- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 No. 1-4364
-------------------------------------
RYDER SYSTEM, INC.
(a Florida corporation)
3600 N. W. 82nd Avenue
Miami, Florida 33166
Telephone (305) 500-3726
I.R.S. Employer Identification No. 59-0739250
-------------------------------------
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 X NO ____
Ryder System, Inc. had 69,787,524 shares of common stock ($0.50 par value per
share) outstanding as of July 30, 1999.
- --------------------------------------------------------------------------------
<PAGE>
RYDER SYSTEM, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Condensed Statements of Earnings -
Three and six months ended June 30, 1999
and 1998 (unaudited) 3
Consolidated Condensed Balance Sheets -
June 30, 1999 (unaudited) and December 31, 1998 4
Consolidated Condensed Statements of Cash Flows -
Six months ended June 30, 1999 and 1998 (unaudited) 5
Notes to Consolidated Condensed Financial Statements 6
Independent Accountants' Review Report 9
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 26
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 27
ITEM 6. Exhibits and Reports on Form 8-K 28
Signatures 29
Exhibit Index 30
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Ryder System, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Periods ended June 30, 1999 and 1998 Three Months Six Months
------------------------------ -----------------------------
(In thousands, except per share amounts) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 1,376,407 1,281,577 2,697,055 2,527,194
-------------- -------------- ------------- -------------
Operating expense 1,010,953 921,549 1,980,492 1,831,492
Freight under management expense 107,633 77,360 206,752 155,273
Year 2000 expense 7,276 9,757 21,659 14,845
Depreciation expense, net of gains (three months, 1999 - $14,602,
1998 - $13,355; six months, 1999 - $28,605, 1998 - $27,666) 149,722 148,981 299,551 295,739
Interest expense 51,521 49,103 100,173 97,511
Miscellaneous expense (income), net 53 (476) 3,014 (4,891)
-------------- -------------- ------------- -------------
1,327,158 1,206,274 2,611,641 2,389,969
-------------- -------------- ------------- -------------
Earnings before income taxes 49,249 75,303 85,414 137,225
Provision for income taxes 19,099 30,036 33,124 54,684
-------------- -------------- ------------- -------------
Net earnings $ 30,150 45,267 52,290 82,541
============== ============== ============= =============
Earnings per common share:
Basic $ 0.43 0.61 0.74 1.12
============== ============== ============= =============
Diluted $ 0.43 0.61 0.74 1.10
============== ============== ============= =============
Cash dividends per common share $ 0.15 0.15 0.30 0.30
============== ============== ============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
ITEM 1. Financial Statements (continued)
Ryder System, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(Dollars in thousands, except per share amounts) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 65,595 138,353
Receivables 544,746 559,141
Inventories 73,899 67,605
Tires in service 190,413 166,578
Prepaid expenses and other current assets 139,255 111,170
--------------- -------------
Total current assets 1,013,908 1,042,847
Revenue earning equipment 3,664,993 3,211,969
Operating property and equipment 600,100 597,951
Direct financing leases and other assets 595,233 543,242
Intangible assets and deferred charges 309,216 312,592
--------------- -------------
$ 6,183,450 5,708,601
=============== =============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 697,783 483,334
Accounts payable 530,115 399,495
Accrued expenses 429,929 479,835
--------------- -------------
Total current liabilities 1,657,827 1,362,664
Long-term debt 2,269,605 2,099,697
Deferred income taxes 841,577 807,623
Other non-current liabilities 332,955 343,003
--------------- -------------
Total liabilities 5,101,964 4,612,987
--------------- -------------
Shareholders' equity:
Common stock of $0.50 par value per share (shares outstanding at
June 30, 1999 - 69,898,865; December 31, 1998 - 71,280,247) 601,746 610,543
Retained earnings 506,259 504,105
Accumulated other comprehensive income (26,519) (19,034)
--------------- -------------
Total shareholders' equity 1,081,486 1,095,614
--------------- -------------
$ 6,183,450 5,708,601
=============== =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
ITEM 1. Financial Statements (continued)
Ryder System, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999 and 1998
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 52,290 82,541
Depreciation expense, net of gains 299,551 295,739
Amortization expense and other non-cash charges, net 9,080 1,373
Deferred income tax expense 38,223 44,516
Changes in operating assets and liabilities, net of acquisitions:
Increase in aggregate balance of trade receivables sold 25,000 50,000
Receivables (11,397) 10,436
Inventories (6,296) (2,249)
Prepaid expenses and other assets (36,687) (57,125)
Accounts payable 130,620 76,294
Accrued expenses and other non-current liabilities (67,492) (77,605)
--------------- -------------
432,892 423,920
--------------- -------------
Cash flows from financing activities:
Net change in commercial paper borrowings 365,955 184,781
Debt proceeds 185,503 151,403
Debt repaid, including capital lease obligations (153,451) (263,052)
Common stock repurchased (43,034) (46,069)
Common stock issued 5,065 23,060
Dividends on common stock (21,235) (22,192)
--------------- -------------
338,803 27,931
--------------- -------------
Cash flows from investing activities:
Purchases of property and revenue earning equipment (1,120,879) (702,955)
Sales of property and revenue earning equipment 192,464 172,554
Sale and leaseback of revenue earning equipment 78,852 73,430
Acquisitions, net of cash acquired - (11,483)
Other, net 5,110 11,964
--------------- -------------
(844,453) (456,490)
--------------- -------------
Decrease in cash and cash equivalents (72,758) (4,639)
Cash and cash equivalents at January 1 138,353 78,370
--------------- -------------
Cash and cash equivalents at June 30 $ 65,595 73,731
=============== =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
ITEM 1. Financial Statements (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(A) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements
include the accounts of Ryder System, Inc. and subsidiaries (the
"Company") and have been prepared by the Company in accordance with the
accounting policies described in the 1998 Annual Report and should be
read in conjunction with the consolidated financial statements and
notes which appear in that report. These statements do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included and the disclosures herein are adequate to make the
information presented not misleading. Operating results for interim
periods are not necessarily indicative of the results that can be
expected for a full year. Certain 1998 amounts have been reclassified
to conform to current year presentation.
