RYDER SYSTEM, INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included under Item 1, as well as our audited Consolidated Financial Statements and notes thereto and related MD&A included in the 2020 Annual Report on Form 10-K.
OVERVIEW
Ryder is a leading logistics and transportation company. Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We report our financial performance based on three business segments: (1)Fleet Management Solutions (FMS), which provides full service leasing and leasing with flexible maintenance options, commercial rental and maintenance services of trucks, tractors and trailers to customers principally inthe United States (U.S. ),Canada and theUnited Kingdom (U.K. ); (2)Supply Chain Solutions (SCS), which provides integrated logistics solutions, including distribution management, dedicated transportation, transportation management, last mile and professional services inNorth America ; and (3) Dedicated Transportation Solutions (DTS), which provides turnkey transportation solutions in theU.S. that includes dedicated vehicles, drivers, management, and administrative support. Dedicated transportation services provided as part of an operationally integrated, multi-service, supply chain solution to SCS customers are primarily reported in the SCS business segment. 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 food and beverage service, transportation and logistics, retail and consumer goods, automotive, industrial, housing, technology, and business and personal services. Our results of operations and financial condition are influenced by a number of factors including: used vehicle sales; macroeconomic and other market conditions, including pricing and demand; customer contracting activity and retention; rental demand; maintenance costs; residual value estimates and other depreciation changes; currency exchange rate fluctuations; customer preferences; inflation; fuel and energy prices; general economic conditions; insurance costs; interest rates; labor costs; unemployment levels; tax rates; changes in accounting or regulatory requirements; and cybersecurity attacks. Our business has, and may continue to be, impacted by the COVID-19 effects. For a detailed discussion of its impact on our results and future considerations, refer to our "Consolidated Results" and "Operating Results by Business Segment" discussions below. In addition, for a detailed description of certain risk factors that impact our business, including those related to the COVID-19 effects, refer to "Item 1A. Risk Factors" section in our 2020 Annual Report on Form 10-K. This MD&A includes certain non-GAAP financial measures. Refer to the "Non-GAAP Financial Measures" section of this MD&A for information on the non-GAAP measures, including reconciliations to the most comparable GAAP financial measure and the reasons why we believe each measure is useful to investors. In addition, this MD&A may include certain forward-looking statements regarding our outlook. These statements are based on our current plans and expectations and are subject to risks, uncertainties and assumptions. We caution readers that certain important factors could cause actual results and events to differ significantly from those expressed. Refer to the "Special Note Regarding Forward-Looking Statements" section in this Quarterly Report on Form 10-Q for more information. 22
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ITEM 2. 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 Condensed
Consolidated Financial Statements:
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands, except per share amounts)
Total revenue $ 2,382,237 $ 1,895,282 $ 4,603,859 $ 4,056,588 26% 13%
Operating revenue (1) 1,922,820 1,623,244 3,740,183 3,394,491 18% 10%
Earnings (loss) from continuing
operations before income taxes
(EBT) $ 203,573 $ (94,777) $ 273,840 $ (208,411) NM NM
Comparable EBT (1) 175,604 (64,049) 254,239 (154,873) NM NM
Earnings (loss) from continuing
operations 149,568 (73,705) 201,152 (182,834) NM NM
Comparable earnings (loss) from continuing operations (1) 129,138 (49,457) 187,328 (121,561) NM NM Net earnings (loss) 149,105 (74,099) 199,930 (183,712) NM NM Comparable EBITDA (1) (2) 624,055 547,644 1,191,470 1,065,339 14% 12% Earnings (loss) per common share (EPS) - Diluted Continuing operations $ 2.78$ (1.41) $ 3.75$ (3.50) NM NM Comparable (1) 2.40 (0.95) 3.49 (2.33) NM NM Net earnings (loss) 2.77 (1.42) 3.73 (3.52) NM NM NM - Denotes Not Meaningful throughout the MD&A (1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors. (2)Comparable EBITDA has been recast to exclude gains/losses from the sale of used vehicles. Total revenue increased 26% and 13% in the second quarter of 2021 and the six months endedJune 30, 2021 , respectively. Operating revenue (a non-GAAP measure excluding fuel, subcontracted transportation and ChoiceLease liability insurance revenues) increased 18% and 10% in the second quarter of 2021 and the six months endedJune 30, 2021 , respectively. The increases in total and operating revenue for both the second quarter and six months endedJune 30, 2021 were primarily due to higher revenue across all of our business segments as the prior year was negatively impacted by the economic slowdown from the COVID-19 effects particularly in our commercial rental (FMS) and automotive (SCS) businesses. Total revenue in both periods also increased from higher subcontracted transportation and fuel revenue. EBT increased to earnings of$204 million in the second quarter of 2021, as compared to a loss of$95 million in the prior year period. For the six months endedJune 30, 2021 , EBT increased to earnings of$274 million , as compared to a loss of$208 million in the prior year period. These increases were primarily due to a declining impact of depreciation expense from prior residual value estimate changes and higher gains on used vehicles sold in 2021, totaling$131 million and$223 million for the second quarter and six months endedJune 30, 2021 , respectively. EBT also increased from higher rental performance, improved ChoiceLease results and the prior year impact from the COVID-19 effects. The COVID-19 effects negatively impacted several areas of our businesses, particularly in the first half of 2020. In our FMS business segment, we experienced lower demand for commercial rental and declines in the used vehicle market through the second quarter of 2020. In our SCS business segment, we experienced temporary shutdowns in the automotive industry, which restarted their operations during the second quarter of 2020. This was followed by increased consumer demand in the second half of 2020, particularly in the fourth quarter, which helped contribute to a worldwide semiconductor supply shortage in early 2021, as semiconductor suppliers were unable to rapidly reallocate production to respond to demand across multiple industries, particularly the automotive industry. The semiconductor shortage impacted the production activity of our automotive SCS customers in the first half of 2021 and is causing delayed deliveries of new vehicles in our FMS business. 23
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
While we are experiencing positive momentum in our businesses, any additional
negative effects of the pandemic may have a further impact on our business and
financial results, as well as on significant judgments and estimates, including
those related to goodwill and other asset impairments, residual values and other
depreciation assumptions, deferred income taxes and annual effective tax rates,
variable revenue considerations, the valuation of our pension plans, and
allowance for credit losses.
Cash provided by operating activities remained at $1.1 billion for the six
months ended June 30, 2021 as higher net earnings were offset by higher working
capital needs. Free cash flow (a non-GAAP financial measure) decreased slightly
to $602 million for the six months ended June 30, 2021 primarily due to higher
cash paid for capital expenditures, partially offset by higher proceeds from the
sale of revenue earning equipment and operating property and equipment. Gross
capital expenditures increased for the six months ended June 30, 2021 primarily
reflecting higher planned investments in the rental fleet.
Our debt to equity ratio was 258% and 293% as of June 30, 2021 and December 31,
2020 , respectively. As of June 30, 2021 , our debt balance decreased 6% from the
prior year-end to $6.2 billion .
Adjusted return on equity (ROE) was 12.2% and (9.8)% as of June 30, 2021 and
2020, respectively. Our interim target is 11% and long-term target over the
cycle is 15%. The increase in ROE is primarily due to a declining impact of
depreciation expense from the residual value estimate changes and higher used
vehicle sales results, as well as commercial rental business recovery and higher
lease pricing.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)CONSOLIDATED RESULTS
Lease & Related Maintenance and Rental
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Lease & related maintenance
and rental revenues $ 986,694 $ 868,660 $ 1,927,116 $ 1,796,416 14% 7%
Cost of lease & related
maintenance and rental 708,737 775,350 1,438,881 1,593,642 (9)% (10)%
Gross margin $ 277,957 $ 93,310 $ 488,235 $ 202,774 NM NM
Gross margin % 28% 11% 25% 11%
Lease & related maintenance and rental revenues represent revenues from our
ChoiceLease and commercial rental product offerings within our FMS business
segment. Revenues increased 14% in the second quarter of 2021 and 7% for the six
months ended June 30, 2021 driven by increases in commercial rental and
ChoiceLease revenue. Commercial rental revenues were negatively impacted by the
COVID-19 effects in the prior year.
Cost of lease & related maintenance and rental represents the direct costs
related to lease & related maintenance and rental revenues and are comprised of
depreciation of revenue earning equipment, maintenance costs (primarily repair
parts and labor), and other costs such as licenses, insurance and operating
taxes. Cost of lease & related maintenance and rental excludes interest costs
from vehicle financing, which are reported within "Interest Expense" in our
Condensed Consolidated Statements of Earnings. Cost of lease & related
maintenance and rental decreased 9% in the second quarter of 2021 and 10% for
the six months ended June 30, 2021 due to declining depreciation expense impacts
from prior residual value estimate changes. Both the second quarter and six
months ended June 30, 2020 benefited from lower maintenance and other costs due
to less activity as a result of the COVID-19 effects.
