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Earnings before income taxes:
United States $ 27,332 101,727 92,003
Foreign 3,374 39,594 25,491
- --------------------------------------------------------------------------------
$ 30,706 141,321 117,494
================================================================================
Current tax expense (benefit):
Federal $ -- (40,204) (183,470)
State 132 4,652 (24,392)
Foreign 13,785 14,602 2,398
- --------------------------------------------------------------------------------
13,917 (20,950) (205,464)
- --------------------------------------------------------------------------------
Deferred tax (benefit) expense:
Federal 3,737 66,062 210,542
State 5,849 3,351 31,596
Foreign (11,475) 3,826 7,903
- --------------------------------------------------------------------------------
(1,889) 73,239 250,041
- --------------------------------------------------------------------------------
Provision for income taxes $ 12,028 52,289 44,577
================================================================================
A reconciliation of the Federal statutory tax rate with the effective tax rate
for continuing operations follows:
Percentage of Pre-tax Income
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Federal statutory tax rate 35.0 35.0 35.0
Impact on deferred taxes
for changes in tax rates (34.8) -- --
State income taxes, net of
federal income tax benefit 12.7 3.7 4.0
Amortization of goodwill 10.6 2.0 0.1
Restructuring and
other charges, net 28.1 -- --
Miscellaneous items, net (12.4) (3.7) (1.2)
- --------------------------------------------------------------------------------
Effective tax rate 39.2 37.0 37.9
================================================================================
58
The higher 2001 effective tax rate and magnitude of reconciling items is
primarily due to the effects of changes in foreign tax rates, non-deductible
foreign charges included in restructuring and other charges and the relatively
low level of income before income taxes compared to such items. The increase in
the Company's effective tax rate was partially offset by a permanent reduction
in corporate tax rates in Canada that resulted in a one-time reduction in the
Company's related deferred taxes of $7 million.
The components of the net deferred income tax liability were as
follows:
In thousands
- --------------------------------------------------------------------------------
December 31 2001 2000
Deferred income tax assets:
Self-insurance reserves $ 77,592 74,388
Net operating loss carryforwards 195,050 99,271
Alternative minimum tax credits 31,109 31,109
Accrued compensation and benefits 27,782 31,445
Lease accruals and reserves 31,335 43,365
Miscellaneous other accruals 57,327 36,451
- --------------------------------------------------------------------------------
420,195 316,029
Valuation allowance (16,093) (12,815)
- --------------------------------------------------------------------------------
404,102 303,214
- --------------------------------------------------------------------------------
Deferred income tax liabilities:
Property and equipment
bases difference (1,256,520) (1,155,110)
Other items (128,752) (130,481)
- --------------------------------------------------------------------------------
(1,385,272) (1,285,591)
- --------------------------------------------------------------------------------
Net deferred income tax liability* $ (981,170) (982,377)
================================================================================
* Deferred tax assets of $22 million and $35 million have been included in
prepaid expenses and other current assets at December 31, 2001 and 2000,
respectively.
Deferred taxes have not been provided on temporary differences related to
investments in foreign subsidiaries that are considered permanent in duration.
These temporary differences consist primarily of undistributed foreign earnings
of $119 million at December 31, 2001. A full foreign tax provision has been made
on these undistributed foreign earnings. Determination of the amount of deferred
taxes on these temporary differences is not practicable due to foreign tax
credits and exclusions.
The Company had net operating loss carryforwards (tax effected) for federal
and state income tax purposes of $195 million at December 31, 2001, expiring
through 2016. The Company expects to utilize these carryforwards before their
expiration dates.
The Company had unused alternative minimum tax credits, for tax purposes,
of $31 million at December 31, 2001 available to reduce future income tax
liabilities. The alternative minimum tax credits may be carried forward
indefinitely.
59
A valuation allowance has been established to reduce deferred income tax
assets, principally foreign tax loss carryforwards, to amounts expected to be
realized.
Income taxes (refunded) paid totaled $(12) million in 2001, $(7) million in
2000 and $72 million in 1999, and include amounts related to both continuing and
discontinued operations.
The consolidated federal income tax returns for 1995, 1996 and 1997 are
being audited by the IRS. Years prior to 1995 are closed and no longer subject
to audit. Management believes that taxes accrued on the balance sheet fairly
represent the amount of future tax liability due by the Company.
DEBT
In thousands
- --------------------------------------------------------------------------------
December 31 2001 2000
U.S. commercial paper $ 210,000 441,106
Canadian commercial paper -- 31,692
Unsecured U.S. notes:
Debentures, 6.50% to 9.88%,
due 2005 to 2017 325,687 425,610
Medium-term notes,
5.00% to 8.10%,
due 2002 to 2025 742,527 755,863
Unsecured foreign obligations
(principally pound sterling),
4.50% to 13.50%,
due 2002 to 2006 331,306 332,680
Other debt, including capital leases 99,164 30,029
- --------------------------------------------------------------------------------
Total debt 1,708,684 2,016,980
Current portion (317,087) (412,738)
- --------------------------------------------------------------------------------
Long-term debt $ 1,391,597 1,604,242
================================================================================
Debt maturities (including sinking fund requirements) during the five years
subsequent to December 31, 2001 are as follows:
In thousands
- --------------------------------------------------------------------------------
Debt Maturities
2002 $ 317,087
2003 122,303
2004 165,269
2005 204,660
2006 492,018
60
During 2001, the Company replaced its $720 million global revolving credit
facility with a new $860 million global revolving credit facility. The new
facility is composed of $300 million which matures in May 2002 and is renewable
annually, and $560 million which matures in May 2006. The primary purposes of
the credit facility are to finance working capital and provide support for the
issuance of commercial paper. At the Company's option, the interest rate on
borrowings under the credit facility is based on libor, prime, federal funds or
local equivalent rates. The credit facility's annual facility fee ranges from
12.5 to 15.0 basis points applied to the total facility of $860 million based on
the Company's current credit ratings. At December 31, 2001, $550 million was
available under this global revolving credit facility. Of such amount, $300
million was available at a maturity of less than one year. Foreign borrowings of
$100 million were outstanding under the facility at December 31, 2001. In order
to maintain availability of funding, the global revolving credit facility
requires the Company to maintain a ratio of debt to consolidated tangible net
worth, as defined, of less than or equal to 300 percent. The ratio at December
31, 2001 was 117 percent.