(B) SALE OF RYDER PUBLIC TRANSPORTATION SERVICES
On July 21, 1999, the Company announced that it had agreed to sell its
Public Transportation Services business to FirstGroup plc for $940
million in cash. The sale, which is subject to U.S. regulatory approval
and the approval of FirstGroup's shareholders, is expected to close in
early fall of 1999.
(C) EARNINGS PER SHARE INFORMATION
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding. Diluted earnings
per share reflects the dilutive effect of potential common shares from
securities such as stock options. The dilutive effect of stock options
is computed using the treasury stock method, which assumes the
repurchase of common shares by the Company at the average market price
for the period. A reconciliation of the number of shares used in
computing basic and diluted earnings per share for the three and
six month periods ended June 30, 1999 and 1998 follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
----------------------- -----------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average shares
Outstanding - Basic 70,524 73,729 70,856 73,850
Common equivalents:
Shares issuable under outstanding
dilutive options 2,538 4,525 2,638 4,525
Shares assumed repurchased based on the
average market value for the period (2,364) (3,729) (2,456) (3,712)
Dilutive effect of exercised options
prior to being exercised, net 130 44 74 125
------------ ---------- ----------- -----------
Weighted average shares outstanding -
Diluted 70,828 74,569 71,112 74,788
============ ========== =========== ===========
Anti-dilutive options not included above 4,671 1,240 4,571 1,240
============ ========== =========== ===========
</TABLE>
6
<PAGE>
ITEM 1. Financial Statements (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(D) SEGMENT INFORMATION
The Company operates in four business segments: (1) Transportation
Services, which provides full service leasing, commercial rental and
programmed maintenance of trucks, tractors and trailers to customers
throughout the U.S. and Canada; (2) Integrated Logistics, which
provides support services for customers' entire supply chains, from
inbound raw materials supply through finished goods distribution,
including dedicated contract carriage, the management of carriers, and
inventory deployment throughout the U.S. and Canada; (3) Public
Transportation Services, which provides student transportation, transit
management, and fleet management and maintenance services to the U.S.
public sector; and (4) International, which provides full service
leasing, commercial rental, programmed maintenance and logistics
services in Europe, South America and Mexico.
The Company evaluates segment financial performance based upon several
factors, of which the primary measure is earnings before income taxes
and Year 2000 expense. Business segment earnings before income taxes
represent the total profit earned from each segment's customers across
all of the Company's segments and include allocations of certain
overhead costs. These results are not necessarily indicative of the
results of operations that would have occurred had each segment been an
independent stand-alone entity during the periods presented. The
Transportation Services segment leases revenue earning equipment, sells
fuel and provides maintenance and other ancillary services to the
Integrated Logistics segment. Likewise, the Transportation Services
segment sells fuel and provides maintenance services to the Public
Transportation Services segment. Intersegment sales are accounted for
at fair value as if the sales were made to third parties. Interest
expense, net is allocated to the various business segments based upon
targeted debt to equity ratios using an interest factor, which reflects
the Company's average total cost of debt. The following table sets
forth the revenue and pretax earnings for each of the Company's
business segments for the three and six months ended June 30, 1999 and
1998 (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
------------------------------ ----------------------------
1999 1998 1999 1998
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Transportation Services $ 748,195 714,817 1,458,574 1,412,858
Integrated Logistics 420,943 367,557 819,204 728,569
Public Transportation 161,575 150,576 328,201 303,675
International 143,719 140,877 282,859 263,871
Intersegment eliminations (98,025) (92,250) (191,783) (181,779)
--------------- ------------- ------------- -------------
Total revenue $ 1,376,407 1,281,577 2,697,055 2,527,194
=============== ============= ============= =============
Earnings before income taxes:
Transportation Services $ 51,329 61,396 101,305 109,456
Integrated Logistics 10,701 21,171 19,945 34,642
Public Transportation 15,156 18,955 32,806 38,459
International 738 2,357 (5,666) 499
Intersegment eliminations (14,502) (14,940) (27,637) (28,257)
--------------- ------------- ------------- -------------
Total from reportable segments 63,422 88,939 120,753 154,799
Corporate adminstrative expenses
and other (6,897) (3,879) (13,680) (2,729)
Year 2000 expense (7,276) (9,757) (21,659) (14,845)
--------------- ------------- ------------- -------------
Total earnings before income taxes $ 49,249 75,303 85,414 137,225
=============== ============= ============= =============
</TABLE>
7
<PAGE>
ITEM 1. Financial Statements (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(E) COMPREHENSIVE INCOME
Comprehensive income presents a measure of all changes in shareholders'
equity except for changes resulting from transactions with shareholders
in their capacity as shareholders. The Company's total comprehensive
income presently consists of net earnings and currency translation
adjustments associated with foreign operations which use the local
currency as their functional currency. Total comprehensive income for
the three months ended June 30, 1999 and 1998 was $29.1 million and
$42.8 million, respectively. Total comprehensive income for the six
months ended June 30, 1999 and 1998 was $44.8 million and $81.3
million, respectively. The decrease in comprehensive income was due
primarily to lower net earnings and increased currency translation
losses associated with the weakening of foreign currencies in Brazil
and the U.K. versus the U.S. dollar.
8
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
Ryder System, Inc.:
We have reviewed the accompanying consolidated condensed balance sheet of Ryder
System, Inc. and subsidiaries as of June 30, 1999, and the related consolidated
condensed statements of earnings for the three and six months ended June 30,
1999 and 1998 and the consolidated condensed statements of cash flows for the
six months ended June 30, 1999 and 1998. These consolidated condensed financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Ryder System, Inc. and subsidiaries
as of December 31, 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated February 4, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated condensed balance sheet
as of December 31, 1998, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
Miami, Florida
July 21, 1999
9
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations --
Three and six months ended June 30, 1999 and 1998
OVERVIEW
The following discussion should be read in conjunction with the unaudited
consolidated condensed financial statements and notes thereto included under
ITEM 1. In addition, reference should be made to the Company's audited
consolidated financial statements and notes thereto and related Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's most recent Annual Report on Form 10-K.
The Company operates in four business segments: (1) Transportation Services,
which provides full service leasing, commercial rental and programmed
maintenance of trucks, tractors and trailers to customers throughout the U.S.
and Canada; (2) Integrated Logistics, which provides support services for
customers' entire supply chains, from inbound raw materials supply through
finished goods distribution, including dedicated contract carriage, the
management of carriers, and inventory deployment throughout the U.S. and Canada;
(3) Public Transportation Services, which provides student transportation,
transit management, and fleet management and maintenance services to the U.S.
public sector; and (4) International, which provides full service leasing,
commercial rental, programmed maintenance and logistics services in Europe,
South America and Mexico.
On July 21, 1999, the Company announced that it had agreed to sell its Public
Transportation Services business to FirstGroup plc for $940 million in cash. The
sale, which is subject to U.S. regulatory approval and the approval of
FirstGroup's shareholders, is expected to close in early fall of 1999.
The Company reported earnings prior to Year 2000 expense of $34.6 million, or
$0.49 a diluted share, in the second quarter of 1999, compared with $51.2
million, or $0.69 a diluted share, in the same 1998 period. Including Year 2000
expense, net earnings in the second quarter of 1999 were $30.2 million, or $0.43
a diluted share, compared with $45.3 million, or $0.61 a diluted share, in the
second quarter of 1998. The decline in net earnings was due primarily to reduced
profitability in each business segment.
In the first half of 1999, earnings prior to Year 2000 expense were $65.5
million, or $0.92 a diluted share, compared with $91.5 million, or $1.22 a
diluted share, in the same 1998 period. Including Year 2000 expense, net
earnings in the first half of 1999 were $52.3 million, or $0.74 a diluted share,
compared with $82.5 million, or $1.10 a diluted share, in the first half of
1998. The decline in net earnings was due primarily to increased Year 2000
costs, reduced profitability in each business segment and the absence of certain
non-recurring gains realized in the first half of 1998.
10
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
The decline in earnings per share is less than the decline in earnings because
the average number of diluted shares outstanding during the second quarter and
first half of 1999 decreased by 5% compared with the same 1998 periods. The
decrease in shares was principally due to the Company's stock repurchase
programs.
Revenue in the second quarter of 1999 increased 7%, to $1.38 billion, compared
with $1.28 billion in the second quarter of 1998. Revenue also increased 7% to
$2.70 billion in the first half of 1999 from $2.53 billion in the first half of
1998. All business segments posted revenue gains in the 1999 periods. Integrated
Logistics led the group with revenue gains of 15% and 12% in the second quarter
and first half of 1999, respectively.
Operating expense increased 10% in the second quarter and 8% in the first half
of 1999 compared with the same periods of 1998. These increases are attributable
to higher compensation and employee benefit expenses, vehicle liability and
technology costs primarily as a result of higher business volumes as well as
increased equipment rental costs associated with sale/leaseback transactions,
totaling over $315 million, which were completed since December 1998. Operating
expense as a percentage of revenue was 73% in the second quarter and first half
of 1999 compared with 72% in the comparable 1998 periods.
Freight under management expense, which represents subcontracted freight costs
on logistics contracts where the Company purchases transportation, increased $30
million, or 39%, in the second quarter of 1999 and $51 million, or 33%, in the
first half of 1999 compared with the same periods in 1998. Freight under
management expense as a percentage of revenue also increased to 8% in the second
quarter and first half of 1999 from 6% for the comparable 1998 periods. The
increases reflect the growth these integrated logistics contracts experienced,
especially during the latter half of 1998.
Incremental Year 2000 expense totaled $7 million in the second quarter of 1999
($4 million after tax, or $0.06 per diluted common share) and $22 million in the
first half of 1999 ($13 million after tax, or $0.18 per diluted common share)
compared with $10 million ($6 million after tax, or $0.08 per diluted common
share) in the third quarter of 1998 and $15 million ($9 million after tax, or
$0.12 per diluted common share) in the second quarter and first half of 1998.
See "Year 2000 Preparation" for a further discussion of this matter.
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
Depreciation expense (before gains on vehicle sales) increased 1% in the second
quarter and first half of 1999 compared with the same periods in 1998. For 1999,
the impact on depreciation expense from the growth in the average size of the
in-serviced full service lease and commercial rental fleets has been
substantially offset by the impact of sale/leaseback transactions completed
since December 1998. Gains on vehicle sales increased 9% in the second quarter
and 3% in the first half of 1999, compared with the same periods last year, due
to an increase in the number of vehicles sold which was partially offset by a
decrease in the average gain per vehicle sold. The reduced average gains reflect
a changing mix of vehicles sold, disposal methods and overall increased carrying
value of vehicles at the date of disposition. As a percentage of revenue,
depreciation expense, net of gains, declined from 12% in the second quarter and
first half of 1998 to 11% in the comparable 1999 periods.
Interest expense increased $2 million, or 5%, and $3 million, or 3%, in the
second quarter and first half of 1999, respectively, compared with the same
periods in 1998, as higher average outstanding debt levels, especially during
the second quarter of 1999, were only partially offset by lower average interest
rates and the impact of sale/leaseback transactions completed since December
1998. The higher outstanding debt levels resulted primarily from increased
levels of capital spending.
Miscellaneous expense (income) was $0.1 million and $3.0 million in the second
quarter and first half of 1999, respectively, compared with $(0.5) million and
$(4.9) million in the comparable 1998 periods. The decreases in 1999 were due
primarily to the absence of gains on the sale of facilities and properties
realized in the first and second quarter of 1998 and increased costs associated
with selling, with limited recourse, more trade receivables during the 1999
period.
The Company's effective tax rates in the second quarter and first half of 1999
were 38.8% compared with 39.9% in the same 1998 periods.