Lease & related maintenance and rental gross margin increased in the second
quarter of 2021 and for the six months ended June 30, 2021 primarily due to a
declining impact of depreciation expense from prior residual value estimate
changes, higher commercial rental pricing and utilization, and higher
ChoiceLease pricing and mileage revenue. Gross margin as a percentage of revenue
increased to 28% in the second quarter of 2021 and increased to 25% in the six
months ended June 30, 2021 as a result of the lower depreciation impact, higher
commercial rental and ChoiceLease revenue and higher rental utilization.
Services
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Services revenue $ 1,276,140 $ 942,267 $ 2,441,628 $ 2,054,455 35% 19%
Cost of services 1,091,725 793,353 2,091,517 1,747,782 38% 20%
Gross margin $ 184,415 $ 148,914 $ 350,111 $ 306,673 24% 14%
Gross margin % 14% 16% 14% 15%
Services revenue represents all the revenues associated with our SCS and DTS
business segments, as well as SelectCare and fleet support services associated
with our FMS business segment. Services revenue increased 35% in the second
quarter of 2021 and 19% for the six months ended June 30, 2021 due to increases
in revenue in SCS and DTS from new business and higher volumes. In the prior
year, SCS revenue was negatively impacted by reduced automotive activity in the
second quarter of 2020 due to the COVID-19 effects.
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), fuel, vehicle
liability costs and maintenance costs. Cost of services increased 38% in the
second quarter and 20% for the six months ended June 30, 2021
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
primarily due to the growth in revenues. Costs of services in both periods also
increased due to higher labor and subcontracted transportation costs from a
tight driver labor market, primarily in our DTS business, and higher insurance
and medical costs.
Services gross margin increased 24% in the second quarter of 2021 and increased
14% for the six months ended June 30, 2021 . Gross margin as a percentage of
revenue decreased to 14% in both the second quarter of 2021 and for the six
months ended June 30, 2021 . The decreases in gross margin as a percentage of
revenue reflects the impact of higher labor and subcontracted transportation
costs, partially offset by higher revenue and operating performance in SCS and
higher revenue in DTS for the three and six months ended June 30, 2021 .
Fuel
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Fuel services revenue $ 119,403 $ 84,355 $ 235,115 $ 205,717 42% 14%
Cost of fuel services 109,450 77,980 224,156 198,429 40% 13%
Gross margin $ 9,953 $ 6,375 $ 10,959 $ 7,288 56% NM
Gross margin % 8% 8% 5% 4%
Fuel services revenue represents fuel services provided to our FMS customers.
Fuel services revenue increased 42% in the second quarter of 2021 and 14% for
the six months ended June 30, 2021 , primarily reflecting higher fuel prices
passed through to customers and higher gallons sold. Fuel gallons sold in the
prior year were negatively impacted by the COVID-19 effects.
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 services increased 40% in the second quarter of 2021 and
13% for the six months ended June 30, 2021 as a result of higher fuel prices and
higher gallons sold.
Fuel services gross margin increased in the second quarter of 2021 and for the
six months ended June 30, 2021 . Fuel services gross margin as a percentage of
revenue remained at 8% in the second quarter of 2021 and increased to 5% for the
six months ended June 30, 2021 . 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 for the second quarter of 2021 and six months ended June
30, 2021 was not significantly impacted by these price change dynamics.
Other Operating Expenses
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Other operating expenses $ 33,481 $ 29,849 $ 67,381 $ 63,414 12% 6%
Other operating expenses include costs related to our owned and leased
facilities within the FMS segment, such as facility depreciation, rent,
purchased insurance, utilities and taxes. These facilities are utilized to
provide maintenance to our ChoiceLease, commercial rental, and SelectCare
customers. Other operating expenses increased in the second quarter of 2021 and
for the six months ended June 30, 2021 due to additional maintenance performed
on our FMS facilities.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)Selling, General and Administrative Expenses
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Selling, general and
administrative expenses (SG&A)
29% 18%
Percentage of total revenue 11% 11% 11% 11% SG&A expenses increased 29% in the second quarter of 2021 and 18% for the six months endedJune 30, 2021 . The increases in SG&A expenses reflects higher incentive compensation-related expenses due to improved company performance, strategic investments primarily in technology and marketing, and higher compensation related expenses from temporary furloughs in the prior year partially offset by lower bad debt expense. SG&A expenses as a percentage of total revenue remained at 11% for both the second quarter of 2021 and the six months endedJune 30, 2021 .
Non-Operating Pension Costs, net
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Non-operating pension costs,
net $ (373) $ 936 $ (382) $ 2,157 NM NM
Non-operating pension costs, net include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or curtailments if recognized.
Used Vehicle Sales, net
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
(Gains) losses on used
vehicle sales, net $ (51,634) $ 9,488 $ (80,485) $ 30,172 NM NM
Used vehicle sales, net includes gains or losses from sales of used vehicles,
selling costs associated with used vehicles and write-downs of vehicles held for
sale to fair market values (referred to as "valuation adjustments"). Used
vehicle sales, net was a net gain in the second quarter and six months ended
June 30, 2021 as compared to a net loss in the prior year periods due to higher
gains on sales of used vehicles and lower valuation adjustments.
Average proceeds per unit in the second quarter of 2021 and for the six months
ended June 30, 2021 increased reflecting higher pricing. The following table
presents the used vehicle pricing changes compared with the prior year:
Proceeds per unit change 2021/2020 (1)
Three Months Six Months
Tractors 73% 47%
Trucks 72% 54%
------------
(1) Represents percentage change compared to prior year period in average sales proceeds on used vehicle sales using constant currency.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)Interest expense
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Interest expense $ 54,155 $ 67,285 $ 108,861 $ 129,851 (20)% (16)%
Effective interest rate 3.4% 3.3% 3.4% 3.2%
Interest expense decreased 20% in the second quarter of 2021 and 16% for the six
months ended June 30, 2021 reflecting lower average outstanding debt, partially
offset by a higher portion of fixed rate debt. The decrease in average
outstanding debt reflects lower borrowing needs due to lower vehicle capital
spending in 2020 and increased free cash flow.
Miscellaneous (income) loss, net
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Miscellaneous (income) loss, net
$ (49,246) $ (1,278) NM
NM
Miscellaneous (income) loss, net consists of investment income on securities used to fund certain benefit plans, interest income, gains on sales of operating property, foreign currency transaction remeasurement and other non-operating items. Miscellaneous (income) loss, net was income of$44 million and$49 million in the second quarter of 2021 and for the six months endedJune 30, 2021 primarily due to higher gains on sale of properties in theU.K. .
Restructuring and other items, net
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Restructuring and other items, net
(79)% (73)%
Refer to Note 15, "Other Items Impacting Comparability" in the Notes to Condensed Consolidated Financial Statements for a discussion of restructuring charges and other items.
Provision for (benefit from) income taxes
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Provision for (benefit from)
income taxes $ 54,005 $ (21,072) $ 72,688 $ (25,577) NM NM
Effective tax rate from continuing operations 26.5% 22.2% 26.5% 12.3% Comparable tax rate on continuing operations (1) 26.5% 22.8% 26.3% 21.5%
------------
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)Refer to our discussion of the changes in our provision for income taxes and effective tax rate from continuing operations in Note 7, "Income Taxes".
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)OPERATING RESULTS BY BUSINESS SEGMENT
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Revenue:
Fleet Management Solutions $ 1,408,241 $ 1,198,177 $ 2,743,726 $ 2,538,414 18% 8%
Supply Chain Solutions 775,630 519,318 1,482,330 1,147,765 49% 29%
Dedicated Transportation Solutions 354,711 293,944 675,218 628,832 21% 7%
Eliminations (156,345) (116,157) (297,415) (258,423) (35)% (15)%
Total $ 2,382,237 $ 1,895,282 $ 4,603,859 $ 4,056,588 26% 13%
Operating Revenue: (1)
Fleet Management Solutions $ 1,224,673 $ 1,073,515 $ 2,392,786 $ 2,231,059 14% 7%
Supply Chain Solutions 534,558 405,057 1,037,156 872,368 32% 19%
Dedicated Transportation Solutions 255,849 227,931 492,688 464,616 12% 6%
Eliminations (92,260) (83,259) (182,447) (173,552) (11)% (5)%
Total $ 1,922,820 $ 1,623,244 $ 3,740,183 $ 3,394,491 18% 10%
Earnings (loss) from continuing
operations before income taxes:
Fleet Management Solutions $ 158,451 $ (103,735) $ 221,853 $ (218,309) NM NM
Supply Chain Solutions 41,041 36,916 73,998 67,941 11% 9%
Dedicated Transportation Solutions 13,162 21,233 26,144 33,413 (38)% (22)%
Eliminations (19,186) (7,745) (31,460) (17,814) NM (77)%
193,468 (53,331) 290,535 (134,769) NM NM
Unallocated Central Support
Services (17,864) (10,718) (36,296) (20,104) (67)% (81)%
Non-operating pension costs 373 (936) 382 (2,157) NM NM
Other items impacting
comparability, net (2) 27,596 (29,792) 19,219 (51,381) NM NM
Earnings (loss) from continuing
operations before income taxes $ 203,573 $ (94,777) $ 273,840 $ (208,411) NM NM
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(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures"
section of this MD&A for reconciliations of the most comparable GAAP measure to
the non-GAAP financial measure and the reasons why management believes this
measure is important to investors.
