- --------------------------------------------------------------------------------
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 September 30, 1997
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. (the "Registrant" or the "Company") had 76,509,198 shares
of common stock ($0.50 par value per share) outstanding as of October 31, 1997.
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
Ryder System, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------------
Third Quarter Nine Months
Periods ended September 30, 1997 and 1996 ------------------------- --------------------------
(In thousands, except per share amounts) 1997 1996* 1997 1996*
- ------------------------------------------------------------------------------------------------------------------------------
REVENUE $1,204,339 1,272,146 3,625,457 3,728,199
- ------------------------------------------------------------------------------------------------------------------------------
Operating expense 952,945 986,659 2,864,538 2,924,693
Depreciation expense, net of gains (quarter, 1997 - $13,417,
1996 - $13,675; nine months, 1997 - $42,446, 1996 - $52,988) 147,697 177,382 438,843 519,844
Interest expense 46,530 52,656 143,194 159,973
Miscellaneous expense (income), net (270) 2,966 (6,777) 3,965
- ------------------------------------------------------------------------------------------------------------------------------
1,146,902 1,219,663 3,439,798 3,608,475
- ------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes 57,437 52,483 185,659 119,724
Provision for income taxes 22,159 23,073 74,602 50,978
- ------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 35,278 29,410 111,057 68,746
Earnings (loss) from discontinued operations, net of
income taxes (quarter, 1997 - $834, 1996 - $(1,351);
nine months, 1997 - $5,981, 1996 - $358) 4,325 (3,122) 12,247 (696)
Gain on sale of discontinued operations, including income tax
benefit of $8,500 3,200 - 3,200 -
- ------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 42,803 26,288 126,504 68,050
==============================================================================================================================
Earnings per common share:
Continuing operations $ 0.45 0.36 1.41 0.85
Discontinued operations 0.05 (0.04) 0.16 (0.01)
Gain on sale of discontinued operations 0.04 - 0.04 -
- ------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ 0.54 0.32 1.61 0.84
- ------------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ 0.15 0.15 0.45 0.45
- ------------------------------------------------------------------------------------------------------------------------------
Average common and common equivalent shares 79,246 81,946 78,722 81,059
==============================================================================================================================
* Certain amounts have been restated for discontinued opearations.
See accompanying notes to consolidated condensed financial statements.
Item 1. Financial Statements (continued)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Ryder System, Inc. and Subsidiaries
- -------------------------------------------------------------------------------------------------------
Nine months ended September 30, 1997 and 1996
(In thousands) 1997 1996*
- -------------------------------------------------------------------------------------------------------
CONTINUING OPERATIONS
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings from continuing operations $ 111,057 68,746
Depreciation expense, net of gains 438,843 519,844
Deferred income taxes 77,795 61,131
Increase in receivables (68,579) (55,796)
Decrease in accounts payable and accrued expenses (46,161) (35,402)
Other, net (33,212) (4,004)
- -------------------------------------------------------------------------------------------------------
479,743 554,519
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds 39,526 220,530
Debt repaid, including capital lease obligations (164,632) (184,070)
Common stock issued 62,222 52,041
Common stock repurchased (62,149) -
Dividends on common stock (34,778) (36,178)
- -------------------------------------------------------------------------------------------------------
(159,811) 52,323
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and revenue earning equipment (762,230) (1,023,417)
Sales of property and revenue earning equipment 279,167 276,226
Proceeds from sale of discontinued operations 111,306 -
Sale and leaseback of revenue earning equipment - 150,000
Acquisitions (46,346) -
Other, net (935) 18,671
- -------------------------------------------------------------------------------------------------------
(419,038) (578,520)
- -------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM CONTINUING OPERATIONS (99,106) 28,322
NET CASH FLOWS FROM DISCONTINUED OPERATIONS 7,621 (1,127)
- -------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (91,485) 27,195
Cash and cash equivalents at January 1 191,384 92,857
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 99,899 120,052
=======================================================================================================
* Certain amounts have been restated for discontinued operations.
