þ
¨
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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
(State or other jurisdiction of incorporation or organization)
11690 N.W. 105 th Street,
Miami, Florida 33178
(Address of principal executive offices, including zip code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Ryder System, Inc. Common Stock ($0.50 par value)
Securities registered pursuant to Section 12(g) of the Act: None
59-0739250
(I.R.S. Employer Identification No.)
(305) 500-3726
(Telephone number, including area code)
Name of exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ
NO ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨
NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ
NO
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). YES þ
NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨
NO þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common equity
was sold at June 30, 2016 was $ 3,202,591,552 . The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at January 31, 2017 was
53,464,988 .
Documents Incorporated by Reference into this Report
Part of Form 10-K into which Document is Incorporated
Ryder System, Inc. 2016 Proxy Statement
Part III
RYDER SYSTEM, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART I
ITEM 1
ITEM 1A
ITEM 1B
ITEM 2
ITEM 3
ITEM 4
PART II
ITEM 5
ITEM 6
ITEM 7
ITEM 7A
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
ITEM 8
ITEM 9
ITEM 9A
ITEM 9B
PART III
ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14
PART IV
ITEM 15
Exhibits and Financial Statement Schedules
Exhibit Index
SIGNATURES
i
Page No.
1
12
20
20
20
20
21
24
25
64
66
121
121
121
121
121
122
122
122
123
124
128
PART I
ITEM 1. BUSINESS
OVERVIEW
Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. Our operating segments are aggregated into
reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We are reporting our financial
performance based on three business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing, commercial rental, contract
maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides
vehicles and drivers as part of a dedicated transportation solution in the U.S.; and (3) SCS, which provides comprehensive supply chain solutions including
distribution and transportation services in North America and Asia. Dedicated transportation services provided as part of an integrated, multi-service, supply chain
solution to SCS customers are reported in the SCS business segment.
In May of 2016, we expanded our full service lease product line to provide lease customers flexibility, choice and control in fleet management. Therefore,
we have renamed the lease product to ChoiceLease. Our ChoiceLease product line is a scalable lease model, which allows customers to select the terms of their
lease alongside the level of maintenance they prefer, from full service or total bumper-to-bumper coverage to on demand or pay-as-you-go maintenance. We also
renamed our contract maintenance product to SelectCare. Beginning in 2017, FMS will report using these new product names. In addition, the historical Contract-
Related Maintenance product will be included in SelectCare.
For financial information and other information relating to each of our business segments and about our geographic areas, see Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” of this report and Note 27 , " Segment Reporting ," in the Notes to Consolidated
Financial Statements.
MISSION AND STRATEGY
Ryder's mission is to provide innovative fleet management and supply chain solutions that are reliable, safe and efficient, enabling our customers to deliver
on their promises. We seek to deliver valuable solutions that will compel customers to outsource their fleet management and supply chain needs to us. Our strategy
is to grow our fleet management and supply chain outsourcing services by targeting private fleets not currently outsourcing their fleet-related services (FMS and
DTS) and key industries (SCS) with innovative solutions, operational excellence, best in class talent and information technology. This strategy is supported by:
• offering innovative products, solutions and support services that will create and strengthen customer relationships;
• delivering operational excellence through continuous productivity and process improvements;
• attracting, developing and retaining the best talent
• deploying technology that will enable growth while improving operational efficiencies.
1
INDUSTRY AND OPERATIONS
Value Proposition
Fleet Management Solutions
Through our FMS business, we provide our customers with a variety of fleet solutions that are designed to improve their competitive position. By
outsourcing these services to us, our customers can focus on their core business, improve their efficiency and productivity, and lower their costs. Our FMS product
offering is comprised of longer-term full service leasing as well as leasing with flexible maintenance options; shorter-term commercial truck rental; contract
maintenance services; flexible maintenance services; and value-added fleet support services such as insurance, vehicle administration and fuel services. In addition,
we provide our customers the ability to purchase a large selection of used trucks, tractors and trailers through our used vehicle sales program.
Market Trends
The U.S. commercial fleet market is estimated to include 8.2 million vehicles (1) of which 4.2 million vehicles are with privately held companies, 1.5 million
vehicles (2) are with for-hire carriers, 0.5 million vehicles are leased from banks or other financial institutions and 0.8 million vehicles are in the lease and rental
market. The 4.2 million vehicles privately owned by companies provide all or a portion of the transportation services for themselves rather than outsourcing those
services to third parties such as Ryder. Several trends have been increasing the need for outsourcing: increased demand for efficiency and reliability; increased
complexity and cost of buying and maintaining vehicles including technology, diagnostics, and training; labor issues including a shortage of qualified truck drivers
and mechanics; as well as increased regulation and enforcement of safety requirements. Because of these trends, we believe the privately held fleets and the for-
hire carriers will increasingly decide to outsource. Ryder also targets customers who are already outsourcing with other providers.
Similar trends apply to outsourcing in Canada, and the Canadian commercial fleet is estimated at 500,000 vehicles, of which approximately 17,000 are in the
lease and rental market (3) . In the U.K., the commercial rental and lease market is estimated at 225,000 units (4) . The total lease and rental market in Ryder’s major
markets totals over 1 million units. However, due to general trends and the trends in market sub-segments described above, combined with our success in
converting owners to outsourcing, the total market potential for Ryder is significantly higher.
Over the last several years, many key trends have been reshaping the transportation industry. We strongly believe these trends increase the value of our
product offering. Because of increased demand for efficiency and reliability, companies that own and manage their own fleet of vehicles have put greater emphasis
on the quality of their preventive maintenance and safety programs. The maintenance and operation of commercial vehicles has become more complicated and
expensive, requiring companies to spend a significant amount of time and money to keep up with new technology, diagnostics, retooling and training. Increased
regulation and active enforcement efforts by federal and state governments require more stringent and costly operational processes and oversight. Fluctuating
energy prices and alternative fuel technologies make it difficult for businesses to predict and manage fleet costs.
Operations
For the year ended December 31, 2016 , our global FMS business accounted for 61% of our consolidated revenue.
U.S. Ryder was founded in the U.S. in 1933. Our FMS customers in the U.S. range from small businesses to large national enterprises operating in a wide
variety of industries, the most significant of which are food and beverage, transportation and warehousing, housing, business and personal services, and industrial.
At December 31, 2016 , we had 529 operating locations, excluding ancillary storage locations, in 50 states and Puerto Rico. A location consists of a maintenance
facility or “shop”. Our maintenance facilities typically include a shop for preventive maintenance and repairs, a service island for fueling, safety inspections and
preliminary maintenance ch ecks, offices for sales and other personnel, and in many cases, a commercial rental vehicle counter. We also operate on-site at 167
customer locations, which primarily provide vehicle maintenance.
Canada . We have been operating in Canada for over 50 years. At December 31, 2016 , we had 36 operating locations throughout 9 Canadian provinces. We
also operated 14 maintenance facilities on-site at customer properties in Canada.
Europe. We began operating in the U.K. in 1971. At December 31, 2016 , we had 63 operating locations primarily throughout the U.K. We also managed a
network of 453 independent maintenance facilities in the U.K. to serve our customers when it is more effective than providing the service in a Ryder location. In
addition to our typical FMS operations, we supply and manage vehicles, equipment and personnel for military organizations in the U.K. and Germany.
(1)
(2)
(3)
(4)
U.S. Fleet as of June 2016 , Class 3-8, IHS Markit Ltd. (formerly RL Polk)
U.S. Fleet as of June 2016 , Class 3-8, IHS Markit Ltd. (formerly RL Polk)
Canada Outsourced Fleet Market as of September 2016 , Class 3-8, IHS Markit Ltd. (formerly RL Polk)
U.K. Lease and Rental HGV Market, Projection for December 2016 , Source: The Society of Motor Manufacturers & Traders (SMMT) 2010 & Ryder Internal Estimates
2
FMS Product Offerings
Full Service Leasing . Our full service leases as well as leases with flexible maintenance options provide customers with vehicles, maintenance services,
supplies, and related equipment necessary for operation of the vehicles while our customers furnish and supervise their own drivers and dispatch and exercise
control over the vehicles. Our lease customers receive the following benefits:
• We are able to leverage our vehicle buying power for the benefit of our customers because we purchase a large number of vehicles from a limited
number of manufacturers. Once we have signed an agreement with the customer, we acquire vehicles and components that are custom engineered to the
customer’s requirements and lease the vehicles to the customer for periods generally ranging from three to seven years for trucks and tractors and
typically ten years for trailers.
• We provide full service lease customers with complete maintenance program designed to reduce vehicle downtime through a preventive maintenance
plan that is based on vehicle type and time or mileage intervals. Alternatively, we offer flexible maintenance options to our customers designed to
provide them with choices on their preferred level of maintenance. Given our continued focus on improving the efficiency and effectiveness of our
maintenance services, particularly in light of changing technology and increased regulation, we provide our lease customers with a cost effective
alternative to maintaining their own fleet of vehicles and the flexibility to choose the maintenance program that works for them. Beginning in 2016
customer’s maintenance options include, full service, preventive and on demand.
• Our customers have access to our extensive network of maintenance facilities and trained technicians for maintenance, vehicle repairs, 24-hour
emergency roadside service, and replacement vehicles for vehicles that are temporarily out of service.
• We typically retain vehicle residual risk exposure.
• Customers have an opportunity to enhance their standard lease with additional fleet support services including our fuel and related services as described
below; liability insurance coverage under our existing insurance policies and related insurance services; safety services including safety training, driver
certification and loss prevention consulting; vehicle use and other tax reporting, permitting and licensing, and regulatory compliance (including hours
of service administration); environmental services; and access to RydeSmart ® , a full-featured GPS fleet location, tracking, and vehicle performance
management system and to Ryder FleetCARE SM , our web-based tool that provides customers with 24/7 access to key operational and maintenance
management information about their fleets.
For the year ended December 31, 2016 , full service lease revenue accounted for 56% of our FMS total revenue. Beginning in 2017, FMS will report this
product as ChoiceLease.
Commercial Rental . We target rental customers that have a need to supplement their private fleet of vehicles on a short-term basis (one day up to one year
in length), either because of seasonal increases in their business or discrete projects that require additional transportation resources. Lease customers utilize our
commercial rental fleet to handle their peak or seasonal business needs. Although a portion of our commercial rental business is purely occasional in nature, we
focus on building long-term relationships with customers so that we become their preferred source for commercial vehicle rentals. Our rental representatives assist
in selecting a vehicle that satisfies a customer’s needs and supervise the rental process, which includes execution of a rental agreement and a vehicle inspection. In
addition to vehicle rental, we may extend liability insurance coverage under our existing policies to our rental customers as well as the benefits of cost savings and
convenience of our comprehensive fuel services program. For the year ended December 31, 2016 , commercial rental revenue accounted for 19% of our FMS total
revenue.
Contract Maintenance . Through our contract maintenance product line, we provide maintenance services to customers who do not choose to lease vehicles
from us. Our contract maintenance customers commit to utilizing our extensive network of maintenance facilities and trained technicians to maintain the vehicles
they own or lease from third parties. We can also customize the services to include ancillary maintenance and/or fleet support services. Vehicles covered under this
offering are typically serviced at our own facilities. However, based on the size and complexity of a customer’s fleet, we may operate an on-site maintenance
facility at the customer’s location. For the year ended December 31, 2016 , contract maintenance revenue accounted for 4% of our FMS total revenue. Beginning in
2017, FMS will report this product as SelectCare and it will include Contract-Related Maintenance.
3
The following table provides information regarding the number of vehicles and customers by FMS product offering at December 31, 2016 :
Full service leasing
Commercial rental (1)
Contract maintenance (2)
U.S.
Foreign
Total
Vehicles
112,300
30,600
43,100
Customers
11,200
32,100
1,500
Vehicles
24,200
7,200
5,900
Customers
2,700
5,900
400
Vehicles
136,500
37,800
49,000
Customers
13,900
38,000
1,900
______________
(1)
(2)
Commercial rental customers include customers who rented a vehicle for more than 3 days during the year and includes approximately 8,100 lease customers
Contract maintenance customers include approximately 970 lease customers
Contract-Related Maintenance . Our lease and contract maintenance customers periodically require additional maintenance and repair services that are not
included in their lease or contract maintenance contracts. For example, additional maintenance and repair services may arise when a customer damages a leased
vehicle. In addition, because of our existing relationships with the customer, we may provide service on their owned vehicles and charge the customer on an hourly
basis for work performed. By servicing all of our customers’ maintenance needs, we create stronger, long-term relationships and have greater opportunity to
provide customers with a wide range of outsourcing solutions. For the year ended December 31, 2016 , contract-related maintenance revenue accounted for 5% of
our FMS total revenue. Beginning in 2017, FMS will report this product within the newly named SelectCare product.
More recently, we have contracted with large private fleet operators and for-hire carriers to provide maintenance on demand, particularly in geographic areas
where these customers do not have their own maintenance operations. The contract for on-demand maintenance services is based on a maintenance program that is
designed to meet the customers' specific needs and all maintenance is performed only when and as requested by the customer. This product allows us to expand our
customer base to include customers that have traditionally chosen to own and maintain their fleet of vehicles.