12
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Six months ended June 30, 1999 and 1998
OPERATING RESULTS BY BUSINESS SEGMENT
Periods ended June 30, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Six Months
-------------------------------------- ----------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Transportation Services:
Full service lease and
programmed maintenance $ 414,652 398,331 819,908 791,925
Commercial rental 126,249 115,604 239,116 216,803
Fuel 138,811 134,497 264,414 272,785
Other 68,483 66,385 135,136 131,345
---------------- ------------- -------------- -------------
748,195 714,817 1,458,574 1,412,858
Integrated Logistics 420,943 367,557 819,204 728,569
Public Transportation Services 161,575 150,576 328,201 303,675
International 143,719 140,877 282,859 263,871
Intersegment eliminations (98,025) (92,250) (191,783) (181,779)
---------------- ------------- -------------- -------------
Total revenue $ 1,376,407 1,281,577 2,697,055 2,527,194
================ ============= ============== =============
Earnings before income taxes:
Transportation Services $ 51,329 61,396 101,305 109,456
Integrated Logistics 10,701 21,171 19,945 34,642
Public Transportation Services 15,156 18,955 32,806 38,459
International 738 2,357 (5,666) 499
Intersegment eliminations (14,502) (14,940) (27,637) (28,257)
---------------- ------------- -------------- -------------
Total from reportable segments 63,422 88,939 120,753 154,799
Corporate administrative expenses
and other (6,897) (3,879) (13,680) (2,729)
Year 2000 expense (7,276) (9,757) (21,659) (14,845)
---------------- ------------- -------------- -------------
Total earnings before income taxes $ 49,249 75,303 85,414 137,225
================ ============= ============== =============
</TABLE>
Vehicle Fleet Size (owned and leased):
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transportation Services:
Full service lease* 116,593 109,124 104,617
Commerical rental 40,810 37,517 36,998
Service vehicles 2,157 2,127 2,070
---------------- -------------- -------------
159,560 148,768 143,685
Public Transportation Services 11,049 10,439 10,604
International 13,362 13,802 13,762
Integrated Logistics 103 107 109
---------------- -------------- -------------
184,074 173,116 168,160
================ ============== =============
* - Includes vehicles not yet earning revenue 6,533 4,314 3,345
</TABLE>
13
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
The Company evaluates financial performance based upon several factors, of which
the primary measure is business segment earnings before income taxes and Year
2000 expense. Business segment earnings before income taxes represent the total
profit earned from each segment's customers across all of the Company's segments
and include allocations of certain overhead costs. These results are not
necessarily indicative of the results of operations that would have occurred had
each segment been an independent stand-alone entity during the periods
presented.
INTEGRATED LOGISTICS
Revenue from Integrated Logistics increased 15% and 12% in the second quarter
and first half of 1999, respectively, compared with the same 1998 periods,
primarily due to expansion of revenue with existing customers and start-up of
business sold in the previous year and, to a lesser extent, the impact on 1998
results of a strike at select General Motors plants which commenced in June
1998. A large component of growth in 1999 has come from logistics contracts
where the Company manages the transportation of freight and subcontracts the
delivery of products to third parties. Operating revenue (which excludes
subcontracted freight costs) increased 8% and 7% in the second quarter and first
half of 1999, respectively, compared with the same 1998 periods. New business
sales remained strong for the first half of 1999. On a year-over-year basis, new
business sales have grown in each of the last four quarters. Management
continues to believe that improved sales force capabilities, industry
segmentation, and the ability to leverage rapidly emerging logistics
technologies and alliances to enhance service offerings should result in
continued new sales growth for the remainder of 1999. However, in light of the
timing of the start-up of business sales (in both 1998 and 1999) and lost
business, revenue growth rates are not expected to continue at current levels
for the remainder of 1999.
Integrated Logistics pretax business segment earnings in the second quarter of
1999 were $11 million compared with $21 million in the same period last year.
Pretax business segment earnings as a percentage of operating revenue also
decreased to 3.4% in the second quarter of 1999 from 7.3% in the comparable 1998
period. Pretax earnings in the first half of 1999 were $20 million, or 3.3% of
operating revenue, compared with $35 million, or 6.0% of operating revenue, in
the same period last year. Pretax business segment earnings in the second
quarter of 1999 include a $3 million contract settlement charge related to one
strategic account. Overall, pretax earnings in 1999 have been impacted by lower
volumes in some volume-sensitive automotive and carrier management accounts,
reduced margins as a result of lost dedicated contract carriage business,
increased start-up costs for new business, increased vehicle liability and
employee benefit costs and higher overhead and technology costs to support
product development and marketing initiatives. In light of these factors,
management expects unfavorable earnings comparisons to continue over the near
term.
14
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
TRANSPORTATION SERVICES
Total revenue in the Transportation Services segment increased 5% in the second
quarter and 3% in the first half of 1999 compared with the same periods in 1998.
Dry revenue (revenue excluding fuel) increased 5% in the second quarter and
first half of 1999 compared with the same 1998 periods.
Despite continued strong new sales of truck leases in the first half of 1999,
full service leasing and programmed maintenance revenue in the second quarter
and first half of 1999 grew just 4% from the comparable periods of 1998. The
leasing revenue growth rate continues to be impacted by non-renewals, delays
associated with the in-service processing of vehicles and, to a lesser extent,
delays in deliveries of new vehicles from manufacturers. As of June 30, 1999,
new vehicles not yet earning revenue has doubled from prior year levels. Based
on the level of non-renewals as well as the current status of in-servicing
efforts, in the near term, management does not expect lease revenue growth rates
to exceed current levels.
Commercial rental revenue increased 9% to $126 million in the second quarter of
1999 and 10% to $239 million in the first half of 1999, compared with the same
1998 periods. The increase in revenue reflects continued strong utilization of a
larger average commercial rental fleet, especially from full service lease
customers awaiting delivery of new lease equipment. Such "awaiting new lease"
rental revenue increased $6 million, or 55%, in the second quarter of 1999 and
$13 million, or 71%, in the first half of 1999, compared with the same periods
last year.
Fuel revenue increased 3% in the second quarter of 1999, compared with the
second quarter of 1998, as a result of higher world-wide fuel prices which
offset lower volumes. Fuel revenue decreased 3% in the first half of 1999
compared with the first half of 1998, as a result of lower fuel prices and
volumes. Other transportation services revenue, consisting of third-party
maintenance, trailer rentals and other ancillary revenue to support product
lines, increased 3% in the second quarter and first half of 1999, respectively,
compared with the same periods in 1998.
15
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
Transportation Services pretax earnings decreased 16% to $51 million in the
second quarter of 1999 compared with the first quarter of 1998. As a percentage
of dry revenue, earnings before income taxes decreased from 10.6% in the second
quarter of 1998 to 8.4% in the second quarter of 1999. Pretax earnings in the
first half of 1999 were $101 million, or 8.5% of dry revenue, compared with $109
million, or 9.6% of dry revenue, in the same period last year. The decline in
segment pretax earnings resulted primarily from higher compensation and employee
benefit expenses, higher vehicle liability and technology costs, the overall
impact of non-renewals and the continuing delays of in-service and out-service
processing of lease vehicles. Operating margin (revenue less direct operating
expenses, depreciation and interest expense) from full service leasing increased
in the second quarter and first half of 1999 compared with the same period last
year, primarily as a result of revenue growth while operating margin as a
percentage of revenue remained the same for all periods. Commercial rental
operating margin also increased in the second quarter and first half of 1999,
compared with the same 1998 periods, reflecting continued strong utilization of
a larger average fleet. Operating margin as a percentage of revenue decreased in
the second quarter of 1999 compared with the same period last year reflecting
lower fleet utilization. For the first half of 1999, operating margin as a
percentage of revenue was the same as the prior year.