See accompanying notes to consolidated condensed financial statements.
Item 1. Financial Statements (continued)
CONSOLIDATED CONDENSED BALANCE SHEETS
Ryder System, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------
September 30, December 31,
(Dollars in thousands, except per share amounts) 1997 1996
- ------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 99,899 191,384
Receivables 597,121 561,927
Inventories 64,399 61,345
Tires in service 162,899 168,367
Deferred income taxes 7,370 82,571
Prepaid expenses and other current assets 95,477 82,172
- ------------------------------------------------------------------------------------------------------
Total current assets 1,027,165 1,147,766
- ------------------------------------------------------------------------------------------------------
Revenue earning equipment 4,983,712 5,281,934
Less accumulated depreciation (1,852,230) (1,995,846)
- ------------------------------------------------------------------------------------------------------
Net revenue earning equipment 3,131,482 3,286,088
- ------------------------------------------------------------------------------------------------------
Operating property and equipment 1,037,393 1,128,626
Less accumulated depreciation (464,273) (513,515)
- ------------------------------------------------------------------------------------------------------
Net operating property and equipment 573,120 615,111
- ------------------------------------------------------------------------------------------------------
Direct financing leases and other assets 387,317 314,574
Intangible assets and deferred charges 254,151 281,850
- ------------------------------------------------------------------------------------------------------
$ 5,373,235 5,645,389
======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 348,507 199,958
Accounts payable 334,614 321,468
Accrued expenses 468,559 633,529
- ------------------------------------------------------------------------------------------------------
Total current liabilities 1,151,680 1,154,955
- ------------------------------------------------------------------------------------------------------
Long-term debt 1,975,954 2,237,010
Other non-current liabilities 390,821 461,275
Deferred income taxes 668,245 686,143
Shareholders' equity:
Common stock of $0.50 par value per share
(shares outstanding at September 30, 1997 - 78,094,300;
December 31, 1996 - 77,961,154) 491,508 496,292
Retained earnings 705,613 613,887
Translation adjustment (10,586) (4,173)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,186,535 1,106,006
- ------------------------------------------------------------------------------------------------------
$ 5,373,235 5,645,389
======================================================================================================
See accompanying notes to consolidated condensed financial statements.
Item 1. Financial Statements (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(A) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements
have been prepared by the Company in accordance with the accounting
policies described in the 1996 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.
(B) RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." This Statement requires the dual presentation of basic earnings
per share (EPS) and diluted EPS. Basic EPS excludes the dilutive effect
of stock options and other potentially dilutive instruments and diluted
EPS includes such items. The Company will adopt this Statement in the
fourth quarter of 1997 and does not expect the adoption to have a
material impact on previously reported EPS amounts.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components. In June 1997, the FASB also
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This Statement establishes standards for reporting
information about a company's operating segments and related disclosures
about its products, services, geographic areas and major customers in
annual and interim financial statements. Both Statements will be adopted
by the Company in 1998. The adoption of these Statements in 1998 will not
impact the Company's results of operations, cash flow or financial
position.
(C) SALE OF AUTOMOTIVE CARRIER SERVICES
On September 30, 1997, the Company completed the sale of its Automotive
Carriers segment to Allied Holdings, Inc. Accordingly, the Company's
Automotive Carriers segment has been reported as a discontinued operation
for all periods presented in the accompanying Consolidated Condensed
Statements of Earnings and Cash Flows. The purchase price of $111.3
million in cash was based on a premium over the August 31, 1997 net book
value of the businesses sold. The final purchase price will be determined
in the fourth quarter based on the audited net book value of the
businesses sold as of September 30, 1997, plus the premium. The Company
recorded a gain on the sale of $3.2 million (including an income tax
benefit of $8.5 million), or $0.04 per common share. The transaction was
made at a premium over the net book value of the businesses sold and also
generated gains from the settlement and curtailment of certain employee
benefit and postretirement plans, offset by provisions for severance and
direct and other transaction costs.
(Continued)
Item 1. Financial Statements (continued)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(C) SALE OF AUTOMOTIVE CARRIER SERVICES (Continued)
The following table summarizes the results of the discontinued Automotive
Carriers segment (in thousands, except per share amounts):
Third Quarter Nine Months
-------------------- -------------------
1997 1996 1997 1996
-------------------- -------------------
Revenue $144,765 136,557 462,853 434,502
Earnings (loss) before income taxes 5,159 (4,473) 18,228 (338)
Income tax expense (benefit) 834 (1,351) 5,981 358
-------------------- -------------------
Earnings (loss) from discontinued
operations $ 4,325 (3,122) 12,247 (696)
==================== ===================
Earnings (loss) per common share $ 0.05 (0.04) 0.16 (0.01)
==================== ===================
(D) SALE OF CONSUMER TRUCK RENTAL
On October 17, 1996, the Company completed the sale of substantially all
the assets and certain liabilities of its consumer truck rental business.
Revenue related to the consumer truck rental business was $164 million and
$417 million for the quarter and nine months ended September 30, 1996,
respectively. Pretax earnings from the consumer truck rental business were
$24 million and $20 million for the quarter and nine months ended
September 30, 1996, respectively.
KPMG PEAT MARWICK LLP Telephone: 305-358-2300
CERTIFIED PUBLIC ACCOUNTANTS Telecopier: 305-577-0544
One Biscayne Tower
Suite 2900
2 South Biscayne Boulevard
Miami, FL 33131
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 September 30, 1997, and the related
consolidated condensed statements of earnings for the third quarter and nine
months ended September 30, 1997 and 1996 and the consolidated condensed
statements of cash flows for the nine months ended September 30, 1997 and 1996.
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, 1996, and the related consolidated statements of operations
and cash flows for the year then ended (not presented herein); and in our report
dated February 4, 1997, 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, 1996,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
KPMG PEAT MARWICK LLP
Miami, Florida
October 20, 1997
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition --
Three and nine months ended September 30, 1997 and 1996
RESULTS OF OPERATIONS
On September 30, 1997, the Company completed the sale of its Automotive Carriers
segment to Allied Holdings, Inc. Therefore, the following discussion excludes
the results of the Automotive Carriers segment which has been classified as
discontinued operations for all periods presented (see "Notes to Consolidated
Condensed Financial Statements" and "Discontinued Operations" below). On October
17, 1996, the Company completed the sale of substantially all the assets and
certain liabilities of its consumer truck rental business. As a result,
year-over-year comparisons are impacted by the absence of this former business
unit in the 1997 periods.
The Company reported earnings from continuing operations before income taxes of
$57 million in the third quarter of 1997, compared with $52 million in last
year's third quarter. Results from continuing operations in the third quarter of
1996 included pretax earnings of $24 million from the Company's former consumer
truck rental operations and pretax restructuring and other charges of $10
million associated with cost reduction programs. Earnings from continuing
operations before income taxes in the first nine months of 1997 were $186
million, compared with $120 million in the first nine months of 1996. Results in
the first nine months of 1996 included pretax earnings of $21 million (excluding
restructuring charges of $1 million) from consumer truck rental and pretax
restructuring and other charges of $26 million. Excluding consumer truck rental
pretax earnings and the restructuring and other charges in 1996, earnings from
continuing operations before income taxes were 48% higher in the third quarter
and 50% higher in the first nine months of 1997 compared with the same periods
last year. All of the Company's business units contributed to the improved
results.
Earnings from continuing operations in the third quarter of 1997 were $35
million, or $0.45 per common share, compared with $29 million, or $0.36 per
common share, in the third quarter of 1996. In the first nine months of 1997,
earnings from continuing operations were $111 million, or $1.41 per common
share, compared with $69 million, or $0.85 per common share, in the first nine
months of 1996. The Company's effective tax rates for continuing operations in
the third quarter and first nine months of 1997 were 38.6% and 40.2%,
respectively, compared with 44.0% and 42.6%, respectively, in the same 1996
periods. Lower 1997 effective rates resulted primarily from the utilization of
foreign net operating loss carryforwards and a reduction in the corporate income
tax rate in the United Kingdom.
Total revenue increased 9% in both the third quarter and first nine months of
1997 compared with the same periods in 1996 (exclusive of 1996 revenue from
consumer truck rental of $164 million in the third quarter and $417 million in
the nine months), led by integrated logistics, International Division and public
transportation.
Operating expense increased 10% in both the third quarter and first nine months
of 1997 compared with the same 1996 periods (excluding consumer truck rental
and restructuring and other charges in 1996). In
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued) --
Three and nine months ended September 30, 1997 and 1996
addition to the increase attributable to higher business volumes, operating
expense comparisons were impacted by higher subcontracted freight costs in
integrated logistics, somewhat offset by lower compensation and employee benefit
expenses in transportation services, as a result of headcount reductions, and
lower overall vehicle liability expense.
Depreciation expense (before gains on vehicle sales) decreased 16% in both the
third quarter and first nine months of 1997 compared with the same periods last
year. Excluding consumer truck rental, depreciation expense was slightly lower
in both 1997 periods as a result of fewer commercial truck rental units and
facilities in transportation services, offset by growth-related increases in the
other business units. Gains on vehicle sales (excluding consumer truck rental)
were 9% higher in the third quarter and about the same in the first nine months
of 1997 compared with the same periods last year.
Interest expense decreased $6 million and $17 million in the third quarter and
first nine months of 1997, respectively, compared with the same periods in 1996,
due to lower outstanding debt levels, which resulted primarily from lower levels
of capital spending and a reduction of outstanding debt utilizing proceeds
obtained from the sale of consumer truck rental.
Miscellaneous income was $0.3 million and $7 million in the third quarter and
first nine months of 1997, respectively, compared with miscellaneous expense of
$3 million and $4 million in the third quarter and first nine months of 1996,
respectively. The improvements in 1997 were due primarily to lower costs
associated with the Company's sale of receivables program under which the
Company sells, with limited recourse, trade receivables on a revolving basis,
and an increase in miscellaneous income from gains on sales of certain
facilities which were not associated with the 1996 restructuring and other
charges.
In 1996, the Company implemented several restructuring initiatives designed to
reduce costs, improve profitability and align the organizational structure with
the strategic direction of the Company. As a result of these initiatives, the
Company recorded pretax restructuring and other charges in 1996 totaling $228
million (for continuing operations), of which $10 million ($7 million after tax)
were recorded in the third quarter and $26 million ($17 million after tax) were
recorded in the first nine months. The charges for the year included employee
separation costs related to the elimination of approximately 2,450 positions,
costs and asset write-downs related to the closure of approximately 200
operating and administrative facilities and other write-downs related to certain
information systems and other assets. At December 31, 1996, the remaining
restructuring liabilities were $62 million related to employee separation costs
and facility closure costs. In the third quarter and first nine months of 1997,
the Company utilized approximately $8 million and $45 million, respectively, of
the restructuring liabilities and the balance at September 30, 1997 was $17
million. Management continues to believe that the remaining
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued) --
Three and nine months ended September 30, 1997 and 1996
restructuring liabilities at September 30, 1997 are adequate to complete its
plans and such liabilities are expected to be substantially paid by the end of
1997. The headcount reductions contemplated in the Company's restructuring plan
have been substantially completed. As of September 30, 1997, approximately 80%
of the 200 facilities scheduled for closure had ceased operations. The Company
has sold or disposed of approximately 42% of the closed facilities.
Management has initiated a program to prepare the Company's information systems
for the year 2000. The Company is assessing the impact of the Year 2000 issue on
its operations, including the extent and cost of programming changes required to
address this issue. Although the final cost estimates will not be completed
until late 1997, it is anticipated that Year 2000 costs will result in an
increase in expenses in 1998 and 1999.
BUSINESS UNIT PERFORMANCE
As a result of the disposition of the consumer truck rental business in October,
1996 and the Automotive Carriers segment in September, 1997, the Company's
primary business units now consist of integrated logistics, transportation
services (which primarily provides full service truck leasing and commercial
truck rental in the U.S. and Canada), public transportation services and the
International Division (which provides full service truck leasing and integrated
logistics in Europe, South America and Mexico).
Revenue from integrated logistics increased 25% in both the third quarter and
first nine months of 1997 compared with the same 1996 periods, primarily due to
expansion of revenue with existing customers and start-up of business sold in
the previous year. Operating revenue (which excludes subcontracted freight
costs) increased 9% in the third quarter and 11% in the first nine months of
1997 compared with the same 1996 periods. Revenue from full service truck
leasing decreased 4% in the third quarter and 1% in the first nine months of
1997, compared with the same periods in 1996. The decrease in revenue was
primarily the result of lower levels of new business sales in the first half of
1997 and selected non-renewal of lower margin business, as the Company has
become more selective in signing new business in accordance with specified
Economic Value Added (EVA) criteria adopted in 1997, and decreases in fuel
revenue primarily as a result of lower fuel volume in both periods and lower
fuel prices in the third quarter. Commercial truck rental revenue decreased
slightly in the third quarter and 5% in the first nine months of 1997, compared
with the same periods in 1996, due to planned reductions in the size of the
fleet, however, revenue per unit and utilization were higher in both 1997
periods compared with 1996. Revenue from public transportation services
increased 19% in both the third quarter and first nine months of 1997, compared
with the same periods last year. The revenue growth was primarily achieved
through expansion of existing contracts and contributions from new contracts, as
well as through first quarter 1997 acquisitions. International Division revenue
was 29% higher in both the third quarter and first nine months of 1997 compared
with the same 1996 periods, due primarily to new logistics contracts including
the British Airways ground equipment maintenance contract in the United
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued) --
Three and nine months ended September 30, 1997 and 1996
Kingdom, combined with growth in the Division's expanding operations in
Argentina and increased business in Germany.
Operating margin (revenue less direct operating expenses, depreciation and
interest) and margin as a percentage of revenue from integrated logistics in the
third quarter and first nine months of 1997 were higher compared with last year,
due primarily to the growth in revenue combined with operating efficiencies and
improved pricing on new and existing contracts. Operating margin and margin as a
percentage of revenue from full service truck leasing were lower in the third
quarter and about the same in the first nine months of 1997 compared with last
year. The third quarter decrease was due primarily to higher vehicle maintenance
costs and the decline in revenue. Commercial truck rental operating margin and
margin as a percentage of revenue were higher in the third quarter and first
nine months of 1997, compared with the same 1996 periods, due primarily to
higher vehicle utilization. In public transportation services, operating margin
and margin as a percentage of revenue were higher in the third quarter and first
nine months of 1997, compared with the same periods in 1996, due mainly to the
growth in revenue and lower vehicle liability expense. International Division
operating margin dollars were higher but margin as a percentage of revenue was
lower in the third quarter and first nine months of 1997 compared with the same
periods in 1996. The growth in margin dollars was due to new contracts in all
areas while the decrease in operating margin percentage was due to a change in
product mix.
For the business units as a whole, pretax earnings (exclusive of consumer truck
rental and restructuring and other charges in 1996) increased $17 million in the
third quarter and $58 million in the first nine months of 1997, compared with
the same periods in 1996, as a result of an increase in operating margin and
reduced overhead expenses due mainly to restructuring actions implemented in
late 1996.
CORPORATE ADMINISTRATIVE EXPENSES
Corporate administrative expenses were $6 million in the third quarter and $16
million in the first nine months of 1997, compared with $7 million and $19
million in the third quarter and first nine months of 1996, respectively
(exclusive of restructuring costs). Lower 1997 costs were due to headcount
reductions resulting from the 1996 restructuring plan and reduced spending
levels.
DISCONTINUED OPERATIONS
On September 30, 1997, the Company completed the sale of its Automotive Carriers
segment to Allied Holdings, Inc. The purchase price of $111 million in cash was
based on a premium over the August 31, 1997 net book value of the businesses
sold. The final purchase price will be determined in the fourth quarter based on
the audited net book value of the businesses sold as of September 30, 1997, plus
the premium.
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued) --
Three and nine months ended September 30, 1997 and 1996
Earnings from discontinued operations were $6 million higher in the third
quarter and $9 million higher in the first nine months of 1997 compared with the
same periods in 1996 (exclusive of 1996 after tax restructuring charges of $1
million in the third quarter and $4 million in the first nine months). The
increased earnings were primarily due to an increase in vehicles shipped and
reduced overhead expenses as a result of the 1996 restructuring actions.
The sale of the Company's discontinued operations resulted in an after tax gain
of $3 million (including a benefit for income taxes of $8 million), or $0.04 per
common share. The transaction was made at a premium over the net book value of
the businesses sold and also generated gains from the settlement and curtailment
of certain employee benefit and postretirement plans, offset by provisions for
severance and direct transaction and other costs.
LIQUIDITY AND CAPITAL RESOURCES
Total capital expenditures related to continuing operations in the first nine
months of 1997 (including acquisitions of $46 million in the first quarter of
1997) were $809 million, compared with $1.02 billion in the first nine months of
1996. The decrease was consistent with management's plan to restrict capital
spending by increasing return thresholds in accepting new business and focusing
on those products and services with the greatest returns. Capital expenditures
in the first nine months of 1997 were lower than 1996 levels in all product
lines except for commercial rental and public transportation. The increase in
commercial rental expenditures reflected planned fleet replacement to reduce the
average age of the fleet. Expenditures for public transportation increased due
primarily to timing of fleet replacement and new business. Capital expenditures
related to continuing operations in the first nine months of 1996 included
approximately $68 million in consumer truck rental. Expenditures for the
discontinued Automotive Carriers segment were $13 million and $30 million in the
first nine months of 1997 and 1996, respectively. Total capital expenditures for
all of 1997 are expected to be below $1.3 billion.
Cash flow from continuing operating activities in the first nine months of 1997
was $480 million, compared with $555 million in the same period last year. The
decrease resulted primarily from an increase in cash required for working
capital, due mainly to increased receivables, payments related to restructuring
activities initiated in 1996 and timing of pension funding, and lower non-cash
depreciation charges. These decreases were offset by improved earnings and a
higher non-cash charge for deferred income taxes. Cash flow from continuing
operating activities plus asset sales as a percentage of capital expenditures
was 100% in the first nine months of 1997, compared with 81% in the same period
last year, as a result of lower levels of capital spending.
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued) --
Three and nine months ended September 30, 1997 and 1996
Total debt at September 30, 1997 was $2.3 billion, compared with $2.4 billion at
December 31, 1996. During the first nine months of 1997, the Company made
scheduled unsecured note payments of $39 million, repaid the $16 million of U.S.
commercial paper outstanding at December 31, 1996 and reduced foreign debt by
$57 million. The Company's debt to equity ratio at September 30, 1997, was 196%
compared with 220% at both June 30, 1997, and December 31, 1996. As part of its
financing program, the Company periodically enters into sale and leaseback
agreements for revenue earning equipment which are accounted for as operating
leases. No such agreements were entered into during the first nine months of
1997. Proceeds from sale-leaseback transactions were $150 million in the first
nine months of 1996. The Company's percentage of variable-rate financing
obligations was below 20% at September 30, 1997, which was lower than recent
historical levels of slightly less than 25%. The decrease at September 30, 1997
was due to the use of a portion of the proceeds from the sale of the Automotive
Carriers segment to pay down short-term variable-rate debt. Management expects
the variable-rate percentage to return to recent historical levels over the next
several months.
On June 9, 1997, Standard & Poor's Ratings Group lowered its corporate credit
and senior unsecured debt ratings on the Company to triple-B-plus from
single-A-minus and removed the Company from CreditWatch where it was placed
on January 21, 1997. As of September 30, 1997, Moody's Investors Service and
Duff and Phelps continued to maintain ratings of A3 and A, respectively, for the
Company's unsecured debt. During the second quarter of 1997, the Company
restructured its revolving credit facilities by consolidating several agreements
into a single global revolving credit facility which will result in
administrative costs savings and increased financial flexibility.
At September 30, 1997 and December 31, 1996, the Company had "floating to fixed"
interest rate swap agreements outstanding with aggregate notional amounts
totaling $61 million and $78 million, respectively.
The Company had contractual lines of credit totaling $726 million at September
30, 1997, of which $676 million was available. The Company also had $268 million
of debt securities available under a shelf registration statement filed in 1995.
On July 28, 1997, the Company announced that it plans to repurchase up to six
million shares of its common stock in the open market and privately negotiated
transactions using proceeds from the sale of the Automotive Carriers segment and
cash from operating activities. Through November 7, 1997, the Company had
repurchased approximately 4,080,000 shares under this plan at an average price
of $35.83 per common share. In April 1997, the Company completed a
six-million-share buyback program at an average price of $29.75 per common
share.
ITEM 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition (continued) --
Three and nine months ended September 30, 1997 and 1996
FORWARD-LOOKING STATEMENTS
This management's discussion and analysis of results of operations and financial
condition 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 could cause actual future events and results of operations to
be materially different from those in the forward-looking statements. Important
factors that could cause such differences include, among others, lost revenue
from facility closures, greater than expected expenses associated with the
Company's personnel needs or operating activities, the competitive pricing
environment applicable to the Company's operations or changes in government
regulations.
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued) --
Three and nine months ended September 30, 1997 and 1996
SELECTED FINANCIAL AND OPERATIONAL DATA
(Dollars in thousands)
Third Quarter Nine Months
--------------------------- ----------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
BUSINESS UNITS
Revenue:
Transportation services:
Full service lease and programmed
maintenance $ 512,062 532,861 1,573,456 1,591,447
Commercial rental 132,603 134,103 367,911 388,635
Other 78,034 82,768 228,552 244,282
---------- --------- ------------ -----------
722,699 749,732 2,169,919 2,224,364
Integrated logistics 345,283 276,759 1,008,300 804,591
Consumer truck rental - 164,166 - 416,732
Public transportation 103,573 87,082 378,548 317,328
International Division 116,989 90,433 330,970 256,336
Eliminations (81,745) (92,380) (252,822) (280,603)
---------- --------- ------------ -----------
Total 1,206,799 1,275,792 3,634,915 3,738,748
---------- --------- ------------ -----------
Operating expense 950,696 982,906 2,857,198 2,911,610
Depreciation expense 160,574 190,832 479,703 572,106
Gains on sale of revenue earning equipment (13,417) (13,675) (42,446) (52,988)
Interest expense 47,289 53,200 145,206 162,173
Miscellaneous (income) expense, net (1,412) 3,075 (6,149) 4,407
---------- --------- ------------ -----------
Earnings before income taxes from business units 63,069 59,454 201,403 141,440
CORPORATE ADMINISTRATIVE EXPENSES (5,632) (6,971) (15,744) (21,716)
---------- --------- ------------ -----------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES $ 57,437 52,483 185,659 119,724
========== ========= ============ ===========
Fleet size (owned and leased including international):
Full service lease 112,050 111,300
Commercial and consumer rental 37,100 72,165
Buses operated or managed 14,226 13,021
Transportation services locations 966 1,127
- ------------------------------------------------------------------------------------------------------------------------
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.
(11) Statement regarding computation of per share earnings.
(15) Letter regarding unaudited interim financial statements.
(27) 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.
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: November 13, 1997 /S/ EDWIN A. HUSTON
-------------------
Edwin A. Huston
Senior Executive Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
Date: November 13, 1997 /S/ GEORGE P. SCANLON
---------------------
George P. Scanlon
Vice President - Planning and Controller
(Principal Accounting Officer)
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
11 Statement regarding computation of per share earnings.
15 Letter regarding unaudited interim financial statements.
27 Financial data schedule (for SEC use only).