(2)Refer to Note 15, "Other Items Impacting Comparability," and below for a
discussion of items excluded from our primary measure of segment performance.
As part of management's evaluation of segment operating performance, we define
the primary measurement of our segment financial performance as segment
"Earnings (loss) from continuing operations before income taxes" (EBT), which
includes an allocation of Central Support Services (CSS), and excludes
non-operating pension costs, net and certain other items as discussed in Note
15, "Other Items Impacting Comparability," in the Notes to Condensed
Consolidated Financial Statements. CSS represents those costs incurred to
support all business segments, including finance and procurement, corporate
services, human resources, information technology, public affairs, legal,
marketing, and corporate communications.
The objective of the EBT measurement is to provide clarity on the profitability
of each segment and, ultimately, to hold leadership of 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 not attributable to any segment and remain
unallocated in CSS, including costs for investor relations, public affairs and
certain executive compensation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Our FMS segment leases revenue earning equipment, as well as provides rental
vehicles, fuel, maintenance and other ancillary services to the SCS and DTS
segments. Inter-segment EBT allocated to SCS and DTS includes earnings related
to equipment used in providing services to SCS and DTS customers. EBT related to
inter-segment equipment and services billed to SCS and DTS customers (equipment
contribution) are included in both FMS and the segment that served the customer
and then eliminated upon consolidation (presented as "Eliminations").
The following table sets forth the benefits from equipment contribution included in EBT for our SCS and DTS business segments:
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Equipment Contribution:
Supply Chain Solutions $ 7,822 $ 3,238 $ 13,045 $ 7,798 NM 67%
Dedicated Transportation
Solutions 11,364 4,507 18,415 10,016 NM 84%
Total $ 19,186 $ 7,745 $ 31,460 $ 17,814 NM 77%
The increase in SCS and DTS equipment contribution in the second quarter of 2021
and the six months ended June 30, 2021 is primarily related to the declining
impact associated with the prior residual value estimate changes on vehicles
used to provide services to SCS and DTS customers and higher rental and fuel
activity.
Items excluded from our segment EBT measure and their classification within our Condensed Consolidated Statements of Earnings are as follows:
Three months ended June 30, Six months ended June 30,
Description Classification 2021 2020 2021 2020
(In thousands)
Restructuring and other, net (1) Restructuring and other items,
net
ERP implementation costs (1) Restructuring and other items, (5,090) (11,032) (12,721) (21,358)
net
Miscellaneous (income) loss, 35,263
Gains on sale of properties (1) net - 36,768 -
ChoiceLease liability insurance Revenue
revenue (1) - 7,409 777 16,767
Other items impacting comparability, net 27,596 (29,792) 19,219 (51,381)
Non-operating pension costs, net (2) Non-operating pension costs
373 (936) 382 (2,157)
$ 27,969 $ (30,728) $ 19,601 $ (53,538)
-----------(1)Refer to Note 15, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements for additional information. (2)Refer to Note 14, "Employee Benefit Plans," in the Notes to Condensed Consolidated Financial Statements for additional information. Note: Amounts may not be additive due to rounding.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
ChoiceLease $ 802,832 $ 766,161 $ 1,599,920 $ 1,558,367 5% 3%
SelectCare 136,503 125,851 267,171 261,997 8% 2%
Commercial rental (1) 266,969 169,171 489,978 374,937 58% 31%
Other 18,369 12,332 35,717 35,758 49% -%
Fuel services 183,568 117,253 350,163 290,588 57% 21%
ChoiceLease liability insurance
(2) - 7,409 777 16,767 NM (95)%
FMS total revenue $ 1,408,241 $ 1,198,177 $ 2,743,726 $ 2,538,414 18% 8%
FMS operating revenue (3) $ 1,224,673 $ 1,073,515 $ 2,392,786 $ 2,231,059 14% 7%
FMS EBT $ 158,451 $ (103,735) $ 221,853 $ (218,309) NM NM
FMS EBT as a % of FMS total
revenue 11.3% (8.7)% 8.1% (8.6)% NM NM
FMS EBT as a % of FMS operating
revenue (3) 12.9% (9.7)% 9.3% (9.8)% NM NM
Twelve months ended June 30, Change 2021/2020
2021 2020
FMS EBT as a % of FMS total revenue 5.5% (7.6)% NM
FMS EBT as a % of FMS operating revenue (3) 6.3% (8.8)% NM
------------
(1)For the three months endedJune 30, 2021 and 2020, rental revenue from lease customers in place of a lease vehicle represented 29% and 34% of commercial rental revenue, respectively. For the six months endedJune 30, 2021 and 2020, rental revenue from lease customers in place of a lease vehicle represented 30% and 37% of commercial rental revenue, respectively. (2)In the first quarter of 2020, we announced our plan to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program was completed in the first quarter of 2021. (3)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors. FMS total revenue increased 18% to$1.4 billion in the second quarter of 2021 and increased 8% to$2.7 billion for the six months endedJune 30, 2021 due to higher operating revenue and fuel revenue. FMS operating revenue increased 14% to$1.2 billion in the second quarter and 7% to$2.4 billion for the six months endedJune 30, 2021 primarily due to higher commercial rental and ChoiceLease revenue. ChoiceLease revenue increased 5% in the second quarter of 2021 and 3% for the six months endedJune 30, 2021 primarily due to higher prices on new vehicles, higher mileage-based revenue due to prior year impacts of the COVID-19 effects, and partially offset by lower revenue from a smaller fleet.SelectCare revenue increased 8% in the second quarter of 2021and 2% for the six months endedJune 30, 2021 due to higher volumes. Commercial rental revenue increased 58% in the second quarter and 31% in the six months endedJune 30, 2021 primarily due to higher demand and pricing. Commercial rental demand in the prior year was negatively impacted by the COVID-19 effects. Commercial rental pricing increased 13% in the second quarter of 2021 and increased 11% for the six months endedJune 30, 2021 . Fuel services revenue increased 57% in the second quarter of 2021 and 21% in the six months endedJune 30, 2021 primarily reflecting higher fuel costs passed through to customers and higher gallons sold. FMS EBT in the second quarter of 2021 increased to earnings of$158 million from a loss of$104 million in the prior year period. FMS EBT in the six months endedJune 30, 2021 , increased to earnings of$222 million from a loss of$218 million in the prior year period. The increase reflects lower depreciation expense of$131 million and$223 million in the three and six months endedJune 30, 2021 , respectively, resulting primarily from prior residual value estimate changes, including higher used vehicle 32
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
sales results. The increase in EBT also reflects higher commercial rental and
ChoiceLease results. Higher commercial rental results were primarily due to
higher pricing and increased utilization on a smaller average power fleet in
2021. Rental power fleet utilization increased to 80% from 56% in the second
quarter of 2021 and, increased to 76% from 60% in the six months ended June 30,
2021 . ChoiceLease results benefited from higher lease pricing and increased
miles driven, partially offset by a smaller lease fleet. In 2020, EBT included
negative impacts from the COVID-19 effects due to lower rental demand and higher
bad debt expense which was partially offset by COVID-19-related cost actions and
lower medical expenses.
During the second quarter of 2021, we completed a review of the residual values
and useful lives of revenue earning equipment. Prior to our review, the residual
value estimates of our total fleet already reflected historically low levels,
with used tractor prices only falling below those estimates in four of the last
21 years. Based on the results of our analysis, we primarily adjusted our
residual value estimates for certain tractors and useful lives of certain
classes of our revenue earning equipment, impacting approximately 15% of our
total fleet. These estimate changes are intended to further reduce the
probability of losses or need for accelerated depreciation during a potential
cyclical downturn, even if tractor pricing returns to historical trough levels.
The adjustment is expected to increase depreciation expense in 2021 by $18
million or approximately 1% of estimated annual depreciation expense. The impact
was not material to our results of operations for the second quarter of 2021.
Refer to Note 5, "Revenue Earning Equipment, net" for further details.