The weighted average interest rates for outstanding U.S. commercial paper
at December 31, 2001 and 2000 were 2.83 percent and 7.38 percent, respectively.
The weighted average interest rates for outstanding Canadian commercial paper at
December 31, 2000 was 5.91 percent; none was outstanding as of December 31,
2001. U.S. commercial paper is classified as long-term debt since it is backed
by the long-term revolving credit facility previously discussed.
The Company has issued unsecured medium-term notes under various shelf
registration statements filed with the Securities and Exchange Commission. In
1998, the Company registered an additional $800 million for future debt issues.
As of December 31, 2001, the Company had $337 million of debt securities
available for issuance under the latest registration statement. The Company had
unamortized original issue discounts of $17 million and $17 million for the
medium-term notes and debentures at December 31, 2001 and 2000, respectively.
During the fourth quarter of 1999, the Company recorded an extraordinary
loss of $4 million (net of income tax benefit of $3 million) in connection with
the early retirement of $156 million of debentures. The loss represents the
payment of redemption premiums and the write-down of deferred finance costs.
At December 31, 2001 and 2000, the Company had letters of credit
outstanding totaling $115 million and $133 million, respectively, which
primarily guarantee various insurance activities. Certain of these letters of
credit guarantee insurance activities associated with insurance claim
liabilities transferred in conjunction with the sale of certain businesses
reported as discontinued operations in previous years. To date, such insurance
claims, representing per claim deductibles payable under third-party insurance
policies, have been paid by the companies that assumed such liabilities.
However, if all or a portion of such assumed claims of approximately $20 million
are unable to be paid, the third-party insurers may have recourse against
certain of the outstanding letters of credit provided by the Company in order to
satisfy the unpaid claim deductibles.
Interest paid totaled $121 million in 2001 and $163 million in 2000.
Interest paid for both continuing and discontinued operations totaled $206
million in 1999.
The carrying amount of debt (excluding capital leases) was $1.7 billion and
$2.0 billion as of December 31, 2001 and 2000, respectively. Based on dealer
quotations that represent the discounted future cash flows through maturity or
expiration using current rates, the fair value of this debt at December 31, 2001
and 2000 was estimated at $1.7 billion and $1.9 billion, respectively.
SHAREHOLDERS' EQUITY
In December 1999, the Company completed a $200 million stock repurchase program
announced in September 1999 in conjunction with the RPTS sale. In September
1999, the Company also completed a three million-share repurchase program
announced in December 1998.
61
At December 31, 2001, the Company had 60,527,423 Preferred Stock Purchase
Rights (Rights) outstanding which expire in March 2006. The Rights contain
provisions to protect shareholders in the event of an unsolicited attempt to
acquire the Company that is not believed by the Board of Directors to be in the
best interest of shareholders. The Rights, evidenced by common stock
certificates, are subject to anti-dilution provisions and are not exercisable,
transferable or exchangeable apart from the common stock until 10 days after a
person, or a group of affiliated or associated persons, acquires beneficial
ownership of 10 percent or more or, in the case of exercise or transfer, makes a
tender offer for 10 percent or more of the Company's common stock. The Rights
entitle the holder, except such an acquiring person, to purchase at the current
exercise price of $100 that number of the Company's common shares that at the
time would have a market value of $200. In the event the Company is acquired in
a merger or other business combination (including one in which the Company is
the surviving corporation), each Right entitles its holder to purchase at the
current exercise price of $100 that number of common shares of the surviving
corporation which would then have a market value of $200. In lieu of common
shares, Rights holders can purchase 1/100 of a share of Series c Preferred Stock
for each Right. The Series c Preferred Stock would be entitled to quarterly
dividends equal to the greater of $10 per share or 100 times the common stock
dividend per share and have 100 votes per share, voting together with the common
stock. By action of the Board of Directors, the Rights may also be exchanged in
whole or in part, at an exchange ratio of one share of common stock per Right.
The Rights have no voting rights and are redeemable, at the option of the
Company, at a price of $0.01 per Right prior to the acquisition by a person or a
group of persons affiliated or associated persons of beneficial ownership of 10
percent or more of the common stock.
EMPLOYEE STOCK OPTION AND STOCK PURCHASE PLANS
Option Plans
The Company sponsors various stock option and incentive plans which provide
for the granting of options to employees and directors for purchase of common
stock at prices equal to fair market value at the time of grant. Options granted
under all plans are for terms not exceeding 10 years and are exercisable
cumulatively 20 to 50 percent each year based on the terms of the grant.
Key employee plans also provide for the issuance of stock appreciation
rights, limited stock appreciation rights, restricted stock or stock units at no
cost to the employee. The value of the restricted stock, equal to the fair
market value at the time of grant, is recorded in shareholders' equity as
deferred compensation and recognized as compensation expense as the restricted
stock vests over the periods established for each grant. In 2001, 2000 and 1999,
the Company granted 167,575, 194,400 and 45,650 shares of restricted stock at a
weighted average grant date fair value of $20.62, $18.19 and $26.33,
respectively. Amortization of restricted stock totaled $1 million in 2001 and
approximately $500,000 in 2000. Awards under a non-employee director plan may
also be granted in tandem with restricted stock units at no cost to the grantee;
3,502 units, 3,975 units and 4,013 units were granted in 2001, 2000 and 1999,
respectively. This compensation expense was not significant in 2001, 2000 or
1999.
62
The following table summarizes the status of the Company's stock option
plans:
Shares in thousands
- ------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Beginning of year 8,772 $24.76 6,762 $27.77 5,253 $28.06
Granted 849 20.45 2,969 18.61 2,200 26.76
Exercised (233) 17.32 (73) 14.11 (92) 22.44
Forfeited (474) 26.80 (886) 27.97 (599) 27.47
- -------------------------------------------------------------------------------
End of year 8,914 $24.43 8,772 $24.76 6,762 $27.77
===============================================================================
Exercisable at
end of year 5,007 $27.01 4,123 $28.25 4,099 $27.59
===============================================================================
Available for
future grant 5,151 N/A 2,477 N/A 2,258 N/A
===============================================================================
Information about options in various price ranges at December 31, 2001 follows:
Shares in thousands
- ---------------------------------------------------------------------------
Options Options
Outstanding Exercisable
- ---------------------------------------------------------------------------
Remaining Weighted Weighted
Price Life Average Average
Ranges Shares (in years) Price Shares Price
$ 10-20 2,160 7.9 $ 17.81 663 $ 17.77
20-25 2,143 6.5 21.53 573 22.46
25-30 3,555 4.5 26.98 2,735 27.08
30-38 1,056 5.0 35.28 1,036 35.25
- ---------------------------------------------------------------------------
8,914 5.8 $ 24.43 5,007 $ 27.01
===========================================================================
Purchase Plans
The Employee Stock Purchase Plan provides for periodic offerings to
substantially all U.S. and Canadian employees to subscribe to shares of the
Company's common stock at 85 percent of the fair market value on either the date
of offering or the last day of the purchase period, whichever is less. The stock
purchase plan currently in effect provides for quarterly purchase periods. The
U.K. Stock Purchase Scheme provides for periodic offerings to substantially all
U.K. employees to subscribe to shares of the Company's common stock at 85
percent of the fair market value on the date of the offering.
63
The following table summarizes the status of the Company's stock purchase
plans:
Shares in thousands
- ------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Beginning of year 63 $26.81 72 $27.00 82 $27.05
Granted 413 15.44 379 16.03 300 18.43
Exercised (413) 15.44 (379) 16.03 (300) 19.71
Forfeited (23) 20.66 (9) 28.34 (10) 27.66
- ------------------------------------------------------------------------------
End of year 40 $30.28 63 $26.81 72 $27.00
==============================================================================
Exercisable at
end of year -- N/A 22 $20.66 -- N/A
==============================================================================
Available for
future grant 1,676 N/A 2,066 N/A 2,436 N/A
==============================================================================
Pro Forma Information
The Company accounts for stock-based compensation using the intrinsic value
method. Stock options are issued at fair market value at the date of grant.
Accordingly, no compensation expense has been recognized for stock options
granted. Had the fair value method of accounting been applied to the Company's
plans, which requires recognition of compensation expense over the vesting
periods of the awards, pro forma net earnings and earnings per share would have
been:
In thousands, except per share amounts
- ----------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Net earnings:
As reported $18,678 89,032 419,678
Pro forma 10,957 81,350 412,789
Earnings per share:
Basic:
As reported 0.31 1.49 6.12
Pro forma 0.18 1.37 6.02
Diluted:
As reported 0.31 1.49 6.11
Pro forma 0.18 1.37 6.02
- ----------------------------------------------------------------------------
The fair values of options granted were estimated as of the dates of grant using
the Black-Scholes option pricing model.
64
The option pricing assumptions were as follows:
- ------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Dividend yield 2.7% 3.5% 2.5%
Expected volatility 27.0% 26.9% 25.7%
Option plans:
Risk-free interest rate 4.9% 6.3% 5.4%
Weighted average
expected life 7 years 7 years 7 years
Weighted average grant-date
fair value per option $5.69 $5.01 $ 7.77
Purchase plans:
Risk-free interest rate 3.3% 5.8% 4.9%
Weighted average
expected life .25 year .25 year .25 year
Weighted average grant-date
fair value per option $3.65 $4.08 $ 4.99
- ------------------------------------------------------------------------------
EARNINGS PER SHARE INFORMATION
A reconciliation of the number of shares used in computing basic and diluted EPS
follows:
In thousands
- ---------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Weighted average shares
outstanding - Basic 60,083 59,567 68,536
Effect of dilutive options and
unvested restricted stock 582 192 196
- ---------------------------------------------------------------------------
Weighted average shares
outstanding - Diluted 60,665 59,759 68,732
===========================================================================
Anti-dilutive options not
included above 6,793 6,446 5,750
===========================================================================
65
EMPLOYEE BENEFIT PLANS
Pension Plans
The Company sponsors several defined benefit pension plans covering
substantially all employees not covered by union-administered plans, including
certain employees in foreign countries. These plans generally provide
participants with benefits based on years of service and career-average
compensation levels. The funding policy for these plans is to make contributions
based on normal costs plus amortization of unfunded past service liability but
not greater than the maximum allowable contribution deductible for Federal
income tax purposes. The majority of the plans' assets are invested in a master
trust which, in turn, is primarily invested in listed stocks and bonds. The
Company also contributed to various defined benefit, union-administered,
multi-employer plans for employees under collective bargaining agreements.
Pension income was as follows:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Company-administered plans:
Service cost $(26,248) (23,836) (32,649)
Interest cost (58,306) (54,047) (50,087)
Expected return on plan assets 91,248 97,064 85,422
Amortization of transition asset 23 3,746 3,818
Recognize net actuarial (loss) gain (514) 23,890 2,323
Amortization of prior service cost (2,508) (2,501) (2,382)
- --------------------------------------------------------------------------------
3,695 44,316 6,445
Union-administered plans (2,912) (2,610) (2,591)
- --------------------------------------------------------------------------------
Net pension income $ 783 41,706 3,854
================================================================================
The Company recorded settlement and curtailment gains of $4 million in 1999 as
part of the gain on disposal of discontinued operations.
66
The following table sets forth the balance sheet impact, as well as the
benefit obligations, assets and funded status associated with the Company's
pension plans:
In thousands
- ------------------------------------------------------------------------------
December 31 2001 2000
Change in benefit obligations:
Benefit obligations at January 1, $ 820,169 701,776
Service cost 26,248 23,836
Interest cost 58,306 54,047
Amendments -- 7,747
Actuarial loss 8,820 37,444
Benefits paid (37,585) (36,229)
Change in discount rate assumption 49,249 22,502
Plan transfers -- 15,627
Foreign currency exchange rate changes (3,197) (6,581)
- ------------------------------------------------------------------------------
Benefit obligations at December 31, 922,010 820,169
- ------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at January 1, 993,493 1,054,123
Actual return on plan assets (79,472) (41,672)
Employer contribution 6,141 2,293
Plan participants' contributions 2,631 2,692
Benefits paid (37,585) (36,229)
Plan transfers -- 20,110
Foreign currency exchange rate changes (3,405) (7,824)
- ------------------------------------------------------------------------------
Fair value of plan assets at December 31, 881,803 993,493
- ------------------------------------------------------------------------------
Funded status (40,207) 173,324
Unrecognized transition asset (237) (267)
Unrecognized prior service cost 15,412 17,950
Unrecognized net actuarial loss (gain) 168,494 (59,933)
- ------------------------------------------------------------------------------
Prepaid benefit cost $ 143,462 131,074
==============================================================================
Plan transfers relate to obligations assumed and assets received in 2000 related
to a customer's employees who were hired by the Company as a result of a new
contract in the U.K. Additionally, in 2000, the Company's dominant plan was
amended to increase certain benefit levels and resulted in an additional benefit
obligation of $7 million.
Amounts recognized in the balance sheet consist of:
In thousands
- ------------------------------------------------------------------------------
December 31 2001 2000
Prepaid pension benefit cost (other assets) $ 159,214 145,546
Accrued benefit liability (accrued expenses) (15,752) (14,472)
Additional minimum liability (accrued expenses) (3,102) --
Intangible assets 1,857 --
Accumulated other comprehensive loss 1,245 --
- ------------------------------------------------------------------------------
$ 143,462 131,074
==============================================================================
67
The following table sets forth the actuarial assumptions used for the Company's
dominant plan:
- ------------------------------------------------------------------------------
December 31 2001 2000
Discount rate 7.00% 7.50%
Rate of increase in compensation levels 5.00% 5.00%
Expected long-term rate of return on plan assets 9.25% 9.50%
Transition amortization in years 6 6
Gain and loss amortization in years 6 6
- ------------------------------------------------------------------------------
Savings Plans
The Company also has defined contribution savings plans that cover
substantially all eligible employees. Company contributions to the plans, which
are based on employee contributions and the level of Company match, totaled
approximately $14 million in 2001, $14 million in 2000 and $11 million in 1999.
Supplemental Pension and Deferred Compensation Plans
The Company has a non-qualified supplemental pension plan covering certain
employees which provides for incremental pension payments from the Company's
funds so that total pension payments equal amounts that would have been payable
from the Company's principal pension plans if it were not for limitations
imposed by income tax regulations. The benefit obligation under this plan
totaled $21 million and $19 million at December 31, 2001 and 2000, respectively.
The accrued pension expense liability related to this plan was $16 million and
$14 million at December 31, 2001 and 2000, respectively. Pension expense for
this plan totaled $2 million in 2001, 2000 and 1999.
The Company also has deferred compensation plans that permit eligible
employees, officers and directors to defer a portion of their compensation. The
deferred compensation liability, including Company matching amounts and
accumulated earnings on notional investments, totaled $22 million and $23
million at December 31, 2001 and 2000, respectively.
The Company has established a grantor trust (Rabbi Trust) to provide
funding for benefits payable under the supplemental pension plan and deferred
compensation plans. The assets held in trust at December 31, 2001 and 2000
amounted to $37 million and $38 million, respectively. These assets are included
in direct financing leases and other assets in the accompanying balance sheets
because they are available to the general creditors of the Company in the event
of the Company's insolvency. Rabbi Trust assets consist of a managed portfolio
of equity securities and corporate-owned life insurance policies. The equity
securities are classified as trading assets and stated at fair value. Both
realized and unrealized gains and losses are included in miscellaneous (income)
expense, net.
Postretirement Benefits Other than Pensions
The Company sponsors plans that provide retired employees with certain
healthcare and life insurance benefits. Substantially all employees not covered
by union-administered health and welfare plans are eligible for the healthcare
benefits. Healthcare benefits for the Company's principal plans are generally
provided to qualified retirees under age 65 and eligible dependents. Generally
these plans require employee contributions which vary based on years of service
and include provisions which cap Company contributions. During 2000, the Company
amended its postretirement benefit plan to eliminate the retiree life insurance
benefit for active employees as of December 31, 2000.
68
Total periodic postretirement benefit expense was as follows:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Service cost $ 999 975 1,360
Interest cost 2,247 2,233 2,210
Curtailment gain -- (1,148) --
Recognized net actuarial loss (gain) 2,007 (801) (94)
Amortization of prior service cost (1,157) (1,166) (1,043)
- --------------------------------------------------------------------------------
Postretirement benefit expense $ 4,096 93 2,433
===============================================================================
The curtailment gain of $1 million in 2000 related to the retiree life insurance
amendment previously discussed. The Company also recorded settlement and
curtailment gains of $1 million in 1999 as part of the gain on disposal of
discontinued operations.
The Company's postretirement benefit plans are not funded. The following
table sets forth the balance sheet impact, as well as the benefit obligations
and rate assumptions associated with the Company's postretirement benefit plans:
In thousands
- -------------------------------------------------------------------------------
December 31 2001 2000
Benefit obligations at January 1, $ 26,932 29,639
Service cost 999 975
Interest 2,247 2,233
Amendment -- (4,318)
Actuarial loss 5,102 2,699
Benefits paid (4,431) (3,585)
Curtailment and settlement -- (1,148)
Change in discount rate assumption 1,042 437
Change in healthcare trend assumption 366 --
Foreign currency exchange rate changes (23) --
- -------------------------------------------------------------------------------
Benefit obligations at December 31, 32,234 26,932
Unrecognized prior service credit 7,551 8,708
Unrecognized net actuarial (loss) gain (1,869) 2,634
- -------------------------------------------------------------------------------
Accrued postretirement benefit obligation $ 37,916 38,274
===============================================================================
Discount rate 7.00% 7.50%
- -------------------------------------------------------------------------------
The actuarial assumptions include healthcare cost trend rates projected at 13
percent for 2002, graded down to 6 percent for 2010 and thereafter. Changing the
assumed healthcare cost trend rates by 1 percent in each year would not have had
a material effect on the accumulated postretirement benefit obligation as of
December 31, 2001 or postretirement benefit expense for 2001.
69
ENVIRONMENTAL MATTERS
The Company's operations involve storing and dispensing petroleum products,
primarily diesel fuel. In 1988, the Environmental Protection Agency (EPA) issued
regulations that established requirements for testing and replacing underground
storage tanks. During 1998, the Company completed its tank replacement program
to comply with the regulations. In addition, the Company has received notices
from the EPA and others that it has been identified as a potentially responsible
party under the Comprehensive Environmental Response, Compensation and Liability
Act, the Superfund Amendments and Reauthorization Act and similar state statutes
and may be required to share in the cost of cleanup of 30 identified disposal
sites.
The Company's environmental expenses, which included remediation costs as
well as normal recurring expenses such as licensing, testing and waste disposal
fees, were $7 million in 2001, $5 million in 2000 and $10 million in 1999.
The ultimate costs of the Company's environmental liabilities cannot be
projected with certainty due to the presence of several unknown factors,
primarily the level of contamination, the effectiveness of selected remediation
methods, the stage of investigation at individual sites, the determination of
the Company's liability in proportion to other responsible parties and the
recoverability of such costs from third parties. Based on information presently
available, management believes that the ultimate disposition of these matters,
although potentially material to the results of operations in any one year, will
not have a material adverse effect on the Company's financial condition or
liquidity.
OTHER MATTERS
The Company settled long-standing litigation with a former customer, OfficeMax,
relating to a logistics services agreement that was terminated in 1997. In the
final settlement, OfficeMax is paying the Company a total of $5 million over the
five years following the settlement. The Company will not pay anything to
OfficeMax. Further, the settlement is backed by a $5 million letter of credit,
obtained by OfficeMax, naming the Company as the beneficiary.
The Company is also a party to various other claims, legal actions and
complaints arising in the ordinary course of business. While any proceeding or
litigation has an element of uncertainty, management believes that the
disposition of these matters will not have a material impact on the consolidated
financial position, liquidity or results of operations of the Company.
SEGMENT REPORTING
The Company's operating segments are aggregated into reportable business
segments based primarily upon similar economic characteristics, products,
services and delivery methods. The Company operates in three reportable business
segments: (1) FMS, which provides full service leasing, commercial rental and
programmed maintenance of trucks, tractors and trailers to customers,
principally in the U.S., Canada and the U.K.; (2) SCS, which provides
comprehensive supply chain consulting and lead logistics management solutions
that support customers' entire supply chains, from inbound raw materials through
distribution of finished goods throughout North America, in Latin America,
Europe and Asia; and (3) DCC, which provides vehicles and drivers as part of a
dedicated transportation solution, principally in North America.
70
Management evaluates business segment financial performance based upon
several factors, of which the primary measure is contribution margin.
Contribution margin represents each business segment's revenue, less direct
costs and direct overheads related to the segment's operations. Business segment
contribution margin for all segments (net of eliminations), less Central Support
Services (CSS) expenses and restructuring and other charges, is equal to
earnings from continuing operations before income taxes. CSS are those costs
incurred to support all business segments, including sales and marketing, human
resources, finance, shared management information systems, customer solutions,
health and safety, legal and communications.
The FMS segment leases revenue earning equipment, sells fuel and provides
maintenance and other ancillary services to the SCS and DCC segments.
Inter-segment revenues and contribution margin are accounted for at approximate
fair value as if the transactions were made with independent third parties.
Contribution margin related to inter-segment equipment and services billed to
customers (equipment contribution) is included in both FMS and the business
segment which served the customer, then eliminated (presented as
"Eliminations"). Equipment contribution included in SCS contribution margin was
$17 million in 2001, $20 million in 2000 and $19 million in 1999. Equipment
contribution included in DCC contribution margin was $20 million in 2001, $22
million in 2000 and $21 million in 1999. Interest expense is primarily allocated
to the FMS business segment.
Business segment revenue and contribution margin are presented below:
In thousands
- --------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Revenue:
Fleet Management Solutions:
Full service lease and
program maintenance $ 1,855,865 1,865,345 1,816,599
Commercial rental 468,438 523,776 540,734
Fuel 658,325 773,320 587,193
Other 369,912 393,549 362,718
- --------------------------------------------------------------------------------
3,352,540 3,555,990 3,307,244
Supply Chain Solutions 1,453,881 1,595,252 1,441,029
Dedicated Contract Carriage 534,962 551,706 531,642
Eliminations (335,260) (366,156) (327,711)
- --------------------------------------------------------------------------------
Total revenue $ 5,006,123 5,336,792 4,952,204
================================================================================
Contribution margin:
Fleet Management Solutions $ 339,326 382,851 372,164
Supply Chain Solutions 51,236 65,484 54,832
Dedicated Contract Carriage 57,679 60,828 59,633
Eliminations (36,989) (41,888) (40,280)
- --------------------------------------------------------------------------------
411,252 467,275 446,349
Central Support Services (263,982) (283,940) (252,712)
Restructuring and other charges, net (116,564) (42,014) (52,093)
Year 2000 expense -- -- (24,050)
- --------------------------------------------------------------------------------
Earnings from continuing operations
before income taxes $ 30,706 141,321 117,494
================================================================================
71
Each business segment follows the same accounting policies as described in the
Summary of Significant Accounting Policies. These 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.
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Depreciation expense:
Fleet Management Solutions $ 501,365 534,758 572,784
Supply Chain Solutions 24,277 25,080 24,835
Dedicated Contract Carriage 1,438 1,809 2,259
Central Support Services 18,405 18,709 22,848
- -------------------------------------------------------------------------------
Total depreciation expense $ 545,485 580,356 622,726
===============================================================================
Gains on sales of revenue earning equipment, net of selling and equipment
preparation cost reflected in FMS, totaled $12 million, $19 million and $56
million in 2001, 2000 and 1999, respectively.
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Amortization expense and other
non-cash charges, net:
Fleet Management Solutions $ 35,653 15,973 17,147
Supply Chain Solutions 47,543 14,624 11,072
Dedicated Contract Carriage 431 -- --
Central Support Services 7,286 2,330 (1,983)
- -------------------------------------------------------------------------------
Total amortization expense and
other non-cash charges, net $ 90,913 32,927 26,236
===============================================================================
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000
Interest expense:
Fleet Management Solutions $ 111,032 152,596
Supply Chain Solutions 5,321 5,196
Dedicated Contract Carriage 19 3
Central Support Services 2,177 (3,786)
- -------------------------------------------------------------------------------
Total interest expense $ 118,549 154,009
===============================================================================
72
As a result of the change in reportable business segments in 2000, 1999
disclosure of interest expense included in contribution margin under the new
reportable segments is impracticable. Interest expense for the previously
reportable business segments is presented below:
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Interest expense:
Transportation Services $ 102,900 141,487 169,082
Integrated Logistics 3,017 2,289 2,368
International 14,643 16,914 22,187
- -------------------------------------------------------------------------------
Total reportable segments 120,560 160,690 193,637
Other, primarily corporate (2,011) (6,681) (6,461)
- -------------------------------------------------------------------------------
Total interest expense $ 118,549 154,009 187,176
===============================================================================
Asset information, including capital expenditures, is not maintained on the new
segment basis nor provided to the chief operating decision maker and as such is
not presented.
Geographic Information
In thousands
- -------------------------------------------------------------------------------
Years ended December 31 2001 2000 1999
Revenue:
United States $4,218,163 4,445,842 4,078,087
Foreign 787,960 890,950 874,117
- -------------------------------------------------------------------------------
Total $5,006,123 5,336,792 4,952,204
===============================================================================
In thousands
- -------------------------------------------------------------------------------
December 31 2001 2000 1999
Long-lived assets:
United States $2,489,338 3,026,644 3,072,892
Foreign 556,659 598,788 603,664
- -------------------------------------------------------------------------------
Total $3,045,997 3,625,432 3,676,556
===============================================================================
The Company believes that its diversified portfolio of customers across a full
array of transportation and logistics solutions across many industries will help
to mitigate the impact of adverse downturns in specific sectors of the economy
in the near to medium-term. The Company's portfolio of full service lease and
commercial rental customers is not concentrated in any one particular industry
or geographic region, with the largest concentration being in non-cyclical
industries such as food, groceries and beverages. While the Company derives a
significant portion of its SCS revenue (over 40 percent in 2001) and DCC revenue
from the automotive industry, the business is derived from numerous
manufacturers and suppliers of original equipment parts. None of these companies
constitute more than 10 percent of the Company's total revenue.
73
SUPPLEMENTARY DATA
Quarterly Financial and Common Stock Data
Ryder System, Inc. and Subsidiaries
In thousands, except share data Per Common Share
- -------------------------------------------------------------------------------------------
Dividends
Net Net Earnings/(Loss) Stock Price Per
Earnings ----------------------------------- Common
Revenue /(Loss) Basic Diluted High Low Share
2001
First quarter $1,281,509 4,119 0.07 0.07 22.11 16.06 0.15
Second quarter 1,294,069 19,854 0.33 0.33 23.19 17.30 0.15
Third quarter 1,242,806 (5,506) (0.09) (0.09) 23.10 17.02 0.15
Fourth quarter 1,187,739 211 0.00 0.00 22.57 18.67 0.15
- -------------------------------------------------------------------------------------------
Total $5,006,123 18,678 0.31 0.31 23.19 16.06 0.60
===========================================================================================
2000
First quarter $1,308,608 19,824 0.33 0.33 25.13 17.44 0.15
Second quarter 1,332,190 29,640 0.50 0.50 24.88 17.94 0.15
Third quarter 1,338,817 12,144 0.20 0.20 23.00 18.31 0.15
Fourth quarter 1,357,177 27,424 0.46 0.46 20.31 14.81 0.15
- -------------------------------------------------------------------------------------------
Total $5,336,792 89,032 1.49 1.49 25.13 14.81 0.60
===========================================================================================
Quarterly and year-to-date computations of per share amounts are made
independently; therefore, the sum of per share amounts for the quarters may not
equal per share amounts for the year.
Earnings from continuing operations in 2001 were impacted, in part, by
after-tax restructuring and other charges of $7 million in the first quarter,
$12 million in the second quarter, $35 million in the third quarter and $27
million in the fourth quarter. Earnings from continuing operations in the third
and fourth quarters of 2000 were impacted, in part, by after-tax restructuring
and other charges of $23 million and $3 million, respectively.
The Company's common shares are traded on the New York Stock Exchange, the
Chicago Stock Exchange, the Pacific Stock Exchange and the Berlin Stock
Exchange. As of January 31, 2002, there were 13,844 common stockholders of
record.
74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 regarding executive officers is set out in
Item 1 of Part I of this Form 10-K Annual Report.
Other information required by Item 10 is incorporated herein by reference to the
Company's definitive proxy statement, which will be filed with the Commission
within 120 days after the close of the fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 is incorporated herein by reference to the
Company's definitive proxy statement, which will be filed with the Commission
within 120 days after the close of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 is incorporated herein by reference to the
Company's definitive proxy statement, which will be filed with the Commission
within 120 days after the close of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is incorporated herein by reference to the
Company's definitive proxy statement, which will be filed with the Commission
within 120 days after the close of the fiscal year.
75
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) 1. Financial Statements for Ryder System, Inc. and Consolidated
Subsidiaries:
Items A through F are presented on the following pages of this Form 10-K Annual
Report:
Page No.
A) Independent Auditors' Report................................................... 37
B) Consolidated Statements of Earnings for years ended December 31,
2001, 2000 and 1999............................................................ 38
C) Consolidated Balance Sheets as of December 31, 2001 and 2000................... 39
D) Consolidated Statements of Cash Flows for years ended December 31,
2001, 2000 and 1999............................................................ 40
E) Consolidated Statements of Shareholders' Equity for years
ended December 31, 2001, 2000 and 1999 ........................................ 41
F) Notes to Consolidated Financial Statements..................................... 42
2. Not applicable:
All other schedules and statements are omitted because they are not applicable
or not required or because the required information is included in the
consolidated financial statements or notes thereto.
Supplementary Financial Information consisting of selected quarterly financial
data is included in Item 5 of this report.
3. Exhibits:
The following exhibits are filed with this report or, where indicated,
incorporated by reference (Forms 10-K, 10-Q and 8-K referenced herein have been
filed under the Commission's file No. 1-4364). The Company will provide a copy
of the exhibits filed with this report at a nominal charge to those parties
requesting them.
EXHIBIT INDEX
Exhibit
Number Description
- -------- -----------
3.1 The Ryder System, Inc. Restated Articles of Incorporation, dated
November 8, 1985, as amended through May 18, 1990, previously
filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990, are
incorporated by reference into this report.
76
3.2 The Ryder System, Inc. By-Laws, as amended through February 16,
2001, previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 2000, are incorporated by reference into this report.
4.1 The Company hereby agrees, pursuant to paragraph (b)(4)(iii of
Item 601 of Regulation S-K, to furnish the Commission ) with a
copy of any instrument defining the rights of holders of long-term
debt of the Company, where such instrument has not been filed as
an exhibit hereto and the total amount of securities authorized
thereunder does not exceed 10% of the total assets of the Company
and its subsidiaries on a consolidated basis.
4.2(a) The Form of Indenture between Ryder System, Inc. and The Chase
Manhattan Bank (National Association) dated as of June 1, 1984,
filed with the on November 19, 1985 as an exhibit to the
Company's Registration Statement on Form S-3 (No. 33- 1632), is
incorporated by reference into this report.
4.2(b) The First Supplemental Indenture between Ryder System, Inc. and
The Chase Manhattan Bank (National Association) dated October 1,
1987, previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994, is incorporated by reference into this report.
4.3 The Form of Indenture between Ryder System, Inc. and The Chase
Manhattan Bank (National Association) dated as of May 1, 1987,
and supplemented as of November 15, 1990 and June 24, 1992, filed
with the Commission on July 30, 1992 as an exhibit to the
Company's Registration Statement on Form S-3 (No. 33-50232), is
incorporated by reference into this report.
4.4 The Rights Agreement between Ryder System, Inc. and Boston
Equiserve, L.P., dated as of March 8, 1996, filed with the
Commission on April 3, 1996 as an exhibit to the Company's
Registration Statement on Form 8-A is incorporated by reference
into this report.
10.1 The form of change of control severance agreement for executive
officers effective as of May 1, 1996, previously filed with the
Commission as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, is incorporated by
reference to this report.
10.2 The form of severance agreement for executive officers effective
as of May 1, 1996, previously filed with the Commission as an
exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, is incorporated by reference to this
report.
10.3(a) The Ryder System, Inc. 1997 Incentive Compensation Plan for
Headquarters Executive Management Levels MS 11 and Higher,
previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996, is incorporated by reference to this report.
10.3(b) The Ryder System, Inc. 1998 Incentive Compensation Plan for
Headquarters Executive Management Level MS 11 and Higher,
previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997, is incorporated by reference into this report.
10.3(c) The Ryder System, Inc. 1999 Incentive Compensation Plan for
Headquarters Executive Management Levels MS 11 and Higher,
previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1998, is incorporated by reference into this report.
10.3(d) The Ryder System, Inc. 2000 Incentive Compensation Plan for
Headquarters Executive Management Levels MS 11 and Higher,
previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 2000, is incorporated by referencce into this report.
77
10.4(a) The Ryder System, Inc. 1980 Stock Incentive Plan, as amended and
restated as of August 15, 1996, previously filed with the
Commission as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, is incorporated by
reference into this report.
10.4(b) The form of Ryder System, Inc. 1980 Stock Incentive Plan, United
Kingdom Section, dated May 4, 1995, previously filed with the
Commission as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, is incorporated by
reference into this report.
10.4(c) The form of Ryder System, Inc. 1980 Stock Incentive Plan, United
Kingdom Section, dated October 3, 1995, previously filed with
the Commission as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, is incorporated
by reference into this report.
10.4(d) The Ryder System, Inc. 1995 Stock Incentive Plan, as amended and
restated as of August 15, 1996, previously filed with the
Commission as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, is incorporated by
reference into this report.
10.4(e) The Ryder System, Inc. 1995 Stock Incentive Plan, as amended and
restated as of May 5, 2000, previously filed with the Commission
as an exhibit to the Company's Annual Report or Form 10-K for
the year ended 2000, is incorporated by reference into this
report.
10.4(f) The Ryder System, Inc. 1995 Stock Incentive Plan, as amended and
restated at May 4, 2001, previously filed with the Commission as
an exhibit to the Company's report on Form 10-Q for the quarter
ended September 30, 2001, is incorporated by reference into this
report.
10.5(a) The Ryder System, Inc. Directors Stock Plan, as amended and
restated as of December 17, 1993, previously filed with the
Commission as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1993, is incorporated by
reference into this report.
10.5(b) The Ryder System, Inc. Directors Stock Award Plan dated as of
May 2, 1997, as amended and restated as of December 17, 1998,
previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997, is incorporated by reference into this report.
10.5(c) The Ryder System, Inc. Directors Stock Plan, as amended and
restated at May 4, 2001, previously filed with the Commission as
an Exhibit to the Company's Report on Form 10-Q for the quarter
ended September 30, 2001, is incorporated by reference into this
report.
10.6(a) The Ryder System Benefit Restoration Plan, effective January 1,
1985, previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992, is incorporated by reference into this report.
10.6(b) The First Amendment to the Ryder System Benefit Restoration
Plan, effective as of December 16, 1988, previously filed with
the Commission as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, is incorporated
by reference into this report.
10.9(a) The Ryder System, Inc. Stock for Merit Increase Replacement
Plan, as amended and restated as of August 15, 1996, previously
filed with the commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, is
incorporated by reference into this report.
10.9(b) The form of Ryder System, Inc. Non-Qualified Stock Option
Agreement, dated as of February 21, 1998, previously filed with
the Commission as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, is incorporated
by reference into this report.
10.9(c) The form of Combined Non-Qualified Stock Option and Limited
Stock Appreciation Right Agreement, dated October 1, 1997,
previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997, is incorporated by reference into this report.
78
10.10 The Ryder System, Inc. Deferred Compensation Plan effective
January 1, 1997, as amended and restated as of November 3, 1997,
previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997, is incorporated by reference into this report.
10.11 Severance Agreement, dated as of March 15, 2000, between Ryder
System, Inc. and James B. Griffin, as previously filed with the
Commission as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1999, is incorporated by
reference into this report.
10.12 The Asset and Stock Purchase Agreement by and between Ryder
System, Inc. and FirstGroup Plc dated as of July 21, 1999, filed
with the Commission on September 24, 1999 as an exhibit to the
Company's report on Form 8K, is incorporated by reference into
this report.
21.1 List of subsidiaries of the registrant, with the state or other
jurisdiction of incorporation or organization of each, and the
name under which each subsidiary does business.
23.1 Auditors' consent to incorporation by reference in certain
Registration Statements on Forms S-3 and S-8 of their reports on
consolidated financial statements and schedules of Ryder System,
Inc. and its subsidiaries.
24.1 Manually executed powers of attorney for each of:
M. Anthony Burns
Joseph L. Dionne
Edward T. Foote II
David I. Fuente
John A. Georges
David T. Kearns
Lynn M. Martin
Christine A. Varney
(b) Reports on Form 8-K:
During the fourth quarter of 2001, the Company filed a report on Form 8-K
on November 21, 2001.
Item 9. Regulation FD Disclosure
The Company made the 8-K filing to furnish earnings guidance for the fourth
quarter of 2001 and to announce expected additions to restructuring and
other changes during the fourth quarter of 2001.
(c) Executive Compensation Plans and Arrangements:
Please refer to the description of Exhibits 10.1 through 10.12 set forth
under Item 14(a)3 of this report for a listing of all management contracts
and compensation plans and arrangements filed with this report pursuant to
Item 601(b)(10) of Regulation S-K.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 25, 2002 RYDER SYSTEM, INC.
By: /S/ GREGORY T. SWIENTON
-------------------------------------
Gregory T. Swienton
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 25, 2002 By: /S/ GREGORY T. SWIENTON
-------------------------------------
Gregory T. Swienton
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 25, 2002 By: /S/ CORLISS J. NELSON
-------------------------------------
Corliss J. Nelson
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: March 25, 2002 By: /S/ KATHLEEN S. PARTRIDGE
-------------------------------------
Kathleen S. Partridge
Senior Vice President, Business
and Accounting Services
(Principal Accounting Officer)
Date: March 25, 2002 By: /S/ M. ANTHONY BURNS *
-------------------------------------
M. Anthony Burns
Chairman
Date: March 25, 2002 By: /S/ JOSEPH L. DIONNE *
-------------------------------------
Joseph L. Dionne
Director
Date: March 25, 2002 By: /S/ EDWARD T. FOOTE II *
-------------------------------------
Edward T. Foote II
Director
Date: March 25, 2002 By: /S/ DAVID I. FUENTE *
-------------------------------------
David I. Fuente
Director
Date: March 25, 2002 By: /S/ JOHN A. GEORGES *
-------------------------------------
John A. Georges
Director
80
Date: March 25, 2002 By: /S/ DAVID T. KEARNS *
-------------------------------------
David T. Kearns
Director
Date: March 25 , 2002 By: /S/ LYNN M. MARTIN *
-------------------------------------
Lynn M. Martin
Director
Date: March 25, 2002 By: /S/ CHRISTINE A. VARNEY *
--------------------------------------
Christine A. Varney
Director
Date: March 25, 2002 By: /S/ CARLOS J. ABARCA
--------------------------------------
Carlos J. Abarca Attorney-in-Fact
81