PUBLIC TRANSPORTATION SERVICES
Revenue from public transportation services increased 7% in the second quarter
and 8% in the first half of 1999, compared with the same periods in 1998. The
revenue growth resulted primarily from new contracts and expansions in student
transportation and transit management businesses, and the impact of several 1998
acquisitions completed in student transportation services. Pretax business
segment earnings in Public Transportation Services declined 20% to $15 million
in the second quarter of 1999 compared with $19 million in the second quarter of
1998 and pretax business segment earnings as a percentage of revenue declined to
9.4% in the second quarter of 1999 compared with 12.6% in the same period of
1998. Pretax business segment earnings in the first half of 1999 were $33
million, or 10.0% of revenue, compared with $39 million, or 12.7% of revenue, in
the same period last year. These results reflect reduced profitability in the
student transportation business, which has suffered from higher driver
recruiting and compensation costs in several regions due to labor shortages and
increased vehicle liability costs. In light of contract rate increases received
to date, management expects driver compensation to decrease as a percentage of
revenue in the upcoming school year.
16
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
INTERNATIONAL
International segment revenue increased only 2% in the second quarter of 1999
and 7% in the first half of 1999, compared with the same periods in 1998. The
second quarter revenue growth rate reflects the impact of the economic
difficulties in Brazil and Argentina and revenue reductions in U.K. truck
leasing and rental which partially offset revenue gains in the U.K. logistics
operations. The 1999 year-to-date revenue growth also includes the impact of the
acquisition of the remaining interest in Companhia Transportadora e Comercial
Translor, S.A., a Brazilian logistics company which was fully consolidated in
May 1998. The International segment reported pretax earnings of $0.7 million in
the second quarter of 1999 compared with earnings of $2.4 million in the same
1998 period. In the first half of 1999, International reported a pretax loss of
$5.7 million compared with earnings in the same period last year of $0.5
million. Results in the second quarter and first half of 1999 benefited from a
$2.6 million non-recurring gain from an early contract termination by a U.K.
logistics customer, but were negatively impacted by reduced overall
profitability in the U.K. operations, due primarily to a softer U.K. economy, as
well as higher costs due in part to the reorganization of the U.K. truck leasing
and rental business, previously held for sale. International results also
suffered from the impact of economic difficulties experienced in Brazil and
Argentina primarily in automotive contracts, as well as higher costs in the
European logistics operations reflecting infrastructure spending and marketing
costs associated with a large proposal.
CORPORATE ADMINISTRATIVE EXPENSES AND OTHER
Corporate administrative expenses and other totaled $7 million and $14 million
in the second quarter and first half of 1999, respectively, compared with $4
million and $3 million in the second quarter and first half of 1998,
respectively. The second quarter increase in corporate administrative expenses
and other reflects recruitment costs associated with recent senior management
hires as well as the absence of gains in 1999 from the sale of surplus
properties completed in 1998. The year-to-date variance in corporate
administrative expenses and other also reflects the absence of non-recurring
items in 1999, compared with $7 million of gains realized in the first quarter
of 1998 from the sale of surplus non-operating properties and the re-insurance
of certain vehicle-related liabilities.
17
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The following is a summary of the Company's cash flows from operating, financing
and investing activities for the six months ended June 30, (in thousands):
1999 1998
---- ----
Net cash provided by (used in):
Operating activities $ 432,892 423,920
Financing activities 338,803 27,931
Investing activities (844,453) (456,490)
--------- --------
$ (72,758) (4,639)
========= ========
The increase in cash flow from operating activities in the first half of 1999,
compared with the same period last year, was attributable to lower working
capital needs partially offset by lower earnings. The lower working capital
needs related primarily to increased accounts payable for vehicle purchases due
to the timing of deliveries and was partially offset by increased receivables. A
summary of the individual items contributing to the cash flow changes is
included in the Consolidated Condensed Statements of Cash Flows. Cash flow from
operating activities (excluding sales of receivables) plus asset sales as a
percentage of capital expenditures (net of proceeds from the sale and leaseback
of revenue earning equipment) was 58% in the first half of 1999, compared with
87% in the same period last year. The decrease is due to a significant increase
in capital expenditures to support new lease business and fleet replacement
requirements which offset improved cash flow from operations.
During the first half of 1999, cash of $339 million was provided by financing
activities, primarily from additional net borrowings of $398 million which was
partially offset by cash expended to pay dividends of $21 million and repurchase
common stock of $43 million. During the first half of 1999, the Company
repurchased 1,635,000 shares of its common stock, at an average price of $26.32
per common share, under a three-million-share stock repurchase program announced
in December 1998. The current program is the fourth since 1996 resulting in the
cumulative repurchase of 16.6 million shares by the Company. The increase in
cash provided by financing activities in the first half of 1999 compared to the
same period last year is attributable to the funding requirements associated
with significantly higher capital spending primarily for full service leases.
18
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
The increase in cash used for investing activities in the first half of 1999,
compared with the same period last year, is attributable to significantly higher
capital expenditures. A summary of capital expenditures for the six months ended
June 30 follows (in thousands):
1999 1998
---- ----
Revenue earning equipment:
Transportation Services $ 988,771 582,934
Public Transportation Services 24,801 26,778
International 47,818 40,196
---------- --------
1,061,390 649,908
Operating property and equipment 59,489 53,047
---------- --------
$1,120,879 702,955
========== ========
The increase in capital expenditures for Transportation Services' revenue
earning equipment was due principally to higher than anticipated requirements
for replacement lease equipment and new lease sales and, to a lesser extent, the
timing of rental purchases relative to the same period last year. Accordingly,
management expects capital expenditures for 1999 will exceed 1998 levels by over
40%. The Company expects to fund its 1999 capital expenditures with both
internally generated funds and additional financing.
FINANCING
Ryder utilizes external capital to support growth in its asset-based product
lines. The Company has a variety of financing alternatives available to fund its
capital needs. These alternatives include long- and medium-term public and
private debt, as well as variable-rate financing available through bank credit
facilities and commercial paper. The Company also periodically enters into sale
and leaseback agreements of revenue earning equipment, the majority of which are
accounted for as operating leases.
On July 21, 1999, Moody's Investors Service confirmed its credit ratings for the
Company following the Company's announcement of a definitive agreement to sell
the Public Transportation Services business. On July 21, 1999, Standard & Poor's
Ratings Group confirmed its short-term credit ratings for the Company and placed
its long-term ratings for the Company on CreditWatch with negative implications.
On April 27, 1999, Duff & Phelps lowered its credit ratings of the Company's
commercial paper and unsecured notes to D2 and A- from D1 and A, respectively.
Duff & Phelps reaffirmed these credit ratings on July 21, 1999.
19
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
The Company's debt ratings as of July 21, 1999 were as follows:
Commercial Unsecured
Paper Notes
---------- ---------
Moody's Investors Service P2 Baa1
Standard & Poor's Ratings Group A2 BBB+
Duff & Phelps D2 A-
Debt totaled $3.0 billion at June 30, 1999, an increase of $384 million from
December 31, 1998. During the first half of 1999, the Company made $85 million
of scheduled unsecured note payments and issued $129 million of medium-term
notes. U.S. commercial paper outstanding at June 30, 1999 increased to $514
million, compared with $198 million at December 31, 1998, primarily to fund
capital expenditures. The Company's foreign debt increased approximately $29
million from December 31, 1998 to $419 million at June 30, 1999. The Company's
percentage of variable-rate financing obligations was 33% at June 30, 1999 which
is above the Company's targeted level of 25%-30% and higher than the 27%
percentage at December 31, 1998. The Company expects to reduce variable-rate
financing obligations within targeted levels over the near term in conjunction
with planned financings. The Company's debt to equity ratio at June 30, 1999,
increased to 274% from 236% at December 31, 1998 and 238% at June 30, 1998.
As of June 30, 1999, $151 million was available under the Company's $720 million
global revolving credit facility, which expires in 2002. Foreign borrowings of
$55 million were outstanding under the facility as of June 30, 1999. In
September 1998, the Company filed an $800 million shelf registration statement
with the Securities and Exchange Commission. Proceeds from debt issues under the
shelf registration are expected to be used for capital expenditures, debt
refinancing and general corporate purposes. The Company has $532 million of debt
securities available for issuance under this shelf registration statement. The
Company also participates in an agreement to sell, with limited recourse, up to
$350 million ($50 million of which is uncommitted) of trade receivables on a
revolving basis through July 2002. At June 30, 1999, the outstanding balance of
receivables sold pursuant to this agreement increased to $225 million from $200
million at December 31, 1998.
20
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
YEAR 2000 PREPARATION
The Year 2000 issue is the result of computer systems, software products and
embedded technology using two digits rather than four to indicate the applicable
year. If not addressed, such computer systems, software products and embedded
technology may be unable to properly interpret dates beyond the year 1999, which
could cause system failures or miscalculations and lead to disruptions in the
Company's activities and operations.
During 1997, after consideration of the potential impact to operations,
including customer and supplier relationships, an enterprise-wide program was
initiated to modify computer information systems to be Year 2000 compliant or to
replace non-compliant systems. The Company has established a Year 2000 Steering
Committee comprised of senior executives to address compliance issues and
strategic alternatives. The Company also established a program office dedicated
to implementing the Year 2000 compliance plan, and has engaged external
consultants to provide day-to-day management oversight and contractors to
remediate and test non-compliant source code. Accordingly, the majority of the
Company's Year 2000 costs are incremental to operations. Management believes
that adequate resources have been allocated to the Year 2000 effort and expects
the Year 2000 compliance program to be completed on a timely basis.
The Company has identified three major areas determined to be critical for
successful Year 2000 compliance: (1) information systems, such as mainframes,
PCs, networks and similar type systems maintained at customer sites, and legacy
applications relating to operations such as financial reporting, human
resources, purchasing, treasury, marketing and sales; (2) third-party
relationships, including customers, suppliers, vendors and government agencies;
and (3) facilities and equipment which may contain microprocessors with embedded
technology.
The Company's Year 2000 compliance program for each major area can be segregated
into three broad phases. Phase I of the program is the assessment of information
systems, facilities and equipment, and services and products provided by third
parties in order to identify exposures to Year 2000 issues and to develop a
master plan of action including remediation, retirement or replacement of
non-compliant systems. Phase II of the program is the implementation of action
plans. Phase III of the program is the final testing of each major area of
exposure to ensure compliance, the placement of remediated items into production
and contingency planning to assess reasonably likely worst case scenarios.
21
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
The Company has completed the assessment of the legacy application and system
software. The Company's remediation plan for this area is segregated into 15
major partitions worldwide. Currently, the Company's remediation projects are at
different phases of completion; overall, approximately 95% of the Company's
effort in this area has been performed as of July 30, 1999. Remediation of the
Company's core business applications is virtually complete as of July 30, 1999.
Final testing and redeployment of remediated code is scheduled to be
substantially completed in the third quarter of 1999. In addition, due to the
uncertainties inherent in this undertaking, the Company has initiated
contingency planning to evaluate a course of action to minimize the impact of
any unforeseen disruption resulting from non-compliance.
The Company relies on suppliers, vendors and government agencies to timely
provide a wide range of goods and services, including equipment, supplies,
telecommunications, utilities, transportation services and banking services.
Management believes that third-party relationships represent the greatest risk
with respect to the Year 2000 issue because of the Company's limited ability to
influence actions of third parties and to estimate the impact of non-compliance
of third parties throughout the Company's operations. The Company is making
concerted efforts to understand the Year 2000 status of third parties whose Year
2000 non-compliance could either have a material adverse effect on the Company's
business, financial condition or results of operations or involve a safety risk
to employees or customers. The Company continues to survey and communicate with
customers, suppliers and vendors with whom it has important financial and
operational relationships to assess their Year 2000 compliance program and to
develop a joint contingency plan.