Our global fleet of owned and leased revenue earning equipment and
Change
June 2021/ June 2021/
June 30, 2021 December 31, 2020 June 30, 2020 Dec 2020 June 2020
End of period vehicle count
By type:
Trucks (1) 75,400 77,300 82,800 (2)% (9)%
Tractors (2) 72,000 73,300 79,400 (2)% (9)%
Trailers and other (3) 43,400 44,100 45,800 (2)% (5)%
Total 190,800 194,700 208,000 (2)% (8)%
By product line:
ChoiceLease 146,200 149,600 154,600 (2)% (5)%
Commercial rental 38,000 35,000 36,800 9% 3%
Service vehicles and other 2,300 2,400 2,600 (4)% (12)%
186,500 187,000 194,000 -% (4)%
Held for sale 4,300 7,700 14,000 (44)% (69)%
Total 190,800 194,700 208,000 (2)% (8)%
Customer vehicles under SelectCare
contracts (4) 52,900 50,300 54,900 5% (4)%
Quarterly average vehicle count
By product line:
ChoiceLease 146,900 150,400 156,900 (2)% (6)%
Commercial rental 36,700 35,100 38,200 5% (4)%
Service vehicles and other 2,300 2,500 2,700 (8)% (15)%
185,900 188,000 197,800 (1)% (6)%
Held for sale 5,100 9,000 13,100 (43)% (61)%
Total 191,000 197,000 210,900 (3)% (9)%
Customer vehicles under SelectCare
contracts (4) 53,200 52,700 55,200 1% (4)%
Customer vehicles underSelectCare on-demand (5) 6,400 6,400 6,900 -% (7)% Total vehicles serviced 250,600 256,100 273,000 (2)% (8)% 33
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)-----------
(1)Generally comprised of Class 1 through Class 7 type vehicles with a Gross Vehicle Weight (GVW) up to 33,000 pounds. (2)Generally comprised of over the road on highway tractors and are primarily comprised of Class 8 type vehicles with a GVW of over 33,000 pounds. (3)Generally comprised of dry, flatbed and refrigerated type trailers. (4)Excludes customer vehicles underSelectCare on-demand contracts. (5)Comprised of the number of unique vehicles serviced under on-demand maintenance agreements for the quarterly periods. This does not represent averages for the periods. Vehicles included in the count may have been serviced more than one time during the respective period. Note: Quarterly amounts were computed using a 6-point average based on monthly information. The following table provides information on our global active ChoiceLease fleet (number of units rounded to nearest hundred): Change December 31, June 2021/ June 2021/ June 30, 2021 2020 June 30, 2020 Dec 2020 June 2020 End of period active ChoiceLease vehicle count (1) 141,000 142,300 144,900 (1)% (3)% Quarterly average active ChoiceLease vehicle count (1) 141,400 143,100 146,600 (1)% (4)% Quarterly revenue per active ChoiceLease vehicle (2)$ 5,700 $ 5,700 $ 5,200 -% 10% -----------
(1)Active ChoiceLease vehicles are calculated as those units currently earning revenue and not classified as not yet earning or no longer earning units. (2)Calculated based on the reported quarterly ChoiceLease revenue.
The following table provides commercial rental statistics on our global power fleet which excludes trailers:
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
Average commercial rental power
fleet size - in service (1) 30,600 31,300 30,000 32,300 (2)% (7)%
Commercial rental utilization -
power fleet (2) 79.6% 55.9% 76.4% 60.3% NM NM
---------
(1)Number of units rounded to the nearest hundred and calculated using quarterly
average unit counts.
(2)Rental utilization is calculated using the number of days units are rented
divided by the number of days units available to rent based on the days in a
calendar year.
The following table provides a breakdown of our non-revenue earning equipment
included in our end of period global fleet count (number of units rounded to
nearest hundred):
Change
June 2021/ June 2021/
June 30, 2021 December 31, 2020 June 30, 2020 Dec 2020 June 2020
Not yet earning revenue (NYE) 2,400 1,900 1,500 26% 60%
No longer earning revenue (NLE):
Units held for sale 4,300 7,700 14,000 (44)% (69)%
Other NLE units 2,500 3,200 8,500 (22)% (71)%
Total NLE 6,800 10,900 22,500 (38)% (70)%
Total 9,200 12,800 24,000 (28)% (62)%
NYE units represent new vehicles on hand that are being prepared for deployment
to a lease customer or into the rental fleet. Preparations include activities
such as adding lift gates, paint, decals, cargo area and refrigeration
equipment. NYE units increased 60% compared to June 30, 2020 reflecting
increased rental capital spending to meet higher rental demand.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
NLE units represent vehicles held for sale and vehicles for which no revenue has
been earned in the previous 30 days. Accordingly, these vehicles may be
temporarily out of service, being prepared for sale or awaiting redeployment.
NLE units decreased 70% compared to June 30, 2020 due to a decrease in units
held for sale, a lower number of vehicles being prepared for sale or
redeployment and higher utilization of our rental fleet.
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands, except vehicle counts)
Automotive $ 179,849 $ 109,119 $ 351,721 $ 280,860 65% 25%
Technology and healthcare 57,529 54,950 112,234 112,616 5% -%
Consumer packaged goods and retail 233,791 196,683 454,277 384,719 19% 18% Industrial and other 63,389 44,305 118,924 94,173 43% 26% Subcontracted transportation 211,879 102,208 392,013 237,936 NM 65% Fuel 29,193 12,053 53,161 37,461 NM 42% SCS total revenue$ 775,630 $ 519,318 $ 1,482,330 $ 1,147,765 49% 29%
SCS operating revenue (1)
1,037,156 $ 872,368 32% 19%
SCS EBT $ 41,041 $ 36,916 $ 73,998 $ 67,941 11% 9%
SCS EBT as a % of SCS total
revenue 5.3% 7.1% 5.0% 5.9% (180) bps (90) bps
SCS EBT as a % of SCS
operating revenue (1) 7.7% 9.1% 7.1% 7.8% (140) bps (70) bps
Memo:
End of period fleet count 10,000 9,800 10,000 9,800 2% 2%
Twelve months ended June 30, Change 2021/2020
2021 2020
SCS EBT as a % of SCS total revenue 5.8% 5.6% 20 bps
SCS EBT as a % of SCS operating revenue (1) 8.2% 7.5% 70 bps
------------
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
SCS total revenue increased 49% in the second quarter and 29% in the six months endedJune 30, 2021 as a result of higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) and subcontracted transportation. SCS operating revenue increased 32% and 19% in the second quarter and six months endedJune 30, 2021 , respectively, as a result of higher automotive revenues, reflecting increased volumes and prior-year COVID-19 effects. SCS operating revenue also increased due to new business and higher volumes across other industries. SCS EBT increased 11% in the second quarter and 9% for the six months endedJune 30, 2021 primarily due to revenue growth in the automotive business, partially offset by strategic investments in marketing and technology, as well as increased incentive compensation and medical costs. In the prior year periods, SCS customer volumes in the automotive business significantly declined due to temporary production shutdowns beginning late in the first quarter of 2020 related to COVID-19. These operations restarted during the second quarter of 2020 and were followed by increased consumer demand in the second half of 2020, which helped contribute to 35
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
a worldwide semiconductor supply shortage in early 2021. This supply shortage
impacted the production activity of our automotive customers in the first half
of 2021.
Dedicated Transportation Solutions
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands, except vehicle counts)
DTS total revenue $ 354,711 $ 293,944 $ 675,218 $ 628,832 21% 7%
DTS operating revenue (1) $ 255,849 $ 227,931 $ 492,688 $ 464,616 12% 6%
DTS EBT $ 13,162 $ 21,233 $ 26,144 $ 33,413 (38)% (22)%
DTS EBT as a % of DTS
total revenue 3.7% 7.2% 3.9% 5.3% (350) bps (140) bps
DTS EBT as a % of DTS
operating revenue (1) 5.1% 9.3% 5.3% 7.2% (420) bps (190) bps
Memo:
End of period fleet count 10,400 9,300 10,400 9,300 12% 12%
Twelve months ended June 30, Change 2021/2020
2021 2020
DTS EBT as a % of DTS total revenue 5.2% 5.2% - bps
DTS EBT as a % of DTS operating revenue (1) 6.9% 7.3% (40) bps
------------
(1)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
DTS total revenue increased 21% in the second quarter of 2021 and 7% for the six months endedJune 30, 2021 due to higher subcontracted transportation and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) growth. DTS operating revenue increased 12% in the second quarter of 2021 and 6% in the six months endedJune 30, 2021 , primarily reflecting new business and higher volumes. Revenue growth from new business can be largely attributed to wins from competitors and private fleet conversions. DTS EBT decreased 38% in second quarter of 2021 and 22% for the six months endedJune 30, 2021 , primarily due to increased labor costs resulting from a tight driver labor market, higher insurance costs, and strategic investments. 36
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Three months ended June 30, Six months ended June 30, Change 2021/2020
2021 2020 2021 2020 Three Months Six Months
(In thousands)
Human resources $ 5,954 $ 4,651 $ 11,542 $ 10,504 28% 10%
Finance and procurement 19,092 16,358 37,988 35,597 17% 7%
Corporate services and public
affairs 3,378 1,726 5,074 3,710 96% 37%
Information technology 29,246 22,285 55,665 47,650 31% 17%
Legal and safety 7,507 6,661 14,939 14,624 13% 2%
Marketing 7,629 3,655 16,750 8,930 NM 88%
Other 20,778 8,600 40,184 16,802 NM NM
Total CSS 93,584 63,936 182,142 137,817 46% 32%
Allocation of CSS to business
segments (75,720) (53,218) (145,846) (117,713) 42% 24%
Unallocated CSS $ 17,864 $ 10,718 $ 36,296 $ 20,104 67% 81%
Total CSS costs increased 46% in the second quarter of 2021 and increased 32%
for the six months ended June 30, 2021 due to higher incentive
compensation-related expenses in 2021 and continuing strategic investments in
technology and marketing. Unallocated CSS costs increased to $18 million and $36
million in the second quarter of 2021 and for the six months ended June 30, 2021
due to higher incentive compensation-related expenses in 2021 due to improved
performance.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
FINANCIAL RESOURCES AND LIQUIDITY
Cash Flows
The following is a summary of our cash flows from continuing operations:
Six months ended June 30,
2021 2020
(In thousands)
Net cash provided by (used in):
Operating activities $ 1,131,233 $ 1,098,785
Investing activities (533,408) (492,266)
Financing activities (478,971) 154,732
Effect of exchange rate changes on cash (2,369) (3,022)
Net change in cash and cash equivalents $ 116,485 $ 758,229
Six months ended June 30,
2021 2020
(In thousands)
Net cash provided by operating activities
Earnings (loss) from continuing operations $ 201,152 $ (182,834)
Non-cash and other, net 950,869 1,182,891
Collections on sales-type leases 62,778 54,724
Changes in operating assets and liabilities (83,566) 44,004
Cash flows from operating activities from continuing operations
Cash provided by operating activities remained at$1.1 billion for the six months endedJune 30, 2021 reflecting higher earnings offset by higher working capital needs. Our working capital needs are primarily driven by the timing of collections of our receivables and payments of our trade payables, as well as changes in other assets and liabilities. The impact from changes in operating assets and liabilities was primarily due to an increase in receivables due to higher revenues and timing of collections. Cash used in investing activities increased to$533 million for the six months endedJune 30, 2021 compared with$492 million in 2020 primarily due to an increase in cash paid for capital expenditures partially offset by higher proceeds from the sale of revenue earning equipment and operating property and equipment. Cash provided by (used in) financing activities was($479) million for the six months endedJune 30, 2021 compared to$155 million in 2020 due to lower borrowing needs.
The following table shows our free cash flow computation:
Six months ended June 30,
2021 2020
(In thousands)
Net cash provided by operating activities $ 1,131,233 $ 1,098,785
Sales of revenue earning equipment (1) 330,277 214,189
Sales of operating property and equipment (1) 44,409 4,231
Other (1) 691 -
Total cash generated (2) 1,506,610 1,317,205
Purchases of property and revenue earning equipment (1) (904,399) (704,930)
Free cash flow (2) $ 602,211 $ 612,275
------------(1)Included in cash flows from investing activities. (2)Non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Free cash flow (a non-GAAP measure) decreased slightly to $602 million for the
six months ended June 30, 2021 from $612 million in 2020 primarily due to an
increase in cash paid for capital expenditures partially offset by higher
proceeds from the sale of revenue earning equipment and operating property and
equipment.
Capital expenditures generally represent the purchase of revenue earning
equipment (trucks, tractors and trailers) within our FMS segment. These
expenditures primarily support the ChoiceLease and commercial rental product
lines. The level of capital required to support the ChoiceLease product line
varies based on customer contract signings for replacement vehicles and growth.
These contracts are long-term agreements that result in predictable cash flows
typically over three to seven years for trucks and tractors and ten years for
trailers. We utilize capital for the purchase of vehicles in our commercial
rental product line to replenish and expand the fleet available for shorter-term
use by contractual or occasional customers. Operating property and equipment
expenditures primarily relate to spending on items such as vehicle maintenance
facilities and equipment, computer and telecommunications equipment, investments
in technologies, and warehouse facilities and equipment.
The following table provides a summary of gross capital expenditures:
Six months ended
2021 2020
(In thousands)
Revenue earning equipment:
ChoiceLease $ 501,053 $ 463,744
Commercial rental 397,092 69,414
898,145 533,158
Operating property and equipment 64,886 63,671
Gross capital expenditures (1) 963,031 596,829
Changes in accounts payable related to purchases of property and revenue earning equipment
(58,632) 108,101
Cash paid for purchases of property and revenue earning equipment
------------
(1)Gross capital expenditures excluded approximately
Gross capital expenditures increased 61% to
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)Financing and Other Funding Transactions
We utilize external capital primarily to support working capital needs and growth in our asset-based product lines. The variety of financing alternatives typically available to fund our capital needs include commercial paper, long-term and medium-term public and private debt, asset-backed securities, bank term loans, leasing arrangements, and bank credit facilities. Our principal sources of financing are issuances of commercial paper and medium-term notes. Cash and cash equivalents totaled$268 million as ofJune 30, 2021 . As ofJune 30, 2021 , approximately$101 million was held outside theU.S. and is available to fund operations and other growth of non-U.S. subsidiaries. If we decide to repatriate cash and cash equivalents held outside theU.S. , we may be subject to additional income taxes and foreign withholding taxes. However, our intent is to permanently reinvest these foreign amounts outside theU.S. and our current plans do not demonstrate a need to repatriate these foreign amounts to fund ourU.S. operations. We believe that our operating cash flows, together with our access to the public unsecured bond market, commercial paper market and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. However, there can be no assurance that volatility and disruption in the public unsecured debt market or the commercial paper market would not impair our ability to access these markets on terms commercially acceptable to us or at all. If we cease to have access to public bonds, commercial paper and other sources of unsecured borrowings, we would meet our liquidity needs by drawing upon contractually committed lending agreements and/or by seeking other funding sources. Refer to Note 9, "Debt," in the Notes to Condensed Consolidated Financial Statements for information on our net worth covenant, global revolving credit facility, trade receivables program (which was extended toApril 2022 during the second quarter of 2021), medium-term notes, and asset-backed financing obligations. Our ability to access unsecured debt in the capital markets is impacted by both our short-term and long-term debt ratings. These ratings are intended to provide guidance to investors in determining the credit risk associated with our particular securities based on current information obtained by the rating agencies from us or from other sources. Ratings are not recommendations to buy, sell or hold our debt securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Lower ratings generally result in higher borrowing costs, as well as reduced access to unsecured capital markets. A significant downgrade of our short-term debt ratings would impair our ability to issue commercial paper and likely require us to rely on alternative funding sources. A significant downgrade would not affect our ability to borrow amounts under our global revolving credit facility described below, assuming ongoing compliance with the terms and conditions of the credit facility.
Our debt ratings and rating outlooks as of
Rating Summary
Short-term Short-term Outlook Long-term Long-term Outlook
Standard & Poor's Ratings Services A2 - BBB Stable
Moody's Investors Service P2 Stable Baa2 Stable
Fitch Ratings F2 - BBB+ Negative
DBRS R-1 (Low) Stable A (Low) Stable
As of
(In millions)
Global revolving credit facility
$ 300
In accordance with our funding philosophy, we attempt to align the aggregate
average remaining re-pricing life of our debt with the aggregate average
remaining re-pricing life of our assets. We utilize both fixed-rate and
variable-rate debt to achieve this alignment and generally target a mix of 20% -
40% variable-rate debt as a percentage of total debt outstanding. The
variable-rate portion of our total debt (including notional value of swap
agreements) was 6% and 9% as of June 30, 2021 and December 31, 2020 ,
respectively.
Our debt to equity ratio was 258% and 293% as of June 30, 2021 and December 31,
2020 , respectively. The debt to equity ratio represents total debt divided by
total equity.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)Share Repurchases and Cash Dividends
Refer to Note 10, "Share Repurchase Programs," in the Notes to Condensed Consolidated Financial Statements for a discussion of share repurchases.
In bothMay 2021 and 2020, our Board of Directors declared a quarterly cash dividend of$0.56 per share of common stock. The dividends were paid during the second quarter of each respective year. InJuly 2021 , our Board of Directors declared a quarterly cash dividend of$0.58 per share of common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 2, "Recent Accounting Pronouncements," in the Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.
NON-GAAP FINANCIAL MEASURES
This Quarterly Report on Form 10-Q includes information extracted from condensed consolidated financial information, but not required by generally accepted accounting principles inthe United States (GAAP) to be presented in the financial statements. Certain elements of this information are considered "non-GAAP financial measures" as defined bySEC rules. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance or liquidity prepared in accordance with GAAP. Also, our non-GAAP financial measures may not be comparable to financial measures used by other companies. We provide a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure in this non-GAAP financial measures section or in our results and liquidity discussions above. We also provide the reasons why management believes each non-GAAP financial measure is useful to investors in this section. 41
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)Specifically, we refer to the following non-GAAP financial measures in this Form 10-Q:
Non-GAAP Financial Measure Comparable GAAP Measure
Operating Revenue Measures:
Operating Revenue Total Revenue
FMS Operating Revenue FMS Total Revenue
SCS Operating Revenue SCS Total Revenue
DTS Operating Revenue DTS Total Revenue
FMS EBT as a % of FMS Operating Revenue FMS EBT as a % of FMS Total Revenue
SCS EBT as a % of SCS Operating Revenue SCS EBT as a % of SCS Total Revenue
DTS EBT as a % of DTS Operating Revenue DTS EBT as a % of DTS Total Revenue
Comparable Earnings Measures:
Comparable Earnings (Loss) Before Income Tax Earnings (Loss) Before Income Tax
Comparable Earnings (Loss) Earnings (Loss) from Continuing Operations
Comparable Earnings Before Interest, Taxes,
Depreciation Net Earnings (Loss)
and Amortization (EBITDA)
Comparable EPS EPS from Continuing Operations
Comparable Tax Rate Effective Tax Rate from Continuing Operations
Not Applicable. However, non-GAAP elements of the
calculation have been reconciled to the
corresponding
Adjusted Return on Equity (ROE) GAAP measures. A numerical reconciliation of net
earnings to adjusted net earnings and average
shareholders' equity to adjusted average equity is
provided in the following reconciliations.Cash Flow Measures: Total Cash Generated and Free Cash Flow Cash Provided by Operating Activities
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Set forth in the table below is an overview of each non-GAAP financial measure
and why management believes that the presentation of each non-GAAP financial
measure provides useful information to investors.
Operating Revenue Measures:
Operating Revenue Operating revenue is defined as total
revenue for
or each business segment (FMS, SCS and DTS) excluding any (1) fuel
FMS Operating Revenue and (2) subcontracted transportation, as well as (3) revenue from
our ChoiceLease liability insurance program which was discontinued
SCS Operating Revenue in early 2020. We believe operating revenue provides useful
information to investors as we use it to evaluate the operating
DTS Operating Revenue performance of our core businesses and as a measure of sales
activity at the consolidated level for Ryder System, Inc. , as well
as for each of our business segments. We also use segment EBT as a
FMS EBT as a % of FMS Operating percentage of segment operating revenue for each business segment
Revenue for the same reason. Note: FMS EBT, SCS EBT and DTS EBT, our primary
measures of segment performance, are not non-GAAP measures.
SCS EBT as a % of SCS Operating
Revenue Fuel: We exclude FMS, SCS and DTS fuel from the calculation of our
operating revenue measures, as fuel is an ancillary service that we
DTS EBT as a % of DTS Operating provide our customers, which is impacted by fluctuations in market
Revenue fuel prices and 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.
Subcontracted transportation: We exclude subcontracted
transportation from the calculation of our operating revenue
measures, as these services are alsotypically a pass-through to our
customers and, therefore, fluctuations result in minimal changes to
our profitability. While our SCS and DTS business segments
subcontract certain transportation services to third party
providers, our FMS business segment does not engage in subcontracted
transportation and, therefore, this item is not applicable to FMS.
ChoiceLease liability insurance: We exclude ChoiceLease liability
insurance as we announced our plan in the first quarter of 2020 to
exit the extension of our liability insurance coverage for
ChoiceLease customers. The exit of this program was completed in the
first quarter of 2021. We are excluding the revenues associated with
this program for better comparability of our on-going operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Comparable Earnings Measures:
Comparable Earnings (Loss) before Comparable EBT, comparable earnings and comparable EPS are defined,
Income Taxes (EBT) respectively, as GAAP EBT, earnings and EPS, all from continuing
operations, excluding (1) non-operating pension costs, net and (2)
Comparable Earnings (Loss) any other significant items that are not representative of our
business operations. We believe these comparable earnings measures
Comparable Earnings (Loss) per provide useful information to investors and allow for better
Diluted Common Share (EPS) year-over-year comparison of operating performance.
Comparable Tax Rate Non-operating pension costs, net: Our comparable earnings measures
exclude non-operating pension costs, which include the amortization
Adjusted Return on Equity (ROE) of net actuarial loss and prior service cost, interest cost and
expected return on plan assets components of pension and
postretirement benefit costs, as well as any significant charges
for settlements or curtailments if recognized. We exclude
non-operating pension costs, net because we consider these to be
impacted by financial market performance and outside the
operational performance of our business.
Other Items Impacting Comparability: Our comparable and adjusted
earnings measures also exclude othersignificant items that are not
representative of our business operations as detailed in the
reconciliation table below. These other significant items vary from
period to period and, in some periods, there may be no such
significant items.
Comparable tax rate is computed using the same methodology as the
GAAP provision for income taxes. Income tax effects of non-GAAP
adjustments are calculated based on the marginal tax rates to which
the non-GAAP adjustments are related.
Adjusted ROE is defined as adjusted net earnings divided by
adjusted average shareholders' equity and represents the rate of
return on shareholders' investment. Other items impacting
comparability described above areexcluded, as applicable, from the
calculation of net earnings and average shareholders' equity. We
use adjusted ROE as an internal measure of how effectively we use
the owned capital invested in our operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Comparable Earnings Before Interest, Comparable EBITDA is defined as net earnings (loss), first adjusted
Taxes, Depreciation and Amortization to exclude discontinued operations and the following items, all
(EBITDA) from continuing operations: (1) non-operating pension costs, net
and (2) any other items that are not representative of our business
operations (these items are the same items that are excluded from
comparable earnings measures for the relevant periods as described
immediately above) and then adjusted further for (1) interest
expense, (2) income taxes, (3) depreciation, (4) used vehicle sales
results and (5) amortization.
We believe comparable EBITDA provides investors with useful
information, as it is a standard measure commonly reported and
widely used by analysts, investors and other interested parties to
measure financial performance and our ability to service debt and
meet our payment obligations. In addition, we believe that the
inclusion of comparable EBITDA provides consistency in financial
reporting and enables analysts and investors to perform meaningful
comparisons of past, present and future operating results. Other
companies may calculate comparable EBITDA differently; therefore,
our presentation of comparable EBITDA may not be comparable to
similarly-titled measures used by other companies.
Comparable EBITDA should not be considered as an alternative to net
earnings (loss), earnings (loss) from continuing operations before
income taxes or earnings (loss) from continuing operations
determined in accordance with GAAP, as an indicator of the
Company's operating performance, as an alternative to cash flows
from operating activities(determined in accordance with GAAP), as
an indicator of cash flows, or as a measure of liquidity.
Cash Flow Measures:
Total Cash Generated We consider total cash generated and free cash flow to be important
measures of comparative operating performance, as our principal
Free Cash Flow sources of operating liquidity are cash from operations and
proceeds from the sale of revenue earning equipment.
Total Cash Generated is defined asthe sum of (1) net cash provided
by operating activities, (2) net cash provided by the sale of
revenue earning equipment, (3) net cash provided by the sale of
operating property and equipment and (4) other cash inflows from
investing activities. We believe total cash generated is an
important measure of total cashflows generated from our ongoing
business activities.
Free Cash Flow is defined as the net amount of cash generated from
operating activities and investing activities (excluding
acquisitions) from continuing operations. We calculate free cash
flow as the sum of (1) net cash provided by operating activities,
(2) net cash provided by the sale of revenue earning equipment and
operating property and equipment, and (3) other cash inflows from
investing activities, less (4) purchases of property and revenue
earning equipment. We believe free cash flow provides investors
with an important perspective on the cash available for debt
service and for shareholders, after making capital investments
required to support ongoing businessoperations. Our calculation of
free cash flow may be different from the calculation used by other
companies and, therefore, comparability may be limited.
