10-Q
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                      TO                     
Commission File Number: 1-4364

RYDER SYSTEM, INC.
(Exact name of registrant as specified in its charter)
 
Florida
59-0739250
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
11690 N.W. 105th Street
 
Miami, Florida 33178
(305) 500-3726
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ        NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ        NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
 
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ¨ YES   þ NO

The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at September 30, 2015 was 53,425,097.
 
 
 
 
 



RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
 
 
 
 
 
 
Page No.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 5       Other Information
 
 
 
 
 
 


i


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)

 
 
Three months ended September 30,
 
 
Nine months ended September 30,
 
2015
 
2014
 
 
2015
 
2014
 
(In thousands, except per share amounts)
Lease and rental revenues
$
802,881

 
756,733

 
 
$
2,310,951

 
2,180,178

Services revenue
734,803

 
732,049

 
 
2,165,677

 
2,183,175

Fuel services revenue
131,382

 
198,368

 
 
422,522

 
619,105

Total revenues
1,669,066

 
1,687,150

 
 
4,899,150

 
4,982,458

 
 
 
 
 
 
 
 
 
Cost of lease and rental
550,541

 
522,202

 
 
1,600,271

 
1,522,394

Cost of services
606,364

 
607,530

 
 
1,792,182

 
1,839,035

Cost of fuel services
129,562

 
194,926

 
 
408,027

 
605,744

Other operating expenses
31,286

 
28,889

 
 
98,864

 
96,541

Selling, general and administrative expenses
203,093

 
202,001

 
 
624,566

 
594,133

Gains on vehicle sales, net
(29,294
)
 
(33,691
)
 
 
(92,110
)
 
(96,874
)
Interest expense
38,986

 
36,681

 
 
114,863

 
107,948

Miscellaneous income, net
(1,372
)
 
(996
)
 
 
(5,037
)
 
(11,206
)
 
1,529,166

 
1,557,542

 
 
4,541,626

 
4,657,715

Earnings from continuing operations before income taxes
139,900

 
129,608

 
 
357,524

 
324,743

Provision for income taxes
49,089


45,713

 
 
127,470


116,001

Earnings from continuing operations
90,811


83,895

 
 
230,054


208,742

Loss from discontinued operations, net of tax
(192
)
 
(278
)
 
 
(1,487
)
 
(1,480
)
Net earnings
$
90,619

 
83,617

 
 
$
228,567

 
207,262

 
 
 
 
 
 
 
 
 
Earnings (loss) per common share — Basic
 
 
 
 
 
 
 
 
Continuing operations
$
1.71

 
1.60

 
 
$
4.35

 
3.96

Discontinued operations
—

 
(0.01
)
 
 
(0.03
)
 
(0.03
)
Net earnings
$
1.71

 
1.59

 
 
$
4.32

 
3.93

 
 
 
 
 
 
 
 
 
Earnings (loss) per common share — Diluted
 
 
 
 
 
 
 
 
Continuing operations
$
1.70

 
1.58

 
 
$
4.31

 
3.92

Discontinued operations
—

 
(0.01
)
 
 
(0.03
)
 
(0.03
)
Net earnings
$
1.69

 
1.57

 
 
$
4.28

 
3.89

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.41

 
0.37

 
 
$
1.15

 
1.05


See accompanying notes to consolidated condensed financial statements.

Note: EPS amounts may not be additive due to rounding.


1

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

    
    
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
 
 
 
 
 
 
 
 
Net earnings
$
90,619

 
83,617

 
$
228,567

 
207,262

 
 
 
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in cumulative translation adjustment and other
(42,748
)
 
(46,879
)
 
(73,093
)
 
(35,198
)
 
 
 
 
 
 
 
 
Amortization of pension and postretirement items
6,873

 
4,658

 
20,765

 
13,986

Income tax expense related to amortization of pension and postretirement items
(2,412
)
 
(1,603
)
 
(7,226
)
 
(4,811
)
Amortization of pension and postretirement items, net of taxes
4,461

 
3,055

 
13,539

 
9,175

 
 
 
 
 
 
 
 
Change in net actuarial loss
—

 
(148
)
 
(8,526
)
 
(3,292
)
Income tax benefit related to change in net actuarial loss
—

 
44

 
3,205

 
1,140

Change in net actuarial loss, net of taxes
—

 
(104
)
 
(5,321
)
 
(2,152
)
 
 
 
 
 
 
 
 
Other comprehensive loss, net of taxes
(38,287
)
 
(43,928
)
 
(64,875
)
 
(28,175
)
 
 
 
 
 
 
 
 
Comprehensive income
$
52,332

 
39,689

 
$
163,692

 
179,087

See accompanying notes to consolidated condensed financial statements.




2


RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
 
 
September 30,
2015
 
December 31,
2014
 
(Dollars in thousands, except per
share amount)
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
75,387


50,092

Receivables, net of allowance of $17,708 and $16,388, respectively
814,160


794,864

Inventories
64,087


66,007

Prepaid expenses and other current assets
163,893


165,234

Total current assets
1,117,527

 
1,076,197

Revenue earning equipment, net of accumulated depreciation of $3,876,682 and $3,689,016 respectively
8,036,710


7,201,886

Operating property and equipment, net of accumulated depreciation of $1,078,471 and $1,035,028, respectively
712,169


699,594

Goodwill
390,853


393,029

Intangible assets
60,551


66,619

Direct financing leases and other assets
502,376


446,099

Total assets
$
10,820,186


9,883,424

 
 
 
 
Liabilities and shareholders’ equity:
 
 
 
Current liabilities:
 
 
 
Short-term debt and current portion of long-term debt
$
305,759


36,284

Accounts payable
550,305


560,852

Accrued expenses and other current liabilities
511,198


513,679

Total current liabilities
1,367,262

 
1,110,815

Long-term debt
5,144,938


4,694,335

Other non-current liabilities
780,415


783,342

Deferred income taxes
1,575,507


1,475,845

Total liabilities
8,868,122

 
8,064,337

 
 
 
 
Shareholders’ equity:
 
 
 
Preferred stock, no par value per share — authorized, 3,800,917; none outstanding,
   September 30, 2015 or December 31, 2014
—

 
—

Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding,
   September 30, 2015 — 53,425,097; December 31, 2014 — 53,039,688
26,712

 
26,520

Additional paid-in capital
997,753

 
962,328

Retained earnings
1,612,744

 
1,450,509

Accumulated other comprehensive loss
(685,145
)
 
(620,270
)
Total shareholders’ equity
1,952,064


1,819,087

Total liabilities and shareholders’ equity
$
10,820,186


9,883,424

See accompanying notes to consolidated condensed financial statements.