The Company's vendor compliance program includes the following: assessing vendor
compliance status; tracking vendor compliance progress; developing contingency
plans, including identifying alternate vendors, as needed; addressing contract
language; replacing, remediating or upgrading equipment; requesting
certification from vendors or making on-site assessments, as required; and
sending questionnaires and conducting phone interviews. Some of the Company's
significant suppliers and vendors have not responded to inquiries, have declined
to respond because of liability concerns or have not responded with sufficient
detail for the Company to ensure (a) timely Year 2000 compliance, or (b) the
impact to the Company in the event of non-compliance. The Company is continuing
to pursue adequate responses from mission critical business partners under the
"Year 2000 Readiness Disclosure" legislation. However, the Company can provide
no assurance that Year 2000 compliance plans will be successfully completed by
third parties in a timely manner.
22
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
In the facilities and equipment area, the Company's exposure relates to embedded
technology in, among other things, vehicles, vehicle-related devices, and fuel
storage and other facilities operated by the Company. Based upon preliminary
testing and discussions with major truck manufacturers, it appears that the
microprocessors installed by the truck manufacturers are Year 2000 compliant.
Remediation of leak detection devices on the Company's underground fuel storage
tanks has been completed. The Company is continuing to assess its exposure and
to develop action and contingency plans for other critical facilities and
equipment, including on-board vehicle computers acquired from manufacturers
other than major truck manufacturers.
The Company has developed a Year 2000 contingency plan development process to
mitigate potential disruptions in the Company's activities and operations that
may be created by failures of critical business partners, facilities and
equipment, and internal systems. Management currently believes that the most
likely worst case scenario will consist of some localized disruptions of systems
that may affect individual business processes, facilities or suppliers for a
short time rather than systemic or long-term problems affecting business
operations as a whole. Through visits to key operating sites, departments,
customers, and vendors, potential disruption scenarios are being identified and
contingency plans are being developed. These plans address preparation,
assessment of failure, and resumption of critical business functions. Detailed
contingency plans for each business unit and for critical business processes are
expected to be substantially developed by the end of the third quarter of 1999.
However, the Company can provide no assurance that it will correctly anticipate
the level, impact or duration of non-compliance by critical business partners,
facilities and equipment or internal systems, or that contingency plans will be
sufficient to mitigate the impact of non-compliance.
Based upon current information, the Company estimates that the cumulative impact
on after tax earnings for incremental Year 2000 costs range from $42 to $44
million, an increase of approximately $7 million from the mid-range estimate
provided in the 1998 Annual Report on Form 10-K. The increase in estimated costs
reflects primarily the impact of changing the remediation action plan for a
non-compliant application as well as the discovery of additional lines of
software code subject to remediation. Through June 30, 1999, the Company has
incurred $39 million after tax on the Year 2000 project. The majority of costs
incurred to date relate to remediation activities. These costs have been and
will continue to be funded through operating cash flows and expensed as
incurred. Future costs are difficult to estimate and actual results could differ
significantly from the Company's expectations due to unanticipated technological
difficulties, project vendor delays or overruns, impact of third-party
non-compliance and the cost and availability of resources.
23
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
EURO CONVERSION
On January 1, 1999, the participating countries of the European Union adopted
the euro as their common legal currency. The participating countries' existing
national currencies will continue as legal tender until at least January 1,
2002. During this transition period, parties may pay for goods and services
using either the euro or the participating country's legacy currency. Due to the
nature of current international operations, conversion to the euro is not
expected to have a material impact on the Company's results of operations or
financial position.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which was effective for the
Company on January 1, 1999. The statement outlines the accounting treatment for
certain costs related to the development or purchase of software to be used
internally and requires that costs incurred during the preliminary project and
post-implementation/operation stages be expensed, and costs incurred during the
application development stage be capitalized and amortized over the estimated
useful life of the software. Adoption of this statement did not have a material
impact on the Company's results of operations or financial position.
In April 1998, the AICPA also issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5, which was effective for the Company on January
1, 1999, requires that all costs of start-up activities, including organization
costs, be expensed as incurred. The Company's existing accounting policies
conformed with the requirements of SOP 98-5; therefore, adoption of this
statement did not impact the Company's results of operations or financial
position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which requires all derivatives to be recognized at fair
value as either assets or liabilities on the balance sheet. Any gain or loss
resulting from changes in such fair value is required to be recognized in
earnings to the extent the derivatives are not effective as hedges. This
statement, as amended, is effective for fiscal years beginning after June 15,
2000, and is effective for interim periods in the initial year of adoption.
Adoption of this statement is not expected to have a material impact on the
Company's results of operations or financial position.
24
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued) --
Three and six months ended June 30, 1999 and 1998
FORWARD-LOOKING STATEMENTS
This management's discussion and analysis of financial condition and results of
operations contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
the current plans and expectations of Ryder System, Inc. and involve risks and
uncertainties that may cause actual results to differ materially from the
forward-looking statements.
Important factors that could cause such differences include, among others,
general economic conditions in the United States and worldwide, the highly
competitive environment applicable to the Company's operations (including
competition in integrated logistics from other logistics companies as well as
from air cargo, shipping, railroads and motor carriers and competition in full
service truck leasing and rental from companies providing similar services as
well as truck and trailer manufacturers who provide leasing, extended warranty
maintenance, rental and other transportation services), greater than expected
expenses associated with the Company's personnel needs or activities (including
increased cost of freight and transportation), availability of equipment,
changes in customers' business environments (or the loss of a significant
customer), changes in government regulations and disruptions due to Year 2000
non-compliance by the Company, its suppliers or customers.
The risks included here are not exhaustive. New risk factors emerge from time to
time and it is not possible for management to predict all such risk factors or
to assess the impact of such risk factors on the Company's business.
25
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
In the normal course of business, the Company is exposed to fluctuations in
interest rates, fuel prices and foreign exchange rates. The Company manages such
exposures in several ways including the use of a variety of derivative financial
instruments when deemed prudent. The Company does not enter into leveraged
derivative financial transactions or use derivative financial instruments for
trading purposes.
The Company's quantitative and qualitative disclosures about market risk for
changes in interest rates and foreign exchange rates have not materially changed
since December 31, 1998. The Company's disclosures about market risk are
contained in Item 7A of the Annual Report on Form 10-K for the year ended
December 31, 1998. The exposure to market risk for fluctuations in fuel prices
relates to fixed-price fuel sales commitments with customers. The Company
mitigates this exposure by entering into forward purchases for delivery at
fueling facilities. Fixed-price fuel arrangements are primarily within Public
Transportation Services and represent approximately 5% of total fuel purchases.