* See Total Cash Generated and Free Cash Flow reconciliations in
the Financial Resources and Liquidity section of Management's
Discussion and Analysis.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table provides a reconciliation of GAAP earnings (loss) before
taxes (EBT), earnings (loss), and earnings (loss) per diluted share (Diluted
EPS) from continuing operations to comparable EBT, comparable earnings (loss)
and comparable EPS. Certain items included in EBT, earnings and diluted EPS from
continuing operations have been excluded from our comparable EBT, comparable
earnings and comparable diluted EPS measures. The following table lists a
summary of these items, which are discussed in more detail throughout our MD&A
and within the Notes to Condensed Consolidated Financial Statements:
Continuing Operations
Three months ended June 30, Six months ended June 30,
2021 2020 2021 2020
(In thousands, except per share amounts)
EBT $ 203,573 $ (94,777) $ 273,840 $ (208,411)
Non-operating pension costs, net (373) 936 (382) 2,157
Restructuring and other, net (1) 2,577 26,168 5,605 46,789
ERP implementation costs (1) 5,090 11,032 12,721 21,358
Gains on sale of properties (1) (35,263) - (36,768) -
ChoiceLease liability insurance revenue (1) - (7,409) (777) (16,767)
Comparable EBT $ 175,604 $ (64,049) $ 254,239 $ (154,873)
Earnings (loss) $ 149,568 $ (73,705) $ 201,152 $ (182,834)
Non-operating pension costs, net (1,031) (79) (1,786) 21
Restructuring and other, net (including
ChoiceLease liability insurance results) (1) 3,204 16,139 5,784 25,037
ERP implementation costs (1) 3,779 8,188 9,444 15,852
Gains on sale of properties (1) (26,812) - (27,999) -
Tax adjustments, net (2) 430 - 733 20,363
Comparable Earnings $ 129,138 $ (49,457) $ 187,328 $ (121,561)
Diluted EPS $ 2.78 $ (1.41) $ 3.75 $ (3.50)
Non-operating pension costs, net (0.02) - (0.03) -
Restructuring and other, net (including
ChoiceLease liability insurance results) (1) 0.06 0.30 0.10 0.48
ERP implementation costs (1) 0.07 0.16 0.18 0.30
Gains on sale of properties (1) (0.50) - (0.52) -
Tax adjustments, net (2) 0.01 - 0.01 0.39
Comparable EPS $ 2.40 $ (0.95) $ 3.49 $ (2.33)
------------(1)Refer to Note 15, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements for additional information. (2)Refer to the reconciliation of the comparable provision for income taxes table below for information on adjustments related to tax matters. Note: Amounts may not be additive due to rounding.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)The following table provides a reconciliation of the provision for income taxes and effective tax rate to the comparable provision for income taxes and comparable tax rate:
Three months ended June 30, Six months ended June 30,
2021 2020 2021 2020
(In thousands)
Provision for (benefit from) income taxes $ 54,005 $ (21,072) $ 72,688 $ (25,577)
Tax adjustments, net (2) (430) - (733) (20,363)
Income tax effects of non-GAAP adjustments
(1) (7,109) 6,480 (5,044) 12,628
Comparable provision for (benefit from)
income taxes (1) $ 46,466 $ (14,592) $ 66,911 $ (33,312)
Effective tax rate on continuing
operations (3) 26.5 % 22.2 % 26.5 % 12.3 %
Tax adjustments and income tax effects of
non-GAAP adjustments (1) (2) - % 0.6 % (0.2) % 9.2 %
Comparable tax rate on continuing
operations (1) (3) 26.5 % 22.8 % 26.3 % 21.5 %
------------
(1)The comparable provision for income taxes is computed using the same
methodology as the GAAP provision of income taxes. Income tax effects of
non-GAAP adjustments are calculated based on the marginal tax rates to which the
non-GAAP adjustments are related.
(2)In the second quarter and six months ended June 30, 2021 , we recorded tax
expense related to expiring state net operating losses. For the six months ended
June 30, 2020 we recorded tax expenses of $7 million and $13 million related to
expiring state net operating losses and a valuation allowance on our U.K.
deferred tax assets, respectively.
(3)The effective tax rate on continuing operations and comparable tax rate are
based on EBT and comparable EBT, respectively, found on the previous page.
The following table provides a reconciliation of earnings (loss) to comparable
EBITDA:
Three months ended June 30, Six months ended June 30,
2021 2020 2021 2020
(In thousands)
Net earnings (loss) $ 149,105 $
(74,099)
463 394 1,222 878
Provision for (benefit from) income taxes 54,005 (21,072) 72,688 (25,577)
EBT 203,573 (94,777) 273,840 (208,411)
Non-operating pension costs, net (373) 936 (382) 2,157
Other items impacting comparability, net
(1) (27,596) 29,792 (19,219) 51,381
Comparable EBT 175,604 (64,049) 254,239 (154,873)
Interest expense 54,155 67,285 108,861 129,851
Depreciation 444,259 532,947 905,420 1,056,171
Used vehicle sales, net (2) (3) (51,634) 9,488 (80,485) 30,172
Amortization 1,671 1,973 3,435 4,018
Comparable EBITDA(3) $ 624,055 $
547,644
------------
(1)Refer to the table above in the Operating Results by Segment for a discussion
on items excluded from our comparable measures and their classification within
our Condensed Consolidated Statements of Earnings and Note 15,"Other Items
Impacting Comparability" in the Notes to Condensed Consolidated Financial
Statements for additional information.
(2)Refer to Note 5, "Revenue Earning Equipment, net," in the Notes to Condensed
Consolidated Financial Statements for additional information.
(3)Comparable EBITDA has been recast to exclude gains/losses from the sale of
used vehicles.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table provides a reconciliation of total revenue to operating
revenue:
Three months ended June 30, Six months ended June 30,
2021 2020 2021 2020
(In thousands)
Total revenue $ 2,382,237
(271,644) (144,035) (502,915) (345,988)
Fuel (187,773) (120,594) (359,984) (299,342)
ChoiceLease liability insurance revenue (1) - (7,409) (777) (16,767)
Operating revenue $ 1,922,820 $ 1,623,244 $ 3,740,183 $ 3,394,491
------------
(1)In the first quarter of 2020, we announced our plan to exit the extension of
our liability insurance coverage for ChoiceLease customers. The exit of this
program was completed in the first quarter of 2021.
The following table provides a reconciliation of FMS total revenue to FMS operating revenue:
Three months ended June 30, Six months ended June 30, Twelve months ended June 30,
2021 2020 2021 2020 2021 2020
(In thousands)
FMS total revenue $ 1,408,241 $ 1,198,177 $ 2,743,726 $ 2,538,414 $ 5,375,779 $ 5,367,308 Fuel (183,568) (117,253) (350,163) (290,588) (628,649) (686,713) ChoiceLease liability insurance revenue (1) - (7,409) (777) (16,767) (7,827) (35,466) FMS operating revenue$ 1,224,673 $ 1,073,515 $ 2,392,786 $ 2,231,059 $ 4,739,303 $ 4,645,129 FMS EBT$ 158,451 $ (103,735) $ 221,853 $ (218,309) $ 298,205 $ (407,240) FMS EBT as a % of FMS total revenue 11.3% (8.7)% 8.1% (8.6)% 5.5% (7.6)% FMS EBT as a % of FMS operating revenue 12.9% (9.7)% 9.3% (9.8)% 6.3% (8.8)% ------------ (1)In the first quarter of 2020, we announced our plan to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program was completed in the first quarter of 2021.
The following table provides a reconciliation of SCS total revenue to SCS operating revenue:
Three months ended June 30, Six months ended June 30, Twelve months ended June 30,
2021 2020 2021 2020 2021 2020
(In thousands)
SCS total revenue $ 775,630 $ 519,318 $ 1,482,330 $ 1,147,765 $ 2,878,985 $ 2,414,054
Subcontracted transportation (211,879) (102,208) (392,013) (237,936) (748,014) (529,104)
Fuel (29,193) (12,053) (53,161) (37,461) (95,816) (92,462)
SCS operating revenue $ 534,558 $ 405,057 $ 1,037,156 $ 872,368 $ 2,035,155 $ 1,792,488
SCS EBT $ 41,041 $ 36,916 $ 73,998 $ 67,941 $ 165,997 $ 134,910
SCS EBT as a % of SCS total revenue 5.3% 7.1% 5.0% 5.9% 5.8% 5.6%
SCS EBT as a % of SCS operating
revenue 7.7% 9.1% 7.1% 7.8% 8.2% 7.5%
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)The following table provides a reconciliation of DTS total revenue to DTS operating revenue:
Three months ended June 30, Six months ended June 30, Twelve months ended June 30,
2021 2020 2021 2020 2021 2020
(In thousands)
DTS total revenue $ 354,711 $ 293,944 $ 675,218 $ 628,832 $ 1,275,760 $ 1,334,450
Subcontracted transportation (59,765) (41,827) (110,902) (108,052) (194,758) (253,809)
Fuel (39,097) (24,186) (71,628) (56,164) (123,684) (127,015)
DTS operating revenue $ 255,849 $ 227,931 $ 492,688 $ 464,616 $ 957,318 $ 953,626
DTS EBT $ 13,162 $ 21,233 $ 26,144 $ 33,413 $ 66,173 $ 70,018
DTS EBT as a % of DTS total revenue 3.7% 7.2% 3.9% 5.3% 5.2% 5.2%
DTS EBT as a % of DTS operating revenue 5.1% 9.3% 5.3% 7.2% 6.9% 7.3%
The following tables provide numerical reconciliations of net earnings to adjusted net earnings and average shareholders' equity to adjusted average shareholders' equity (Adjusted ROE), and of the non-GAAP elements used to calculate the adjusted return on equity to the corresponding GAAP measures:
Twelve months ended June 30,
2021 2020
(In thousands)
Net earnings (loss) (12-month rolling period)
$ (328,702) Other items impacting comparability, net (4) 19,779
91,935
Income taxes (1) 79,930
(94,417)
Adjusted earnings (loss) before income taxes 361,101
(331,184)
Adjusted income taxes (2) (80,094)
94,076
Adjusted net earnings (loss) [A]$ 281,007
Average shareholders' equity$ 2,252,610 $ 2,392,550 Average adjustments to shareholders' equity (3) 44,961
28,386
Adjusted average shareholders' equity [B]$ 2,297,571
Adjusted return on equity [A/B] 12.2%
(9.8)%
------------
(1)Includes income taxes on discontinued operations.
(2)Represents provision for income taxes plus income taxes on other items
impacting comparability.
(3)Represents the impact of other items impacting comparability, net of tax, to
equity for the respective period.
(4)Refer to the table below for a composition of Other items impacting
comparability, net for the 12-month rolling period:
Twelve months ended June 30,
2021 2020
(In thousands)
Restructuring and other, net $ 35,179 $ 92,274
ERP Implementation costs 25,614 35,127
Gains on sale of properties (42,186) -
Early redemption of medium-term notes 8,999 -
ChoiceLease liability insurance revenue (7,827) (35,466)
Other items impacting comparability, net $ 19,779 $ 91,935
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements (within the meaning of the Federal Private Securities
Litigation Reform Act of 1995) are statements that relate to expectations,
beliefs, projections, future plans and strategies, anticipated events or trends
concerning matters that are not historical facts. These statements are often
preceded by or include the words "believe," "expect," "intend," "estimate,"
"anticipate," "will," "may," "could," "should" or similar expressions. This
Quarterly Report contains forward-looking statements including, statements
regarding:
•our expectations regarding the COVID-19 effects on our business and financial
results including revenue and cash flow;
•our expectations in our FMS business segment regarding anticipated ChoiceLease
revenue, fleet growth and earnings and commercial rental revenue and demand;
•our expectations in our SCS and DTS business segments regarding anticipated
operating revenue, trends, earnings, sales activity and growth rates;
•our expectations of the long-term residual values of revenue earning equipment;
•the expected pricing for used vehicles and vehicle replacement parts;
•our expectations of the impact of a potential cyclical downturn, including the
probability of incurring losses or having to incur accelerated depreciation;
•our expectations of cash flow from operating activities, free cash flow, and
capital expenditures through the end of 2021;
•the adequacy of our accounting estimates and reserves for pension expense,
compensation expense and employee benefit plan obligations, depreciation and
residual value guarantees, goodwill impairment, accounting changes, and income
taxes;
•our expected future contractual cash obligations and commitments;
•the adequacy of our fair value estimates of employee incentive awards under our
share-based compensation plans, publicly traded debt and other debt;
•our ability to fund all of our operating, investing and financial needs for the
foreseeable future through internally generated funds and outside funding
sources;
•our expected level of use and availability of outside funding sources,
anticipated future payments under debt and lease agreements, and risk of losses
resulting from counterparty default under hedging and derivative agreements;
•the anticipated impact of fuel price and exchange rate fluctuations;
•our expectations as to return on pension plan assets, future pension expense
and estimated contributions;
•our expectations regarding the scope and anticipated outcomes with respect to
certain claims, proceedings and lawsuits;
•the ultimate disposition of estimated environmental liabilities;
•our ability to access commercial paper and other available debt financing in
the capital markets;
•the size and impact of our strategic investments;
•our expectations regarding the achievement of our return on equity improvement
initiatives;
•our expectations regarding the diminishing impact of prior residual value
estimate changes on return on equity improvement;
•our expectations regarding maintenance costs and the benefits of maintenance
cost initiatives;
•our expectations regarding the benefits of terminating lease insurance;
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
•our expectations regarding the adequacy of credit reserves;
•the status of our unrecognized tax benefits related to the U.S. federal, state
and foreign tax positions;
•our estimates for self-insurance loss reserves;
•our expectations regarding losses under guarantees;
•our expectation on the realizability of our deferred tax assets; and
•our expectations regarding the completion and ultimate outcome of certain tax
audits.
These statements, as well as other forward-looking statements contained in this
Quarterly Report, are based on our current plans and expectations and are
subject to risks, uncertainties and assumptions. We caution readers that certain
important factors could cause actual results and events to differ significantly
from those expressed in any forward-looking statements. These risk factors,
include the following:
•Market Conditions:
•Changes in general economic and financial conditions in the U.S. and worldwide
leading to decreased demand for our services and products, lower profit margins,
increased levels of bad debt and reduced access to credit and financial markets.
•Decreases in freight demand that would impact both our transactional and
variable-based contractual business.
•Changes in our customers' operations, financial condition or business
environment that may limit their demand for, or ability to purchase, our
services and products.
•Decreases in market demand affecting the commercial rental market and used
vehicle sales as well as global economic conditions.
•Volatility in customer volumes and shifting customer demand in the industries
serviced by our SCS business.
•Changes in current financial, tax or regulatory requirements that could
negatively impact our financial results.
•Competition:
•Advances in technology may impact demand for our services or may require
increased investments to remain competitive.
•Competition from other service providers, who may have greater capital
resources or lower capital costs, or from our customers, who may choose to
provide services themselves.
•Continued consolidation in the markets in which we operate, which may create
large competitors with greater financial resources.
•Our inability to maintain current pricing levels due to economic conditions,
demand for services, customer acceptance or competition.
•Profitability:
•Our inability to obtain adequate profit margins for our services.
•Lower than expected sales volumes or customer retention levels.
•Decreases in commercial rental fleet utilization and pricing.
•Lower than expected used vehicle sales pricing levels and fluctuations in the
anticipated proportion of retail versus wholesale sales.
•Loss of key customers in our SCS and DTS business segments.
•Our inability to adapt our product offerings to meet changing consumer
preferences on a cost-effective basis.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
•The inability of our legacy information technology systems to provide timely
access to data.
•Sudden changes in fuel prices and fuel shortages.
•Higher prices for vehicles, diesel engines and fuel as a result of new
regulations.
•Higher than expected maintenance costs and lower than expected benefits
associated with our maintenance initiatives.
•Lower than expected revenue growth due to production delays at our automotive
SCS customers, primarily related to the worldwide semiconductor supply shortage.
•The inability of an OEM or supplier to provide vehicles or components,
primarily related to the worldwide semiconductor supply shortage.
•Our inability to successfully execute our strategic returns and asset
management initiatives, maintain our fleet at normalized levels and right-size
our fleet in line with demand.
•Our key assumptions and pricing structure of our SCS and DTS contracts prove to
be inaccurate.
•Increased unionizing, labor strikes and work stoppages.
•Difficulties in attracting and retaining drivers and technicians due to driver
and technician shortages, which may result in higher costs to procure drivers
and technicians and higher turnover rates affecting our customers.
•Our inability to manage our cost structure.
•Our inability to limit our exposure for customer claims.
•Unfavorable or unanticipated outcomes in legal or regulatory proceedings or
uncertain positions.
•Business interruptions or expenditures due to severe weather or natural
occurrences.
•Financing Concerns:
•Higher borrowing costs.
•Unanticipated interest rate and currency exchange rate fluctuations.
•Negative funding status of our pension plans caused by lower than expected
returns on invested assets and unanticipated changes in interest rates.
•Withdrawal liability as a result of our participation in multi-employer plans.
•Instability in U.S. and worldwide credit markets, resulting in higher borrowing
costs and/or reduced access to credit.
•Accounting Matters:
•Reductions in residual values or useful lives of revenue earning equipment.
•Increases in compensation levels, retirement rate and mortality resulting in
higher pension expense; regulatory changes affecting pension estimates, accruals
and expenses.
•Changes in accounting rules, assumptions and accruals.
•Difficulties and delays in implementing our Enterprise Resource Planning system
and related processes.
•Other risks detailed from time to time in our SEC filings including our 2020
Annual Report on Form 10-K and in "Item 1A.-Risk Factors" of this Quarterly
Report.
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
our business. As a result, we cannot provide assurance as to our future results
or achievements. You
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)should not place undue reliance on the forward-looking statements contained herein, which speak only as of the date of this Quarterly Report. We do not intend, or assume any obligation, to update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of new information, future events or otherwise.
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