Fuel Services. We provide our FMS customers with access to diesel fuel at competitive prices at over 450 of our maintenance facilities across the United
States and Canada. We also provide fuel services such as fuel planning, fuel tax reporting, centralized billing, fuel cards and fuel monitoring. Although fuel sales
do not have a significant impact on our FMS earnings, as it is largely a pass-through cost to customers, we believe allowing customers to leverage our fuel buying
power is a significant and valuable benefit to our customers. For the year ended December 31, 2016 , fuel services revenue accounted for 13% of our FMS total
revenue.
Used Vehicles. We primarily sell our used vehicles at one of our 59 retail sales centers throughout North America ( 18 of which are co-located at an FMS
shop), at our branch locations or through our website at www.Usedtrucks.Ryder.com . Typically, before we offer used vehicles for sale, our technicians ensure that
the vehicles are Road Ready ® , which means that they have passed a comprehensive, multi-point performance inspection based on specifications formulated
through our maintenance program. Our retail sales centers throughout North America allow us to leverage our maintenance expertise and strong brand reputation to
realize higher sales proceeds than in the wholesale market. Given our focus on maximizing sales proceeds, we generally sell our used vehicles through retail
centers for prices in excess of book value. However, the extent to which we are able to realize a gain on the sale of used vehicles is dependent upon various other
factors, including the general state of the used vehicle market, the supply and demand for used commercial vehicles in retail and wholesale markets, the age and
condition of the vehicle at the time of its disposal and vehicle depreciation rates.
FMS Business Strategy
Our FMS business strategy is to be the leading provider of fleet management outsourcing services for light, medium and heavy duty vehicles. Our strategy
will be achieved if we focus on the following goals and priorities:
• Drive profitable fleet growth by (1) successfully implementing sales and marketing initiatives designed to compel private fleet operators and for-hire
carriers to outsource all or some portion of their fleet management needs to us; (2) offering innovative products, solutions and support services that will
create and strengthen new and existing customer relationships; and (3) completing targeted acquisitions;
• Deliver a consistent, industry-leading and cost-effective maintenance program to our customers through continued process improvement and re-design,
productivity initiatives and technology improvements; and
• Optimize asset utilization and management, particularly with respect to our rental fleet, used vehicle operations and maintenance facility infrastructure.
Successfully driving our fleet growth strategy will require significant capital investments in full service lease and commercial rental vehicles. As a result,
during periods of significant growth, our free cash flow may be negative.
4
Competition
As an alternative to using our fleet management services, most companies choose to provide these services for themselves, although some may choose to
obtain similar or alternative services from other third-party vendors.
Our FMS business segment competes with companies providing similar services on a national, regional and local level. Many regional and local competitors
provide services on a national level through their participation in various cooperative programs. Competitive factors include price, equipment, maintenance, service
and geographic coverage. We compete with finance lessors, truck and trailer manufacturers and independent dealers who provide full service lease products,
finance leases, extended warranty maintenance, rental and other transportation services. With the growth of our on-demand maintenance product, we will also face
competition from managed maintenance providers who are hired to coordinate and manage the maintenance of large fleets of vehicles through a network of third-
party maintenance providers. Value-added differentiation of the full service leasing, maintenance and commercial rental services, as well as continued commitment
to offer innovative products and solutions, such as natural gas vehicles, has been and will continue to be our emphasis.
Value Proposition
Dedicated Transportation Solutions
Through our DTS business segment, we combine the equipment, maintenance and administrative services of a full service lease with drivers and additional
services to provide a customer with a dedicated transportation solution that is designed to increase their competitive position, improve risk management and
integrate their transportation needs with their overall supply chain. Such additional services include routing and scheduling, fleet sizing, safety, regulatory
compliance, risk management, technology and communication systems support, including on-board computers and other technical support. These additional
services allow us to address, on behalf of our customers, labor challenges associated with maintaining a private fleet of vehicles, such as driver recruitment and
retention, government regulation, including hours of service regulations, DOT audits and workers’ compensation. Our DTS solution offers a high degree of
specialization to meet the needs of customers with sophisticated service requirements such as tight delivery windows, high-value or time-sensitive freight, closed-
loop distribution, multi-stop shipments, specialized equipment and integrated transportation needs.
Market Trends
The U.S. dedicated contract carriage market is estimated to be $14 billion (1) . This market is affected by many of the same trends that impact our FMS
business, including the tightening of capacity in the current U.S. trucking market. The administrative requirements relating to regulations issued by the Department
of Transportation (DOT) regarding driver screening, training and testing, as well as record keeping and other costs associated with the hours of service
requirements, make our DTS product an attractive alternative to private fleet and driver management. This has become even more significant in light of
Compliance, Safety, Accountability (CSA) regulatory changes made effective in 2010. The CSA regulatory changes have also put pressure on the availability of
qualified truck drivers, which supply continues to lag market need. In addition, market demand for just-in-time delivery creates a need for well-defined routing and
scheduling plans that are based on comprehensive asset utilization analysis and fleet rationalization studies offered as part of our DTS services.
Operations/Product Offerings
For the year ended December 31, 2016 , our global DTS business accounted for 15% of our consolidated revenue. At December 31, 2016 , we had 200 DTS
customer accounts in the U.S. Because it is highly customized, our DTS product is particularly attractive to companies that operate in industries that have time-
sensitive deliveries or special handling requirements, as well as companies who require specialized equipment. Because DTS accounts typically operate in a
limited geographic area, most of the drivers assigned to these accounts are short haul drivers, meaning they return home at the end of each work day. Although a
significant portion of our DTS operations are located at customer facilities, our DTS business also utilizes and benefits from our extensive network of FMS
facilities.
In order to customize an appropriate DTS transportation solution for our customers, our DTS logistics specialists perform a transportation analysis using
advanced logistics planning and operating tools. Based on this analysis, they formulate a logistics design that includes the routing and scheduling of vehicles, the
efficient use of vehicle capacity and overall asset utilization. The goal of each customized plan is to create a distribution system that optimizes freight flow while
meeting a customer’s service goals. A team of DTS transportation specialists can then implement the plan by leveraging the resources, expertise and technological
capabilities of both our FMS and SCS businesses.
(1) Armstrong & Associates Tightened Up - Third-Party Logistics Market Results and Trends for 2016, June 2016
5
To the extent a distribution plan includes multiple modes of transportation (air, rail, sea and highway), our DTS team, in conjunction with our SCS
transportation specialists, selects appropriate transportation modes and carriers, places the freight, monitors carrier performance and audits billing. In addition,
through our SCS business, we can reduce costs and add value to a DTS customer’s distribution system by aggregating orders into loads, looking for shipment
consolidation opportunities and organizing loads for vehicles that are returning from their destination point back to their point of origin (backhaul).
DTS Business Strategy
Our DTS business strategy is to focus on customers who need specialized equipment, specialized handling or integrated services. This strategy revolves
around the following interrelated goals and priorities:
•
•
Increase market share with customers in the energy and utility, metals and mining, retail, construction, healthcare, and food and beverage industries;
Leverage the support and talent of the FMS sales team in a joint sales program;
• Align the DTS business with other SCS product lines to create revenue opportunities and improve operating efficiencies in both segments; and
•
Improve competitiveness in the non-specialized and non-integrated customer segments.
Competition
Our DTS business segment competes with truckload carriers and other dedicated providers servicing on a national, regional and local level. Competitive
factors include price, equipment, maintenance, service and geographic coverage and driver and operations expertise. We are able to differentiate the DTS product
offering by leveraging FMS and integrating the DTS services with those of SCS to create a more comprehensive transportation solution for our customers. Our
strong safety record and focus on customer service enable us to uniquely meet the needs of customers with high-value products that require specialized handling in
a manner that differentiates us from truckload carriers.
Value Proposition
Supply Chain Solutions
Through our SCS business, we offer a broad range of innovative logistics management services that are designed to optimize a customer’s supply chain and
address customer's key business requirements. The organization is aligned by industry verticals (Automotive, Technology and Healthcare, Consumer Packaged
Goods and Retail, and Industrial) to enable our teams to focus on the specific needs of their customers. Our SCS product offerings are organized into four
categories: dedicated services, distribution management, transportation management and professional services. These offerings are supported by a variety of
information technology and engineering solutions that are an integral part of our SCS services. These product offerings can be offered independently or as an
integrated solution to optimize supply chain effectiveness. A key aspect of our value proposition is our operational execution, which is an important differentiator
in the marketplace.
Market Trends
Global logistics is approximately a $8.7 trillion (1) market, of which approximately $720 billion (1) is outsourced. Logistics spending in the markets we are
targeting in North America and Asia equates to approximately $1.8 trillion , of which $193 billion is outsourced. Outsourced logistics is a market with significant
growth opportunity. More sophisticated supply chain practices are required as supply chains expand and become more complex, product needs continue to
proliferate and companies look for lower cost supply chain alternatives. In addition, disruptions from unexpected events such as natural disasters have caused
companies to focus on risk management of their supply chains. The more complicated the supply chain or the product requirements, the greater the need for
companies to utilize the expertise of supply chain solution providers.
(1) Armstrong & Associates Tightened Up - Third-Party Logistics Market Results and Trends for 2016, June 2016
6
Operations
For the year ended December 31, 2016 , our global SCS business accounted for 24% of our consolidated revenue.
U.S. At December 31, 2016 , we had 313 SCS customer accounts in the U.S., most of which are large enterprises that maintain large, complex supply chains.
Most of our core SCS business operations are geographically located to maximize efficiencies and reduce costs. At December 31, 2016 , managed warehouse space
totaled approximately 38 million square feet for the U.S. We also concentrate certain logistics expertise in locations not associated with specific customer sites. For
example, our carrier procurement, contract management, freight bill audit and payment services, and transportation optimization and execution groups operate out
of our logistics centers in Novi, Michigan and Fort Worth, Texas.
Mexico . At December 31, 2016 , we had 108 SCS customer accounts and managed warehouse space totaling approximately 4.5 million square feet. Our
Mexico operations offer a full range of SCS services and manage approximately 15,800 border crossings each month between Mexico and the U.S. and Canada,
often highly integrated with our distribution and transportation operations.
Canada. At December 31, 2016 , we had 47 SCS customer accounts and managed warehouse space totaling approximately 1.2 million square feet. Given
the proximity of this market to our U.S. and Mexico operations, the Canadian operations are highly coordinated with their U.S. and Mexico counterparts, managing
cross-border transportation and freight movements.
Asia. At December 31, 2016 , we had 72 SCS customer accounts and managed warehouse space totaling approximately 333,000 square feet, primarily in
Singapore.
SCS Product Offerings
Distribution Management . Our SCS business offers a wide range of services relating to a customer’s distribution operations, from designing a customer’s
distribution network to managing distribution facilities. Services within the facilities generally include managing the flow of goods from the receiving function to
the shipping function, coordinating warehousing and transportation for inbound and outbound material flows, handling import and export for international
shipments, coordinating just-in-time replenishment of component parts to manufacturing and final assembly, and providing shipments to customer distribution
centers or end customer delivery points. Additional value-added services such as light assembly of components into defined units (kitting), packaging and
refurbishment are also provided. For the year ended December 31, 2016 , distribution management solutions accounted for 50% of our SCS revenue.
Dedicated Services. Dedicated services are offered as part of an integrated supply chain solution to our customers. We fulfill transportation needs for our
customers with a combination of outside carriers and dedicated services. The dedicated services offering combines the equipment, maintenance, drivers and
additional services to provide a customer with a dedicated transportation solution, which combined with outside transportation, is designed to increase their
competitive position, improve risk management and integrate their transportation needs with their overall supply chain. Such additional services include routing
and scheduling, fleet sizing, safety, regulatory compliance, risk management, technology and communication systems support including on-board computer, and
other technical support. These additional services allow us to address, on behalf of our customers, labor challenges associated with maintaining a private fleet of
vehicles, such as driver recruitment and turnover, government regulation (including hours of service regulations), DOT audits and workers' compensation. Our
dedicated services solution offers a high degree of specialization to meet the needs of customers with sophisticated service requirements such as tight delivery
windows, high value or time-sensitive freight, closed-loop distribution, multi-stop shipments, specialized equipment and integrated transportation needs. Dedicated
services operations are located at our customer facilities, and our dedicated offering utilizes and benefits from our extensive network of FMS facilities. For the year
ended December 31, 2016 , approximately 36% of our SCS revenue was related to dedicated services.
Transportation Management . Our SCS business offers services relating to all aspects of a customer’s transportation network. Our team of transportation
specialists provides shipment planning and execution, which includes shipment optimization, load scheduling and delivery confirmation through a series of
technological and web-based solutions. Our transportation consultants, including our freight brokerage department, focus on carrier procurement of all modes of
transportation with an emphasis on truck-based transportation, rate negotiation, and freight bill audit and payment services. In addition, our SCS business provides
customers with capacity management services that are designed to meet backhaul opportunities and minimize excess miles. For the year ended December 31, 2016
, we purchased and/or executed $4.7 billion in freight moves on our customers' behalf. For the year ended December 31, 2016 , transportation management
solutions accounted for 9% of our SCS revenue.
Professional Services . In conjunction with providing the SCS core services described previously, our SCS business offers a variety of knowledge-based
services that support every aspect of a customer’s supply chain. Our SCS professionals are available to evaluate a customer’s existing supply chain to identify
inefficiencies as well as opportunities for integration and
7
improvement. Once the assessment is complete, we work with the customer to develop a supply chain strategy that will create the most value for the customer and
their target clients. Once a customer has adopted a supply chain strategy, our SCS logistics team, supported by functional experts and representatives from our
information technology, real estate and finance groups, work together to design a strategically focused supply chain solution. The solution may include both a
network design that sets forth the number, location and function of key components of the network and a transportation solution that optimizes the mode or modes
of transportation and route selection. In addition to providing the distribution and transportation expertise necessary to implement the supply chain solution, our
SCS representatives can coordinate and manage all aspects of the customer’s supply chain provider network to assure consistency, efficiency and flexibility. For
the year ended December 31, 2016 , knowledge-based professional services accounted for 5% of our SCS revenue.
SCS Business Strategy
Our SCS business strategy is to offer our customers differentiated functional execution and proactive solutions from deep expertise in key industry verticals.
The strategy revolves around the following interrelated goals and priorities:
• Providing customers with best in class execution and quality through reliable and flexible supply chain solutions;
• Developing innovative solutions and capabilities that drive value for our customer within our targeted industry verticals;
• Creating a culture of innovation and collaboration to share capabilities and solutions to meet our client’s needs;
• Consistent focus on network optimization and continuous improvement; and
• Successfully executing targeted sales and marketing growth strategies.
Competition
As an alternative to using our services, most companies choose to internally manage their own supply chains and logistics operations, although some may
choose to obtain similar or alternative services from other third-party vendors.
In the SCS business segment, we compete with a large number of companies providing similar services, each of which has a different set of core
competencies. We compete with a handful of large, multi-service companies across all of our service offerings and industries. We also compete against other
companies on specific service offerings (for example, in transportation management, distribution management or dedicated services) or in a specific industry. We
face different competitors in each country or region where they may have a greater operational presence. Competitive factors include price, service, market
knowledge, expertise in logistics-related technology and overall performance (e.g. timeliness, accuracy, and flexibility).
ACQUISITIONS
In addition to our continued focus on organic growth, acquisitions play an important role in enhancing our growth strategy. In assessing potential acquisition
targets in our FMS business segment, we look for companies that would create value through operating synergies, leveraging our existing facility infrastructure,
improving our geographic coverage and diversifying our customer base. In our DTS business segment, we are focusing on strategies for growth, including
acquisitions that expand our capabilities and vertical market sector. In our SCS business segment, we focus on adding capabilities and product offerings,
potentially expanding into new industries, diversifying our customer base within our current industries, and improving our competitive position.
CYCLICALITY
Ryder's business is impacted by economic and market conditions. In a strong economic cycle, there is generally more demand for our fleet management,
dedicated and supply chain services. In a weak or volatile economy, demand for our services decreases and is inconsistent and considerably more unpredictable.
Because of these factors, we have continued to focus on increasing the diversity of our customer base and strengthening our long-term business partnerships with
our customers. Although we believe these efforts help mitigate the immediate impact of an economic downturn, during a protracted or severe economic downturn,
customers are often unwilling to commit to a full-service lease or long-term supply chain contract. Because commercial rental and used vehicle sales are
transactional, they are more cyclical in nature, and results can vary significantly in both the short- and long-term. We mitigate some of the potential impact of an
economic downturn through a disciplined and centralized approach to asset management. This approach allows us to manage the size, mix and location of our
operating fleet and used vehicle inventories to try and maximize asset utilization and used vehicle proceeds in both strong and weak market conditions.
ADMINISTRATION
Our financial administrative functions for the U.S. and Canada, including credit, billing and collections are consolidated into our Shared Services Center, a
centralized processing center located in Alpharetta, Georgia. Our Shared Services Center also manages contracted third parties providing administrative finance
and support services outside of the U.S. in order to
8
reduce ongoing operating expenses and maximize our technology resources. This centralization results in more efficient and consistent centralized processing of
selected administrative operations. Certain administrative functions are also performed at the Shared Services Center for our customers. The Shared Services
Center’s main objectives are to enhance customer service through process standardization, create an organizational structure that will improve market flexibility
and allow future reengineering efforts to be attained more easily at lower implementation costs.
REGULATION
Our business is subject to regulation by various federal, state and foreign governmental entities. The DOT and various federal and state agencies exercise
broad powers over certain aspects of our business, generally governing such activities as authorization to engage in motor carrier operations, safety and financial
reporting. In 2010, the Federal Motor Carrier Safety Administration (FMCSA) began implementation of the CSA, a compliance and enforcement initiative
partnering with State agencies designed to monitor and improve commercial vehicle motor safety. The CSA program includes a Safety Measurement System
(SMS) that uses roadside inspections and violations to measure motor carriers and drivers and determines the scores related to these inspections and violations that
compare the motor carriers and drivers against peers. The FMCSA established thresholds for seven different measurement areas that identify potential safety risks
and result in direct intervention or enforcement action.
We are also subject to a variety of requirements of national, state, provincial and local governments, including the U.S. Environmental Protection Agency
and the Occupational Safety and Health Administration, which regulate safety, the management of hazardous materials, water discharges and air emissions, solid
waste disposal and the release and cleanup of regulated substances. We must comply with licensing and other requirements imposed by the U.S. Department of
Homeland Security and U.S. Customs Service as a result of increased focus on homeland security and our Customs-Trade Partnership Against Terrorism
certification. We may also become subject to new or more restrictive regulations imposed by these agencies or other authorities relating to carbon controls and
reporting, engine exhaust emissions, drivers’ hours of service, wage and hour requirements, security including data privacy and cyber security and ergonomics.
ENVIRONMENTAL
We have a long-standing commitment to sound environmental practices that reduce risk and build value for us and our customers. We have a history of
adopting “green” designs and processes because they are efficient, cost-effective transportation solutions that improve our bottom line and bring value to our
customers. We have maintained an environmental mission since 1991 and have updated it periodically as regulatory and customer needs have changed. Our
environmental policy reflects our commitment to supporting the goals of sustainable development, environmental protection and pollution prevention in our
business. We have adopted proactive environmental strategies that have advanced business growth and continued to improve our performance in ways that reduce
emission outputs and environmental impact. Our environmental team works with operating employees to develop and administer programs in support of our
environmental policy and to help ensure that environmental considerations are integrated into all business processes and decisions.
In establishing appropriate environmental objectives and targets for our wide range of business activities around the world, we focus on (1) the needs of our
customers; (2) the communities in which we provide services; and (3) relevant laws and regulations. We regularly review and update our environmental
management procedures, and information regarding our environmental activities is routinely disseminated throughout Ryder. In 2016 , we substantially expanded
our sustainability reporting with the publication of our 2014 / 2015 Corporate Sustainability Report, which includes expanded and enhanced disclosures, as well as
new metrics related to our environmental and safety performance for the years 2014 and 2015 . In addition, we have voluntarily responded to the Carbon
Disclosure Project (CDP) since 2008, disclosing direct and indirect emissions resulting from our operations, and earned leadership status for the quality of our
disclosure report submitted in 2016. These reports are publicly available on the company website at www.ryder.com by clicking on About Us and then selecting
Sustainability.
SAFETY
Our safety culture is founded upon a core commitment to the safety, health and well-being of our employees, customers and the community, a commitment
that has made us a long-standing industry leader in safety.
Safety is an integral part of our business strategy because preventing injuries and collisions improves employee quality of life, eliminates service disruptions
to our customers, increases efficiency and improves customer satisfaction. As a core value, our focus on safety is embedded in our day-to-day operations,
reinforced by many safety programs and continuous operational improvement and supported by a talented and dedicated safety organization.
Training is a critical component of our safety program. Monthly safety training delivered by location safety committees cover specific and relevant safety
topics and managers receive annual safety leadership training. Quarterly and remedial training is also delivered online to each driver through our highly interactive
Ryder Pro-TREAD comprehensive lesson
9
platform. Regular safety behavioral observations are conducted by managers throughout the organization everyday and remedial training and coaching takes place
on-the-spot. We also deploy state-of-the-art safety technologies in Ryder vehicles and our safety policies require that all managers, supervisors and employees
incorporate safe processes in all aspects of our business. Monthly safety scorecards are tracked and reviewed by management for progress toward key safety
objectives. Our proprietary web-based safety tracking system, RyderStar SM , delivers proactive safety programs tailored to every location and helps measure safety
activity effectiveness across the organization.
EMPLOYEES
At December 31, 2016 , we had approximately 34,500 full-time employees worldwide, of which 32,600 were employed in North America, 1,400 in Europe
and 500 in Asia. Currently we employ approximately 7,700 drivers and 5,900 technicians. We have approximately 21,600 hourly employees in the U.S.,
approximately 4,100 of which are organized by labor unions. Those employees organized by labor unions are principally represented by the International
Brotherhood of Teamsters, the International Association of Machinists and Aerospace Workers and the United Auto Workers, and their wages and benefits are
governed by 98 labor agreements which are renegotiated periodically. Although we have not experienced a material work stoppage or strike, these events can
potentially occur given the types of businesses in which we currently engage. We consider that our relationship with our employees is good.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name
Robert E. Sanchez
Art A. Garcia
Dennis C. Cooke
John J. Diez
J. Steven Sensing
Robert D. Fatovic
Frank Lopez
Karen M. Jones
John Gleason
Melvin L. Kirk
Age
51
55
52
45
49
51
42
54
60
52
Position
Chair and Chief Executive Officer
Executive Vice President and Chief Financial Officer
President, Global Fleet Management Solutions
President, Dedicated Transportation Solutions
President, Global Supply Chain Solutions
Executive Vice President, Chief Legal Officer and Corporate Secretary
Senior Vice President and Chief Human Resources Officer
Executive Vice President and Chief Marketing Officer
Executive Vice President and Chief Sales Officer
Senior Vice President and Chief Information Officer
Robert E. Sanchez was appointed Chair of Ryder's Board in May 2013 and promoted to Chief Executive Officer and became a Board member in January
2013. Previously, Mr. Sanchez served as President and Chief Operating Officer from February 2012 to December 2012. He served as President, Global Fleet
Management Solutions from September 2010 to February 2012 and as Executive Vice President and Chief Financial Officer from October 2007 to September
2010. He also previously served as Executive Vice President of Operations, U.S. Fleet Management Solutions from October 2005 to October 2007 and as Senior
Vice President and Chief Information Officer from January 2003 to October 2005. Mr. Sanchez joined Ryder in 1993 and has held various other positions of
increasing responsibility, including leadership positions in all three of Ryder's business segments.
Art A. Garcia has served as Executive Vice President and Chief Financial Officer since September 2010. Previously, Mr. Garcia served as Senior Vice
President and Controller from October 2005 to August 2010, and as Vice President and Controller from February 2002 to September 2005. Mr. Garcia joined
Ryder in 1997 and has held various other positions within Corporate Accounting.
Dennis C. Cooke has served as President, Global Fleet Management Solutions since February 2012. Previously, Mr. Cooke served as Senior Vice President
and Chief of Operations, U.S. and Canada Fleet Management Solutions from July 2011 to February 2012. Prior to joining Ryder in July 2011, Mr. Cooke held
various positions with General Electric (GE) and related companies, including Vice President and General Manager of GE Healthcare’s Global MRI business from
2000 to 2005. He then served as President and Chief Executive Officer of GE Security’s Homeland Protection business from 2005 to 2009, and continued serving
in those roles from 2009 to 2011 after the business was acquired by the Safran Group and became Morpho Detection, Inc.
10
J. Steven Sensing has served as President of Global Supply Chain Solutions since March 2015. Previously, Mr. Sensing served as Vice President and General
Manager of the Technology industry group from February 2007 to February 2015. In July 2014, he also added the Retail industry group under his leadership. Mr.
Sensing joined Ryder in 1992 and has since held various positions within Dedicated Services, Transportation Management and Distribution Management.
John J. Diez has served as President of Dedicated Transportation Solutions since March 2015. Previously, Mr. Diez served as Senior Vice President of Ryder
Dedicated from March 2014 to February 2015, and as Senior Vice President of Asset Management from January 2011 to February 2014. Mr. Diez joined Ryder's
Finance department in 2002 and has since held various positions within Finance including Senior Vice President Global Field Finance and Vice President and
Chief Financial Officer of Fleet Management Solutions.
Robert D. Fatovic has served as Executive Vice President, Chief Legal Officer and Corporate Secretary since May 2004. He previously served as Senior
Vice President, U.S. Supply Chain Operations, Hi-Tech and Consumer Industries from December 2002 to May 2004. Mr. Fatovic joined Ryder’s Law department
in 1994 as Assistant Division Counsel and has held various other positions within the Law department including Vice President and Deputy General Counsel.
Frank Lopez was appointed to Chief Human Resources Officer in February 2016. Previously, Mr. Lopez held the position of Senior Vice President, Global
Human Resources Operations since July 2013. Mr. Lopez joined Ryder in 2002 and has since held various positions within the Human Resources, Labor Relations
and Legal functions.
Karen M. Jones has served as Executive Vice President and Chief Marketing Officer since October 2014. She joined Ryder in September 2013 as Senior
Vice President and Chief Marketing Officer. Prior to joining Ryder, Ms. Jones was Chief Marketing Officer for NRG/Reliant Energy, Inc from 2010 to 2013.
Previously, Ms. Jones served as Senior Vice President of Marketing and Corporate Communications for DHL Express U.S. from 2006 to 2009 and as Vice
President of Advertising, Brand Management and Promotion from 2004 to 2006. In addition, Ms. Jones has served in key positions responsible for worldwide
brand advertising, sponsorship, and strategic alliances for Hewlett Packard.
John Gleason was appointed Executive Vice President and Chief Sales Officer in November 2015. Previously, Mr. Gleason served as Senior Vice President
of Global Fleet Management Solutions from October 2009, when he joined Ryder, to October 2015. Prior to joining Ryder, Mr. Gleason served as Chief Sales
Officer for Automatic Data Processing (ADP) from April 2005 to September 2009 and as Senior Vice President of Sales from July 1998 to April 2005.
Melvin L. Kirk has served as Senior Vice President and Chief Information Officer since May 2015. He began reporting directly to the CEO and joined
Ryder's Executive Leadership Team in January 2016. Mr. Kirk joined Ryder in March 2012 as Vice President of Maintenance, Engineering and Quality Operations
within the Fleet Management Solutions organization. Prior to joining Ryder, Mr. Kirk held various roles at Global Service at Safran’s Morpho Detection, Inc.
(formerly GE Homeland Protection), most recently serving as Vice President and General Manager from 1996 to 2012.
FURTHER INFORMATION
For further discussion concerning our business, see the information included in Items 7 and 8 of this report. Industry and market data used throughout Item 1
was obtained through a compilation of surveys and studies conducted by industry sources, consultants and analysts.
We make available free of charge through the Investor Relations page on our website at www.ryder.com our Annual Report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission. The public may read and copy any materials we have filed with the SEC at the SEC's Public Reference
Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-
0330. The SEC maintains an Internet site that contains our reports, proxy and information statements, and our other SEC filings. The address of the SEC's website
is www.sec.gov .
In addition, our Corporate Governance Guidelines, Principles of Business Conduct and Board committee charters are posted on the Corporate Governance
page of our website at www.ryder.com . Upon request to our Investor Relations page on our website at www.ryder.com , we will provide a copy of our Finance
Code of Conduct to anyone, free of charge.
11
The following contains all known material risks that could affect our business.
ITEM 1A. RISK FACTORS
Uncertain or unfavorable economic and industry conditions could adversely impact our business and operating results .
Although macro-economic risk affects most industries, the transportation industry is particularly susceptible to changes in economic and market conditions as our
business relies on the strength of our customers’ businesses and the level of confidence our customers have about future market conditions. Because of this, our
business may begin to slow before market slowdowns, at the point of customer uncertainty, and may recover later than market recoveries, as our customers may
continue to feel uncertain about future market conditions. Long-term full service lease and short-term rental of commercial vehicles comprise a large portion of our
business. Our vehicles are leased or rented to customers that transport goods commercially so that the demand for our products is directly tied to the production and
sale of goods by our customers. As a result, when fewer goods are sold by our customers, demand for our services may decrease. Also, sudden changes in fuel
prices and fuel shortages may adversely impact the total vehicle miles driven by our customers. If uncertainty and lack of customer confidence around
macroeconomic and transportation industry conditions increase, they may impact our future growth prospects and our business and results of operations could be
materially adversely affected.
In a weak or volatile economy, demand for our longer-term contractual services may decrease, waver or become less predictable as customers are often unwilling
to commit to long-term lease, maintenance, dedicated services or supply chain contracts. Contractual-based services include full lease and maintenance contracts in
our FMS business segment, dedicated services in our DTS business segment and supply chain contracts in our SCS business segment. Accordingly, any sustained
weakness in demand or a protracted economic downturn can negatively impact performance and operating results in our contractual-based service offerings.
Similarly, although we experienced continued growth in full service lease during 2016 , our customers still remain cautious about entering into long-term leases.
Customer uncertainty may serve to increase demand for our transactional services (because they do not require a long-term commitment) as these services are
generally more cyclical due to their transactional nature, causing results to vary in both the short- and long-term. Transactional-based services include commercial
rental and used vehicle sales in our FMS business segment. Although commercial rental demand began to stabilize in the second half of 2016 , following a period
of soft demand and uncertainty in the latter part of 2015 and first half of 2016, rental demand may decline again or face more unexpected volatility in the future.
Our capital intensive business requires us to make capital decisions based upon projected customer activity levels .
We make significant investments in rental vehicles to support our rental business based on anticipated customer demand. We make commitments to purchase the
vehicles months in advance. We must predict fleet requirements and make commitments based on demand projections and various other factors. Missing our
projections could result in too much or too little capacity in our rental fleet. Overcapacity could require us to dispose of vehicles at lower than anticipated pricing
levels or result in asset write-downs and undercapacity could negatively impact our ability to reliably provide rental vehicles to our customers.
We bear the residual risk on the value of our vehicles .
Impact on Used Vehicle Sales. We generally bear the residual risk on the value of our vehicles. Beginning in the latter part of 2015 and continuing through 2016,
we saw a weakening of conditions in the used vehicle sales market, which adversely affected used vehicle volume and pricing, especially for tractors. If the market
for used vehicles further declines, or there is a concern regarding the quality, maintenance or condition of our vehicles, we may obtain lower sales proceeds upon
the sale of used vehicles, which may impact the residual value estimates of our operating fleet.We sell our used vehicles through various channels, including retail
sales centers, at our branch locations, through our website at www.UsedTrucks.Ryder.com , as well as through the wholesale market. Pricing and demand for used
vehicles varies among selling channels, particularly between the retail and wholesale markets, as we generally obtain lower proceeds on vehicles sold through
wholesale channels. If we are unable to meet our targeted fleet counts through our projected mix of retail versus wholesale sales, we may be required to sell more
vehicles than planned through the wholesale market, which will impact our sales proceeds. In the latter part of 2016, we increased wholesaling activity which
contributed to lower used vehicle sales results in 2016.
12
Impact on our Full Service Lease Product Line . Changes in residual values also impact the overall competitiveness of our full service lease product line, as
estimated sales proceeds are a significant component of the overall price of the lease. Additionally, technology changes and sudden changes in supply and demand
together with other market factors beyond our control vary from year to year and from vehicle to vehicle, making it difficult to accurately predict residual values
used in calculating our depreciation expense. Although we have developed disciplines related to the management and maintenance of our vehicles designed to
prevent these losses, there is no assurance that these practices will sufficiently reduce the residual risk. For a detailed discussion on our accounting policies and
assumptions relating to depreciation and residual values, please see the “Critical Accounting Estimates - Depreciation and Residual Value Guarantees” section in
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Our inability to maintain appropriate commercial rental fleet utilization rates could adversely impact our profitability .
In our commercial rental product line, we purchase vehicles and optimize the size and mix of the commercial rental fleet based upon our expectations of overall
market demand. As a result, we bear the risk for ensuring that we have the proper vehicles in the right condition and location to effectively capitalize on market
demand in order to drive the highest levels of utilization and revenue per unit. We employ a sales force and operations team on a full-time basis to manage and
optimize this product line; however, their efforts may not be sufficient to overcome a significant change in market demand in the rental business. In contrast, in our
full service lease product line, we typically do not purchase vehicles until we have an executed contract with a customer.
Failure to execute our growth strategy and develop, market and consistently deliver high-quality services that meet customer expectations, may cause our
revenue and earnings to suffer .
Our long-term strategy is to grow our outsourcing services by targeting private fleets new to outsourcing and key industries with innovative solutions, operational
excellence, and best-in-class talent and information technology. To successfully execute on this strategy, we must continue to focus on developing effective
solutions that meet our existing and target customers’ evolving needs. This requires the skills, experience and efforts of our management team and continued
investment in new technology, sales and marketing. Notwithstanding our efforts, these new or changed service offerings may not meet customer demands, prove to
be profitable or succeed in the long term. If we do not make the right strategic investments to respond to current customer needs and establish and develop new
customer relationships, our ability to develop and maintain a competitive advantage and continue to grow could be negatively affected.
Even with the right solutions, our growth strategy depends on delivering consistent operational excellence and strong customer service. If our services and
solutions are not delivered as promised on a consistent basis or our customers have a negative experience or are otherwise dissatisfied, this can impair our
relationships with new or existing customers and adversely affect our brand and reputation, which could, in turn, adversely affect revenue and earnings growth.
We may fail to respond adequately or in a timely manner to innovative changes in new technology in our industry .
In recent years, our industry has been characterized by rapid changes in technology, leading to innovative transportation and logistics concepts that could change
the way our industry does business. For example, new concepts are currently under development for more advanced electric vehicles, automatic or semi-automatic
self-driving vehicles and drones. There may be additional innovations impacting the transportation, trucking and supply chain/logistics industries that we cannot
yet foresee. Our inability to quickly adapt to and adopt new innovations in products and processes desired by our customers may result in a significant loss of
demand for our service offerings. Our lease and rental fleets could become unfavorable with our customers or obsolete within a relatively short period of time, and
we may no longer be able to find buyers for our used vehicles. An increase in customer use of electric vehicles could reduce the need for our vehicle maintenance
services, diesel vehicles and related offerings. Likewise, self-driving vehicles may reduce the need for our dedicated service offerings, where, in addition to a
vehicle, Ryder provides a driver as part of an integrated, full service customer solution.
13
Failure to maintain, upgrade and consolidate our information technology networks could adversely affect us .
The success of our strategic initiatives designed to increase our sales and capture a greater percentage of the outsourced transportation and supply chain markets is
dependent in varying degrees on the timely delivery and the functionality of information technology systems to support them. Extended delays or cost overruns in
securing, developing and otherwise implementing technology solutions to support the new business initiatives we are developing now, and will be developing in
the future, would delay and possibly even prevent us from realizing the projected benefits of these initiatives. Advances in technology require increased
investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments. In addition, our reputation
with our customers may suffer if outages, system failures or delays in timely access to data occur in legacy information technology systems that support key
business processes.
We are continuously upgrading and consolidating our systems, including enhancing legacy systems, replacing legacy systems with successor systems and
acquiring new systems with newer functionality. These types of activities subject us to additional costs and inherent risks associated with replacing and modifying
these systems, including impairment of our ability to provide our services, potential disruption of our internal control structure, substantial capital expenditures,
additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management
time, and other risks and costs of delays or difficulties in transitioning to new systems or integrating new systems into our current systems. Our system
implementations may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the implementation of
new technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and
appropriately mitigated.
We may be subject to cybersecurity risks, some of which are beyond our control .
We depend on the proper functioning and availability of our information systems in operating our business, including communications and data processing
systems. It is important that the data processed by these systems remains confidential, as it often includes competitive customer information, confidential customer
transaction data, employee records, and key financial and operational results and statistics. Portions of our business utilize information systems that provide critical
services to both our employees and our customers. Cyber incidents that impact the availability, reliability, speed, accuracy, or other proper functioning of these
systems could have a significant impact on our operations. Some of our software applications are utilized by third parties who provide outsourced administrative
functions, which may increase the risk of a cybersecurity incident. Our information systems are protected through physical and software safeguards as well as
backup systems considered appropriate by management. However, we may be unable to fully protect against the possibility of damage created by natural disasters,
power loss, telecommunications failures, cybersecurity attacks and similar events in every potential circumstance that may arise.
We and the vehicle and equipment manufacturers in our FMS business rely on a small number of suppliers .
We buy vehicles and related equipment from a relatively small number of original equipment manufacturers (OEMs) in our FMS business. Some of our vehicle
manufacturers rely on a small concentration of suppliers for certain vehicle parts, components and equipment. A discrete event in a particular OEM's or supplier's
industry or location, or adverse regional economic conditions impacting an OEM or supplier's ability to provide vehicles or a particular component, could
adversely impact our FMS business and profitability. In addition, our business and reputation could also be negatively impacted if any parts, components or
equipment from one of our suppliers suffer from broad-based quality control issues or become the subject of a product recall and we are unable to obtain
replacement parts from another supplier in a timely manner.
We derive a significant portion of our SCS and DTS segment revenue from a relatively small number of customers .
During 2016 , sales to our top ten SCS customers representing all of the industry groups we service accounted for 55% of our SCS total revenue and 53% of our
SCS operating revenue (revenue less fuel and subcontracted transportation). Additionally, approximately 44% of our global SCS revenue is from the automotive
industry and is directly impacted by automotive vehicle production. Our top ten DTS customers accounted for 45% of DTS total revenue and 40% of DTS
operating revenue. The loss of any of these customers or a significant reduction in the services provided to any of these customers could impact our operations and
adversely affect our SCS or DTS segment financial results. While we continue to focus our efforts on diversifying our customer base, we may not be successful in
doing so in the short-term.
14
We are also subject to credit risk associated with the concentration of our accounts receivable from our SCS and DTS customers. If one or more of these customers
were to become bankrupt, insolvent or otherwise were unable to pay for the services provided by us, we may incur significant write-offs of accounts receivable or
incur lease or asset impairment charges that could adversely affect our operating results and financial condition.
In addition, many of our customers operate in cyclical or seasonal industries, or operate in industries, including the food and beverage industry, that may be
impacted by unanticipated weather, growing conditions (such as drought, insects or disease), natural disasters and other conditions over which we have no control.
A downturn in our customers' business cycles or unanticipated events impacting their businesses could cause a reduction in freight volume shipped by those
customers or a reduction in their need for our SCS or DTS services.
We operate in a highly competitive industry and our business may suffer if we are unable to adequately address potential downward pricing pressures
and other competitive factors .
Numerous competitive factors could impair our ability to maintain our current profitability. These factors include the following:
• our inability to obtain expected customer retention levels or sales growth targets;
• we compete with many other transportation and logistics service providers, some of which have greater capital resources than we do;
• customers may choose to provide the services we provide for themselves;
• some of our competitors periodically reduce their prices to gain business, and some of our smaller competitors may have lower cost structures than we do,
which may limit our ability to maintain or increase prices; and
• because cost of capital is a significant competitive factor, any increase in either the cost of our debt or equity as a result of reductions in our debt rating or
stock price volatility could have a significant impact on our competitive position.
Our profitability could be negatively impacted if the key operational assumptions and pricing structure prove to be invalid .
Substantially all of our FMS lease and maintenance services and our DTS and SCS services are provided under contractual arrangements with our customers. The
pricing structure for our lease and contract maintenance business is based on certain assumptions regarding capital costs, our ability to acquire equipment at
competitive rates from our suppliers, maintenance expense over the life of the contract, particularly in light of new engine technologies, residual values,
productivity, and the mix of fixed and variable costs, many of which are derived from historical data and trends. Under most of our SCS contracts, all or a portion
of our pricing is based on certain assumptions regarding the scope of services, production volumes, operational efficiencies, the mix of fixed versus variable costs,
productivity and other factors.
If we are incorrect in our assumptions, or as a result of subsequent changes in our customers' business needs or operations, or market forces that are outside of our
control, these assumptions prove to be invalid, we could have lower margins than anticipated or be unable to offer competitive products and services. Although
some of our SCS contracts provide for renegotiation upon a material change, there is no assurance that we will be successful in obtaining the necessary price
adjustments.
We may face difficulties in attracting and retaining drivers and technicians .
Drivers. We hire drivers primarily for our DTS business segment. There is significant competition for qualified drivers in the transportation industry. Additionally,
interventions and enforcement under the Federal Motor Carrier Safety Administration (FMCSA) Compliance, Safety, Accountability program may shrink the
industry's pool of drivers as those drivers with unfavorable scores may no longer be eligible to drive for us. As a result of driver shortages, we could be required to
increase driver compensation, let trucks sit idle, utilize lower quality drivers or face difficulty meeting customer demands, all of which could adversely affect our
growth and profitability.
15
Technicians. Similarly, we hire technicians in our FMS business segment to perform vehicle maintenance services on our lease, contract maintenance and rental
fleets. In recent years, there has been a decrease in the overall supply of skilled maintenance technicians, particularly new technicians with qualifications from
technical programs and schools, which could make it more difficult to attract and retain skilled technicians.
We may face issues with our union employees .
We have 4,100 employees that are organized by labor unions whose wages and benefits are governed by 98 labor agreements that are renegotiated periodically.
Some of the industries in which we currently engage have experienced a material work stoppage, slowdown or strike. Our business and operations could be
impacted in the event of labor strikes or work stoppages involving our employees organized by labor unions in our FMS, DTS or SCS business segments.
We operate in a highly regulated industry, and costs of compliance with, or liability for violation of, existing or future regulations could significantly
increase our costs of doing business .
Our business is subject to regulation by various federal, state and foreign governmental agencies. These agencies could institute new laws, rules or regulations or
issue interpretation changes to existing regulations at any time. We have also seen an increase in proactive enforcement of existing regulations by some entities.
Compliance with new laws, rules or regulations could substantially impair labor and equipment productivity, increase our costs or impact our ability to offer
certain services. Conversely, our failure to comply with any applicable laws, rules or regulations to which we are subject, whether actual or alleged, could expose
us to fines, penalties or potential litigation liabilities, including costs, settlements and judgments. We are also subject to reputational risk and other detrimental
business consequences associated with noncompliance, such as employees, customers, agents, suppliers or other persons using our supply chain or assets to
commit illegal acts, including the use of company assets for terrorist activities, or a breach of data privacy laws, the ongoing development of which in the U.S. and
other jurisdictions may require changes to our data security policies and procedures to comply with new standards.
Department of Transportation Regulations . The U.S. Department of Transportation and various state and federal agencies exercise broad powers over our
motor carrier operations, safety and the generation, handling, storage, treatment and disposal of waste materials. Any regulatory initiatives could increase costs or
operating complexity.
Federal Motor Carrier Safety Administration (FMCSA) Compliance, Safety, Accountability Program . The FMCSA's Compliance, Safety, Accountability
program may increase the cost for our customers given the potential impact to the driver pool, the additional hours of service requirements and additional
investment in vehicle equipment. In addition, although Ryder's scores are below the thresholds that would trigger concern, if performance worsens, we could risk
intervention that may create risk to our operating authority.
Labor and Employment Laws and Regulations . We maintain operations and employees in numerous states throughout the U.S., which are governed by federal
and state labor and employment laws and regulations relating to compensation, benefits, healthcare and various workplace issues, all of which are applicable to our
employees, and in some cases, independent contractors. State labor and employment rules vary from state to state and in some states, require us to meet much
stricter standards than required in other states. Also, we are or may become subject to various class-action lawsuits related to wage and hour violations and
improper pay in certain states. Unfavorable or unanticipated outcomes in any of the lawsuits could subject us to increased costs and impact our profitability.
International Laws Governing Countries Where We Have Operations .
We currently operate in Canada, Europe, Mexico and Asia, where we are subject to
compliance with local laws and regulatory requirements of foreign jurisdictions, including local tax laws, and compliance with the Foreign Corrupt Practices Act.
Local laws and regulatory requirements may vary significantly from country to country. Customary levels of compliance with local regulations and the tolerance
for noncompliance by regulatory authorities may also vary in different countries and geographical locations, and impact our ability to successfully implement our
compliance and business initiatives in certain jurisdictions. Also, adherence to rigorous local laws and regulatory requirements may limit our ability to expand into
certain international markets and result in residual liability for legal claims and tax disputes arising out of previously discontinued operations. In addition,
uncertainty resulting from the new U.S. presidential administration and congress or the U.K.'s withdrawal from the European Union (Brexit) could adversely
impact our (or our customers) business, financial condition and results of operations.
16
Laws Governing the Operations of our Customers. The U.S. government or governments of other nations that regulate the operations of our customers or any
instituted laws relating to cross-border tariffs or other penalties could disrupt international or domestic supply chain operations. The laws could adversely affect the
ability for customers to continue their international operations, which would have a negative impact on the demand for our services.
Environmental Regulations Regarding Vehicle Exhaust Emissions, Carbon Emissions and Climate Change May Negatively Impact our Business. Current
and future regulations governing vehicle exhaust emissions could adversely impact our business. The Environmental Protection Agency (EPA) issued regulations
that required progressive reductions in exhaust emissions from certain diesel engines. The 2015 regulations require reductions in carbon dioxide, which can only be
reduced by improving fuel economy, and which require compliance with different emissions standards for both engines and chassis, based on vocation. OEMs may
be required to install additional engine componentry, additional aerodynamics on chassis and low-rolling resistance tires to comply with the regulations, which
may result in higher operating costs associated with the more complex componentry and a shorter useful tread life for tires and increased operating costs for
customers and us.
Additional EPA regulations are expected to go into effect in 2017, with incremental changes through 2027, that may further impact our business. Although
customers may see reduced fuel consumption under the new standards, this could be offset by higher maintenance costs per mile . Each of these requirements could
also result in higher prices for vehicles, diesel engine fuel and vehicle maintenance, which are passed on to our customers, as well as higher maintenance costs and
uncertainty as to reliability of the new engines, all of which could, over time, increase our costs and adversely affect our business and results of operations. The
new technology may also impact the residual values of these vehicles when sold in the future.
Future regulation of other environmental matters, including potential limits on carbon emissions under climate-change legislation, could also impact our business
and profitability if enacted.
Other Regulations. We may also become subject to new or more restrictive regulations imposed by the Occupational Safety and Health Administration, the
Department of Homeland Security, U.S. Customs Service or other authorities.
New lease accounting rules may negatively impact customer demand for our lease products .
Demand for our full service lease product line is based in part on customers' decisions to lease rather than buy vehicles. A number of factors can impact whether
customers decide to lease or buy vehicles, including economic benefits, accounting considerations, tax treatment, interest rates and operational flexibility. In
February 2016, the Financial Accounting Standards Board issued its new accounting standards involving a new approach to lease accounting that differs from
current practice. Most notably, the new approach eliminates off-balance sheet treatment of leases and require lessees to recognize a right-of-use asset and a lease
liability on their balance sheets for all leases with a term of greater than 12 months. This new accounting standard must be implemented by companies as of
January 1, 2019, although companies may opt to adopt the standard before this date. Implementation of the new standard could be perceived to make leasing a less
attractive option for some of our full service lease customers.
Changes in income tax regulations for U.S. and multinational companies may increase our tax liability or adversely impact our tax structure.
The U.S. Congress, the Organization for Economic Co-operation and Development (OECD), the European Union, and other government agencies in jurisdictions
in which we and our affiliates invest or do business have maintained a focus on the taxation of multinational companies. The OECD, which represents a coalition
of member countries, is supporting changes to numerous long-standing tax principles through its base erosion and profit shifting (BEPS) project, which is focused
on a number of issues, including the shifting of profits between affiliated entities in different tax jurisdictions. The European Union has a number of on-going tax
initiatives. Additionally, President Trump and Congress have announced proposals for potential reform to the U.S. federal income tax rules for businesses. Certain
of these proposals for reform, if enacted by the United States or by other countries in which we or our affiliates invest or do business, could adversely affect us. It
is unclear what any actual legislation would provide or what its prospects for enactment would be.
17
Volatility in assumptions and asset values related to our pension plans may reduce our profitability and adversely impact current funding levels .
We historically sponsored a number of defined benefit plans for employees not covered by union-administered plans, including certain employees in foreign
countries. The retirement benefits under the defined benefit plans are frozen for non-grandfathered and certain non-union employees. Our major defined benefit
plans are funded, with trust assets invested in a diversified portfolio. The cash contributions made to our defined benefit plans are required to comply with
minimum funding requirements imposed by employee benefit and tax laws. The projected benefit obligation and assets of our global defined benefit plans as of
December 31, 2016 , were $2.2 billion and $1.8 billion , respectively. The difference between plan obligations and assets, or the funded status of the plans, is a
significant factor in determining pension expense and the ongoing funding requirements of those plans. Macroeconomic factors, as well as changes in investment
returns and discount rates used to calculate pension expense and related assets and liabilities can be volatile and may have an unfavorable impact on our costs and
funding requirements. Although we have actively sought to control increases in these costs and funding requirements through investment policies and plan
contributions, as well as through a lump-sum buyout offer in 2015, there can be no assurance that we will succeed, and continued cost pressure could reduce the
profitability of our business and negatively impact our cash flows.
We are subject to risk of multi-employer pension plan withdrawal .
We participate in certain U.S. multi-employer pension (MEP) plans that provide defined benefits to employees covered by collective bargaining agreements. In the
event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution to the plan. Our
withdrawal liability for any MEP plan would depend on the extent of the plan's funding of vested benefits. Economic conditions have caused MEP plans to be
significantly underfunded. As a result, although we have taken steps in recent years to withdraw from these MEP plans, we may still have liability for at least a
period of time following our withdrawal. If the financial condition of the MEP plans were to continue to deteriorate, we could be subject to additional assessments.
We establish self-insurance reserves based on historical loss development factors, which could lead to adjustments in the future based on actual
development experience .
We retain a portion of the accident risk under vehicle liability and workers' compensation insurance programs. Our self-insurance accruals are based on actuarially
estimated, undiscounted cost of claims, which includes claims incurred but not reported. While we believe that our estimation processes are well designed, every
estimation process is inherently subject to limitations. Fluctuations in the frequency or severity of accidents make it difficult to precisely predict the ultimate cost
of claims. The actual cost of claims can be different than the historical selected loss development factors because of safety performance, payment patterns and
settlement patterns. For a detailed discussion on our accounting policies and assumptions relating to our self-insurance reserves, please see the “Critical
Accounting Estimates - Self-Insurance Accruals” section in Management's Discussion and Analysis of Financial Condition and Results of Operations.
Severe weather or other natural occurrences could result in significant business interruptions and expenditures in excess of available insurance coverage .
Our operations may be affected by external factors such as severe weather and other natural occurrences, including floods, fires, hurricanes and earthquakes at
operating locations where we have vehicles, warehouses and other facilities. As a result, our vehicles and facilities may be damaged, our workforce may be
unavailable, fuel costs may rise and significant business interruptions could occur. In addition, the performance of our vehicles could be adversely affected by
extreme weather conditions. Insurance to protect against loss of business and other related consequences resulting from these natural occurrences is subject to
coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of our damages or damages to others and this
insurance may not continue to be available at commercially reasonable rates. Even with insurance, if any natural occurrence leads to a catastrophic interruption of
service, we may not be able to mitigate a significant interruption in operations.
18
Our international operations subject us to operational and financial risks .
We provide services outside of the U.S., which subjects our business to various risks, including changes in tariffs, trade restrictions, trade agreements and taxes;
difficulties in managing or overseeing foreign operations and agents; foreign currency fluctuations and limitations on the repatriation of funds due to foreign
currency controls; different liability standards; and intellectual property laws of countries that do not protect our rights in intellectual property to the same extent as
the laws of the U.S. The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and/or decrease the
profitability of our operations in that region. Also, if we do not correctly anticipate changes in international economic and political conditions, we may not alter our
business practices in time to avoid adverse effects.
We may be negatively impacted by adverse events in the global credit and financial markets .
Significant uncertainty, volatility, disruptions or downturns in the global credit and financial markets may result in:
• unanticipated interest rate and currency exchange rate fluctuations;
• increased risk of default by counterparties under derivative instruments and hedging agreements; and
• diminished liquidity and credit availability resulting in higher short-term borrowing costs and more stringent borrowing terms.
19
None.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
Our properties consist primarily of vehicle maintenance and repair facilities, warehouses and other real estate and improvements.
We maintain 606 FMS properties in the U.S., Puerto Rico and Canada; we own 402 of these and lease the remaining 204 . Our FMS properties are primarily
comprised of maintenance facilities generally including a repair shop, rental counter, fuel service island, administrative offices, and used vehicle retail sales
centers.
Additionally, we manage 181 on-site maintenance facilities, located at customer locations.
We also maintain 189 locations in the U.S. and Canada in connection with our domestic SCS business. Almost all of our SCS locations are leased and
generally include a warehouse and administrative offices.
We maintain 123 international locations (locations outside of the U.S. and Canada) for our international businesses. There are 63 locations in the U.K. and
Germany, 57 locations in Mexico and 3 locations in Singapore. The majority of these locations are leased and may be a repair shop, warehouse or administrative
office.
Additionally, we maintain 10 U.S. locations primarily used for Central Support Services. These facilities are generally administrative offices, of which we
own three and lease the remaining seven .
We are involved in various claims, lawsuits and administrative actions arising in the normal course of our businesses. Some involve claims for substantial
amounts of money and/or claims for punitive damages. While any proceeding or litigation has an element of uncertainty, management believes that the disposition
of such matters, in the aggregate, will not have a material impact on our consolidated financial condition or liquidity.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
20
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
PART II
Ryder Common Stock Prices
2016
First quarter
Second quarter
Third quarter
Fourth quarter
2015
First quarter
Second quarter
Third quarter
Fourth quarter
Stock Price
High
Low
Dividends per
Common Share
$
$
66.36
71.90
69.78
85.42
99.32
100.64
93.86
76.33
45.12
56.98
59.57
62.03
82.29
86.75
72.66
53.54
0.41
0.41
0.44
0.44
0.37
0.37
0.41
0.41
Our common shares are listed on the New York Stock Exchange under the trading symbol “R.” At January 31, 2017 , there were 7,181 common stockholders
of record and our stock price on the New York Stock Exchange was $77.60 .
21
Performance Graph
The following graph compares the performance of our common stock with the performance of the Standard & Poor’s 500 Composite Stock Index and the
Dow Jones Transportation 20 Index for a five year period by measuring the changes in common stock prices from December 31, 2011 to December 31, 2016 .
The stock performance graph assumes for comparison that the value of the Company’s Common Stock and of each index was $100 on December 31, 2011 ,
and that all dividends were reinvested. Past performance is not necessarily an indicator of future results.
22
Purchases of Equity Securities
The following table provides information with respect to purchases we made of our common stock during the quarter ended December 31, 2016 :
October 1 through October 31, 2016
November 1 through November 30, 2016
December 1 through December 31, 2016
Total
Total Number
of Shares
Purchased (1)
Average Price
Paid per
Share
Total Number of
Shares Purchased as
Part of Publicly Announced
Program (2)
92 $
143,547
13,288
156,927 $
70.88
73.72
79.96
74.24
—
143,547
12,855
156,402
Maximum Number
of Shares That May
Yet Be Purchased
Under the Anti-Dilutive
Program (2)
1,620,104
1,476,557
1,463,702
______________
(1) During the three months ended December 31, 2016 , we purchased an aggregate of 525 shares of our common stock in employee-related transactions. Employee-related transactions may
include: (i) shares of common stock delivered as payment for the exercise price of options exercised or to satisfy the option holders’ tax withholding liability associated with our share-
based compensation programs and (ii) open-market purchases by the trustee of Ryder’s deferred compensation plans relating to investments by employees in our stock, one of the
investment options available under the plans.
(2)
In December 2015, our Board of Directors authorized a new share repurchase program intended to mitigate the dilutive impact of shares issued under our employee stock plans. Under
the December 2015 program, management is authorized to repurchase (i) up to 1.5 million shares of common stock, the sum of which will not exceed the number of shares issued to
employees under the Company’s employee stock plans from December 1, 2015 to December 9, 2017, plus (ii) 0.5 million shares issued to employees that were not purchased under the
Company’s previous share repurchase program. The December 2015 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share
repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish
prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2015 program, which allow for share repurchases during
Ryder’s quarterly blackout periods as set forth in the trading plan.
23
The following selected consolidated financial information should be read in conjunction with Items 7 and 8 of this report.
ITEM 6. SELECTED FINANCIAL DATA
Operating Data:
Total Revenue
Operating Revenue (1)
Earnings from continuing operations
Comparable earnings from continuing operations (2)
Net earnings (3)
Per Share Data:
Earnings from continuing operations -Diluted
Comparable earnings from continuing operations -Diluted (2)
Net earnings -Diluted (3)
Cash dividends
Book value (4)
Financial Data:
Total assets
Average assets (5)
Return on average assets (%) (5)
Long-term debt
Total debt
Shareholders’ equity (4)
Debt to equity (%) (4)
Average shareholders’ equity (4), (5)
Adjusted return on average capital (%) (5), (6)
Net cash provided by operating activities from continuing
Years ended December 31
2016
2015
2014
2013
2012
(Dollars and shares in thousands, except per share amounts)
6,786,984
6,571,893
6,638,774
6,419,285
6,256,967
5,790,897
5,561,077
5,252,217
4,965,818
4,770,259
264,640
290,357
262,477
305,989
327,331
304,768
220,225
296,868
218,341
243,275
256,640
237,871
200,668
226,584
209,748
4.94
5.42
4.90
1.76
5.73
6.13
5.71
1.56
4.14
5.58
4.11
1.42
4.63
4.88
4.53
1.30
3.90
4.40
4.08
1.20
38.39
37.15
34.30
35.56
28.56
10,902,454
10,952,580
9,837,776
9,156,175
8,439,027
11,056,740
10,464,001
9,594,878
8,692,120
8,168,023
2.4
2.9
2.3
2.7
2.6
4,599,864
4,868,097
4,681,240
4,010,810
3,577,289
5,391,274
5,502,627
4,717,524
4,283,013
3,982,044
2,052,275
1,987,111
1,819,087
1,896,561
1,467,237
263
277
259
226
271
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,052,371
1,894,917
1,925,824
1,593,942
1,405,640
4.8
5.8
5.8
5.8
5.7
operations
$
1,601,022
1,441,788
1,382,818
1,251,811
1,160,175
Net cash (used)/provided by financing activities from continuing
operations
Net cash used in investing activities from continuing operations
Free cash flow (7)
Capital expenditures paid
Other Data:
Average common shares — Diluted
Number of vehicles — Owned and leased
Average number of vehicles — Owned and leased
Number of employees
$
$
$
$
(185,922)
731,485
311,650
347,070
333,805
(1,405,833)
(2,161,355)
(1,704,510)
(1,603,818)
(1,504,273)
193,675
(727,714)
(315,116)
(339,596)
(488,373)
1,905,157
2,667,978
2,259,164
2,122,628
2,133,235
53,361
185,100
185,400
34,500
53,260
185,200
180,500
33,100
53,036
174,100
172,800
30,600
52,071
172,100
171,200
28,900
50,740
172,500
173,700
27,700
_____________________
(1)
Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section in Item 7 for a reconciliation of total revenue to operating revenue, as well as the reasons management believes these measures are important
to investors.
Non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section in Item 7 of this report for a reconciliation of net earnings from continuing operations to comparable earnings from continuing operations
and net earnings from continuing operations per diluted common share to comparable earnings per diluted common share, as well as the reasons management believes these measures are important to investors.
Net earnings in 2016 , 2015 , 2014 , 2013 and 2012 , included (losses)/earnings from discontinued operations of $ (2) million , or $(0.04) per diluted common share, $(1) million , or $(0.02) per diluted common share, $(2) million
, or $(0.03) per diluted common share, $(5) million , or $(0.10) per diluted common share, and $9 million , or $0.18 per diluted common share, respectively.
Shareholders’ equity at December 31, 2016 , 2015 , 2014 , 2013 and 2012 , reflected cumulative after-tax equity charges of $627 million , $577 million , $584 million , $474 million , and $645 million , respectively, related to our
pension and postretirement plans.
Amounts were computed using an 8-point average based on quarterly information.
Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section in Item 7 of this report for a reconciliation of the non-GAAP elements of this calculation and a numerical reconciliation of net earnings to
adjusted net earnings and average total debt and average shareholders' equity to adjusted average total capital used to calculate adjusted return on average capital, as well as the reasons management believes these measures
are important to investors.
Non-GAAP financial measure. Refer to the “Non-GAAP financial measures” section in Item 7 of this report for a reconciliation of net cash provided by operating activities to free cash flow, as well as the reasons why
management believes this measure is important to investors.
(2)
(3)
(4)
(5)
(6)
(7)
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with our
consolidated financial statements and related notes contained in Item 8 of this report on Form 10-K. The following MD&A describes the principal factors affecting
results of operations, financial resources, liquidity, contractual cash obligations, and critical accounting estimates. The information presented in the MD&A is for
the years ended December 31, 2016 , 2015 and 2014 unless otherwise noted.
OVERVIEW
Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. Our operating segments are aggregated into
reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We report our financial
performance based on three business segments: (1) FMS, which provides full service leasing, commercial rental, contract maintenance, and contract-related
maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides vehicles and drivers as part of a
dedicated transportation solution in the U.S.; and (3) SCS, which provides comprehensive supply chain solutions including distribution and transportation services
in North America and Asia. Dedicated transportation services provided as part of an integrated, multi-service, supply chain solution to SCS customers are reported
in the SCS business segment.
The FMS business, our largest segment, had total revenue (net of intercompany eliminations) and assets in 2016 of $4.1 billion and $10 billion , respectively,
representing 61% of our consolidated revenue and 91% of consolidated assets. DTS total revenue and assets in 2016 were $1.0 billion and $256 million ,
respectively, representing 15% of our consolidated revenue and 2% of consolidated assets. SCS total revenue and assets in 2016 were $1.6 billion and $713 million
, respectively, representing 24% of our consolidated revenue and 7% of consolidated assets.
We operate in highly competitive markets. Our customers select us based on numerous factors including service quality, price, technology and service
offerings. As an alternative to using our services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative
services from other third-party vendors. Our customer base includes enterprises operating in a variety of industries including food and beverage service (22%),
transportation and warehousing (19%), automotive (11%), retail and consumer goods (10%), industrial (8%), housing (8%), technology (7%), business and
personal services (6%) and other (9%).
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The following discussion provides a summary of financial highlights that are discussed in more detail throughout our MD&A and within the Notes to
Consolidated Financial Statements:
2016
2015
2014
2016/2015
2015/2014
Change
Total revenue
Operating revenue (1)
Earnings before income taxes (EBT)
Comparable EBT (2)
Earnings from continuing operations
Comparable earnings from continuing operations (2)
Net earnings
Earnings per common share — Diluted
Continuing operations
Comparable (2)
Net earnings
$
$
$
(Dollars in thousands, except per share amounts)
6,786,984
5,790,897
6,571,893
5,561,077
6,638,774
5,252,217
406,381
448,833
264,640
290,357
262,477
4.94
5.42
4.90
469,215
505,960
305,989
327,331
304,768
5.73
6.13
5.71
338,267
462,991
220,225
296,868
218,341
4.14
5.58
4.11
3%
4%
(13)%
(11)%
(14)%
(11)%
(14)%
(14)%
(12)%
(14)%
(1)%
6%
39%
9%
39%
10%
40%
38%
10%
39%
_________________
(1) Non-GAAP financial measure. Refer to the“Non-GAAP Financial Measures” section of this MD&A for a reconciliation of total revenue to operating revenue and the reasons why management believes this
measure is important to investors .
(2) Non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section for a reconciliation of EBT, net earnings and earnings per diluted common share to the comparable measures and the
reasons why management believes these measures are important to investors.
In 2016 , total revenue increased 3% to $6.79 billion and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation)
increased 4% to $5.79 billion . Total and operating revenue increased due to growth in the full service lease fleet and higher prices on full service lease
replacement vehicles and new business, increased volumes and higher pricing in SCS and DTS. These increases were partially offset by lower demand in
commercial rental and negative impacts from foreign exchange. Total revenue was also negatively impacted by lower prices on fuel passed through to customers,
partially offset by increased subcontracted transportation in DTS. EBT decreased 13% in 2016 , reflecting lower used vehicle and commercial rental results,
partially offset by higher full service lease results in FMS and margin growth in SCS and DTS.
Cash provided by operating activities from continuing operations increased to $1.60 billion in 2016 compared with $1.44 billion in 2015 . Free cash flow
from continuing operations (a non-GAAP financial measure) increased to positive $194 million in 2016 from negative $728 million in 2015 reflecting lower capital
expenditures.
Capital expenditures decreased 35% to $1.76 billion in 2016 , reflecting planned lower investments in the full service lease and commercial rental fleets. Our
debt balance decreased 2% to $5.39 billion at December 31, 2016 , due to lower financing needs to fund capital expenditures. Our debt to equity ratio decreased to
263% from 277% in 2015 , largely driven by positive free cash flow and lower borrowings to fund capital expenditures.
We increased our annual dividend by 7% to $1.76 per share of common stock during 2016 .
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
2017 Outlook
In 2017 , we expect to deliver another year of solid revenue growth, however, we expect continued challenges in the used vehicle sales environment to
result in lower earnings. While future pricing will be determined by the market, our forecast assumes average vehicle pricing will decline by double digits in 2017.
We have also accelerated depreciation on vehicles in operation that are expected to be available for sale through mid-2018 to reflect this lower outlook. We
anticipate that secular trends favoring outsourcing will drive continued revenue and earnings growth in our contractual businesses across all three segments and
expect lease fleet growth of 3,500 vehicles. We expect better commercial rental results reflecting improved utilization in 2017. In addition to earnings growth from
our contractual products and improved rental performance, we also anticipate earnings to benefit from workforce reductions taken in late 2016 and other cost-
savings actions.
We expect cash provided by operating activities from continuing operations to increase approximately $100 million to $1.7 billion in 2017. We also
expect free cash flow to increase $60 million to $250 million in 2017 , reflecting increased cash from operations partially offset by higher capital spending. Given
the increase in free cash flow, we expect to reduce our leverage to the middle of our long-term range, supporting our ability to continue anti-dilutive share
repurchases.
We forecast 2017 earnings from continuing operations of $4.78 to $5.08 per diluted share, compared with $4.94 per diluted share in 2016, and
comparable earnings from continuing operations of $5.10 to $5.40 per diluted share, compared with $5.42 per diluted share in 2016 . Comparable earnings exclude
non-operating pension costs of $0.32 per diluted share in 2017 , as well as non-operating pension, restructuring and other net charges of $0.48 in 2016 . Total
revenue for 2017 is expected to be up 4% to approximately $7 billion . Operating revenue for 2017 is forecast to be up 3% to approximately $6 billion .
Free cash flow, comparable earnings from continuing operations per diluted share and operating revenue are non-GAAP financial measures. Refer to the
"Non-GAAP financial measures" section of this MD&A for a description of these measures, reconciliations to their comparable GAAP measures and the reasons
why management believes these measures are important to investors.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
FULL YEAR CONSOLIDATED RESULTS
Revenue and cost of revenue by source
Total revenue increased 3% in 2016 to $6.79 billion and decreased 1% in 2015 to $6.57 billion . Operating revenue (a non-GAAP measure excluding fuel
and subcontracted transportation) increased 4% in 2016 to $5.79 billion and increased 6% in 2015 to $5.56 billion . The following table summarizes the
components of the change in revenue on a percentage basis versus the prior year:
Organic, including price and volume
Fuel
Foreign exchange
Total increase/(decrease)
Lease and Rental
2016
2015
Total
6%
(2)
(1)
3%
Operating
5%
—
(1)
4%
Total
7%
(6)
(2)
(1)%
Operating
8%
—
(2)
6%
Change
2016
2015
2014
2016/2015
2015/2014
Lease and rental revenues
Cost of lease and rental
Gross margin
Gross margin %
$
3,170,952
2,234,284
936,668
30%
(Dollars in thousands)
3,121,553
2,153,450
968,103
2,939,422
2,036,881
902,541
2%
4%
(3)%
6%
6%
7%
31%
31%
Lease and rental revenues represent full service lease and commercial rental product offerings within our FMS business segment. Revenues increased 2% in
2016 to $3.17 billion and increased 6% in 2015 to $3.12 billion . In 2016 , the increase was due to higher full service lease revenue, driven by growth in the
average full service lease fleet (up 4% in 2016 ) and higher prices on replacement vehicles. Lease and rental revenues in 2016 were negatively impacted by lower
commercial rental revenue reflecting weaker demand. Foreign exchange negatively impacted revenue growth by 100 basis points. In 2015 , the increase was
primarily driven by a larger full service lease fleet, higher prices on full service lease vehicles and increased commercial rental revenue. Foreign exchange
negatively impacted 2015 lease and rental revenue growth by 200 basis points.
Cost of lease and rental represents the direct costs related to lease and rental revenues. These costs are comprised of depreciation of revenue earning
equipment, maintenance costs (primarily repair parts and labor), and other fixed costs such as licenses, insurance and operating taxes. Cost of lease and rental
excludes interest costs from vehicle financing. Cost of lease and rental were $2.2 billion in both 2016 and 2015 . In 2016 , cost of lease and rental reflected higher
depreciation and maintenance costs from a larger average lease fleet and accelerated depreciation on vehicles expected to be made available for sale through June
2018 of $10 million, offset by lower depreciation and maintenance on a smaller average rental fleet (down 8% in 2016 ). Changes in estimated residual values and
useful lives of revenue earning equipment effective January 1, 2016 , benefited cost of lease and rental by $35 million in 2016 . In 2015 , the increase was due to
higher depreciation, insurance and maintenance costs resulting from a 4% larger average lease fleet and a 7% larger average rental fleet. Cost of lease and rental
benefited by $40 million in 2015 due to changes in estimated residual values and useful lives of revenue earning equipment effective January 1, 2015 .
Lease and rental gross margin decreased 3% to $937 million and gross margin as a percentage of revenue decreased to 30% in 2016 due to lower commercial
rental demand, partially offset by lease fleet growth, as well as benefits from improved residual values. Gross margin increased 7% to $968 million and gross
margin as a percentage of revenue remained at 31% in 2015 due to higher per-vehicle pricing and benefits from improved vehicle residual values.
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Services
Services revenue
Cost of services
Gross margin
Gross margin %
2016
2015
2014
2016/2015
2015/2014
$
3,152,294
2,602,978
549,316
17%
(Dollars in thousands)
2,912,063
2,413,156
498,907
2,911,465
2,447,867
463,598
8%
8%
10%
—%
(1)%
8%
17%
16%
Change
Services revenue represents all the revenues associated with our DTS and SCS business segments as well as contract maintenance, contract-related
maintenance and fleet support services associated with our FMS business segment. Services revenue increased 8% in 2016 due to new business, increased volumes
and higher pricing in the DTS and SCS segments. The contract-related maintenance and contract maintenance product lines benefited from growth in fleet size, and
contract-related maintenance revenue also increased from higher volumes. These increases were partially offset by lower fuel prices passed through to our DTS
and SCS customers. Services revenue in 2015 was consistent with the prior year as new business, increased pricing and higher volumes in our SCS and DTS
business segments were offset by lower fuel prices and negative impacts from foreign exchange. Foreign exchange negatively impacted revenue growth by 200
basis points in both periods.
Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, subcontracted
transportation (purchased transportation from third parties), maintenance costs and fuel. Cost of services increased 8% in 2016 to $2.6 billion due to higher
volumes, partially offset by lower fuel and insurance costs. Foreign exchange reduced cost of services by 100 basis points in 2016 . Cost of services decreased 1%
in 2015 to $2.41 billion due to lower fuel costs as well as lower shutdown costs in our SCS business, partially offset by increased insurance and compensation-
related costs. The 2015 decrease also reflects higher prior-year start-up and severe winter weather-related costs.
Services gross margin increased 10% to $549 million in 2016 , reflecting benefits from higher pricing, new business and higher volumes in our DTS and
SCS segments. Services gross margin increased 8% to $499 million in 2015 due to higher revenue. Services gross margin as a percentage of revenue remained at
17% in 2016 and increased to 17% in 2015 due to lower costs.
Fuel
Fuel services revenue
Cost of fuel services
Gross margin
Gross margin %
2016
2015
2014
2016/2015
2015/2014
Change
$
463,738
448,306
15,432
3%
(Dollars in thousands)
538,277
519,843
18,434
3%
787,887
768,292
19,595
2%
(14)%
(14)%
(16)%
(32)%
(32)%
(6)%
Fuel services revenue decreased 14% in 2016 to $464 million and decreased 32% in 2015 to $538 million . In both 2016 and 2015 , the revenue decrease was
due to lower fuel prices passed through to customers. In addition, foreign exchange negatively impacted revenue growth by 100 basis points in 2015 . Foreign
exchange did not significantly impact revenue growth in 2016 .
Cost of fuel services includes the direct costs associated with providing our customers with fuel. These costs include fuel, salaries and employee-related costs
of fuel island attendants and depreciation of our fueling facilities and equipment. Cost of fuel services decreased 14% in 2016 to $448 million and decreased 32%
in 2015 to $520 million due to lower fuel prices.
Fuel services gross margin decreased 16% to $15 million in 2016 and decreased 6% to $18 million in 2015 . Fuel services gross margin as a percentage of
revenue remained at 3% in 2016 and increased to 3% in 2015 . Fuel is largely a pass-through to customers for which we realize minimal changes in margin during
periods of steady market fuel prices. However, fuel services margin is impacted by sudden increases or decreases in market fuel prices during a short period of time
as customer pricing for fuel is established based on trailing market fuel costs.
29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
2016
2015
2014
2016/2015
2015/2014
(In thousands)
Change
Other operating expenses
$
113,461
117,082
115,808
(3)%
1%
Other operating expenses include costs related to our owned and leased facilities within the FMS business segment such as depreciation, rent, insurance,
utilities and taxes. These facilities are utilized to provide maintenance to our lease, rental, contract maintenance and fleet support services customers. Other
operating expenses decreased 3% to $113 million in 2016 , due to lower utility and maintenance costs for FMS facilities. Other operating expenses increased 1% to
$117 million in 2015 .
2016
2015
2014
2016/2015
2015/2014
(Dollars in thousands)
Change
Selling, general and administrative expenses (SG&A)
$
842,697
844,497
816,975
—%
3%
Percentage of total revenue
12%
13%
12%
SG&A expenses were down slightly at $843 million in 2016 and increased 3% to $844 million in 2015 . SG&A expenses as a percent of total revenue
decreased to 12% in 2016 and increased to 13% in 2015 . Lower compensation-related expenses, marketing-related costs, professional fees and the effects from
foreign exchange in SG&A expenses in 2016 , were offset by increased pension expense and information technology costs. Pension expense, which primarily
impacts SG&A expenses, increased $20 million in 2016 due to the impact of a lower asset return assumption and a higher discount rate as well as a $8 million one-
time charge in the second quarter to reflect pension benefit improvements made in 2009 that were not fully reflected in our pension benefit obligation in prior
years. The increase in 2015 primarily reflects higher professional fees and compensation-related expenses, strategic investments in information technology and a
settlement of a customer-extended insurance claim partially offset by foreign exchange. Foreign exchange reduced growth in SG&A expenses by 100 basis points
in 2016 and 200 basis points in 2015 .
2014
(In thousands)
Pension lump sum settlement expense
$
97,231
In 2014 , we reduced the size and potential volatility of our U.S. pension plan obligation by offering former employees a one-time option to receive a lump
sum distribution of their vested benefits. The transaction resulted in a non-cash pension settlement loss of $97 million . Refer to Note 22 , “ Employee Benefit
Plans ,” in the Notes to Consolidated Financial Statements for additional information.
2016
2015
2014
2016/2015
2015/2014
(In thousands)
Change
Used vehicle sales, net
$
972
99,853
116,060
(99)%
(14)%
Used vehicle sales, net includes gains and selling costs from sales of used vehicles as well as the write-downs of vehicles classified as held for sale to fair
market value. Used vehicle sales, net decreased 99% to $1 million in 2016 , due to a drop in the market value of trucks and tractors, which has resulted in lower
gains on sales of used vehicles and higher fair market value write-downs. Average proceeds per unit decreased in 2016 from the prior year reflecting a 14%
decrease in tractor proceeds per unit and a 1% decrease in truck proceeds per unit. We expect used vehicle pricing to continue declining through 2017. Used
vehicle sales, net decreased 14% to $100 million in 2015 due to lower sales volume and higher fair market value write-downs, partially offset by higher average
proceeds per unit.
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Interest expense
Effective interest rate
2016
2015
2014
2016/2015
2015/2014
(Dollars in thousands)
$
147,843
150,434
144,739
(2)%
4%
2.7%
2.9%
3.1%
Change
Interest expense decreased 2% to $148 million in 2016 , reflecting a lower effective interest rate, partially offset by higher average outstanding debt. Interest
expense increased 4% to $150 million in 2015 , reflecting higher average outstanding debt, partially offset by a lower effective interest rate. The increase in
average outstanding debt in 2015 reflects planned higher vehicle capital spending in that year. The lower effective interest rate in both years reflects the
replacement of higher interest rate debt with debt issuances at lower rates.
Miscellaneous income, net
$
13,068
10,156
13,613
Miscellaneous income, net consists of investment income on securities used to fund certain benefit plans, interest income, gains from sales of operating
property, foreign currency transaction gains and other non-operating items. The increase in 2016 is primarily driven by increased rabbi trust investment income.
The decrease in 2015 reflects a gain on a contract settlement that benefited 2014.
2016
2015
(In thousands)
2014
Restructuring and other charges, net
$
5,074
14,225
2,387
During the fourth quarter of 2016 and 2015 , we approved plans to reduce our workforce in multiple locations as a result of cost containment actions. These
actions resulted in pre-tax charges of $5 million in 2016 and $9 million in 2015 . The workforce reduction approved in 2016 was substantially completed in
December 2016 and is expected to result in annual cost savings of approximately $20 million. The workforce reduction approved in 2015 was completed during
2016. During the fourth quarter of 2015 , we also committed to a plan to divest our Ryder Canadian Retail Shippers Association Logistics operations and shutdown
our Ryder Container Terminals business in Canada. The sale and shutdown were completed in 2016. We recognized charges in 2015 for this action of $3 million
for employee termination costs and $2 million for asset impairment to adjust assets held for sale to fair value. Refer to Note 4 , “ Restructuring and Other Charges ”
in the Notes to Consolidated Financial Statements for further discussion.
2016
2015
(In thousands)
2014
2016
2015
2014
2016/2015
2015/2014
(Dollars in thousands)
Change
Provision for income taxes
$
141,741
163,226
118,042
(13)%
38%
Effective tax rate from continuing operations
34.9%
34.8%
34.9%
Our provision for income taxes and effective income tax rates from continuing operations are impacted by such items as enacted tax law changes, settlement
of tax audits and the reversal of reserves for uncertain tax positions due to the expiration of statutes of limitation. In the aggregate, these items reduced the effective
rate by 0.8% in 2016 , 2.2% in 2015 and 1.8% in 2014 . The other components of the effective tax rate in 2016 and 2015 remained consistent with the prior year.
On December 18, 2015, the U.S. enacted the Protecting Americans from Tax Hikes Act (PATH). This enactment along with the Tax Increase Prevention Act
of 2014, the American Taxpayer Relief Act of 2012, the 2010 Tax Relief, and the Unemployment Insurance Reauthorization and Job Creation Act, expanded and
extended bonus depreciation to qualified property placed in service during 2010 through 2019. These changes will continue to significantly reduce our U.S. federal
tax payments.
31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
FULL YEAR OPERATING RESULTS BY BUSINESS SEGMENT
2016
2015
2014
2016/2015
2015/2014
(In thousands)
Change
Revenue:
Fleet Management Solutions
$
4,556,194
4,545,692
4,655,758
— %
Dedicated Transportation Solutions
Supply Chain Solutions
Eliminations
Total
1,020,895
1,637,850
(427,955)
$
6,786,984
895,538
1,547,763
(417,100)
6,571,893
899,802
1,561,347
(478,133)
6,638,774
14
6
(3)
3 %
Operating Revenue: (1)
Fleet Management Solutions
$
3,947,740
3,846,046
3,630,521
3 %
Dedicated Transportation Solutions
Supply Chain Solutions
Eliminations
Total
EBT:
774,319
1,352,077
(283,239)
$
5,790,897
714,453
1,256,309
(255,731)
5,561,077
661,228
1,201,250
(240,782)
5,252,217
8
8
(11)
4 %
(2)%
—
(1)
13
(1)%
6 %
8
5
(6)
6 %
Fleet Management Solutions
$
Dedicated Transportation Solutions
Supply Chain Solutions
Eliminations
Unallocated Central Support Services
Non-operating pension costs
Restructuring and other charges, net and other items
Earnings from continuing operations before income
370,754
63,611
105,561
(50,148)
489,778
(40,945)
(29,728)
(12,724)
462,109
45,800
93,754
(47,193)
554,470
(48,510)
(19,186)
(17,559)
433,736
44,556
77,800
(41,361)
514,731
(51,740)
(9,768)
(114,956)
(20)%
7 %
39
13
(6)
(12)
16
(55)
NM
3
21
(14)
8
6
(96)
NM
taxes
$
406,381
469,215
338,267
(13)%
39 %
————————————
(1) Non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section of this MD&A for a reconciliation of total revenue to operating revenue, and segment total revenue
to segment operating revenue for FMS, DTS and SCS, as well as the reasons why management believes these measures are important to investors.
As part of management’s evaluation of segment operating performance, we define the primary measurement of our segment financial performance as EBT
from continuing operations, which includes an allocation of Central Support Services (CSS), and excludes non-operating pension costs, restructuring and other
charges, net, as described in Note 4 , “ Restructuring and Other Charges ,” and the items discussed in Note 24 , “ Other Items Impacting Comparability ,” in the
Notes to Consolidated Financial Statements. CSS represents those costs incurred to support all business segments, including human resources, finance, corporate
services and public affairs, information technology, health and safety, legal, marketing and corporate communications.
The objective of the EBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business
segment and each operating segment within each business segment accountable for their allocated share of CSS costs. Segment results are not necessarily
indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Certain
costs are not attributable to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation.
See Note 27 , “ Segment Reporting ,” in the Notes to Consolidated Financial Statements for a description of the methodology for allocating the remainder of CSS
costs to the business segments.
32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
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 DTS and SCS and then eliminated (presented as “Eliminations” in the table above). Refer to Note 27 ,
" Segment Reporting " in the Notes to Consolidated Financial Statements for additional information.
The following table sets forth equipment contribution included in EBT for our DTS and SCS business segments:
Equipment Contribution:
Dedicated Transportation Solutions
Supply Chain Solutions
Total
2016
2015
2014
2016/2015
2015/2014
(Dollars in thousands)
Change
$
$
32,731
17,417
50,148
32,471
14,722
47,193
28,436
12,925
41,361
1%
18
6%
14%
14
14%
The following table provides items excluded from our segment EBT measure and their classification within our Consolidated Statements of Earnings:
Description
Consolidated
Statements of Earnings Line Item
2016
2015
2014
Non-operating pension costs
Restructuring and other charges, net (1)
Consulting fees (2)
Pension-related adjustments (3)
Pension lump sum settlement expense (3)
Acquisition-related tax adjustment (2)
Acquisition transaction costs
SG&A
$
(29,728)
Restructuring and other charges
SG&A
SG&A
Pension lump sum settlement expense
SG&A
SG&A
(5,074)
—
(7,650)
—
—
—
(In thousands)
(19,186)
(14,225)
(3,843)
509
—
—
—
(9,768)
(2,387)
(400)
(12,564)
(97,231)
(1,808)
(566)
$
(42,452)
(36,745)
(124,724)
________________
(1)
(2)
(3)
See Note 4 , “ Restructuring and Other Charges ,” in the Notes to Consolidated Financial Statements for additional information.
See Note 24 , “ Other Items Impacting Comparability ,” in the Notes to Consolidated Financial Statements for additional information.
See Note 22 , “ Employee Benefit Plans ,” in the Notes to Consolidated Financial Statements for additional information.
33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Fleet Management Solutions
Full service lease
Contract maintenance
Contractual revenue
Commercial rental
Contract-related maintenance
Other
Fuel services revenue
FMS Total revenue (1)
FMS Operating revenue (2)
FMS EBT
2016
2015
2014
2016/2015
2015/2014
Change
$
$
$
$
2,573,638
199,923
2,773,561
846,331
249,806
78,042
608,454
(Dollars in thousands)
2,406,711
192,470
2,599,181
940,045
229,195
77,625
699,646
4,556,194
4,545,692
2,276,381
184,591
2,460,972
876,994
221,491
71,064
1,025,237
4,655,758
3,947,740
3,846,046
3,630,521
7%
4
7
(10)
9
1
(13)
—%
3
370,754
462,109
433,736
(20)%
6%
4
6
7
3
9
(32)
(2)%
6
7%
90 bps
10 bps
FMS Segment EBT as a % of FMS total revenue
FMS Segment EBT as a % of FMS operating revenue (1)
8.1%
9.4%
10.2%
12.0%
9.3%
(210) bps
11.9%
(260) bps
____________________
(1)
(2) Non-GAAP financial measures. Reconciliations of FMS total revenue to FMS operating revenue, and FMS EBT as a % of FMS total revenue to FMS EBT as a % of FMS operating
Includes intercompany fuel sales from FMS to DTS and SCS.
revenue, as well as the reasons why management believes these measures are important to investors are included in the “Non-GAAP Financial Measures” section of this MD&A.
FMS total revenue increased slightly to $4.56 billion in 2016 and decreased 2% in 2015 to $4.55 billion . FMS operating revenue (a non-GAAP measure
excluding fuel) increased 3% in 2016 to $3.95 billion and increased 6% in 2015 to $3.85 billion . The following table summarizes the components of the change in
revenue on a percentage basis versus the prior year:
Organic, including price and volume
Fuel
Foreign exchange
Total (decrease)/increase
2016
Operating (1)
4%
—
(1)
3%
Total
3%
(2)
(1)
—%
2015
Operating (1)
8%
—
(2)
6%
Total
7%
(7)
(2)
(2)%
————————————
(1) Non-GAAP financial measures. A reconciliation of FMS total revenue to FMS operating revenue as well as the reasons why management believes these measures are important to
investors are included in the "Non-GAAP Financial Measures" section of this MD&A.
2016 versus 2015
Full service lease revenue increased 7% in 2016 , reflecting a larger average fleet size and higher prices on replacement vehicles. Foreign exchange
negatively impacted full service lease revenue growth by 100 basis points. The average number of full service lease vehicles increased 4% from the prior year,
reflecting continued strong sales activity. We expect favorable full service lease comparisons to continue next year primarily due to strong 2016 sales activity, as
well as 2017 expected sales. Commercial rental revenue decreased 10% in 2016 due to lower demand. Foreign exchange negatively impacted commercial rental
revenue growth by 100 basis points. We expect unfavorable commercial rental comparisons next year based on a weaker demand environment. Contract
maintenance revenue increased 4% in 2016 , primarily due to higher volumes and new business. Contract-related maintenance revenue increased 9% in 2016 ,
reflecting favorable impacts from growth in the full service lease fleet and higher volumes. Fuel services revenue declined 13% in 2016 due to lower prices passed
through to customers.
34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
FMS EBT decreased 20% in 2016 to $371 million , reflecting lower used vehicle sales results, decreased commercial rental performance and accelerated
depreciation on vehicles expected to be made available for sale through June 2018 of $10 million, partially offset by higher full service lease performance and
lower overhead costs. Used vehicle sales results declined due to lower proceeds per unit, primarily with tractors and higher fair market value write-downs on
vehicles held for sale. Commercial rental performance declined 16% in 2016 reflecting decreased demand. Rental power fleet utilization was 74.7% in 2016 , down
from 76.5% in 2015 , on a 7% smaller average rental power fleet. Full service lease comparisons benefited from growth in fleet size and higher per-vehicle pricing.
Full service lease and commercial rental results benefited from lower depreciation of $35 million due to residual value changes implemented January 1, 2016 .
2015 versus 2014
Full service lease revenue increased 6% in 2015 due to lease fleet growth and higher pricing on replacement vehicles. