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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 1-4364
RYDER SYSTEM, INC.
(Exact name of registrant as specified in its charter)
Florida
    
59-0739250
(State or other jurisdiction of incorporation or organization)
    
(I.R.S. Employer Identification No.)
11690 N.W. 105th Street,
Miami, Florida 33178
    
(305) 500-3726
(Address of principal executive offices, including zip code)
    
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
    
Name of exchange on which registered
Ryder System, Inc. Common Stock ($0.50 par value)
    
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES þ  NO ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES ¨  NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES þ   NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES þ   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 þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
  
Accelerated filer ¨
  
Non-accelerated filer ¨
  
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   YES ¨   NO þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common equity was sold at June 30, 2015 was $4,653,524,571. The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at January 31, 2016 was 53,493,748.
Documents Incorporated by Reference into this Report
    
Part of Form 10-K into which Document is Incorporated
Ryder System, Inc. 2016 Proxy Statement
    
Part III
 
 




RYDER SYSTEM, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
 
 
 
 
 
 
Page No.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i


PART I
ITEM 1. BUSINESS
OVERVIEW
Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. During the first quarter of 2015, our management structure changed within the supply chain business. We created the role of President of Dedicated Transportation Solutions (DTS) for the dedicated product offering, which was previously within Supply Chain Solutions (SCS). Beginning in 2015, we are reporting our financial performance based on three business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing, commercial rental, contract maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.; and (3) SCS, which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated transportation services provided as part of an integrated, multi-service, supply chain solution to SCS customers are reported in the SCS business segment.
For financial information and other information relating to each of our business segments and about our geographic areas, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this report and Note 29, "Segment Reporting," in the Notes to Consolidated Financial Statements.

MISSION AND STRATEGY
Ryder's mission is to provide innovative fleet management and supply chain solutions that are reliable, safe and efficient, enabling our customers to deliver on their promises. We seek to deliver valuable solutions that will compel customers to outsource their fleet management and supply chain needs to us. Our strategy is to grow our fleet management and supply chain outsourcing services by targeting private fleets (FMS and DTS) and key industries (SCS) with innovative solutions, operational excellence, best in class talent and information technology. This strategy is supported by:
offering innovative products, solutions and support services that will create and strengthen customer relationships;
delivering operational excellence through continuous productivity and process improvements;
attracting, developing and retaining the best talent, and fostering a culture where leaders engage their people to innovate, pursue Ryder’s mission and build on its values; and
deploying technology that will enable growth while improving operational efficiencies.

1


INDUSTRY AND OPERATIONS  
Fleet Management Solutions

Value Proposition
Through our FMS business, we provide our customers with a variety of fleet solutions that are designed to improve their competitive position. By outsourcing these services to us, our customers can focus on their core business, improve their efficiency and productivity, and lower their costs. Our FMS product offering is comprised of longer-term full service leasing and contract maintenance services; shorter-term commercial truck rental; flexible maintenance services; and value-added fleet support services such as insurance, vehicle administration and fuel services. In addition, we provide our customers the ability to purchase a large selection of used trucks, tractors and trailers through our used vehicle sales program.
Market Trends
The U.S. commercial fleet market is estimated to include 7.9 million vehicles(1) of which 4.1 million vehicles are with privately held companies, 1.4 million vehicles(2) are with for-hire carriers, 0.5 million vehicles are leased from banks or other financial institutions and 0.8 million vehicles are in the lease and rental market. The 4.1 million vehicles privately owned by companies provide all or a portion of the transportation services for themselves rather than outsourcing those services to third parties such as Ryder. Several trends have been increasing the need for outsourcing: increased demand for efficiency and reliability; increased complexity and cost of buying and maintaining vehicles including technology, diagnostics, and training; labor issues including a shortage of qualified truck drivers and mechanics; as well as increased regulation and enforcement of safety requirements. Because of these trends, we believe the privately held fleets and the for-hire carriers will increasingly decide to outsource. Ryder also targets customers who are already outsourcing with other providers.
Ryder has been operating in Canada for over 50 years.  Similar trends apply to outsourcing in Canada, and the Canadian commercial fleet is estimated at 500,000 vehicles, of which approximately 27,000 are lease and rental(3).   In the U.K., the commercial rental and lease market is estimated at 200,000 units (4). The total lease and rental market in Ryder’s major markets totals over 1 million units. However, due to general trends and the trends in market sub-segments described above, combined with our success in converting owners to outsourcing, the total market potential for Ryder is significantly higher.
Over the last several years, many key trends have been reshaping the transportation industry. We strongly believe these trends increase the value of our product offering. Because of increased demand for efficiency and reliability, companies that own and manage their own fleet of vehicles have put greater emphasis on the quality of their preventive maintenance and safety programs. The maintenance and operation of commercial vehicles has become more complicated and expensive, requiring companies to spend a significant amount of time and money to keep up with new technology, diagnostics, retooling and training. Increased regulation and active enforcement efforts by federal and state governments require more stringent and costly operational processes and oversight. Fluctuating energy prices and alternative fuel technologies make it difficult for businesses to predict and manage fleet costs. Finally, the tightened credit market has limited some businesses’ access to capital at a time when commercial vehicle costs have increased as a result of the more expensive, EPA-compliant engines.

Operations
For the year ended December 31, 2015, our global FMS business accounted for 63% of our consolidated revenue.
U.S. Our FMS customers in the U.S. range from small businesses to large national enterprises operating in a wide variety of industries, the most significant of which are food and beverage, transportation and warehousing, housing, business and personal services, and industrial. At December 31, 2015, we had 529 operating locations, excluding ancillary storage locations, in 50 states and Puerto Rico. A location typically consists of a maintenance facility or “shop”, offices for sales and other personnel, and in many cases, a commercial rental vehicle counter. Our maintenance facilities typically include a service island for fueling, safety inspections and preliminary maintenance checks as well as a shop for preventive maintenance and repairs. We also operate on-site at 151 customer locations, which primarily provide vehicle maintenance.
Canada. We have been operating in Canada for over 50 years. At December 31, 2015, we had 36 operating locations throughout 9 Canadian provinces. We also operated 14 maintenance facilities on-site at customer properties in Canada.

Europe. We began operating in the U.K. in 1971. At December 31, 2015, we had 52 operating locations primarily throughout the U.K. We also managed a network of 477 independent maintenance facilities in the U.K. to serve our customers when it is more effective than providing the service in a Ryder location. In addition to our typical FMS operations, we supply and manage vehicles, equipment and personnel for military organizations in the U.K. and Germany.

(1)
U.S. Fleet as of June 2015, Class 3-8, IHS Global Insight (formerly RL Polk)
(2)
U.S. Fleet as of June 2015, Class 3-8, IHS Global Insight (formerly RL Polk) and Blue Ridge Partners
(3)
Canada Outsourced Fleet Market as of September 2015, Class 3-8, IHS Global Insight (formerly RL Polk)
(4)
U.K. Lease and Rental HGV Market, Projection for December 2015, Source: The Society of Motor Manufacturers & Traders (SMMT) 2010


2


FMS Product Offerings
Full Service Leasing.    Through our full service lease product line, we provide customers with vehicles, maintenance services, supplies, and related equipment necessary for operation of the vehicles while our customers furnish and supervise their own drivers and dispatch and exercise control over the vehicles. Our full service lease customers receive the following benefits:
We are able to leverage our vehicle buying power for the benefit of our customers because we purchase a large number of vehicles from a limited number of manufacturers. Once we have signed an agreement with the customer, we acquire vehicles and components that are custom engineered to the customer’s requirements and lease the vehicles to the customer for periods generally ranging from three to seven years for trucks and tractors and typically ten years for trailers.
We provide a complete maintenance program designed to reduce vehicle downtime through a preventive maintenance plan that is based on vehicle type and time or mileage intervals. Given our continued focus on improving the efficiency and effectiveness of our maintenance services, particularly in light of changing technology and increased regulation, we provide our full service lease customers with a cost effective alternative to maintaining their own fleet of vehicles.
Our customers have access to our extensive network of maintenance facilities and trained technicians for maintenance, vehicle repairs, 24-hour emergency roadside service, and replacement vehicles for vehicles that are temporarily out of service.
We typically retain vehicle residual risk exposure.
Customers have an opportunity to enhance their standard full service lease with additional fleet support services including our fuel and related services as described below; liability insurance coverage under our existing insurance policies and related insurance services; safety services including safety training, driver certification, and loss prevention consulting; vehicle use and other tax reporting, permitting and licensing, and regulatory compliance (including hours of service administration); environmental services; and access to RydeSmart®, a full-featured GPS fleet location, tracking, and vehicle performance management system and to Ryder FleetCARE SM, our web-based tool that provides customers with 24/7 access to key operational and maintenance management information about their fleets.
For the year ended December 31, 2015, full service lease revenue accounted for 53% of our FMS total revenue.
Commercial Rental.    We target rental customers that have a need to supplement their private fleet of vehicles on a short-term basis (one day up to one year in length), either because of seasonal increases in their business or discrete projects that require additional transportation resources. Full service lease customers utilize our commercial rental fleet to handle their peak or seasonal business needs. Although a portion of our commercial rental business is purely occasional in nature, we focus on building long-term relationships with customers so that we become their preferred source for commercial vehicle rentals. Our rental representatives assist in selecting a vehicle that satisfies a customer’s needs and supervise the rental process, which includes execution of a rental agreement and a vehicle inspection. In addition to vehicle rental, we may extend liability insurance coverage under our existing policies to our rental customers as well as the benefits of our comprehensive fuel services program. For the year ended December 31, 2015, commercial rental revenue accounted for 21% of our FMS total revenue.
Contract Maintenance.    Through our contract maintenance product line, we provide customers with all or certain of the maintenance services provided under a full service lease. Our contract maintenance customers commit to utilizing our extensive network of maintenance facilities and trained technicians to maintain the vehicles they own or lease from third parties. We can also customize the services to include ancillary maintenance and/or fleet support services. Vehicles covered under this offering are typically serviced at our own facilities. However, based on the size and complexity of a customer’s fleet, we may operate an on-site maintenance facility at the customer’s location. For the year ended December 31, 2015, contract maintenance revenue accounted for 4% of our FMS total revenue.
The following table provides information regarding the number of vehicles and customers by FMS product offering at December 31, 2015:
  
 
U.S.
 
Foreign
 
Total
 
 
Vehicles    
 
Customers    
 
Vehicles    
 
Customers    
 
Vehicles    
 
Customers    
Full service leasing
 
107,800
 
10,900
 
24,000
 
2,700
 
131,800
 
13,600
Commercial rental (1)
 
33,500
 
32,900
 
8,600
 
6,400
 
42,100
 
39,300
Contract maintenance (2)
 
41,200
 
1,500
 
5,500
 
400
 
46,700
 
1,900
______________ 
(1)
Commercial rental customers include customers who rented a vehicle for more than 3 days during the year and includes approximately 8,600 full service lease customers
(2)
Contract maintenance customers include approximately 947 full service lease customers


3


Contract-Related Maintenance.    Our full service lease and contract maintenance customers periodically require additional maintenance and repair services that are not included in their full service lease or contract maintenance contracts. For example, additional maintenance and repair services may arise when a customer damages a leased vehicle. In addition, because of our existing relationships with the customer, we may provide service on their owned vehicles and charge the customer on an hourly basis for work performed. By servicing all of our customers’ maintenance needs, we create stronger, long-term relationships and have greater opportunity to provide customers with a wide range of outsourcing solutions.
More recently, we have contracted with large private fleet operators and for-hire carriers to provide maintenance on demand, particularly in geographic areas where these customers do not have their own maintenance operations. Although the contract for on-demand maintenance services is based on a maintenance program that is designed to meet the customers' specific needs, all maintenance is performed only when and as requested by the customer. This product allows us to expand our customer base to include customers that have traditionally chosen to own and maintain their fleet of vehicles. For the year ended December 31, 2015, contract-related maintenance revenue accounted for 5% of our FMS total revenue.
Fuel Services.    We provide our FMS customers with access to diesel fuel at competitive prices at over 450 of our maintenance facilities across the United States and Canada. We also provide fuel services such as fuel planning, fuel tax reporting, centralized billing, fuel cards and fuel monitoring. Although fuel sales do not have a significant impact on our FMS earnings as it is largely a pass-through cost to customers, we believe allowing customers to leverage our fuel buying power is a significant and valuable benefit to our customers. For the year ended December 31, 2015, fuel services revenue accounted for 15% of our FMS total revenue.
Used Vehicles.    We primarily sell our used vehicles at one of our 59 retail sales centers throughout North America (18 of which are co-located at an FMS shop), at our branch locations or through our website at www.Usedtrucks.Ryder.com. Typically, before we offer used vehicles for sale, our technicians assure that the vehicles are Road Ready®, which means that they have passed a comprehensive, multi-point performance inspection based on specifications formulated through our maintenance program. Our retail sales centers throughout North America allow us to leverage our maintenance expertise and strong brand reputation to realize higher sales proceeds than in the wholesale market. Given our focus on maximizing sales proceeds, we generally sell our used vehicles through retail centers for prices in excess of book value. However, the extent to which we are able to realize a gain on the sale of used vehicles is dependent upon various other factors, including the general state of the used vehicle market including the supply and demand for used commercial vehicles in retail and wholesale markets, the age and condition of the vehicle at the time of its disposal and vehicle depreciation rates.

FMS Business Strategy
Our FMS business strategy is to be the leading provider of fleet management outsourcing services for light, medium and heavy duty vehicles. Our strategy will be achieved if we focus on the following goals and priorities:
Drive fleet growth by (1) successfully implementing sales and marketing initiatives designed to compel private fleet operators and for-hire carriers to outsource all or some portion of their fleet management needs to us; (2) offering innovative products, solutions and support services that will create and strengthen new and existing customer relationships; and (3) completing targeted acquisitions;
Deliver a consistent, industry-leading and cost-effective maintenance program to our customers through continued process improvement and re-design, productivity initiatives, and technology improvements; and
Optimize asset utilization and management, particularly with respect to our rental fleet, used vehicle operations and maintenance facility infrastructure.
Successfully driving our fleet growth strategy will require significant capital investments in full service lease and commercial rental vehicles. As a result, during periods of significant growth, our free cash flow may be negative.
Competition
As an alternative to using our fleet management services, most companies choose to provide these services for themselves, although some may choose to obtain similar or alternative services from other third-party vendors.
Our FMS business segment competes with companies providing similar services on a national, regional and local level. Many regional and local competitors provide services on a national level through their participation in various cooperative programs. Competitive factors include price, equipment, maintenance, service and geographic coverage. We compete with finance lessors and also with truck and trailer manufacturers and independent dealers who provide full service lease products, finance leases, extended warranty maintenance, rental and other transportation services. With the growth of our on-demand maintenance product, we will also face competition from managed maintenance providers who are hired to coordinate and manage the maintenance of large fleets of vehicles through a network of third-party maintenance providers. Value-added differentiation of the full service leasing, maintenance and commercial rental service, as well as continued commitment to offer innovative products and solutions, such as natural gas vehicles, has been and will continue to be our emphasis.

4


Dedicated Transportation Solutions
Value Proposition
Through our DTS business segment, we combine the equipment, maintenance and administrative services of a full service lease with drivers and additional services to provide a customer with a dedicated transportation solution that is designed to increase their competitive position, improve risk management and integrate their transportation needs with their overall supply chain. Such additional services include routing and scheduling, fleet sizing, safety, regulatory compliance, risk management, technology and communication systems support including on-board computers, and other technical support. These additional services allow us to address, on behalf of our customers, labor challenges associated with maintaining a private fleet of vehicles, such as driver recruitment and retention, government regulation, including hours of service regulations, DOT audits and workers’ compensation. Our DTS solution offers a high degree of specialization to meet the needs of customers with sophisticated service requirements such as tight delivery windows, high-value or time-sensitive freight, closed-loop distribution, multi-stop shipments, specialized equipment or integrated transportation needs.
Market Trends
The U.S. dedicated contract carriage market is estimated to be $13 billion(1). This market is affected by many of the trends that impact our FMS business, including the tightening of capacity in the current U.S. trucking market. The administrative requirements relating to regulations issued by the Department of Transportation (DOT) regarding driver screening, training and testing, as well as record keeping and other costs associated with the hours of service requirements, make our DTS product an attractive alternative to private fleet and driver management. This has become even more significant in light of Compliance, Safety, Accountability (CSA) 2010 regulatory changes. The CSA 2010 regulatory changes have also put pressure on the availability of qualified truck drivers, which continues to lag market requirements. In addition, market demand for just-in-time delivery creates a need for well-defined routing and scheduling plans that are based on comprehensive asset utilization analysis and fleet rationalization studies that are offered as part of our DTS service offering.
Operations/Product Offerings
For the year ended December 31, 2015, our global DTS business accounted for 14% of our consolidated revenue. At December 31, 2015, we had 194 DTS customer accounts in the U.S. Because it is highly customized, our DTS product is particularly attractive to companies that operate in industries that have time-sensitive deliveries or special handling requirements, as well as to companies who require specialized equipment. Because DTS accounts typically operate in a limited geographic area, most of the drivers assigned to these accounts are short haul drivers, meaning they return home at the end of each work day. Although a significant portion of our DTS operations are located at customer facilities, our DTS business utilizes and benefits from our extensive network of FMS facilities.
In order to customize an appropriate DTS transportation solution for our customers, our DTS logistics specialists perform a transportation analysis using advanced logistics planning and operating tools. Based on this analysis, they formulate a logistics design that includes the routing and scheduling of vehicles, the efficient use of vehicle capacity and overall asset utilization. The goal of the plan is to create a distribution system that optimizes freight flow while meeting a customer’s service goals. A team of DTS transportation specialists can then implement the plan by leveraging the resources, expertise and technological capabilities of both our FMS and SCS businesses.
To the extent a distribution plan includes multiple modes of transportation (air, rail, sea and highway), our DTS team, in conjunction with our SCS transportation specialists, selects appropriate transportation modes and carriers, places the freight, monitors carrier performance and audits billing. In addition, through our SCS business, we can reduce costs and add value to a customer’s distribution system by aggregating orders into loads, looking for shipment consolidation opportunities and organizing loads for vehicles that are returning from their destination point back to their point of origin (backhaul).
DTS Business Strategy
Our DTS business strategy is to focus on customers who need specialized equipment, specialized handling or integrated services. This strategy revolves around the following interrelated goals and priorities:
Increase market share with customers in the energy and utility, metals and mining, retail, construction, healthcare, and food and beverage industries;
Leverage the support and talent of the FMS sales team in a joint sales program;
Align the DTS business with other SCS product lines to create revenue opportunities and improve operating efficiencies in both segments; and
Improve competitiveness in the non-specialized and non-integrated customer segments.

(1) 
Armstrong & Associates Dedicated Contract Carriage - The New Normal in Trucking, June 2015

5


Competition
Our DTS business segment competes with truckload carriers and other dedicated providers servicing on a national, regional and local level. Competitive factors include price, equipment, maintenance, service and geographic coverage and driver and operations expertise. We are able to differentiate the DTS product offering by leveraging FMS and integrating the DTS services with those of SCS to create a more comprehensive transportation solution for our customers. Our strong safety record and focus on customer service enable us to uniquely meet the needs of customers with high-value products that require specialized handling in a manner that differentiates us from truckload carriers.

Supply Chain Solutions
Value Proposition
Through our SCS business, we offer a broad range of innovative logistics management services that are designed to optimize a customer’s supply chain and address customer's key business requirements. The organization is aligned by industry verticals (Automotive, Technology and Healthcare, Consumer Packaged Goods and Retail, and Industrial) to enable the teams to focus on the specific needs of their customers. Our SCS product offerings are organized into four categories: dedicated services, distribution management, transportation management and professional services. These offerings are supported by a variety of information technology and engineering solutions that are an integral part of our SCS services. These product offerings can be offered independently or as an integrated solution to optimize supply chain effectiveness. A key aspect of our value proposition is our operational execution, which is an important differentiator in the marketplace.
Market Trends
Global logistics is approximately a $9.2 trillion(1) market, of which approximately $750 billion(1) is outsourced. Logistics spending in the markets we are targeting in North America and Asia equates to approximately $3.6 trillion, of which $340 billion is outsourced. Outsourced logistics is a market with significant growth opportunity. More sophisticated supply chain practices are required as supply chains expand and become more complex, product needs continue to proliferate and companies look for lower cost supply chain alternatives. In addition, disruptions from unexpected events such as natural disasters have caused companies to focus on risk management of their supply chains. The more complicated the supply chain or the product requirements, the greater the need for companies to utilize the expertise of supply chain solution providers.
Operations
For the year ended December 31, 2015, our global SCS business accounted for 23% of our consolidated revenue.

     U.S.    At December 31, 2015, we had 326 SCS customer accounts in the U.S., most of which are large enterprises that maintain large, complex supply chains. Most of our core SCS business operations are geographically located to maximize efficiencies and reduce costs. At December 31, 2015, managed warehouse space totaled approximately 35 million square feet for the U.S. and Puerto Rico. We also concentrate certain logistics expertise in locations not associated with specific customer sites. For example, our carrier procurement, contract management, freight bill audit and payment services, and transportation optimization and execution groups operate out of our logistics centers in Novi, Michigan and Fort Worth, Texas.
Mexico. At December 31, 2015, we had 111 SCS customer accounts and managed warehouse space totaling approximately 3.6 million square feet. Our Mexico operations offer a full range of SCS services and manage approximately 11,800 border crossings each month between Mexico and the U.S. and Canada, often highly integrated with our distribution and transportation operations.
Canada.    At December 31, 2015, we had 65 SCS customer accounts and managed warehouse space totaling approximately 930,000 square feet. Given the proximity of this market to our U.S. and Mexico operations, the Canadian operations are highly coordinated with their U.S. and Mexico counterparts, managing cross-border transportation and freight movements.
Asia.    At December 31, 2015, we had 94 SCS customer accounts and managed warehouse space totaling approximately 412,000 square feet, primarily in Singapore.




(1) Armstrong & Associates Global logistics costs & third-party logistics revenue report, June 2015


6


SCS Product Offerings
Distribution Management.    Our SCS business offers a wide range of services relating to a customer’s distribution operations, from designing a customer’s distribution network to managing distribution facilities. Services within the facilities generally include managing the flow of goods from the receiving function to the shipping function, coordinating warehousing and transportation for inbound and outbound material flows, handling import and export for international shipments, coordinating just-in-time replenishment of component parts to manufacturing and final assembly, and providing shipments to customer distribution centers or end customer delivery points. Additional value-added services such as light assembly of components into defined units (kitting), packaging and refurbishment are also provided. For the year ended December 31, 2015, distribution management solutions accounted for 45% of our SCS revenue.
Dedicated Services.  Dedicated services are offered as part of an integrated supply chain solution to our customers. We fulfill transportation needs for our customers with a combination of outside carriers and dedicated services. The dedicated services offering combines the equipment, maintenance, drivers and additional services to provide a customer with a dedicated transportation solution, which combined with outside transportation is designed to increase their competitive position, improve risk management and integrate their transportation needs with their overall supply chain. Such additional services include routing and scheduling, fleet sizing, safety, regulatory compliance, risk management, technology and communication systems support including on-board computer, and other technical support. These additional services allow us to address, on behalf of our customers, labor challenges associated with maintaining a private fleet of vehicles, such as driver recruitment and turnover, government regulation (including hours of service regulations), DOT audits and workers' compensation. Our dedicated services solution offers a high degree of specialization to meet the needs of customers with sophisticated service requirements such as tight delivery windows, high value or time sensitive freight, closed-loop distribution, multi-stop shipments, specialized equipment and integrated transportation needs. Dedicated services operations are located at our customer facilities, and our dedicated offering utilizes and benefits from our extensive network of FMS facilities. For the year ended December 31, 2015, approximately 38% of our SCS revenue was related to dedicated services.
Transportation Management.    Our SCS business offers services relating to all aspects of a customer’s transportation network. Our team of transportation specialists provides shipment planning and execution, which includes shipment optimization, load scheduling and delivery confirmation through a series of technological and web-based solutions. Our transportation consultants, including our freight brokerage department, focus on carrier procurement of all modes of transportation with an emphasis on truck-based transportation, rate negotiation, and freight bill audit and payment services. In addition, our SCS business as well as our FMS business provide customers with capacity management services that are designed to meet backhaul opportunities and minimize excess miles. For the year ended December 31, 2015, we purchased and/or executed over $4.3 billion in freight moves on our customers' behalf. For the year ended December 31, 2015, transportation management solutions accounted for 10% of our SCS revenue.
Professional Services.    In conjunction with providing the SCS core services described previously, our SCS business offers a variety of knowledge-based services that support every aspect of a customer’s supply chain. Our SCS professionals are available to evaluate a customer’s existing supply chain to identify inefficiencies as well as opportunities for integration and improvement. Once the assessment is complete, we work with the customer to develop a supply chain strategy that will create the most value for the customer and their target clients. Once a customer has adopted a supply chain strategy, our SCS logistics team, supported by functional experts and representatives from our information technology, real estate and finance groups, work together to design a strategically focused supply chain solution. The solution may include both a network design that sets forth the number, location and function of key components of the network and a transportation solution that optimizes the mode or modes of transportation and route selection. In addition to providing the distribution and transportation expertise necessary to implement the supply chain solution, our SCS representatives can coordinate and manage all aspects of the customer’s supply chain provider network to assure consistency, efficiency and flexibility. For the year ended December 31, 2015, knowledge-based professional services accounted for 7% of our SCS revenue.
SCS Business Strategy
Our SCS business strategy is to offer our customers differentiated functional execution and proactive solutions from deep expertise in key industry verticals. The strategy revolves around the following interrelated goals and priorities:
Providing customers with a differentiated quality of service and best execution through reliable and flexible supply chain solutions;
Developing capabilities that can be applied and utilized in our targeted industry verticals;
Creating a culture of innovation that fosters new and high value solutions for our customers’ supply chain needs;
Focusing on continuous improvement and standardization; and
Successfully implementing targeted sales and marketing strategies.

7


Competition
As an alternative to using our services, most companies choose to internally manage their own supply chains and logistics operations, although some may choose to obtain similar or alternative services from other third-party vendors.
In the SCS business segment, we compete with a large number of companies providing similar services, each of which has a different set of core competencies. We compete with a handful of large, multi-service companies across all of our service offerings and industries. We also compete against other companies on specific service offerings (for example, in transportation management, distribution management or dedicated services) or in a specific industry. We face different competitors in each country or region where they may have a greater operational presence. Competitive factors include price, service, market knowledge, expertise in logistics-related technology and overall performance (e.g. timeliness, accuracy, and flexibility).
ACQUISITIONS
In addition to our continued focus on organic growth, acquisitions play an important role in enhancing our growth strategy. In assessing potential acquisition targets in our FMS business segment, we look for companies that would create value through operating synergies, leveraging our existing facility infrastructure, improving our geographic coverage and diversifying our customer base. In our SCS business segment, we focus on adding capabilities and product offerings, potentially expanding into new industries, diversifying our customer base within our current industries, and improving our competitive position.
CYCLICALITY
Ryder's business is impacted by economic and market conditions. In a strong economic cycle, there is generally more demand for our fleet management, dedicated and supply chain services. In a weak or volatile economy, demand for our services decreases and is inconsistent and considerably more unpredictable. Because of these factors, we have continued to focus on increasing the diversity of our customer base and strengthening our long-term business partnerships with our customers. Although we believe these efforts help mitigate the immediate impact of an economic downturn, during a protracted or severe economic downturn, customers are often unwilling to commit to a full-service lease or long-term supply chain contract. Because commercial rental and used vehicle sales are transactional, they are more cyclical in nature, and results can vary significantly in both the short- and long-term. We mitigate some of the potential impact of an economic downturn through a disciplined and centralized approach to asset management. This approach allows us to manage the size, mix and location of our operating fleet and used vehicle inventories to try and maximize asset utilization and used vehicle proceeds in both strong and weak market conditions.

ADMINISTRATION
Our financial administrative functions for the U.S. and Canada, including credit, billing and collections are consolidated into our Shared Services Center operations, a centralized processing center located in Alpharetta, Georgia. Our Shared Services Center also manages contracted third parties providing administrative finance and support services outside of the U.S. in order to reduce ongoing operating expenses and maximize our technology resources. This centralization results in more efficient and consistent centralized processing of selected administrative operations. Certain administrative functions are also performed at the Shared Services Center for our customers. The Shared Services Center’s main objectives are to enhance customer service through process standardization, create an organizational structure that will improve market flexibility and allow future reengineering efforts to be attained more easily at lower implementation costs.
REGULATION
Our business is subject to regulation by various federal, state and foreign governmental entities. The DOT and various federal and state agencies exercise broad powers over certain aspects of our business, generally governing such activities as authorization to engage in motor carrier operations, safety and financial reporting. In 2010, the Federal Motor Carrier Safety Administration (FMCSA) began implementation of the CSA, a compliance and enforcement initiative partnering with State agencies designed to monitor and improve commercial vehicle motor safety. The CSA program includes a Safety Measurement System (SMS) that uses roadside inspections and violations to measure motor carriers and drivers and determines the scores related to these inspections and violations that compare the motor carriers and drivers against peers. The FMCSA established thresholds for each of seven different measurement areas that identify potential safety risks and result in direct intervention or enforcement action.
We are also subject to a variety of requirements of national, state, provincial and local governments, including the U.S. Environmental Protection Agency and the Occupational Safety and Health Administration, that regulate safety, the management of hazardous materials, water discharges and air emissions, solid waste disposal and the release and cleanup of regulated substances. We must comply with licensing and other requirements imposed by the U.S. Department of Homeland Security and U.S. Customs Service as a result of increased focus on homeland security and our Customs-Trade Partnership Against Terrorism certification. We may also become subject to new or more restrictive regulations imposed by these agencies or other authorities relating to carbon controls and reporting, engine exhaust emissions, drivers’ hours of service, wage and hour requirements, security including data privacy and cyber security and ergonomics.

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ENVIRONMENTAL
We have a long, standing commitment to sound environmental practices that reduce risk and build value for us and our customers. We have a history of adopting “green” designs and processes because they are efficient, cost-effective transportation solutions that improve our bottom line and bring value to our customers. We have maintained an environmental mission since 1991 and have updated it periodically as regulatory and customer needs have changed. Our environmental policy reflects our commitment to supporting the goals of sustainable development, environmental protection and pollution prevention in our business. We have adopted proactive environmental strategies that have advanced business growth and continued to improve our performance in ways that reduce emission outputs and environmental impact. Our environmental team works with operating employees to develop and administer programs in support of our environmental policy and to help ensure that environmental considerations are integrated into all business processes and decisions.
In establishing appropriate environmental objectives and targets for our wide range of business activities around the world, we focus on (1) the needs of our customers; (2) the communities in which we provide services; and (3) relevant laws and regulations. We regularly review and update our environmental management procedures, and information regarding our environmental activities is routinely disseminated throughout Ryder. In 2015, we substantially expanded our sustainability reporting with the publication of our 2013/2014 Corporate Sustainability Report that includes expanded and enhanced disclosures, as well as new metrics related to our environmental and safety performance for the years 2013 and 2014. In addition, we have voluntarily responded to the Carbon Disclosure Project (CDP) since 2008, disclosing direct and indirect emissions resulting from our operations. These reports are publicly available on the company website at www.ryder.com by clicking on About Us and then selecting Sustainability.
SAFETY
Our safety culture is founded upon a core commitment to the safety, health and well-being of our employees, customers and the community, a commitment that has made us a long-standing industry leader in safety.
Safety is an integral part of our business strategy because preventing injuries and collisions improves employee quality of life, eliminates service disruptions to our customers, increases efficiency and improves customer satisfaction. As a core value, our focus on safety is embedded in our day-to-day operations, reinforced by many safety programs and continuous operational improvement and supported by a talented and dedicated safety organization.
Training is a critical component of our safety program. Monthly safety training delivered by location safety committees cover specific and relevant safety topics and managers receive annual safety leadership training. Quarterly and remedial training is also delivered online to each driver through our highly interactive Ryder Pro-TREAD comprehensive lesson platform. Regular safety behavioral observations are conducted by managers throughout the organization everyday and remedial training and coaching takes place on-the-spot. We also deploy state-of-the-art safety technologies in Ryder vehicles and our safety policies require that all managers, supervisors and employees incorporate safe processes in all aspects of our business. Monthly safety scorecards are tracked and reviewed by management for progress toward key safety objectives. Our proprietary web-based safety tracking system, RyderStarSM, delivers proactive safety programs tailored to every location and helps measure safety activity effectiveness across the organization.
EMPLOYEES
At December 31, 2015, we had approximately 33,100 full-time employees worldwide, of which 31,300 were employed in North America, 1,400 in Europe and 400 in Asia. Currently we employ approximately 7,400 drivers and 5,700 technicians. We have approximately 20,500 hourly employees in the U.S., approximately 3,700 of which are organized by labor unions. Those employees organized by labor unions are principally represented by the International Brotherhood of Teamsters, the International Association of Machinists and Aerospace Workers and the United Auto Workers, and their wages and benefits are governed by 102 labor agreements that are renegotiated periodically. Although we have not experienced a material work stoppage or strike, these events can potentially occur given the types of businesses in which we currently engage. We consider that our relationship with our employees is good.


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EXECUTIVE OFFICERS OF THE REGISTRANT

Name
 
Age
 
Position
Robert E. Sanchez
 
50
 
Chair and Chief Executive Officer
Art A. Garcia
 
54
 
Executive Vice President and Chief Financial Officer
Dennis C. Cooke
 
51
 
President, Global Fleet Management Solutions
John J. Diez
 
44
 
President, Dedicated Transportation Solutions
J. Steven Sensing
 
48
 
President, Global Supply Chain Solutions
Robert D. Fatovic
 
50
 
Executive Vice President, Chief Legal Officer and Corporate Secretary
Gregory F. Greene
 
56
 
Executive Vice President and Chief Administrative Officer
Karen M. Jones
 
53
 
Executive Vice President and Chief Marketing Officer
John Gleason
 
59
 
Executive Vice President and Chief Sales Officer
Melvin L. Kirk
 
51
 
Senior Vice President and Chief Information Officer
Scott R. Allen
 
48
 
Vice President, Controller and Chief Accounting Officer

Robert E. Sanchez was appointed Chair of Ryder's Board in May 2013 and promoted to Chief Executive Officer in January 2013. Previously, Mr. Sanchez served as President and Chief Operating Officer from February 2012 to December 2012. He also previously served as President, Global Fleet Management Solutions from September 2010 to February 2012 and as Executive Vice President and Chief Financial Officer from October 2007 to September 2010. He also previously served as Executive Vice President of Operations, U.S. Fleet Management Solutions from October 2005 to October 2007 and as Senior Vice President and Chief Information Officer from January 2003 to October 2005. Mr. Sanchez joined Ryder in 1993 and has held various other positions of increasing responsibility, including leadership positions in all three of Ryder's business segments.
Art A. Garcia has served as Executive Vice President and Chief Financial Officer since September 2010. Previously, Mr. Garcia served as Senior Vice President and Controller from October 2005 to August 2010, and as Vice President and Controller from February 2002 to September 2005. Mr. Garcia joined Ryder in 1997 and has held various other positions within Corporate Accounting.
Dennis C. Cooke has served as President, Global Fleet Management Solutions since February 2012. Previously, Mr. Cooke served as Senior Vice President and Chief of Operations, U.S. and Canada Fleet Management Solutions since July 2011. Prior to joining Ryder, Mr. Cooke held various positions with General Electric (GE) and related companies, including Vice President and General Manager of GE Healthcare’s Global MRI business from 2000 to 2005.  He then served as President and Chief Executive Officer of GE Security’s Homeland Protection business from 2005 to 2009, and continued serving in those roles from 2009 to 2011 after the business was acquired by the Safran Group and became Morpho Detection, Inc.
J. Steven Sensing was appointed President of Global Supply Chain Solutions in March 2015. Previously, Mr. Sensing served as the Vice President and General Manager of the Technology industry group from February 2007 to February 2015. In July 2014, he also added the Retail industry group under his leadership. Mr. Sensing joined Ryder in 1992 and has since held various positions within Dedicated Services, Transportation Management and Distribution Management.
John J. Diez was appointed President of Dedicated Transportation Solutions in March 2015. Previously, Mr. Diez served as Senior Vice President of Ryder Dedicated from March 2014 to February 2015, and as Senior Vice Present of Asset Management from January 2011 to February 2014. Mr. Diez joined Ryder's Finance department in 2002 and has since held various positions within Finance including Senior Vice President Global Field Finance and Vice President and Chief Financial Officer of Fleet Management Solutions.
Robert D. Fatovic has served as Executive Vice President, Chief Legal Officer and Corporate Secretary since May 2004. He previously served as Senior Vice President, U.S. Supply Chain Operations, Hi-Tech and Consumer Industries from December 2002 to May 2004. Mr. Fatovic joined Ryder’s Law department in 1994 as Assistant Division Counsel and has held various other positions within the Law department including Vice President and Deputy General Counsel.
Gregory F. Greene has served as Chief Administrative Officer since September 2010, as Executive Vice President since December 2006 and as Chief Human Resources Officer since February 2006. Previously, Mr. Greene served as Senior Vice President, Strategic Planning and Development from April 2003 to February 2006. Mr. Greene joined Ryder in 1993 and has since held various positions within Human Resources.

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Karen M. Jones has served as Executive Vice President and Chief Marketing Officer since October 2014. She joined Ryder in September 2013 as Senior Vice President and Chief Marketing Officer. Prior to joining Ryder, Ms. Jones was Chief Marketing Officer for NRG/Reliant Energy, Inc from 2010 to 2013. Previously, Ms. Jones served as Senior Vice President of Marketing and Corporate Communications for DHL Express U.S. from 2006 to 2009 and as Vice President of Advertising, Brand Management and Promotion from 2004 to 2006.  In addition, Ms. Jones has served in key positions responsible for worldwide brand advertising, sponsorship, and strategic alliances for Hewlett Packard.
John Gleason was appointed Executive Vice President and Chief Sales Officer in November 2015.  Previously,  Mr. Gleason served as Senior Vice President of Global Fleet Management from October 2009, when he joined Ryder, to October 2015. Prior to joining Ryder, Mr. Gleason served as Chief Sales Officer for Automatic Data Processing (ADP) from April 2005 to September 2009 and as Senior Vice President of Sales from July 1998 to April 2005.
Melvin L. Kirk has served as Senior Vice President and Chief Information Officer since May 2015. He began reporting directly to the CEO and joined Ryder's Executive Leadership Team in January 2016. Mr. Kirk joined Ryder in March 2012 as Vice President of Maintenance, Engineering and Quality Operations within the Fleet Management Solutions Organization. Prior to joining Ryder, Mr. Kirk held various roles at Global Service at Safran’s Morpho Detection, Inc. (formerly GE Homeland Protection), most recently serving as Vice President and General Manager from 1996 to 2012.
Scott R. Allen joined Ryder in August 2015 as Vice President, Controller and Chief Accounting Officer. Mr. Allen joined Ryder from Altera Corporation where he served as Vice President, Business Finance and Financial Planning and Analysis since 2012. He previously served as Altera's Vice President, Corporate Controller from 2010 to 2012. In addition, Mr. Allen held various accounting and finance roles at GE, KB Toys and Dominion Resources.

FURTHER INFORMATION
For further discussion concerning our business, see the information included in Items 7 and 8 of this report. Industry and market data used throughout Item 1 was obtained through a compilation of surveys and studies conducted by industry sources, consultants and analysts.
We make available free of charge through the Investor Relations page on our website at www.ryder.com our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The public may read and copy any materials we have filed with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains our reports, proxy and information statements, and our other SEC filings. The address of the SEC's website is www.sec.gov.
In addition, our Corporate Governance Guidelines, Principles of Business Conduct and Board committee charters are posted on the Corporate Governance page of our website at www.ryder.com. Upon request, to our Investor Relations page on our website at www.ryder.com, we will provide a copy of our Finance Code of Conduct to anyone, free of charge.



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ITEM 1A. RISK FACTORS
The following contains all known material risks that could affect our business.

Our business and operating results could be adversely affected by uncertain or unfavorable economic and industry conditions.
Although macro-economic risk affects most industries, the transportation industry is particularly susceptible to changes in economic and market conditions as our business relies on the strength of our customers’ businesses and the level of confidence our customers have about future market conditions.  Because of this, our business may begin to slow before market slowdowns, at the point of customer uncertainty, and may recover later than market recoveries, as our customers may continue to feel uncertain about future market conditions. Rental and full service lease of commercial vehicles comprise a large portion of our business. Our vehicles are rented or leased to customers that transport goods commercially so that the demand for our products is directly tied to the production and sale of goods by our customers.  As a result, when fewer goods are sold by our customers, demand for our services may decrease.  Furthermore, in a weak or volatile economy, demand for our contractual services decreases and may be inconsistent and less predictable as customers are often unwilling to commit to full-service leases or long-term supply chain contracts. Accordingly, any sustained weakness in demand or a protracted economic downturn can negatively impact our business. Although customer uncertainty can serve to increase demand for our transactional services, including commercial rental and used vehicles sales, which do not involve long-term commitments, these product lines are generally more cyclical due to their transactional nature, and results can vary in both the short- and long-term.
Although commercial rental demand grew in 2015, rental demand may decline or face unexpected volatility in the future. Similarly, although we experienced continued growth in full service lease during 2015, our customers still remain cautious about entering into long-term leases. If uncertainty and lack of customer confidence around macroeconomic and transportation industry conditions increase, they may impact our future growth prospects and our business and results of operations could be materially adversely affected, as follows:
difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective customers;
increased competition for projects and sales opportunities;
pricing pressure that may adversely affect revenue and earnings;
higher overhead costs as a percentage of revenue;
increased risk of charges relating to asset impairments, including goodwill and other intangible assets;
customer financial difficulty and increased risk of uncollectible accounts receivable;
additional fleet downsizing which could adversely impact profitability;
increased risk of declines in the residual values of our vehicles; and
sudden changes in fuel prices and fuel shortages, which may adversely impact total vehicle miles driven by our customers.
In addition, volatility in the global credit and financial markets may lead to:
unanticipated interest rate and currency exchange rate fluctuations;
increased risk of default by counterparties under derivative instruments and hedging agreements; and
diminished liquidity and credit availability resulting in higher short-term borrowing costs and more stringent borrowing terms.

Our business is capital intensive and we must make capital decisions based upon projected customer activity levels. 
We make significant investments in rental vehicles to support our rental business.  The amount and timing of capital investments depends on various factors, including our anticipated customer demand.  We make commitments to purchase the vehicles months in advance.  We must predict fleet requirements and make commitments based on those projections.  Missing our projections could result in too much or too little capacity.  Overcapacity could lead to asset dispositions at lower than anticipated proceeds or write-downs and undercapacity could negatively impact our ability to reliably provide rental vehicles to our customers.  


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We bear the residual risk on the value of our vehicles.
We generally bear the residual risk on the value of our vehicles. In the latter part of 2015, we saw weaker conditions in the used vehicle market, which adversely affected volume and pricing, especially for tractors. If the market for used vehicles further declines, or there is a concern regarding the quality, maintenance or condition of our vehicles, we may obtain lower sales proceeds upon the sale of used vehicles. We sell our used vehicles through various channels, including retail sales centers, at our branch locations, through our website at www.UsedTrucks.Ryder.com, as well as through the wholesale market. Pricing and demand for used vehicles varies among selling channels, particularly between the retail and wholesale markets, as we generally obtain lower proceeds on vehicles sold through wholesale channels. If we are unable to meet our targeted fleet counts through our projected mix of retail versus wholesale sales, we may be required to sell more vehicles than planned through the wholesale market, which will impact our sales proceeds.
Changes in residual values also impact the overall competitiveness of our full service lease product line, as estimated sales proceeds are a significant component of the overall price of the lease. Additionally, technology changes and sudden changes in supply and demand together with other market factors beyond our control vary from year to year and from vehicle to vehicle, making it difficult to accurately predict residual values used in calculating our depreciation expense. Although we have developed disciplines related to the management and maintenance of our vehicles that are designed to prevent these losses, there is no assurance that these practices will sufficiently reduce the residual risk. For a detailed discussion on our accounting policies and assumptions relating to depreciation and residual values, please see the “Critical Accounting Estimates - Depreciation and Residual Value Guarantees” section in Management's Discussion and Analysis of Financial Condition and Results of Operations.

Our profitability could be adversely impacted by our inability to maintain appropriate commercial rental utilization rates through our asset management initiatives.
We typically do not purchase vehicles for our full service lease product line until we have an executed contract with a customer. However, in our commercial rental product line, we purchase vehicles and optimize the size and mix of the commercial rental fleet based upon our expectations of overall market demand. As a result, we bear the risk for ensuring that we have the proper vehicles in the right condition and location to effectively capitalize on market demand in order to drive the highest levels of utilization and revenue per unit. We employ a sales force and operations team on a full-time basis to manage and optimize this product line; however, their efforts may not be sufficient to overcome a significant change in market demand in the rental business.
If we cannot continue to develop, market and consistently deliver services and solutions that meet customer requirements for innovative solutions and quality, or successfully execute on our growth strategy, our revenue and earnings growth may suffer.
        Our long-term strategy is to grow our outsourcing services by targeting private fleets and key industries with innovative solutions, operational excellence, and best-in-class talent and information technology. To successfully execute on this strategy, we need to continue our focus on developing effective solutions that meet our existing and target customers’ evolving needs. This requires the skills, experience and efforts of our management team and continued investment in new technology, sales and marketing. Notwithstanding our efforts, these new or changed service offerings may not meet customer demands, prove to be profitable or succeed in the long term. If we do not make the right strategic investments to respond to current customer needs and establish and develop new customer relationships, our ability to develop and maintain a competitive advantage and continue to grow could be negatively affected.
Even with the right solutions, our growth strategy depends on delivering consistent operational excellence and strong customer service. If our services and solutions are not delivered as promised on a consistent basis or our customers have a negative experience or are otherwise dissatisfied, this can impair our relationships with new or existing customers and adversely affect our brand and reputation, which could, in turn, adversely affect revenue and earnings growth.

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Failure to maintain, upgrade and consolidate our information technology networks could adversely affect us, and we may be subject to cybersecurity risks which may be beyond our control.
The success of our strategic initiatives designed to increase our sales and capture a greater percentage of the outsourced transportation and supply chain markets is dependent in varying degrees on the timely delivery and the functionality of information technology systems to support them.  Extended delays or cost overruns in securing, developing and otherwise implementing technology solutions to support the new business initiatives we are developing now, and will be developing in the future, would delay and possibly even prevent us from realizing the projected benefits of these initiatives.
We are continuously upgrading and consolidating our systems, including enhancing legacy systems, replacing legacy systems with successor systems with new functionality and acquiring new systems with new functionality. These types of activities subject us to additional costs and inherent risks associated with replacing and modifying these systems, including impairment of our ability to provide our services, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, and other risks and costs of delays or difficulties in transitioning to new systems or integrating new systems into our current systems. Our system implementations may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the implementation of new technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and appropriately mitigated. 
Advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments. In addition, our reputation with our customers may suffer if outages, system failures or delays in timely access to data occur in legacy information technology systems that support key business processes.
We depend on the proper functioning and availability of our information systems, including communications and data processing systems, in operating our business. It is important that the data processed by these systems remains confidential, as it often includes competitive customer information, confidential customer transaction data, employee records, and key financial and operational results and statistics. Portions of our business utilize information systems that provide critical services to both our employees and our customers. Cyber incidents that impact the availability, reliability, speed, accuracy, or other proper functioning of these systems could have a significant impact on our operations. Certain of our software applications are utilized by third parties who provide certain outsourced administrative functions, which may increase the risk of a cybersecurity incident. Our information systems are protected through physical and software safeguards as well as backup systems considered appropriate by management. However, it is not practicable to protect against the possibility of damage created by natural disasters, power loss, telecommunications failures, cybersecurity attacks and similar events in every potential circumstance that may arise.
We and the vehicle and equipment manufacturers in our FMS business rely on a small number of suppliers.
We buy vehicles and related equipment from a relatively small number of original equipment manufacturers (OEMs) in our FMS business. Some of our vehicle manufacturers rely on a small concentration of suppliers for certain vehicle parts, components and equipment. A discrete event in a particular OEM's or supplier's industry or location, or adverse regional economic conditions impacting an OEM or supplier's ability to provide vehicles or a particular component, could adversely impact our FMS business and profitability. In addition, our business and reputation could also be negatively impacted if any parts, components or equipment from one of our suppliers suffer from broad-based quality control issues or become the subject of a product recall and we are unable to obtain replacement parts from another supplier in a timely manner.
We derive a significant portion of our SCS revenue from a relatively small number of customers.
During 2015, sales to our top ten SCS customers representing all of the industry groups we service accounted for 54% of our SCS total revenue and 52% of our SCS operating revenue (revenue less fuel and subcontracted transportation). Additionally, approximately 41% of our global SCS revenue is from the automotive industry and is directly impacted by automotive vehicle production. The loss of any of these customers or a significant reduction in the services provided to any of these customers could impact our operations and adversely affect our SCS financial results. While we continue to focus our efforts on diversifying our customer base, we may not be successful in doing so in the short-term.
Given the size of our relationships with larger SCS customers, they can exert downward pricing pressure and often require modifications to our standard commercial terms. While we believe our ongoing cost reduction initiatives have helped mitigate the effect of price reduction pressures from our SCS customers, there is no assurance that we will be able to maintain or improve profitability in those accounts.

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We are also subject to credit risk associated with the concentration of our accounts receivable from our SCS customers. If one or more of these customers were to become bankrupt, insolvent or otherwise were unable to pay for the services provided by us, we may incur significant write-offs of accounts receivable or incur lease or asset impairment charges that could adversely affect our operating results and financial condition.
In addition, many of our customers operate in cyclical or seasonal industries, or operate in industries, including the food and beverage industry, that may be impacted by unanticipated weather, growing conditions (such as drought, insects or disease), natural disasters and other conditions over which we have no control. A downturn in our customers' business cycles or unanticipated events impacting their businesses could cause a reduction in freight volume shipped by those customers or a reduction in their need for our SCS services.
We operate in a highly competitive industry and our business may suffer if we are unable to adequately address potential downward pricing pressures and other competitive factors.
Numerous competitive factors could impair our ability to maintain our current profitability. These factors include the following:
our inability to obtain expected customer retention levels or sales growth targets;
we compete with many other transportation and logistics service providers, some of which have greater capital resources than we do;
customers may choose to provide the services we provide for themselves;
some of our competitors periodically reduce their prices to gain business, and some of our smaller competitors may have lower cost structures than we do, which may limit our ability to maintain or increase prices; and
because cost of capital is a significant competitive factor, any increase in either the cost of our debt or equity as a result of reductions in our debt rating or stock price volatility could have a significant impact on our competitive position.

Our profitability could be negatively impacted if the key operational assumptions and pricing structure prove to be invalid.
Substantially all of our lease and maintenance services and our DTS and SCS services are provided under contractual arrangements with our customers. The pricing structure for our lease and contract maintenance business is based on certain assumptions regarding capital costs, maintenance expense over the life of the contract particularly in light of new engine technologies, residual values, productivity and the mix of fixed and variable costs, many of which are derived from historical data and trends. Under most of our SCS contracts, all or a portion of our pricing is based on certain assumptions regarding the scope of services, production volumes, operational efficiencies, the mix of fixed versus variable costs, productivity and other factors.
If we are incorrect in our assumptions, or as a result of subsequent changes in our customers' business needs or operations or market forces that are outside of our control, these assumptions prove to be invalid, we could have lower margins than anticipated. Although certain of our SCS contracts provide for renegotiation upon a material change, there is no assurance that we will be successful in obtaining the necessary price adjustments.
We may face difficulties in attracting and retaining drivers and technicians and may face issues with our union employees.
We hire drivers primarily for our DTS business segment. There is significant competition for qualified drivers in the transportation industry. Additionally, interventions and enforcement under the FMCSA's Compliance, Safety, Accountability program may shrink the industry's pool of drivers as those drivers with unfavorable scores may no longer be eligible to drive for us. As a result of driver shortages, we could be required to increase driver compensation, let trucks sit idle, utilize lower quality drivers or face difficulty meeting customer demands, all of which could adversely affect our growth and profitability.
Similarly, we hire technicians in our FMS business segment to perform vehicle maintenance services on our lease, contract maintenance and rental fleets. Recently there has been a decrease in the overall supply of skilled maintenance technicians, particularly new technicians with qualifications from technical programs and schools, which could make it more difficult to attract and retain skilled technicians. We have 3,700 employees that are organized by labor unions whose wages and benefits are governed by 102 labor agreements that are renegotiated periodically. Some of the industries in which we currently engage have experienced a material work stoppage, slowdown or strike. Our business and operations could be impacted in the event of labor strikes or work stoppages involving our employees organized by labor unions in our FMS, DTS or SCS business segments.

15


We operate in a highly regulated industry, and costs of compliance with, or liability for violation of, existing or future regulations could significantly increase our costs of doing business.
Our business is subject to regulation by various federal, state and foreign governmental agencies. These agencies could institute new laws, rules or regulations or issue interpretation changes to existing regulations at any time. We have also seen an increase in proactive enforcement of existing regulations by some entities. Compliance with new laws, rules or regulations could substantially impair labor and equipment productivity and increase our costs. Conversely, our failure to comply with any applicable laws, rules or regulations to which we are subject, whether actual or alleged, could expose us to fines, penalties or potential litigation liabilities, including costs, settlements and judgments. We are also subject to reputational risk and other detrimental business consequences associated with noncompliance, such as employees, customers, agents, suppliers or other persons using our supply chain or assets to commit illegal acts, including the use of company assets for terrorist activities, or a breach of data privacy laws, the ongoing development of which in the U.S. and other jurisdictions may require changes to our data security policies and procedures to comply with new standards.
DOT and Other Regulatory Authorities. The U.S. Department of Transportation and various state and federal agencies exercise broad powers over our motor carrier operations, safety and the generation, handling, storage, treatment and disposal of waste materials. We may also become subject to new or more restrictive regulations imposed by the Department of Transportation, the Occupational Safety and Health Administration, the Department of Homeland Security and U.S. Customs Service, the Environmental Protection Agency or other authorities, relating to the hours of service that our drivers may provide in any one-time period, homeland security, carbon emissions and reporting and other matters.
Federal Motor Carrier Safety Administration (FMCSA) Program. The FMCSA's program may increase cost for our customers given the potential impact to the driver pool, the additional hours of service requirements and additional investment in vehicle equipment. In addition, although Ryder's scores are below the thresholds, if performance changed, we could risk intervention that may create risk to our operating authority.
Labor. We maintain operations and employees in numerous states throughout the U.S., which are governed by federal and state labor and employment laws and regulations relating to compensation, benefits, healthcare and various workplace issues, all of which are applicable to our employees, and in some cases, independent contractors. State labor and employment rules vary from state to state and in some states, require us to meet much stricter standards than required in other states. Also, we are or may become subject to various class-action lawsuits related to wage and hour violations and improper pay in certain states. Unfavorable or unanticipated outcomes in any of the lawsuits could subject us to increased costs and impact our profitability.
International. We currently operate in Canada, Europe, Mexico and Asia, where we are subject to compliance with local laws and regulatory requirements of foreign jurisdictions, including local tax laws, and compliance with the Foreign Corrupt Practices Act. Local laws and regulatory requirements may vary significantly from country to country. Customary levels of compliance with local regulations and the tolerance for noncompliance by regulatory authorities may also vary in different countries and geographical locations, and impact our ability to successfully implement our compliance and business initiatives in certain jurisdictions. Also, adherence to rigorous local laws and regulatory requirements may limit our ability to expand into certain international markets and result in residual liability for legal claims and tax disputes arising out of previously discontinued operations.
Environmental. Regulations governing exhaust emissions that have been enacted over the last few years could adversely impact our business. The Environmental Protection Agency (EPA) issued regulations that required progressive reductions in exhaust emissions from certain diesel engines from 2007 through 2010. Emissions standards require reductions in the sulfur content of diesel fuel since June 2006. Also, the first phase of progressively stringent emissions standards relating to emissions after-treatment devices was introduced on newly-manufactured engines and vehicles utilizing engines built after January 1, 2007. The second phase, which required an additional after-treatment system, became effective after January 1, 2010. We face additional technology changes under EPA regulations that went into effect in 2014, which require modifications to existing vehicle chassis and engine combinations. The 2014 regulations require reductions in carbon dioxide, which can only be reduced by improving fuel economy, and which require compliance with different emissions standards for both engines and chassis, based on vocation. OEMs may be required to install additional engine componentry, additional aerodynamics on chassis and low-rolling resistance tires to comply with the regulations, which may result in higher operating costs associated with the more complex componentry and a shorter useful tread life for tires and increased operating costs for customers and us. Additional EPA regulations are expected to go into effect in 2017 that may further impact our business. Although customers may see reduced fuel consumption under the new standards, this could be offset by higher maintenance costs per mile. Each of these requirements could result in higher prices for vehicles, diesel engine fuel and vehicle maintenance, which are passed on to our customers, as well as higher maintenance costs and uncertainty as to reliability of the new engines, all of which could, over time, increase our costs and adversely affect our business and results of operations. The new technology may also impact the residual values of these vehicles when sold in the future. Future regulation of other environmental matters, including potential limits on carbon emissions under climate-change legislation, could also impact our business and profitability if enacted.

16


Lease Accounting Rules. Demand for our full service lease product line is based in part on customers' decisions to lease rather than buy vehicles. A number of factors can impact whether customers decide to lease or buy vehicles, including economic benefits, accounting considerations, tax treatment, interest rates and operational flexibility. In 2013, the Financial Accounting Standards Board issued its latest proposed update to accounting standards that would involve a new approach to lease accounting that differs from current practice. Most notably, the new approach would eliminate off-balance sheet treatment of leases and require lessees to recognize leased assets on their balance sheets. If the proposed accounting standard becomes effective in its current form, it could be perceived to make leasing a less attractive option for some of our full service lease customers.
Income Taxes. The U.S. Congress, the Organization for Economic Co-operation and Development (“OECD”), the European Union, and other government agencies in jurisdictions in which we and our affiliates invest or do business have maintained a focus on the taxation of multinational companies. The OECD, which represents a coalition of member countries, is supporting changes to numerous long-standing tax principles through its base erosion and profit shifting (“BEPS”) project, which is focused on a number of issues, including the shifting of profits between affiliated entities in different tax jurisdictions.  The European Union has a number of on-going tax initiatives.  Additionally, Congress has announced proposals for potential reform to the U.S. federal income tax rules for businesses such as, reducing the top marginal rate on corporations and limiting accelerated depreciation deductions.  Several of these proposals for reform, if enacted by the United States or by other countries in which we or our affiliates invest or do business, could adversely affect us. It is unclear what any actual legislation would provide, when it would be proposed or what its prospects for enactment would be.
Volatility in assumptions and asset values related to our pension plans may reduce our profitability and adversely impact current funding levels.
We historically sponsored a number of defined benefit plans for employees in the U.S., U.K. and other foreign locations. The retirement benefits under the defined benefit plans are frozen for non-grandfathered and certain non-union employees. Our major defined benefit plans are funded, with trust assets invested in a diversified portfolio. The cash contributions made to our defined benefit plans are required to comply with minimum funding requirements imposed by employee benefit and tax laws. The projected benefit obligation and assets of our global defined benefit plans as of December 31, 2015 were $2.1 billion and $1.6 billion, respectively. The difference between plan obligations and assets, or the funded status of the plans, is a significant factor in determining pension expense and the ongoing funding requirements of those plans. Macroeconomic factors, as well as changes in investment returns and discount rates used to calculate pension expense and related assets and liabilities can be volatile and may have an unfavorable impact on our costs and funding requirements. Although we have actively sought to control increases in these costs and funding requirements through investment policies and plan contributions, and more recently through a lump-sum buyout offer, there can be no assurance that we will succeed, and continued cost pressure could reduce the profitability of our business and negatively impact our cash flows.
We also participate in certain U.S. multi-employer pension (MEP) plans that provide defined benefits to employees covered by collective bargaining agreements. In the event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution to the plan. Our withdrawal liability for any MEP plan would depend on the extent of the plan's funding of vested benefits. Economic conditions have caused MEP plans to be significantly underfunded. As a result, although we have taken steps in recent years to withdraw from these MEP plans, we may still have liability for at least a period of time following our withdrawal. If the financial condition of the MEP plans were to continue to deteriorate, we could be subject to additional assessments.
We establish self-insurance reserves based on historical loss development factors, which could lead to adjustments in the future based on actual development experience.
We retain a portion of the accident risk under vehicle liability and workers' compensation insurance programs. Our self-insurance accruals are based on actuarially estimated, undiscounted cost of claims, which includes claims incurred but not reported. While we believe that our estimation processes are well designed, every estimation process is inherently subject to limitations. Fluctuations in the frequency or severity of accidents make it difficult to precisely predict the ultimate cost of claims. The actual cost of claims can be different than the historical selected loss development factors because of safety performance, payment patterns and settlement patterns. For a detailed discussion on our accounting policies and assumptions relating to our self-insurance reserves, please see the “Critical Accounting Estimates - Self-Insurance Accruals” section in Management's Discussion and Analysis of Financial Condition and Results of Operations.

17


Severe weather or other natural occurrences could result in significant business interruptions and expenditures in excess of available insurance coverage.
Our operations may be affected by external factors such as severe weather and other natural occurrences, including floods, fires, hurricanes and earthquakes.  As a result, our facilities may be damaged, our workforce may be unavailable, fuel costs may rise and significant business interruptions could occur.  In addition, the performance of our vehicles could be adversely affected by extreme weather conditions.  Insurance to protect against loss of business and other related consequences resulting from these natural occurrences is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of our damages or damages to others and this insurance may not continue to be available at commercially reasonable rates. Even with insurance, if any natural occurrence leads to a catastrophic interruption of service, we may not be able to mitigate a significant interruption in operations.
Our international operations subject us to operational and financial risks.
We provide services outside of the U.S., which subjects our business to various risks, including changes in tariffs, trade restrictions, trade agreements and taxes; difficulties in managing or overseeing foreign operations and agents; foreign currency fluctuations and limitations on the repatriation of funds due to foreign currency controls; different liability standards; and intellectual property laws of countries that do not protect our rights in intellectual property to the same extent as the laws of the U.S. The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and/or decrease the profitability of our operations in that region. Also, if we do not correctly anticipate changes in international economic and political conditions, we may not alter our business practices in time to avoid adverse effects.


18



ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

ITEM 2. PROPERTIES
Our properties consist primarily of vehicle maintenance and repair facilities, warehouses and other real estate and improvements.
We maintain 606 FMS properties in the U.S., Puerto Rico and Canada; we own 396 of these and lease the remaining 210. Our FMS properties are primarily comprised of maintenance facilities generally including a repair shop, rental counter, fuel service island, administrative offices, and used vehicle retail sales centers.
Additionally, we manage 165 on-site maintenance facilities, located at customer locations.
We also maintain 172 locations in the U.S. and Canada in connection with our domestic SCS business. Almost all of our SCS locations are leased and generally include a warehouse and administrative offices.
We maintain 107 international locations (locations outside of the U.S. and Canada) for our international businesses. There are 52 locations in the U.K. and Germany, 50 locations in Mexico and 5 locations in China and Singapore. The majority of these locations are leased and may be a repair shop, warehouse or administrative office.
Additionally, we maintain 9 U.S. locations primarily used for Central Support Services. These facilities are generally administrative offices, of which we own two and lease the remaining seven.

ITEM 3. LEGAL PROCEEDINGS
We are involved in various claims, lawsuits and administrative actions arising in the normal course of our 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 our consolidated financial condition or liquidity.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

19


PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Ryder Common Stock Prices
 
 
 
Stock Price
 
Dividends per
Common Share
 
 
High
 
Low
 
2015
 
 
 
 
 
 
First quarter
 
$99.32
 
82.29
 
0.37
Second quarter
 
100.64
 
86.75
 
0.37
Third quarter
 
93.86
 
72.66
 
0.41
Fourth quarter
 
76.33
 
53.54
 
0.41
 
 
 
 
 
 
 
2014
 
 
 
 
 
 
First quarter
 
$80.62
 
64.36
 
0.34
Second quarter
 
89.25
 
77.93
 
0.34
Third quarter
 
93.87
 
84.20
 
0.37
Fourth quarter
 
95.82
 
77.14
 
0.37
Our common shares are listed on the New York Stock Exchange under the trading symbol “R.” At January 31, 2016, there were 7,410 common stockholders of record and our stock price on the New York Stock Exchange was $53.17.        

20



Performance Graph
The following graph compares the performance of our common stock with the performance of the Standard & Poor’s 500 Composite Stock Index and the Dow Jones Transportation 20 Index for a five year period by measuring the changes in common stock prices from December 31, 2010 to December 31, 2015.
The stock performance graph assumes for comparison that the value of the Company’s Common Stock and of each index was $100 on December 31, 2010 and that all dividends were reinvested. Past performance is not necessarily an indicator of future results.

21



Purchases of Equity Securities
The following table provides information with respect to purchases we made of our common stock during the quarter ended December 31, 2015
 
 
Total Number
of Shares
Purchased (1)
 
Average Price
Paid per
Share
 
Total Number of
Shares Purchased as
Part of Publicly Announced Program (2)
 
Maximum Number    
of Shares That May
Yet Be Purchased
Under the Anti-Dilutive
Program (2)
October 1 through October 31, 2015
 

 
$

 

 
607,615

November 1 through November 30, 2015
 
86

 
66.67

 

 
607,615

December 1 through December 31, 2015
 
736

 
57.34

 

 
2,000,000

Total
 
822

 
$
58.31

 

 
 
______________ 
(1)
During the three months ended December 31, 2015, we purchased an aggregate of 822 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock delivered as payment for the exercise price of options exercised or to satisfy the option holders’ tax withholding liability associated with our share-based compensation programs and (ii) open-market purchases by the trustee of Ryder’s deferred compensation plans relating to investments by employees in our stock, one of the investment options available under the plans.

(2)
In December 2015, our Board of Directors authorized a new share repurchase program intended to mitigate the dilutive impact of shares issued under our employee stock plans.  Under the December 2015 program, management is authorized to repurchase (i) up to 1.5 million shares of common stock, the sum of  which will not exceed the number of shares issued to employees under the Company’s employee stock plans from December 1, 2015 to December 9, 2017  plus (ii) 0.5 million shares issued to employees that were not purchased under the Company’s previous share repurchase program. The December 2015 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock.  Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2015 program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. 

Securities Authorized for Issuance under Equity Compensation Plans

The following table includes information as of December 31, 2015 about certain plans which provide for the issuance of common stock in connection with the exercise of stock options and other share-based awards.
Plans
 
Number of Securities to be issued upon Exercise of Outstanding Options, Warrants and Rights
 
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans Excluding Securities Reflected in Column (a)
 
 
(a)
 
 
(b)
 
 
(c)
Equity compensation plans approved by security holders:
 
 
 
 
 
 
 
 
Broad based employee stock plans
 
1,755,129

(1) 
 
$68.13
(3) 
 
1,194,719

Employee stock purchase plan
 

 
 

 
 
134,730

Non-employee directors' stock plans
 
162,450

(2) 
 

 
 
39,098

Total
 
1,917,579

 
 
$68.13
 
 
1,368,547

_______________
(1)
Includes 548,493 time-vested and performance-based restricted stock awards. Also includes 38,105 performance-based restricted stock rights not considered granted under accounting guidance for stock compensation. Refer to Note 22, "Share-Based Compensation Plans", for additional information.
(2)
Includes 62,421 restricted stock units and time-vested restricted stock awards, of which 5,645 time-vested restricted stock awards vested in previous years and are not exercisable until six months after the director's retirement.
(3)
Weighted-average exercise price of outstanding options excludes restricted stock awards and restricted stock units.


22


ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial information should be read in conjunction with Items 7 and 8 of this report. During 2015, we determined that the structure of our sale and leaseback transactions did not qualify for deconsolidation and should not be treated as off-balance sheet operating leases. Consolidated financial information for 2012 through 2014 has been revised to conform to the 2015 presentation. Adjustments made to prior years were not material. Refer to Note 3, "Revision of Prior Period Financial Statements" in the Notes to Consolidated Financial Statements for further discussion of the revision. Consolidated financial information for 2011 was not revised as transactions impacting this period were more limited.
 
 
Years ended December 31
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
(Dollars and shares in thousands, except per share amounts)
Operating Data:
 
 
 
 
 
 
 
 
 
 
Total Revenue
 
$
6,571,893

 
6,638,774

 
6,419,285

 
6,256,967

 
6,050,534

Operating Revenue (1)
 
$
5,561,077

 
5,252,217

 
4,965,818

 
4,770,259

 
4,554,322

Earnings from continuing operations
 
$
305,989

 
220,225

 
243,275

 
200,668

 
171,368

Comparable earnings from continuing operations (2)
 
$
327,331

 
296,868

 
256,640

 
226,584

 
191,685

Net earnings (3)
 
$
304,768

 
218,341

 
237,871

 
209,748

 
169,777

Per Share Data:
 
 
 
 
 
 
 
 
 
 
Earnings from continuing operations -Diluted
 
$
5.73

 
4.14

 
4.63

 
3.90

 
3.31

Comparable earnings from continuing operations -Diluted (2)
 
$
6.13

 
5.58

 
4.88

 
4.40

 
3.71

Net earnings -Diluted (3)
 
$
5.71

 
4.11

 
4.53

 
4.08

 
3.28

 Cash dividends
 
$
1.56

 
1.42

 
1.30

 
1.20

 
1.12

Book value (4)
 
$
37.15

 
34.30

 
35.56

 
28.56

 
25.77

Financial Data:
 
 
 
 
 
 
 
 
 
 
Total assets (5)
 
$
10,967,809

 
9,850,871

 
9,168,340

 
8,450,808

 
7,586,409

Average assets (5), (6)
 
$
10,478,075

 
9,625,474

 
8,704,295

 
8,167,290

 
7,230,624

Return on average assets (%) (5), (6)
 
2.9

 
2.3

 
2.7

 
2.6

 
2.3

  Long-term debt
 
$
4,883,326

 
4,694,335

 
4,022,975

 
3,589,070

 
3,107,779

  Total debt
 
$
5,517,856

 
4,730,619

 
4,295,178

 
3,993,825

 
3,382,145

Shareholders’ equity (4)
 
$
1,987,111

 
1,819,087

 
1,896,561

 
1,467,237

 
1,318,153

Debt to equity (%) (4)
 
278

 
260

 
227

 
272

 
257

Average shareholders’ equity (4), (6)
 
$
1,894,917

 
1,925,824

 
1,593,942

 
1,405,640

 
1,428,048

Return on average shareholders’ equity (%) (4), (6)
 
16.1

 
11.3

 
14.9

 
14.9

 
11.9

Adjusted return on average capital (%) (6), (7) 
 
5.8

 
5.8

 
5.8

 
5.7

 
5.7

Net cash provided by operating activities from continuing operations
 
$
1,441,788

 
1,382,818

 
1,251,811

 
1,160,175

 
1,041,956

Free cash flow (8)
 
$
(727,714
)
 
(315,116
)
 
(339,596
)
 
(488,373
)
 
(256,773
)
Capital expenditures paid
 
$
2,667,978

 
2,259,164

 
2,122,628

 
2,133,235

 
1,698,589

Other Data:
 
 
 
 
 
 
 
 
 
 
Average common shares — Diluted
 
53,260

 
53,036

 
52,071

 
50,740

 
50,878

Number of vehicles — Owned and leased
 
185,200

 
174,100

 
172,100

 
172,500

 
169,900

Average number of vehicles — Owned and leased
 
180,500

 
172,800

 
171,200

 
173,700

 
160,900

Number of employees
 
33,100

 
30,600

 
28,900

 
27,700

 
27,500

_____________________ 
(1)
Non-GAAP financial measure.  Refer to the “Non-GAAP Financial Measures” section for a reconciliation of total revenue to operating revenue.
(2)
Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section in Item 7 of this report for a reconciliation of net earnings from continuing operations to comparable earnings from continuing operations and net earnings from continuing operations per diluted common share to comparable earnings per diluted common share.
(3)
Net earnings in 2015, 2014, 2013, 2012 and 2011 included (losses)/earnings from discontinued operations of $(1) million, or $(0.02) per diluted common share, $(2) million, or $(0.03) per diluted common share, $(5) million, or $(0.10) per diluted common share, $9 million, or $0.18 per diluted common share, and $(2) million, or $(0.03) per diluted common share, respectively.
(4)
Shareholders’ equity at December 31, 2015, 2014, 2013, 2012 and 2011 reflected cumulative after-tax equity charges of $577 million, $584 million, $474 million, $645 million, and $595 million, respectively, related to our pension and postretirement plans.
(5)
Includes the impact of the reclassification of current deferred tax assets to non-current as discussed in Note 2, "Recent Accounting Pronouncements."
(6)
Amounts were computed using an 8-point average based on quarterly information.
(7)
Our adjusted return on average capital (ROC), a non-GAAP financial measure, represents the rate of return generated by the capital deployed in our business. We use ROC as an internal measure of how effectively we use the capital invested (borrowed or owned) in our operations. Refer to the “Non-GAAP Financial Measures” section in Item 7 of this report for a reconciliation of adjusted return on average capital to return on average shareholders’ equity .
(8)
Non-GAAP financial measure. Refer to the “Financial Resources and Liquidity” section in Item 7 of this report for a reconciliation of net cash provided by operating activities to free cash flow.

23

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with our consolidated financial statements and related notes contained in Item 8 of this report on Form 10-K. The following MD&A describes the principal factors affecting results of operations, financial resources, liquidity, contractual cash obligations, and critical accounting estimates. The information presented in the MD&A is for the years ended December 31, 2015, 2014 and 2013 unless otherwise noted.
OVERVIEW
Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. During the first quarter of 2015, our management structure changed within the supply chain business. We created the role of President of DTS for the dedicated product offering which was previously within SCS. Beginning in 2015, we are reporting our financial performance based on three business segments: (1) FMS, which provides full service leasing, commercial rental, contract maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.; and (3) SCS, which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated transportation services provided as part of an integrated, multi-service, supply chain solution to SCS customers are reported in the SCS business segment.
The FMS business, our largest segment, had revenue (net of intercompany eliminations) and assets in 2015 of $4.13 billion and $10.08 billion, respectively, representing 63% of our consolidated revenue and 92% of consolidated assets. DTS revenue and assets in 2015 were $896 million and $276 million, respectively, representing 14% of our consolidated revenue and 2% of consolidated assets. SCS revenue and assets in 2015 were $1.55 billion and $637 million, respectively, representing 23% of our consolidated revenue and 6% of consolidated assets.
We periodically enter into sale and leaseback transactions to lower the total cost of funding our operations and to diversify funding among different classes of investors and among different types of funding instruments. The related leasebacks were historically treated as off-balance sheet operating leases and were included in our reported leverage ratios. During 2015, we reviewed and evaluated the structure of the leasebacks and determined they did not qualify for deconsolidation. The prior year amounts, which were not material, have been revised to conform to the current period presentation. Refer to Note 3, "Revision of Prior Period Financial Statements" in the Notes to Consolidated Financial Statements for further discussion of the revision to our historical financial statements.

At the beginning of 2015, we also revised the reporting of operating revenue, a non-GAAP financial measure. In addition to excluding FMS fuel services revenue and subcontracted transportation from the calculation of operating revenue, we also now exclude DTS and SCS fuel costs. Prior year amounts have been revised to conform to the current period presentation. The revisions were not material and did not impact segment earnings.

We operate in highly competitive markets. Our customers select us based on numerous factors including service quality, price, technology and service offerings. As an alternative to using our services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative services from other third-party vendors. Our customer base includes enterprises operating in a variety of industries including automotive, industrial, food and beverage service, consumer packaged goods (CPG), transportation and warehousing, technology and healthcare, retail, consumer brands, housing, business and personal services, and paper and publishing.


24

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)


The following discussion provides a summary of financial highlights that are discussed in more detail throughout our MD&A and within the Notes to Consolidated Financial Statements:
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
 
(Dollars in thousands, except per share amounts)
 
 
 
 
Total revenue
 
$
6,571,893

 
6,638,774

 
6,419,285

 
(1)%
 
3%
Operating revenue (1)
 
5,561,077

 
5,252,217

 
4,965,818

 
6%
 
6%
 
 
 
 
 
 
 
 
 
 
 
Earnings before income taxes (EBT)
 
$
469,215

 
338,267

 
369,015

 
39%
 
(8)%
Comparable EBT (2)
 
505,960

 
462,991

 
393,146

 
9%
 
18%
Earnings from continuing operations
 
305,989

 
220,225

 
243,275

 
39%
 
(9)%
Comparable earnings from continuing operations (2)
 
327,331

 
296,868

 
256,640

 
10%
 
16%
Net earnings
 
304,768

 
218,341

 
237,871

 
40%
 
(8)%
Earnings per common share — Diluted
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
5.73

 
4.14

 
4.63

 
38%
 
(11)%
Comparable (2)
 
6.13

 
5.58

 
4.88

 
10%
 
14%
Net earnings
 
5.71

 
4.11

 
4.53

 
39%
 
(9)%
_________________
(1)
We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our core businesses and as a measure of sales activity. FMS fuel services revenue and DTS and SCS fuel are ancillary services that we provide our customers and are impacted by fluctuations in market fuel prices.  Therefore, these items are excluded from operating revenue as the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on trailing market fuel costs. We also exclude subcontracted transportation from the calculation of operating revenue as this service is also typically a pass-through to our customers and therefore fluctuations result in minimal changes to our profitability.  Refer to the “Non-GAAP Financial Measures” section for a reconciliation of total revenue to operating revenue.
(2)
Non-GAAP financial measure. We believe comparable EBT, comparable earnings and comparable earnings per diluted common share, all from continuing operations, provide useful information to investors because they exclude non-operating pension costs, which we consider to be those impacted by financial market performance and outside the operational performance of the business, and other significant items that are unrelated to our ongoing business operations. Refer to the "Non-GAAP Financial Measures" section for a reconciliation of EBT, earnings from continuing operations and earnings per diluted common share from continuing operations to the comparable measures.
In 2015, total revenue decreased 1% to $6.57 billion while operating revenue increased 6% to $5.56 billion. Total revenue declined due to lower fuel prices largely passed through to customers and negative impacts from foreign exchange, offset by higher operating revenue. The increase in operating revenue was driven by growth in all three business segments partially offset by a 200 basis point impact from foreign exchange. FMS operating revenue growth was due to a larger full service lease fleet, higher prices on lease replacement vehicles, increased North American rental demand and higher rental pricing. We increased our full service lease fleet by 6,300 vehicles during the year due to new sales activity. DTS and SCS operating revenue growth was due to new business, increased pricing and higher volumes. The increase in EBT and earnings from continuing operations largely reflects the 2014 non-cash pension settlement loss of $97 million, $61 million after-tax, from the lump sum settlement of a portion of our U.S. pension plan obligation. Comparable EBT increased 9% from higher full service lease and commercial rental performance in FMS and new business and increased pricing in SCS and DTS. Improved results were partially offset by lower gains on used vehicle sales and a 100 basis point impact from foreign exchange.
Cash provided by operating activities from continuing operations increased to $1.44 billion in 2015 compared with $1.38 billion in 2014. Free cash flow from continuing operations, a non-GAAP financial measure, declined to negative $728 million in 2015 from negative $315 million in 2014 reflecting higher capital expenditures and lower proceeds from vehicle sales.
Capital expenditures increased 17% to $2.70 billion in 2015 reflecting planned higher investments in the full service lease and commercial rental fleets. Our debt balance increased 17% to $5.52 billion at December 31, 2015 due to negative free cash flow reflecting the increased investments in our full service lease and commercial rental fleets to support growth. Our debt to equity ratio increased to 278% from 260% in 2014, largely driven by the effects of foreign exchange and higher borrowings to fund capital expenditures.
We increased our annual dividend by 11% to $1.64 per share of common stock.


25

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)


2016 Outlook

In 2016, we expect to deliver another year of solid growth. We anticipate that secular trends favoring outsourcing will drive continued revenue and earnings growth in our contractual businesses across all three segments. We expect significant lease fleet growth of 3,500 vehicles. However, we have assumed a further deterioration in used vehicle pricing, with tractor pricing anticipated to decrease by approximately 20% from the peak in the second quarter 2015. Given the potential uncertainty around 2016 freight levels, we have also planned for lower rental demand and minimal rental capital spending, reducing our exposure in this transactional business. Based on forecasted 2016 business levels, we have taken necessary cost actions including a cutback in discretionary spending and a modest reduction in workforce. The net earnings improvements from the above factors are expected to be partially offset by a higher tax rate and an anticipated negative impact from foreign exchange.

We expect positive free cash flow in 2016, demonstrating the counter-cyclical nature of our business model. Given the increase in free cash flow, we expect leverage to significantly decline during the year. This decline will provide additional balance sheet flexibility and based on forecasted leverage, we expect to resume anti-dilutive share repurchases in the second half of the year, with year-end leverage expected near the midpoint of our long-term range.

We forecast 2016 comparable earnings from continuing operations of $6.10 to $6.30 per diluted share, compared with $6.13 per diluted share in 2015. Earnings comparisons exclude non-operating pension costs of $0.27 per diluted share in 2016, as well as non-operating pension, restructuring and other net charges of $0.40 in 2015. Total revenue for 2016 is expected to be up 6% to approximately $7.0 billion. Operating revenue for 2016 is forecast to be up 5% to approximately $5.8 billion.




26

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)


FULL YEAR CONSOLIDATED RESULTS
 
Revenue and cost of revenue by source
Total revenue decreased 1% in 2015 to $6.57 billion and increased 3% in 2014 to $6.64 billion. Operating revenue (revenue excluding all fuel and subcontracted transportation) increased 6% in 2015 to $5.56 billion and increased 6% in 2014 to $5.25 billion. The following table summarizes the components of the change in revenue on a percentage basis versus the prior year:
 
 
 
2015
 
2014
 
 
Total
 
Operating
 
Total
 
Operating
Organic price and volume
 
8%
 
8%
 
4%
 
6%
Fuel
 
(6)
 
 
(1)
 
Subcontracted transportation
 
(1)
 
 
 
Foreign exchange
 
(2)
 
(2)
 
 
Total (decrease)/increase
 
(1)%
 
6%
 
3%
 
6%
Lease and Rental
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014

2014/2013
 
 
(Dollars in thousands)
 
 
 
 
Lease and rental revenues
 
$
3,121,553

 
2,939,422

 
2,770,026

 
6%
 
6%
Cost of lease and rental
 
2,153,450

 
2,036,881

 
1,925,546

 
6%
 
6%
Gross margin
 
968,103

 
902,541

 
844,480

 
7%
 
7%
Gross margin %
 
31
%
 
31
%
 
30
%
 
 
 
 
Lease and rental revenues represent full service lease and commercial rental product offerings within our FMS business segment. Revenues increased 6% in 2015 to $3.12 billion and increased 6% in 2014 to $2.94 billion. In 2015, the increase was primarily driven by a 4% larger average full service lease fleet, higher prices on full service lease vehicles and increased commercial rental revenue. Foreign exchange negatively impacted revenue growth by 200 basis points. Commercial rental revenue grew due to increased North American demand and higher rental pricing (up 3% in 2015). In 2014, the increase was primarily driven by higher prices on full service lease vehicles, full service lease fleet growth and increased commercial rental revenue due to higher pricing and increased North American demand.
Cost of lease and rental represents the direct costs related to lease and rental revenues. These costs are comprised of depreciation of revenue earning equipment, maintenance costs (primarily repair parts and labor), and other fixed costs such as licenses, insurance and operating taxes. Cost of lease and rental excludes interest costs from vehicle financing. Cost of lease and rental increased 6% in both 2015 and 2014 to $2.15 billion and $2.04 billion, respectively. In 2015, the increase was due to higher depreciation, insurance and maintenance costs resulting from a 4% larger average lease fleet and a 7% larger average rental fleet. The 2014 increase was due to increased depreciation and maintenance costs from a 2% larger average lease fleet and a 6% larger average rental fleet. Cost of lease and rental benefited by $40 million in 2015 and $25 million in 2014 due to changes in estimated residual values and useful lives of revenue earning equipment effective January 1 of each respective year.
Lease and rental gross margin increased 7% to $968 million and gross margin as a percentage of revenue remained at 31% in 2015. Gross margin increased 7% to $903 million and gross margin as a percentage of revenue increased to 31% in 2014. The increase in gross margin dollars in both 2015 and 2014 was due to higher per-vehicle pricing and benefits from improved vehicle residual values.

27

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)


Services
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
 
(Dollars in thousands)
 
 
 
 
Services revenue
 
$
2,912,063

 
2,911,465

 
2,819,673

 
—%
 
3%
Cost of services
 
2,413,156

 
2,447,867

 
2,359,880

 
(1)%
 
4%
Gross margin
 
498,907

 
463,598

 
459,793

 
8%
 
1%
Gross margin %
 
17
%
 
16
%
 
16
%
 
 
 
 
Services revenue represents all the revenues associated with our DTS and SCS business segments as well as contract maintenance, contract-related maintenance and fleet support services associated with our FMS business segment. Services revenue was consistent in 2015 with the prior year as new business, increased pricing and higher volumes in our SCS and DTS business segments were offset by lower fuel prices and negative impacts from foreign exchange. Foreign exchange negatively impacted revenue growth by 200 basis points. Services revenue increased 3% in 2014 to $2.91 billion primarily due to new business and higher volumes in our SCS and DTS business segments and, to a lesser extent, higher contract-related maintenance revenue in our FMS business segment.
Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, subcontracted transportation (purchased transportation from third parties) and maintenance costs. Cost of services decreased 1% in 2015 to $2.41 billion due to lower fuel costs as well as lower shutdown costs in our SCS business, partially offset by increased insurance and compensation-related costs. The decrease in cost of services also reflects higher prior-year start-up and severe winter weather-related costs. Cost of services increased 4% in 2014 to $2.45 billion due to an increase in revenue.
Services gross margin increased 8% to $499 million in 2015 and increased 1% to $464 million in 2014 due to higher revenue. Services gross margin as a percentage of revenue increased to 17% in 2015 due to lower costs and remained at 16% in 2014.
Fuel
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
 
(Dollars in thousands)
 
 
 
 
Fuel services revenue
 
$
538,277

 
787,887

 
829,586

 
(32)%
 
(5)%
Cost of fuel services
 
519,843

 
768,292

 
814,058

 
(32)%
 
(6)%
Gross margin
 
18,434

 
19,595

 
15,528

 
(6)%
 
26%
Gross margin %
 
3
%
 
2
%
 
2
%
 
 
 
 
Fuel services revenue decreased 32% in 2015 to $538 million and decreased 5% in 2014 to $788 million. In both 2015 and 2014, the revenue decrease was due to lower fuel prices passed through to customers. In addition, foreign exchange negatively impacted revenue growth by 100 basis points in 2015. In 2014, the decrease in revenue was also due to fewer gallons sold.
Cost of fuel services includes the direct costs associated with providing our customers with fuel. These costs include fuel, salaries and employee-related costs of fuel island attendants and depreciation of our fueling facilities and equipment. Cost of fuel decreased 32% in 2015 to $520 million and decreased 6% in 2014 to $768 million due to lower fuel prices. In 2014, the cost decrease was also due to fewer gallons sold.
Fuel services gross margin decreased 6% to $18 million in 2015 and increased 26% to $20 million in 2014. Fuel is largely a pass-through to customers for which we realize minimal changes in margin during periods of steady market fuel prices. However, fuel services margin is impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel is established based on trailing market fuel costs. Fuel services gross margin as a percentage of revenue increased to 3% in 2015 and remained at 2% in 2014.

28

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)


 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
 
(In thousands)
 
 
 
 
Other operating expenses
 
$
135,038

 
126,572

 
131,659

 
7%
 
(4)%
Other operating expenses include costs related to our owned and leased facilities within the FMS business segment such as depreciation, rent, insurance, utilities and taxes. These facilities are utilized to provide maintenance to our lease, rental, contract maintenance and fleet support services customers. Other operating expenses also include the costs associated with used vehicle sales such as writedowns of used vehicles to fair market value and facilities costs. Other operating expenses increased 7% to $135 million in 2015 primarily due to higher write-downs on vehicles held for sale of $7 million. Other operating expenses decreased 4% to $127 million in 2014 primarily due to lower write-downs on vehicles held for sale, partially offset by higher maintenance costs on FMS facilities due to severe winter weather.
 
 
 
 
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
 
(Dollars in thousands)
 
 
 
 
Selling, general and administrative expenses (SG&A)
 
$
844,497

 
816,975

 
790,681

 
3%
 
3%
Percentage of total revenue
 
13
%
 
12
%
 
12
%
 
 
 
 
Percentage of operating revenue
 
15
%
 
16
%
 
16
%
 
 
 
 
SG&A expenses increased 3% to $844 million in 2015 and increased 3% to $817 million in 2014. SG&A expenses as a percent of total revenue increased to 13% in 2015 and remained at 12% in 2014. The increase in SG&A expenses in 2015 primarily reflects higher professional fees and compensation-related expenses, strategic investments in information technology and a settlement of a customer-extended insurance claim; partially offset by foreign exchange. Foreign exchange reduced growth in SG&A expenses by 200 basis points. SG&A expenses as a percent of total revenue in 2015 increased due to the impact of lower fuel prices on total revenue. The increase in SG&A expenses in 2014 reflects higher pension expense driven by pension settlement charges related to our multi-employer pension plans of $13 million, partially offset by higher than expected asset returns in 2013 and lower service costs. The increase in SG&A expenses in 2014 also reflects higher compensation-related expenses and investments in information technology and marketing.
 
 
2015
 
2014
 
2013
 
 
(Dollars in thousands)
Pension lump sum settlement expense
 
$

 
97,231

 

In 2014, we reduced the size and potential volatility of our U.S. pension plan obligation by offering former employees a one-time option to receive a lump sum distribution of their vested benefits. The offer was made to approximately 11,000 former employees and approximately 6,200 of those employees accepted. In December 2014, we made payments totaling $224 million from the U.S. defined benefit plan assets, which resulted in a settlement of $259 million, or 12%, of our U.S. pension obligation. The transaction resulted in a non-cash pension settlement loss of $97 million. Refer to Note 23, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements for additional information.
 
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
 
(In thousands)
 
 
 
 
Gains on vehicle sales, net
 
$
117,809

 
126,824

 
96,175

 
(7)%
 
32%
Gains on vehicle sales, net decreased 7% to $118 million in 2015 due to lower sales volume, partially offset by higher average proceeds per unit. Sales volume decreased 14% and global average proceeds per unit increased 9% in 2015 reflecting increases in average truck and tractor proceeds per unit, especially in the first half of 2015. Used vehicle sales inventory increased 45% from 5,500 to 8,000 at December 31, 2015 due to initiatives to downsize the rental fleet that increased the number of vehicles held for sale at the end of the year and, to a lesser extent, lower sales volume. Gains on vehicle sales, net increased 32% to $127 million in 2014 due to higher average proceeds per unit, partially offset by lower sales volume.



29

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)


 
 
 
 
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
 
(Dollars in thousands)
 
 
 
 
Interest expense
 
$
150,434

 
144,739

 
140,463

 
4%
 
3%
Effective interest rate
 
2.9
%
 
3.1
%
 
3.5
%
 
 
 
 
Interest expense increased 4% to $150 million in 2015 and increased 3% to $145 million in 2014. The increases in 2015 and 2014 reflect higher average outstanding debt, partially offset by a lower effective interest rate. The increase in average outstanding debt reflects planned higher vehicle capital spending. The lower effective interest rate primarily reflects the replacement of higher interest rate debt with debt issuances at lower rates.
 
 
2015
 
2014
 
2013
 
 
(In thousands)
Miscellaneous income, net
 
$
10,156

 
13,613

 
15,372

Refer to Note 28, “Miscellaneous Income, Net” in the Notes to Consolidated Financial Statements for a discussion of the components of miscellaneous income. 
 
 
2015
 
2014
 
2013
 
 
(In thousands)
Restructuring and other charges (recoveries), net
 
$
14,225

 
2,387

 
(470
)
During the fourth quarters of 2015 and 2014, we approved plans to reduce our workforce in multiple locations as a result of cost containment actions. These actions resulted in pre-tax charges of $9 million in 2015 and $2 million in 2014. The workforce reduction approved in 2015 will be substantially completed by the end of the first quarter of 2016 and is expected to result in annual cost savings of approximately $22 million. During the fourth quarter of 2015, we also committed to a plan to divest our Ryder Canadian Retail Shippers Association Logistics operations and shutdown our Ryder Container Terminals business in Canada. As a result, we recognized charges of $3 million for employee termination costs and $2 million for asset impairment to adjust assets held for sale to fair value. Refer to Note 5, “Restructuring and Other Charges (Recoveries)” in the Notes to Consolidated Financial Statements for further discussion.
 
 
 
 
Change    
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
 
(Dollars in thousands)
 
 
 
 
Provision for income taxes
 
$
163,226

 
118,042

 
125,740

 
38%
 
(6)%
Effective tax rate from continuing operations
 
34.8
%
 
34.9
%
 
34.1
%
 
 
 
 
Our provision for income taxes and effective income tax rates are impacted by such items as enacted tax law changes, settlement of tax audits and the reversal of reserves for uncertain tax positions due to the expiration of statutes of limitation. In the aggregate, these items reduced the effective rate by 2.2% in 2015, 1.8% in 2014 and 0.8% in 2013. The other components of the effective tax rate in 2015 remained consistent with the prior year. Our effective tax rate in 2014 increased as a result of a higher proportionate amount of earnings in higher tax rate jurisdictions.
On December 18, 2015, the U.S. enacted the Protecting Americans from Tax Hikes Act (PATH). This enactment along with the Tax Increase Prevention Act of 2014, the American Taxpayer Relief Act of 2012, the 2010 Tax Relief, and the Unemployment Insurance Reauthorization and Job Creation Act, expanded and extended bonus depreciation to qualified property placed in service during 2010 through 2019. These changes will continue to significantly reduce our U.S. federal tax payments.
 
 
 
2015
 
2014
 
2013
 
 
(In thousands)
Loss from discontinued operations, net of tax
 
$
(1,221
)
 
(1,884
)
 
(5,404
)
Results of discontinued operations in 2015, 2014 and 2013 included losses related to adverse legal developments and professional and administrative fees associated with our discontinued South American operations.

30

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)

  
FULL YEAR OPERATING RESULTS BY BUSINESS SEGMENT
 
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
 
(In thousands)
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
Fleet Management Solutions
 
$
4,545,692

 
4,655,758

 
4,494,686

 
(2
)%
 
4
 %
Dedicated Transportation Solutions
 
895,538

 
899,802

 
831,599

 
 %
 
8

Supply Chain Solutions
 
1,547,763

 
1,561,347

 
1,551,464

 
(1
)
 
1

Eliminations
 
(417,100
)
 
(478,133
)
 
(458,464
)
 
13

 
(4
)
Total
 
$
6,571,893

 
6,638,774

 
6,419,285

 
(1
)%
 
3
 %
 
 
 
 
 
 
 
 
 
 
 
Operating Revenue:
 
 
 
 
 
 
 
 
 
 
Fleet Management Solutions
 
$
3,846,046

 
3,630,521

 
3,424,485

 
6
 %
 
6
 %
Dedicated Transportation Solutions
 
714,453

 
661,228

 
599,821

 
8
 %
 
10

Supply Chain Solutions
 
1,256,309

 
1,201,250

 
1,159,361

 
5

 
4

Eliminations
 
(255,731
)
 
(240,782
)
 
(217,849
)
 
(6
)
 
(11
)
Total
 
$
5,561,077

 
5,252,217

 
4,965,818

 
6
 %
 
6
 %
 
 
 
 
 
 
 
 
 
 
 
EBT:
 
 
 
 
 
 
 
 
 
 
Fleet Management Solutions
 
$
462,109

 
433,736

 
344,169

 
7
 %
 
26
 %
Dedicated Transportation Solutions
 
45,800

 
44,556

 
40,926

 
3
 %
 
9

Supply Chain Solutions
 
93,754

 
77,800

 
89,033

 
21

 
(13
)
Eliminations
 
(47,193
)
 
(41,361
)
 
(35,489
)
 
(14
)
 
(17
)
 
 
554,470

 
514,731

 
438,639

 
8

 
17

Unallocated Central Support Services
 
(48,510
)
 
(51,740
)
 
(45,493
)
 
6

 
(14
)
Non-operating pension costs
 
(19,186
)
 
(9,768
)
 
(24,285
)
 
(96
)
 
60

Restructuring and other (charges) recoveries, net and other items
 
(17,559
)
 
(114,956
)
 
154

 
NM

 
NM

Earnings from continuing operations before income taxes
 
$
469,215

 
338,267

 
369,015

 
39
 %
 
(8
)%

As part of management’s evaluation of segment operating performance, we define the primary measurement of our segment financial performance as EBT from continuing operations, which includes an allocation of Central Support Services (CSS), and excludes non-operating pension costs, restructuring and other charges (recoveries), net, as described in Note 5, “Restructuring and Other Charges (Recoveries),” and the items discussed in Note 25, “Other Items Impacting Comparability,” in the Notes to Consolidated Financial Statements. CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services and public affairs, information technology, health and safety, legal, marketing and corporate communications.
The objective of the EBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment and each operating segment within each business segment accountable for their allocated share of CSS costs. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Certain costs are considered to be overhead not attributable to any segment and remain unallocated in CSS. Included within the unallocated overhead remaining within CSS are the costs for investor relations, public affairs and certain executive compensation. See Note 29, Segment Reporting,” in the Notes to Consolidated Financial Statements for a description of the methodology for allocating the remainder of CSS costs to the business segments.
Inter-segment revenue and EBT are accounted for at rates similar to those executed with third parties. EBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in FMS, DTS and SCS and then eliminated (presented as “Eliminations” in the table above). Refer to Note 29, "Segment Reporting" in the Notes to Consolidated Financial Statements for additional information.

31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)


The following table sets forth equipment contribution included in EBT for our DTS and SCS business segments:
 
 
 
 
 
 
 
Change
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
(Dollars in thousands)
 
 
 
 
Equipment Contribution:
 
 
 
 
 
 
 
 
 
    Dedicated Transportation Solutions
$
32,471

 
28,436

 
23,086

 
  14%
 
  23%
    Supply Chain Solutions
14,722

 
12,925

 
12,403

 
  14
 
  4
Total
$
47,193

 
41,361

 
35,489

 
  14%
 
  17%
The following table provides a reconciliation of items excluded from our segment EBT measure to their classification within our Consolidated Statements of Earnings:
 
 
 
 
 
 
Description
 
Consolidated
Statements of Earnings Line Item
 
2015
 
2014
 
2013
 
 
 
 
(In thousands)
Non-operating pension costs
 
SG&A
 
$
(19,186
)
 
(9,768
)
 
(24,285
)
Restructuring and other (charges) recoveries, net (1)
 
Restructuring and other charges
 
(14,225
)
 
(2,387
)
 
470

Consulting fees (2)
 
SG&A
 
(3,843
)
 
(400
)
 

Pension settlement benefit (charges) (3)
 
SG&A
 
509

 
(12,564
)
 
(2,820
)
Pension lump sum settlement expense (3)
 
Pension lump sum settlement expense
 

 
(97,231
)
 

Acquisition-related tax adjustment (2)
 
SG&A
 

 
(1,808
)
 

Acquisition transaction costs
 
SG&A
 

 
(566
)
 

Foreign currency translation benefit (2)
 
Miscellaneous income
 

 

 
1,904

Superstorm Sandy vehicle-related recoveries (3)
 
Cost of services
 

 

 
600

 
 
 
 
$
(36,745
)
 
(124,724
)
 
(24,131
)
________________ 
(1)
See Note 5, “Restructuring and Other Charges (Recoveries),” in the Notes to Consolidated Financial Statements for additional information.
(2)
See Note 25, “Other Items Impacting Comparability,” in the Notes to Consolidated Financial Statements for additional information.
(3)
See Note 23, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements for additional information.





32

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)


Fleet Management Solutions
 
 
 
 
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014

2014/2013
 
 
(Dollars in thousands)
 
 
 
 
Full service lease
 
$
2,406,711

 
2,276,381

 
2,177,419

 
6%
 
5%
Contract maintenance
 
192,470

 
184,591

 
180,282

 
4
 
2
Contractual revenue
 
2,599,181

 
2,460,972


2,357,701

 
6
 
4
Commercial rental
 
940,045

 
876,994

 
789,496

 
7
 
11
Contract-related maintenance
 
229,195

 
221,491

 
205,258

 
3
 
8
Other
 
77,625

 
71,064

 
72,030

 
9
 
(1)
Operating revenue (1)
 
3,846,046

 
3,630,521

 
3,424,485

 
6
 
6
Fuel services revenue (2)
 
699,646

 
1,025,237

 
1,070,201

 
(32)
 
(4)
Total revenue
 
$
4,545,692

 
4,655,758

 
4,494,686

 
(2)%
 
4%
 
 
 
 
 
 
 
 
 
 
 
Segment EBT
 
$
462,109

 
433,736

 
344,169

 
7%
 
26%
 
 
 
 
 
 
 
 
 
 
 
Segment EBT as a % of total revenue
 
10.2
%
 
9.3
%
 
7.7
%
 
90 bps
 
160 bps
 
 
 
 
 
 
 
 
 
 
 
Segment EBT as a % of operating revenue (1)
 
12.0
%
 
11.9
%
 
10.1
%
 
10 bps
 
180 bps
____________________ 
(1)
We use operating revenue and EBT as a percent of operating revenue, non-GAAP financial measures, to evaluate the operating performance of our FMS business segment and as a measure of sales activity. FMS fuel services revenue is an ancillary service that we provide our customers and is impacted by fluctuations in market fuel prices. Therefore, this item is excluded from operating revenue as the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on trailing market fuel costs.
(2)
Includes intercompany fuel sales from FMS to DTS and SCS.

    
Total revenue decreased 2% in 2015 to $4.55 billion and increased 4% in 2014 to $4.66 billion. Operating revenue (revenue excluding fuel) increased 6% in 2015 to $3.85 billion and increased 6% in 2014 to $3.63 billion. The following table summarizes the components of the change in revenue on a percentage basis versus the prior year:
 
 
2015
 
2014
 
 
Total
 
Operating
 
Total
 
Operating
Organic price and volume
 
7%
 
8%
 
5%
 
6%
FMS fuel
 
(7)
 
 
(1)
 
Foreign exchange
 
(2)
 
(2)
 
 
Total (decrease)/increase
 
(2)%
 
6%
 
4%
 
6%
2015 versus 2014
Full service lease revenue increased 6% in 2015 due to lease fleet growth and higher pricing on replacement vehicles. Foreign exchange negatively impacted full service lease revenue growth by 200 basis points. The average number of full service lease vehicles increased 4% from the prior year, reflecting continued strong sales activity. We expect favorable full service lease comparisons to continue next year primarily due to strong 2015 sales activity, as well as 2016 activity. Commercial rental revenue increased 7% in 2015 reflecting higher North American demand and increased pricing (up 3% in 2015). Foreign exchange negatively impacted commercial rental revenue growth by 200 basis points. We expect unfavorable commercial rental comparisons next year based on a weaker demand environment. Contract maintenance revenue increased 4% in 2015 primarily due to higher volumes and new business. Contract-related maintenance revenue increased 3% in 2015, reflecting higher volumes and new business. Both contract-related maintenance and contract maintenance were positively impacted in 2015 by the full year impact of the 2014 acquisition of Bullwell Trailer Solutions. Fuel services revenue declined 32% in 2015 due to lower prices passed through to customers.

33

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)


FMS EBT increased 7% in 2015 to $462 million primarily due to higher full service lease results and strong commercial rental performance, partially offset by lower used vehicle sales results. Full service lease comparisons benefited from growth in fleet size and higher per-vehicle pricing. Commercial rental performance improved 8% in 2015 from the prior year reflecting increased North American demand and higher pricing (up 3% in 2015). Rental power fleet utilization was 76.5% in 2015, down from 77.6% in 2014 on an 8% larger average rental power fleet. Full service lease and commercial rental results benefited from lower depreciation of $40 million due to residual value changes implemented January 1, 2015. Used vehicle sales results decreased due to lower volume, partially offset by higher proceeds per unit.

2014 versus 2013
Full service lease revenue increased 5% in 2014 due to lease fleet growth and higher pricing on replacement vehicles. The average number of full service lease vehicles increased 2% from the prior year. Commercial rental revenue increased 11% in 2014 reflecting increased global rental pricing (up 4% in 2014) and increased demand. Contract-related maintenance revenue increased 8% in 2014 reflecting higher volumes of services and growth in our on-demand maintenance product. Contract maintenance revenue increased 2% in 2014 primarily due to new business. Both contract-related maintenance and contract maintenance were positively impacted by the acquisition of Bullwell Trailer Solutions on August 1, 2014. Fuel services revenue declined 4% in 2014 due to lower prices passed through to customers and fewer gallons sold.
FMS EBT increased 26% in 2014 to $434 million primarily due to strong commercial rental performance, significantly higher used vehicle sales results and better full service lease results. Commercial rental performance improved 16% in 2014 from the prior year, reflecting higher pricing and increased North American demand. Rental power fleet utilization was 77.6% in 2014, down slightly from 78.3% in 2013 on an 8% larger average rental power fleet. Used vehicle sales results increased due to higher proceeds per unit, partially offset by lower volume. Full service lease and commercial rental results benefited from lower depreciation of $25 million due to residual value changes implemented January 1, 2014. Full service lease comparisons also benefited from growth in fleet size.
The following table provides commercial rental statistics on our global fleet:
 
 
 
 
 
 
 
 
Change
 
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
 
(Dollars in thousands)
 
 
 
Rental revenue from non-lease customers (1)
 
$
571,985

 
523,063

 
463,890

 
9%
 
13%
Rental revenue from lease customers (2)
 
$
368,060

 
353,931

 
325,606

 
4%
 
9%
Average commercial rental power fleet size – in service (2), (3), (4)
 
33,800

 
31,200

 
28,900

 
8%
 
8%
Commercial rental utilization – power fleet (2)
 
76.5
%
 
77.6
%
 
78.3
%
 
(110) bps
 
(70) bps
______________
(1)
Also includes extra vehicles for lease customers.
(2)
Represents revenue from rental vehicles provided to our existing full service lease customers, generally in place of a lease vehicle.
(3)
Number of units rounded to nearest hundred and calculated using quarterly average unit counts.
(4)
Excluding trailers.


34

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)

 
 
 
 
 
 
 
 
 
 
 
Our global fleet of owned and leased revenue earning equipment and contract maintenance vehicles is summarized as follows (number of units rounded to the nearest hundred):
 
 
 
 
 
 
 
 
Change
  
 
2015
 
2014
 
2013
 
2015/2014
 
2014/2013
End of period vehicle count
 
 
 
 
 
 
 
 
 
 
By type:
 
 
 
 
 
 
 
 
 
 
Trucks(1)
 
72,800

 
68,900

 
68,700

 
6%
 
—%
Tractors (2)
 
68,700

 
62,400

 
60,200

 
10
 
4
Trailers (3), (4)
 
42,400

 
41,400

 
41,700

 
2
 
(1)
    Other
 
1,300

 
1,400

 
1,500

 
(7)
 
(7)
Total
 
185,200

 
174,100

 
172,100

 
6%
 
1%
 
 
 
 
 
 
 
 
 
 
 
By ownership:
 
 
 
 
 
 
 

 

Owned
 
184,700

 
172,300

 
170,400

 
7%
 
1%
Leased
 
500

 
1,800

 
1,700

 
(72)
 
6
Total
 
185,200

 
174,100

 
172,100

 
6%
 
1%
 
 
 
 
 
 
 
 
 
 
 
By product line: (4)
 
 
 
 
 
 
 

 

Full service lease
 
131,800

 
125,500

 
122,900

 
5%
 
2%
Commercial rental
 
42,100

 
39,900

 
38,200

 
6
 
4
Service vehicles and other
 
3,300

 
3,200

 
3,100

 
3
 
3
Active units