3


RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)

 
Nine months ended September 30,
 
2015
 
2014
 
(In thousands)
Cash flows from operating activities from continuing operations:
 
 
 
Net earnings
$
228,567

 
207,262

Less: Loss from discontinued operations, net of tax
(1,487
)
 
(1,480
)
Earnings from continuing operations
230,054

 
208,742

Depreciation expense
838,100

 
781,367

Gains on vehicle sales, net
(92,110
)
 
(96,874
)
Share-based compensation expense
16,112

 
15,446

Amortization expense and other non-cash charges, net
46,272

 
35,850

Deferred income tax expense
111,609

 
99,418

Changes in operating assets and liabilities:
 
 
 
Receivables
(23,751
)
 
(37,408
)
Inventories
1,275

 
(731
)
Prepaid expenses and other assets
(33,334
)
 
(23,385
)
Accounts payable
(19,506
)
 
44,976

Accrued expenses and other non-current liabilities
(3,385
)
 
(46,357
)
Net cash provided by operating activities from continuing operations
1,071,336

 
981,044

 
 
 
 
Cash flows from financing activities from continuing operations:
 
 
 
Net change in commercial paper borrowings
184,750


(164,944
)
Debt proceeds
1,329,810


895,733

Debt repaid
(795,837
)

(284,811
)
Dividends on common stock
(61,436
)
 
(55,408
)
Common stock issued
20,397

 
38,990

Common stock repurchased
(6,141
)
 
(92,343
)
Excess tax benefits from share-based compensation
723

 
514

Debt issuance costs
(7,483
)
 
(5,230
)
Net cash provided by financing activities from continuing operations
664,783

 
332,501

 
 
 
 
Cash flows from investing activities from continuing operations:
 
 
 
Purchases of property and revenue earning equipment
(2,087,294
)
 
(1,741,173
)
Sales of revenue earning equipment
319,766

 
392,572

Sales of operating property and equipment
1,203

 
3,091

Acquisitions
—

 
(9,785
)
Collections on direct finance leases
51,166

 
48,920

Changes in restricted cash
7,781

 
10,344

Other
—

 
(1,250
)
Net cash used in investing activities from continuing operations
(1,707,378
)
 
(1,297,281
)
 
 
 
 
Effect of exchange rate changes on cash
(2,006
)
 
(1,210
)
Increase in cash and cash equivalents from continuing operations
26,735

 
15,054

 
 
 
 
Decrease in cash and cash equivalents from discontinued operations
(1,440
)
 
(1,614
)
 
 
 
 
Increase in cash and cash equivalents
25,295

 
13,440

Cash and cash equivalents at January 1
50,092

 
61,562

Cash and cash equivalents at September 30
$
75,387

 
75,002

See accompanying notes to consolidated condensed financial statements.

4


RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
 
 
Preferred
Stock
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
Amount
 
Shares
 
Par
 
 
(Dollars in thousands, except per share amount)
Balance at December 31, 2014
$
—

 
53,039,688

 
$
26,520

 
962,328

 
1,450,509

 
(620,270
)
 
1,819,087

Comprehensive income (loss)
—

 
—

 
—

 
—

 
228,567

 
(64,875
)
 
163,692

Common stock dividends declared — $1.15 per share
—

 
—

 
—

 
—

 
(61,441
)
 
—

 
(61,441
)
Common stock issued under employee stock option and stock purchase plans (1)
—

 
453,555

 
227

 
20,081

 
—

 
—

 
20,308

Benefit plan stock sales (2)
—

 
961

 
—

 
89

 
—

 
—

 
89

Common stock repurchases
—

 
(69,107
)
 
(35
)
 
(1,215
)
 
(4,891
)
 
—

 
(6,141
)
Share-based compensation
—

 
—

 
—

 
16,112

 
—

 
—

 
16,112

Tax benefits from share-based compensation
—

 
—

 
—

 
358

 
—

 
—

 
358

Balance at September 30, 2015
$
—

 
53,425,097

 
$
26,712

 
997,753

 
1,612,744

 
(685,145
)
 
1,952,064

————————————
(1)Net of common shares delivered as payment for the exercise price or to satisfy the option holders’ withholding tax liability upon exercise of options.
(2)Represents open-market transactions of common shares by the trustee of Ryder’s deferred compensation plans.
See accompanying notes to consolidated condensed financial statements.

5
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)


(A) GENERAL

Interim Financial Statements

The accompanying unaudited Consolidated Condensed Financial Statements include the accounts of Ryder System, Inc. (Ryder) and all entities in which Ryder has a controlling voting interest (subsidiaries) and variable interest entities (VIEs) required to be consolidated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with the accounting policies described in our 2014 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals and items referenced under "Revision of Prior Period Financial Statements") considered necessary for a fair statement have been included and the disclosures herein are adequate. The operating results for interim periods are unaudited and are not necessarily indicative of the results that can be expected for a full year.

During the first quarter of 2015, our management structure changed within the supply chain business. We created the role of President of Dedicated Transportation Solutions (DTS) for the dedicated product offering which was previously within Supply Chain Solutions (SCS). We are now reporting our financial performance as follows: (1) Fleet Management Solutions (FMS), which provides full service leasing, commercial rental, contract maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.; and (3) SCS, which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated transportation services provided as part of an integrated, multi-service, supply chain solution to SCS customers are reported in the SCS business segment. Prior period amounts have been recast to conform to the new presentation. This change impacted Note (P), "Segment Reporting," with no impact on consolidated revenues, net income or cash flows.

Revision of Prior Period Financial Statements

The Company periodically enters into sale and leaseback transactions to lower the total cost of funding our operations and to diversify funding among different classes of investors and among different types of funding instruments. These transactions historically resulted in a reduction of revenue earning equipment and debt on the balance sheet, as proceeds from the sale of revenue earning equipment were used to repay debt. During the second quarter of 2015, we reviewed and evaluated the structure of these transactions and determined that they should be accounted for as issuances of financial interests that do not qualify for deconsolidation. We evaluated the materiality of this revision, quantitatively and qualitatively, and concluded it was not material to any of our previously issued consolidated financial statements. However, we elected to revise previously issued financial statements to avoid inconsistencies in our financial statements. Accordingly, we revised previously reported results for the years ended December 31, 2014, 2013 and 2012 as well as previously reported results for the three and nine months ended September 30, 2014, the three and six months ended June 30, 2014, and the three months ended March 31, 2015 and 2014 in our Form 10-Q for the quarter ended June 30, 2015. The effects of this revision for the three and nine months ended September 30, 2014, and as of December 31, 2014 are presented in the tables below. Adjustments may not be additive and may have minor differences within the tables due to rounding.

The effects of this revision on our Consolidated Condensed Statements of Earnings were as follows (in millions):
 
Three months ended September 30, 2014
 
Nine months ended September 30, 2014
 
As Previously Reported
Adjustment
As Revised
 
As Previously Reported
Adjustment
As Revised
Cost of lease and rental
$
522.9

(0.7
)
522.2

 
$
1,524.0

(1.6
)
1,522.4

Interest expense
35.9

0.8

36.7

 
106.3

1.6

107.9

Earnings from continuing operations before income taxes
129.7

(0.1
)
129.6

 
324.8

(0.1
)
324.7

Provision for income taxes
45.8

(0.1
)
45.7

 
116.0

—

116.0

Earnings from continuing operations
84.0

(0.1
)
83.9

 
208.8

(0.1
)
208.7

Net earnings
83.7

(0.1
)
83.6

 
207.3

—

207.3


6
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)







The effects of this revision on our Consolidated Condensed Statements of Comprehensive Income were as follows (in millions):
 
Comprehensive Income
 
As Previously Reported
Adjustment
As Revised
Three months ended September 30, 2014
$
39.8

(0.1
)
39.7

Nine months ended September 30, 2014
179.1

—

179.1


The effects of this revision on our Consolidated Balance Sheets were as follows (in millions):
 
December 31, 2014
 
As Previously Reported
Adjustment
As Revised
Revenue earning equipment, net
$
6,994.4

207.4

7,201.9

Total assets
9,676.0

207.4

9,883.4

Short-term debt and current portion of long-term debt
12.2

24.1

36.3

Accrued expenses and other current liabilities
520.5

(6.8
)
513.7

Total current liabilities
1,093.6

17.2

1,110.8

Long-term debt
4,500.3

194.0

4,694.3

Other non-current liabilities
786.7

(3.4
)
783.3

Deferred income taxes
1,476.0

(0.2
)
1,475.8

Total liabilities
7,856.5

207.8

8,064.3

Retained earnings
1,450.9

(0.4
)
1,450.5

Total shareholders’ equity
1,819.5

(0.4
)
1,819.1

Total liabilities and shareholders’ equity
9,676.0

207.4

9,883.4


The effects of this revision on the individual line items within our Consolidated Condensed Statements of Cash Flows were as follows (in millions):
 
Nine months ended September 30, 2014
 
As Previously Reported
Adjustment
As Revised
Net earnings
$
207.3

—

207.3

Depreciation expense
770.1

11.3

781.4

Accrued expenses and other non-current liabilities
(41.5
)
(4.9
)
(46.4
)
Net cash provided by operating activities from continuing operations
974.7

6.3

981.0

Debt proceeds
769.9

125.8

895.7

Debt repaid
(278.4
)
(6.4
)
(284.8
)
Net cash provided by financing activities from continuing operations
213.1

119.4

332.5

Sale and leaseback of revenue earning equipment
125.8

(125.8
)
—

Net cash used in investing activities from continuing operations
(1,171.5
)
(125.8
)
(1,297.3
)



7
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)




(B) RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Measurement Period Adjustments

On September 25, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments, which requires an acquirer to recognize adjustments identified during the measurement period in the reporting period in which the adjustment amounts are determined. The adjustment must include the cumulative effect of the adjustment as if the accounting had been completed on the acquisition date. The update should be applied prospectively and becomes effective January 1, 2016. Early application is permitted. The adoption of ASU 2015-16 will not have an impact on our consolidated financial position, results of operations or cash flows.

Inventory Valuation

On July 22, 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which applies to inventory that is measured using first-in, first-out or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, first-out. The update becomes effective January 1, 2017 and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. We are in the process of determining the effect of the standard on our consolidated financial position and results of operations.

Presentation of Debt Issuance Costs
     
On April 7, 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires an entity to present debt issuance costs as a direct reduction from the carrying amount of the related debt liability on the balance sheet. On August 30, 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after adoption of ASU 2015-03. The SEC Staff announced they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The update requires retrospective application and represents a change in accounting principle. The update becomes effective January 1, 2016. Based on the balances as of September 30, 2015, we expect to reclassify $20.0 million of unamortized debt issuance costs from "Direct financing leases and other assets" to "Long-term debt."

Revenue Recognition

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance. The update was originally effective January 1, 2017. On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date by one year to January 1, 2018. Early application is permitted but not before January 1, 2017. The standard permits the use of either the modified retrospective or cumulative effect transition methods. We have not yet selected a transition method. We are in the process of determining the effect of the standard on our consolidated financial position and results of operations.