26
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of stockholders of Ryder System, Inc. was held on
May 7, 1999.
(b) All director nominees described in (c) below were elected. The
following directors continued in office after the meeting: M. Anthony
Burns, Edward T. Foote II, John A. Georges, Vernon E. Jordan, Jr., Paul
J. Rizzo, Christine A. Varney and Alva O. Way.
(c) Certain matters voted on at the meeting and the votes cast with respect
to such matters are as follows:
<TABLE>
<CAPTION>
Votes Cast
---------- Broker
For Against Abstain Non-votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
MANAGEMENT PROPOSAL
Ratification of an amendment
to the Ryder System, Inc.
Stock Purchase Plan for Employees 55,868,310 2,625,249 621,129 0
Ratification of appointment
of independent auditors 58,824,134 133,175 157,379 0
SHAREHOLDER PROPOSAL
Annual Election of All Directors 27,649,124 23,683,005 470,230 7,312,328
</TABLE>
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS
Director Votes Received Votes Withheld
- -------- -------------- --------------
<S> <C> <C>
Joseph L. Dionne 57,733,074 1,381,614
David I. Fuente 57,726,018 1,388,671
David T. Kearns 57,723,544 1,391,145
Lynn M. Martin 57,725,371 1,389,317
</TABLE>
27
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
(3.1) The Ryder System, Inc. Restated Articles of Incorporation,
dated November 8, 1985, as amended through May 18, 1990,
previously filed with the Commission as an exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990, are incorporated by reference into this
report.
(3.2) The Ryder System, Inc. By-Laws, as amended through November
23, 1993, previously filed with the Commission as an exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, are incorporated by reference into this
report.
(15) Letter regarding unaudited interim financial statements.
(27.1) Financial data schedule (for SEC use only).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
period covered by this report.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RYDER SYSTEM, INC.
(Registrant)
Date: August 5, 1999 /S/ CORLISS J. NELSON
---------------------
Corliss J. Nelson
Senior Executive Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
Date: August 5, 1999 /S/ GEORGE P. SCANLON
---------------------
George P. Scanlon
Senior Vice President - Planning and Controller
(Principal Accounting Officer)
29
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- -------------------- ------------------------------------------
15 Letter regarding unaudited interim financial
information
27.1 Financial Data Schedule (for SEC use only)
30
EXHIBIT 15
KPMG LLP
CERTIFIED PUBLIC ACCOUNTANTS
One Biscayne Tower Telephone 305-358-2300
Suite 2900 Telecopier 305-913-2692
2 South Biscayne Boulevard
Miami, Florida 33131
The Board of Directors and Shareholders
Ryder System, Inc.:
We acknowledge our awareness of the incorporation by reference in the following
Registration Statements of our report dated July 21, 1999 related to our review
of interim financial information:
Form S-3:
o Registration Statement No. 33-20359 covering $1,000,000,000
aggregate principal amount of debt securities.
o Registration Statement No. 33-50232 covering $800,000,000
aggregate principal amount of debt securities.
o Registration Statement No. 33-58667 covering $800,000,000
aggregate principal amount of debt securities.
o Registration Statement No. 333-63049 covering $800,000,000
aggregate principal amount of debt securities.
Form S-8:
o Registration Statement No. 33-20608 covering the Ryder System
Employee Stock Purchase Plan.
o Registration Statement No. 33-4333 covering the Ryder Employee
Savings Plan.
o Registration Statement No. 1-4364 covering the Ryder System
Profit Incentive Stock Plan.
o Registration Statement No. 33-69660 covering the Ryder System,
Inc. 1980 Stock Incentive Plan.
o Registration Statement No. 33-37677 covering the Ryder System
UK Stock Purchase Scheme.
o Registration Statement No. 33-442507 covering the Ryder
Student Transportation Services, Inc. Retirement/Savings Plan.
o Registration Statement No. 33-63990 covering the Ryder System,
Inc. Directors' Stock Plan.
o Registration Statement No. 33-58001 covering the Ryder System,
Inc. Employee Savings Plan A.
o Registration Statement No. 33-58003 covering the Ryder System,
Inc. Employee Savings Plan B.
o Registration Statement No. 33-61509 covering the Ryder System,
Inc. Stock for Merit Increase Replacement Plan.
<PAGE>
o Registration Statement No. 33-62013 covering the Ryder System,
Inc. 1995 Stock Incentive Plan.
o Registration Statement No. 333-19515 covering the Ryder
System, Inc. 1997 Deferred Compensation Plan.
o Registration Statement No. 333-26653 covering the Ryder
System, Inc. Board of Directors Stock Award Plan.
o Registration Statement No. 333-57593 covering the Ryder
System, Inc. Stock Purchase Plan for Employees.
o Registration Statement No. 333-57595 covering the Ryder
System, Inc. 1995 Stock Incentive Plan.
o Registration Statement No. 333-57599 covering the Ryder
Student Transportation Services, Inc. Retirement/Savings Plan.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
/S/ KPMG LLP
Miami, Florida
August 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RYDER
SYSTEM, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET AND
STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 65,595
<SECURITIES> 0
<RECEIVABLES> 544,746
<ALLOWANCES> 0
<INVENTORY> 73,899
<CURRENT-ASSETS> 1,013,908
<PP&E> 6,797,308
<DEPRECIATION> 2,532,215
<TOTAL-ASSETS> 6,183,450
<CURRENT-LIABILITIES> 1,657,827
<BONDS> 2,269,605
0
0
<COMMON> 601,746
<OTHER-SE> 479,740
<TOTAL-LIABILITY-AND-EQUITY> 6,183,450
<SALES> 0
<TOTAL-REVENUES> 2,697,055
<CGS> 0
<TOTAL-COSTS> 2,511,468
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,173
<INCOME-PRETAX> 85,414
<INCOME-TAX> 33,124
<INCOME-CONTINUING> 52,290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,290
<EPS-BASIC> 0.74<F1>
<EPS-DILUTED> 0.74
<FN>
<F1>(EPS-PRIMARY DENOTES BASIC EPS)
</FN>
</TABLE>