8
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(C) SHARE-BASED COMPENSATION PLANS

Share-based incentive awards are provided to employees under the terms of various share-based compensation plans (collectively, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors. Awards under the Plans principally include at-the-money stock options, nonvested stock and cash awards. Nonvested stock awards include grants of market-based, performance-based and time-vested restricted stock rights. Under the terms of our Plans, dividends may be paid on our nonvested stock awards but are not paid unless the award vests. Upon vesting, the amount of the dividends paid is equal to the aggregate dividends declared on common shares during the period from the grant date of the award until the date the shares underlying the award are delivered.

The following table provides information on share-based compensation expense and income tax benefits recognized during the periods:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Stock option and stock purchase plans
$
1,948

 
2,353

 
$
6,205

 
6,831

Nonvested stock
2,995

 
3,104

 
9,907

 
8,615

Share-based compensation expense
4,943

 
5,457

 
16,112

 
15,446

Income tax benefit
(1,652
)
 
(1,864
)
 
(5,395
)
 
(5,253
)
Share-based compensation expense, net of tax
$
3,291

 
3,593

 
$
10,717

 
10,193


The following table is a summary of compensation expense recognized for market-based cash awards in addition to the share-based compensation expense reported in the previous table:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Cash awards
$
197

 
389

 
$
661

 
1,655


Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at September 30, 2015 was $24.5 million and is expected to be recognized over a weighted-average period of 1.8 years.

The following table is a summary of the awards granted under the Plans during the periods presented:
 
Nine months ended September 30,
 
2015
 
2014
 
(In thousands)
 
 
 
 
Stock options
362

 
406

Market-based restricted stock rights
19

 
22

Performance-based restricted stock rights
42

 
30

Time-vested restricted stock rights
87

 
184

Total
510

 
642



9
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(D) EARNINGS PER SHARE

The following table presents the calculation of basic and diluted earnings per common share from continuing operations:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except per share amounts)
Earnings per share — Basic:
 
 
 
 
 
 
 
Earnings from continuing operations
$
90,811

 
83,895

 
$
230,054

 
208,742

Less: Distributed and undistributed earnings allocated to nonvested stock
(266
)
 
(275
)
 
(654
)
 
(879
)
Earnings from continuing operations available to common shareholders — Basic
$
90,545

 
83,620

 
$
229,400

 
207,863

 
 
 
 
 
 
 
 
Weighted average common shares outstanding — Basic
52,888

 
52,459

 
52,770

 
52,559

 
 
 
 
 
 
 
 
Earnings from continuing operations per common share — Basic
$
1.71

 
1.60

 
$
4.35

 
3.96

 
 
 
 
 
 
 
 
Earnings per share — Diluted:
 
 
 
 
 
 
 
Earnings from continuing operations
$
90,811

 
83,895

 
$
230,054

 
208,742

Less: Distributed and undistributed earnings allocated to nonvested stock
(265
)
 
(273
)
 
(649
)
 
(873
)
Earnings from continuing operations available to common shareholders — Diluted
$
90,546

 
83,622

 
$
229,405

 
207,869

 
 
 
 
 
 
 
 
Weighted average common shares outstanding — Basic
52,888

 
52,459

 
52,770

 
52,559

Effect of dilutive equity awards
445

 
515

 
476

 
487

Weighted average common shares outstanding — Diluted
53,333

 
52,974

 
53,246

 
53,046

 
 
 
 
 
 
 
 
Earnings from continuing operations per common share — Diluted
$
1.70

 
1.58

 
$
4.31

 
3.92

 
 
 
 
 
 
 
 
Anti-dilutive equity awards not included above
352

 
8

 
300

 
212


10
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(E) REVENUE EARNING EQUIPMENT
 
September 30, 2015
 
December 31, 2014
 
Cost
 
Accumulated
Depreciation
 
Net  Book
Value(1)
 
Cost
 
Accumulated
Depreciation
 
Net  Book
Value(1)
 
(In thousands)
Held for use:
 
Full service lease
$
8,612,790

 
(2,699,055
)
 
5,913,735

 
$
8,008,122

 
(2,598,140
)
 
5,409,982

Commercial rental
2,932,196

 
(924,004
)
 
2,008,192

 
2,570,081

 
(864,543
)
 
1,705,538

Held for sale
368,406

 
(253,623
)
 
114,783

 
312,699

 
(226,333
)
 
86,366

Total
$
11,913,392

 
(3,876,682
)
 
8,036,710

 
$
10,890,902

 
(3,689,016
)
 
7,201,886

 ————————————
(1)
Revenue earning equipment, net includes vehicles acquired under capital leases of $47.5 million, less accumulated depreciation of $21.0 million, at September 30, 2015, and $47.8 million, less accumulated depreciation of $22.5 million, at December 31, 2014.

At the end of 2014, we completed our annual review of residual values and useful lives of revenue earning equipment. Based on the results of our analysis, we adjusted the estimated residual values of certain classes of revenue earning equipment effective January 1, 2015. The change in estimated residual values and useful lives increased pre-tax earnings for the three and nine months ended September 30, 2015 by approximately $10.0 million and $30.0 million, respectively.

We lease revenue earning equipment to customers for periods typically ranging from three to seven years for trucks and tractors and up to ten years for trailers. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as direct financing leases and, to a lesser extent, sales-type leases. As of September 30, 2015 and December 31, 2014, the net investment in direct financing and sales-type leases was $442.6 million and $417.0 million, respectively. Our direct financing lease customers operate in a wide variety of industries, and we have no significant customer concentrations in any one industry. We assess credit risk for all of our customers including those who lease equipment under direct financing leases upon signing of a full service lease contract. For those customers who are designated as high risk, we typically require deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicles, based on their estimated fair values, which further mitigates our credit risk.

As of September 30, 2015 and December 31, 2014, the amount of direct financing lease receivables past due was not significant, and there were no impaired receivables. Accordingly, we do not believe there is a material risk of default with respect to the direct financing lease receivables. The allowance for credit losses was $0.3 million as of September 30, 2015 and December 31, 2014.



11
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(F) ACCRUED EXPENSES AND OTHER LIABILITIES
 
September 30, 2015
 
December 31, 2014
 
Accrued
Expenses
 
Non-Current
Liabilities
 
Total
 
Accrued
Expenses
 
Non-Current
Liabilities
 
Total
 
(In thousands)
Salaries and wages
$
101,036

 
—

 
101,036

 
$
114,446

 
—

 
114,446

Deferred compensation
2,120

 
39,221

 
41,341

 
3,209

 
37,093

 
40,302

Pension benefits
3,644

 
440,800

 
444,444

 
3,739

 
444,657

 
448,396

Other postretirement benefits
2,084

 
25,440

 
27,524

 
2,112

 
26,889

 
29,001

Other employee benefits
9,059

 
9,360

 
18,419

 
7,172

 
19,276

 
26,448

Insurance obligations (1)
134,407

 
202,258

 
336,665

 
132,246

 
189,431

 
321,677

Environmental liabilities
3,836

 
7,177

 
11,013

 
3,877

 
8,002

 
11,879

Operating taxes
95,311

 
—

 
95,311

 
92,330

 
—

 
92,330

Income taxes
2,782

 
23,620

 
26,402

 
5,066

 
22,843

 
27,909

Interest
32,460

 
—

 
32,460

 
33,509

 
—

 
33,509

Deposits, mainly from customers
65,995

 
6,193

 
72,188

 
59,388

 
5,929

 
65,317

Deferred revenue
13,377

 
—

 
13,377

 
11,759

 
—

 
11,759

Acquisition holdbacks
2,134

 
—

 
2,134

 
3,817

 
2,187

 
6,004

Other
42,953

 
26,346

 
69,299

 
41,009

 
27,035

 
68,044

Total
$
511,198

 
780,415

 
1,291,613

 
$
513,679

 
783,342

 
1,297,021

 ————————————
(1)
Insurance obligations are primarily comprised of self-insured claim liabilities.


12
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(G) DEBT
 
Weighted-Average
Interest Rate
 
 
 
 
 
 
 
September 30,
2015
 
December 31,
2014
 
Maturities
 
September 30,
2015
 
December 31,
2014
 
 
 
 
 
 
 
(In thousands)
Short-term debt and current portion of long-term debt:
 
 
 
 
 
 
 
 
 
Short-term debt
—%
 
1.30%
 

 
$
—

 
3,773

Current portion of long-term debt
 
 
 
 
 
 
305,759

 
32,511

Total short-term debt and current portion of long-term debt
 
 
 
 
 
 
305,759

 
36,284

Long-term debt:
 
 
 
 
 
 
 
 
 
U.S. commercial paper (1)
0.44%
 
0.35%
 
2020
 
461,414

 
276,694

Global revolving credit facility
2.68%
 
1.60%
 
2020
 
43,553

 
11,190

Unsecured U.S. notes — Medium-term notes (1)
2.74%
 
3.29%
 
2016-2025
 
4,112,089

 
3,772,159

Unsecured U.S. obligations
1.51%
 
0.76%
 
2018
 
50,000

 
110,500

Unsecured foreign obligations
1.92%
 
2.01%
 
2015-2020
 
283,433

 
295,776

Asset-backed U.S. obligations (2)
1.81%
 
1.81%
 
2018-2022
 
448,331

 
218,137

Capital lease obligations
1.92%
 
1.73%
 
2015-2022
 
36,083

 
37,560

Total before fair market value adjustment
 
 
 
 
 
 
5,434,903

 
4,722,016

Fair market value adjustment on notes subject to hedging (3)
 
 
 
 
 
15,794

 
4,830

 
 
 
 
 
 
 
5,450,697

 
4,726,846

Current portion of long-term debt
 
 
 
 
 
 
(305,759
)
 
(32,511
)
Long-term debt
 
 
 
 
 
 
5,144,938

 
4,694,335

Total debt
 
 
 
 
 
 
$
5,450,697

 
4,730,619

 ————————————
(1)
We had unamortized original issue discounts of $8.0 million and $7.9 million at September 30, 2015 and December 31, 2014, respectively.
(2)
Asset-backed U.S. obligations of $448.3 million at September 30, 2015 and $218.1 million at December 31, 2014 are related to financing transactions involving revenue earning equipment. See Note (A), General, Revision of Prior Period Financial Information for further information related to our evaluation of accounting for these transactions.
(3)
The notional amount of executed interest rate swaps designated as fair value hedges was $825 million at September 30, 2015 and $600 million at December 31, 2014.


We maintain a $1.2 billion global revolving credit facility with a syndicate of twelve lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Mizuho Corporate Bank, Ltd., Royal Bank of Canada, Lloyds Bank Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. The facility matures in January 2020. The agreement provides for annual facility fees which range from 7.5 basis points to 25 basis points based on Ryder's long-term credit ratings. The annual facility fee is currently 10 basis points, which applies to the total facility size of $1.2 billion. The credit facility is used primarily to finance working capital but can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at September 30, 2015). At our option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The credit facility contains no provisions limiting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions and certain affirmative and negative covenants. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated net worth of less than or equal to 300%. Net worth, as defined in the credit facility, represents shareholders' equity excluding any accumulated other comprehensive income or loss associated with our pension and other postretirement plans. The ratio at September 30, 2015 was 215%. At September 30, 2015, there was $694.9 million available under the credit facility, net of outstanding commercial paper borrowings.

Our global revolving credit facility enables us to refinance short-term obligations on a long-term basis. Settlement of short-term commercial paper obligations not expected to require the use of working capital are classified as long-term as we have both the intent and ability to refinance on a long-term basis. In addition, we have the intent and ability to refinance the current portion of long-term debt on a long-term basis. At September 30, 2015, we classified $461.4 million of short-term commercial paper, $300.0 million of the current portion of long-term debt and $41 million of short-term borrowings under our global revolving credit facility as long-term debt. At December 31, 2014, we classified $276.7 million of short-term commercial

13
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


paper, $60.0 million of trade receivables borrowings and $698.5 million of the current portion of long-term debt as long-term debt.

In September and April 2015, we received $92.9 million and $156.4 million, respectively, from financing transactions backed by a portion of our revenue earning equipment. The proceeds from these transactions were used to fund capital expenditures. We have provided end of term guarantees for the residual value of the revenue earning equipment in these transactions. The transaction proceeds, along with the end of term residual value guarantees, have been included within "asset-backed U.S. obligations" in the preceding table.

In August 2015, we issued $300 million of unsecured medium-term notes maturing in September 2020. In May 2015, we issued $300 million of unsecured medium-term notes maturing in May 2020. In February 2015, we issued $400 million of unsecured medium-term notes maturing in March 2020. The proceeds from these notes were used to payoff maturing debt and for general corporate purposes. If these notes are downgraded below investment grade following, and as a result of, a change in control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of principal plus accrued and unpaid interest.

We have a trade receivables purchase and sale program, pursuant to which we sell certain of our domestic trade accounts receivable to a bankruptcy remote, consolidated subsidiary of Ryder, that in turn sells, on a revolving basis, an ownership interest in certain of these accounts receivable to a committed purchaser. The subsidiary is considered a VIE and is consolidated based on our control of the entity’s activities. We use this program to provide additional liquidity to fund our operations, particularly when it is cost effective to do so. The costs under the program may vary based on changes in interest rates. The available proceeds that may be received under the program are limited to $175 million. If no event occurs that causes early termination, the 364-day program will expire during October 2015. We are currently in the process of renewing the program through October 2016. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the collateralized receivables. No amounts were outstanding under the program at September 30, 2015. At December 31, 2014, $60.0 million was outstanding under the program. Sales of receivables under this program are accounted for as secured borrowings based on our continuing involvement in the transferred assets.

At September 30, 2015 and December 31, 2014, we had letters of credit and surety bonds outstanding totaling $339.3 million and $334.3 million, respectively, which primarily guarantee the payment of insurance claims.



14
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(H) FAIR VALUE MEASUREMENTS

The assets and liabilities measured at fair value on a recurring basis consist primarily of interest rate swaps and investments held in Rabbi Trusts.  These amounts as of September 30, 2015 are not material to our consolidated financial position and operations and have not changed significantly from the amounts reported as of December 31, 2014.  

The following tables present our assets that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:
 
Fair Value Measurements at
 
Total Losses (2)
 
September 30, 2015
 
Three months ended September 30, 2015
 
Nine months ended September 30, 2015
 
(In thousands)
Assets held for sale:
 
 
 
 
 
Revenue earning equipment: (1)
 
 
 
 
 
Trucks
$
7,701

 
$
1,657

 
$
4,400

Tractors
10,093

 
2,062

 
3,970

Trailers
1,195

 
610

 
1,582

Total assets at fair value
$
18,989

 
$
4,329

 
9,952


 
 
 
 
 
Fair Value Measurements at
 
Total Losses (2)
 
 
September 30, 2014
 
Three months ended September 30, 2014
 
Nine months ended September 30, 2014
 
 
(In thousands)
 
Assets held for sale:
 
 
 
 
 
 
Revenue earning equipment: (1)
 
 
 
 
 
 
Trucks
$
8,437

 
$
1,527

 
$
4,981

 
Tractors
4,666

 
530

 
2,824

 
Trailers
682

 
320

 
762

 
Total assets at fair value
$
13,785

 
$
2,377

 
$
8,567

 
 
 ————————————
(1)
Represents the portion of all revenue earning equipment held for sale that is recorded at fair value, less costs to sell.
(2)
Total losses represent fair value adjustments for all vehicles held for sale throughout the period for which fair value was less than carrying value.

Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Losses on vehicles held for sale for which carrying values exceeded fair value are recognized at the time they arrive at our used truck centers and are presented within “Other operating expenses” in the Consolidated Condensed Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. Fair value was determined based upon recent market prices obtained from our own sales experience for sales of each class of similar assets and vehicle condition. Therefore, our revenue earning equipment held for sale was classified within Level 3 of the fair value hierarchy.


15
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


Fair value of total debt (excluding capital lease and asset-backed U.S. obligations) at September 30, 2015 and December 31, 2014 was approximately $5.35 billion and $4.59 billion, respectively. For publicly-traded debt, estimates of fair value were based on market prices. Since our publicly-traded debt is not actively traded, the fair value measurement was classified within Level 2 of the fair value hierarchy. For other debt, fair value was estimated based on a model-driven approach using rates currently available to us for debt with similar terms and remaining maturities. Therefore, the fair value measurement of our other debt was classified within Level 2 of the fair value hierarchy. The carrying amounts reported in the Consolidated Condensed Balance Sheets for “Cash and cash equivalents,” “Receivables, net” and “Accounts payable” approximate fair value because of the immediate or short-term maturities of these financial instruments.


(I) DERIVATIVES

We have interest rate swaps outstanding, which are designated as fair value hedges whereby we receive fixed interest rate payments in exchange for making variable interest rate payments. The differential to be paid or received is accrued and recognized as interest expense. Fair value was based on a model-driven income approach using the LIBOR rate at each interest payment date, which was observable at commonly quoted intervals for the full term of the swaps. Therefore, our interest rate swaps were classified within Level 2 of the fair value hierarchy. The fair value amounts of the interest rate swaps are reported in the Consolidated Condensed Balance Sheets within "Prepaid expenses and other current assets," "Direct financing leases and other assets," and "Other non-current liabilities." As of September 30, 2015, these amounts are not material to our consolidated financial position or results of operations and have not changed significantly from the amounts reported at December 31, 2014.

The following table provides a detail of the swaps outstanding and the related hedged items as of September 30, 2015:
 
 
 
Maturity date
 
Face value of medium-term notes
 
Aggregate 
notional
amount of interest rate swaps
 
Fixed interest 
rate
 
Weighted-average variable
interest rate on hedged debt
as of September 30,
Issuance date
 
 
 
 
 
2015
 
2014
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
May 2011
 
June 2017
 
$350,000
 
$150,000
 
3.50%
 
1.52%
 
1.42%
November 2013
 
November 2018
 
$300,000
 
$100,000
 
2.45%
 
1.28%
 
1.18%
February 2014
 
June 2019
 
$350,000
 
$100,000
 
2.55%
 
1.19%
 
1.10%
May 2014
 
September 2019
 
$400,000
 
$100,000
 
2.45%
 
0.95%
 
0.86%
February 2015
 
March 2020
 
$400,000
 
$150,000
 
2.65%
 
1.21%
 
—
August 2015
 
September 2020
 
$300,000
 
$225,000
 
2.88%
 
1.52%
 
—

The amount of gains (losses) on interest rate swap agreements designated as fair value hedges and related hedged items are reported in the Consolidated Condensed Statements of Earnings within "Interest expense." Changes in the fair value of our interest rate swaps are offset by changes in the fair value of the debt instrument. Accordingly, there is no ineffectiveness related to the interest rate swaps.


(J) SHARE REPURCHASE PROGRAMS

In December 2013, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock, stock option and employee stock purchase plans (collectively, the employee stock plans). Under the December 2013 program, management is authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued under the employee stock plans from December 1, 2013 through December 10, 2015. The December 2013 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management established prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2013 program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. Early in the first quarter of 2015, due to the increase in leverage, we temporarily paused anti-dilutive share repurchase activity. For the nine months ended September 30, 2015 and 2014, we repurchased and retired 69,107 shares and 1,170,123 shares, respectively, under the program at an aggregate cost of $6.1 million and $92.3 million, respectively.

16
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)




(K) ACCUMULATED OTHER COMPREHENSIVE LOSS

The following summary sets forth the components of accumulated other comprehensive loss, net of tax:
 
 
 
Currency
Translation
Adjustments and Other
 
Net Actuarial
Loss (1)
 
Prior Service
Credit (1)
 
Accumulated
Other
Comprehensive
Loss
 
 
(In thousands)
December 31, 2014
 
$
(36,087
)
 
(585,941
)
 
1,758

 
(620,270
)
Amortization
 
—

 
14,605

 
(1,066
)
 
13,539

Other current period change
 
(73,093
)
 
(5,321
)
 
—

 
(78,414
)
September 30, 2015
 
$
(109,180
)
 
(576,657
)
 
692

 
(685,145
)


 
 
Currency
Translation
Adjustments and Other
 
Net Actuarial
Loss (1)
 
Prior Service
Credit (1)
 
Accumulated
Other
Comprehensive
Loss
 
 
(In thousands)
December 31, 2013
 
$
35,875


(477,883
)
 
3,760

 
(438,248
)
Amortization
 
—


11,183


(2,008
)
 
9,175

Other current period change
 
(35,198
)

(2,043
)

(109
)
 
(37,350
)
September 30, 2014
 
$
677

 
(468,743
)
 
1,643

 
(466,423
)

_______________________ 

(1)
These amounts are included in the computation of net periodic benefit cost. See Note (L), "Employee Benefit Plans," for further information.

The loss from currency translation adjustments in the nine months ended September 30, 2015 of $73.1 million was due primarily to the weakening of the Canadian Dollar and British Pound against the U.S. Dollar.



17
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(L) EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost/(credit) were as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Pension Benefits
 
 
 
 
 
 
 
Company-administered plans:
 
 
 
 
 
 
 
Service cost
$
3,612

 
3,297

 
$
10,805

 
9,892

Interest cost
21,777

 
25,280

 
65,712

 
75,990

Expected return on plan assets
(24,697
)
 
(28,900
)
 
(74,618
)
 
(86,916
)
Amortization of:
 
 
 
 
 
 
 
Net actuarial loss
7,665

 
5,900

 
23,137

 
17,714

Prior service credit
(80
)
 
(445
)
 
(230
)
 
(1,340
)
 
8,277

 
5,132

 
24,806

 
15,340

Union-administered plans
1,772

 
3,475

 
6,057

 
7,744

Net periodic benefit cost
$
10,049

 
8,607

 
$
30,863

 
23,084

 
 
 
 
 
 
 
 
Company-administered plans:
 
 
 
 
 
 
 
U.S.
$
8,746

 
5,389

 
$
26,237

 
16,190

Non-U.S.
(469
)
 
(257
)
 
(1,431
)
 
(850
)
 
8,277

 
5,132

 
24,806

 
15,340

Union-administered plans
1,772

 
3,475

 
6,057

 
7,744

 
$
10,049

 
8,607

 
$
30,863

 
23,084

 
 
 
 
 
 
 
 
Postretirement Benefits
 
 
 
 
 
 
 
Company-administered plans:
 
 
 
 
 
 
 
Service cost
$
88

 
112

 
$
278

 
336

Interest cost
270

 
356

 
829

 
1,069

Amortization of:
 
 
 
 
 
 
 
Net actuarial gain
(235
)
 
(181
)
 
(709
)
 
(544
)
Prior service credit
(477
)
 
(616
)
 
(1,433
)
 
(1,844
)
Net periodic benefit credit
$
(354
)
 
(329
)
 
$
(1,035
)
 
(983
)
 
 
 
 
 
 
 
 
Company-administered plans:
 
 
 
 
 
 
 
U.S.
$
(469
)
 
(460
)
 
$
(1,415
)
 
(1,379
)
Non-U.S.
115

 
131

 
380

 
396

 
$
(354
)
 
(329
)
 
$
(1,035
)
 
(983
)

During the nine months ended September 30, 2015, we contributed $29.9 million to our pension plans. In 2015, we expect total contributions to our pension plans to be approximately $35 million.








18
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)




(M) OTHER ITEMS IMPACTING COMPARABILITY
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Pension settlement adjustments
$
(509
)
 
1,262

 
$
(509
)
 
1,262

Professional fees
63

 
—

 
3,843

 
—

Acquisition transaction costs
—

 
566

 
—

 
566

Restructuring and other charges, net and other items
$
(446
)
 
1,828

 
$
3,334

 
1,828


During the three and nine months ended September 30, 2015, we incurred charges of $0.1 million and $3.8 million, respectively, related to professional fees associated with cost savings initiatives. During the three and nine months ended September 30, 2015, we recorded adjustments of $0.5 million to previously recorded estimated pension settlement charges related to the exit from U.S. multi-employer pension plans. These items are reflected within "Selling, general and administrative expenses" in our Consolidated Condensed Statements of Earnings.
During the three and nine months ended September 30, 2014, we recorded estimated pension settlement charges of $1.3 million for the exit of certain U.S. multi-employer pension plans. During the three and nine months ended September 30, 2014, transaction costs related to the Bullwell acquisition were $0.6 million. These items were reflected within "Selling, general and administrative expenses" in our Consolidated Condensed Statements of Earnings.


(N) SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information was as follows:
 
Nine months ended September 30,
 
2015
 
2014
 
(In thousands)
Interest paid
$
110,141

 
110,192

Income taxes paid
13,635

 
9,878

Changes in accounts payable related to purchases of revenue earning equipment
18,307

 
3,902

Operating and revenue earning equipment acquired under capital leases
5,956

 
3,788




(O) MISCELLANEOUS INCOME, NET
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015

2014
 
(In thousands)
Gain on sales of operating property and equipment
$
1,516

 
135

 
$
1,597

 
2,725

Gain/(loss) on foreign currency transactions
1,363

 
11

 
1,629

 
(376
)
Rabbi trust investment (loss)/income
(1,504
)
 
(177
)
 
(318
)
 
1,400

Insurance proceeds
—

 
—

 
314

 
756

Contract settlement
—

 
64

 
56

 
2,972

Other, net
(3
)
 
963

 
1,759

 
3,729

Total
$
1,372

 
996

 
$
5,037

 
11,206





19
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


(P) SEGMENT REPORTING

Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. During the first quarter of 2015, our management structure changed within the supply chain business. We created the role of President of DTS for the dedicated product offering which previously was within SCS. We are now reporting our financial performance as follows: (1) FMS, which provides full service leasing, commercial rental, contract maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.; and (3) SCS, which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated transportion services provided as part of an integrated, multi-service, supply chain solution to SCS customers are reported in the SCS business segment.

Our primary measurement of segment financial performance, defined as “Earnings Before Tax” (EBT) from continuing operations, includes an allocation of Central Support Services (CSS) and excludes non-operating pension costs, restructuring and other charges, net and other items discussed in Note (M), "Other Items Impacting Comparability." CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services, public affairs, information technology, health and safety, legal, marketing and corporate communications. The objective of the EBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment and each operating segment within each business segment accountable for their allocated share of CSS costs. Certain costs are considered to be overhead not attributable to any segment and remain unallocated in CSS. Included among the unallocated overhead remaining within CSS are the costs for investor relations, public affairs and certain executive compensation.

Our FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to the DTS and SCS segments. Inter-segment revenue and EBT are accounted for at rates similar to those executed with third parties. EBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in both FMS and the business segment which served the customer and then eliminated (presented as “Eliminations”). 

20
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


The following tables set forth financial information for each of our business segments and provide a reconciliation between segment EBT and earnings from continuing operations before income taxes for the three and nine months ended September 30, 2015 and 2014. 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.
 
FMS
 
DTS
 
SCS
 
Eliminations
 
Total
 
 (in thousands)
For the three months ended September 30, 2015
 
 
 
 
 
 
 
 
Revenue from external customers
$
1,054,840

 
226,921

 
387,305

 
—

 
1,669,066

Inter-segment revenue
102,738

 
—

 
—

 
(102,738
)
 
—

Total revenue
$
1,157,578

 
226,921

 
387,305

 
(102,738
)
 
1,669,066

 
 
 
 
 
 
 
 
 
 
Segment EBT
$
126,433

 
13,296

 
26,573

 
(11,998
)
 
154,304

Unallocated CSS
 
 
 
 
 
 
 
 
(10,070
)
     Non-operating pension costs 
 
 
 
 
 
 
 
 
(4,780
)
Restructuring and other charges, net and other items (1)
 
 
 
 
 
 
 
 
446

Earnings from continuing operations before income taxes
 
 
 
 
 
 
 
 
$
139,900

 
 
 
 
 
 
 
 
 
 
Segment capital expenditures paid (2)
$
740,049

 
1,175

 
4,195

 
—

 
745,419

Unallocated CSS
 
 
 
 
 
 
 
 
12,657

Capital expenditures paid
 
 
 
 
 
 
 
 
$
758,076

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended September 30, 2014
 
 
 
 
 
 
 
 
Revenue from external customers
$
1,069,333

 
227,568

 
390,249

 
—

 
1,687,150

Inter-segment revenue
117,589

 
—

 
—

 
(117,589
)
 
—

Total revenue
$
1,186,922

 
227,568

 
390,249

 
(117,589
)
 
1,687,150

 
 
 
 
 
 
 
 
 
 
Segment EBT
$
120,867

 
11,850

 
24,302

 
(9,564
)
 
147,455

Unallocated CSS
 
 
 
 
 
 
 
 
(13,564
)
Non-operating pension costs 
 
 
 
 
 
 
 
 
(2,455
)
Restructuring and other charges, net and other items (1)
 
 
 
 
 
 
 
 
(1,828
)
Earnings from continuing operations before income taxes
 
 
 
 
 
 
 
 
$
129,608

 
 
 
 
 
 
 
 
 
 
Segment capital expenditures paid (2), (3)
$
470,552

 
432

 
7,052

 
—

 
478,036

Unallocated CSS
 
 
 
 
 
 
 
 
7,915

Capital expenditures paid
 
 
 
 
 
 
 
 
$
485,951

 ————————————
(1)
See Note (M), "Other Items Impacting Comparability," for additional information.
(2)
Excludes revenue earning equipment acquired under capital leases.
(3)
Excludes acquisition payments of $8.1 million during the three months ended September 30, 2014.




21
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)


 
FMS
 
DTS
 
SCS
 
Eliminations
 
Total
 
 (in thousands)
For the nine months ended September 30, 2015
 
 
 
 
 
 
 
 
Revenue from external customers
$
3,080,756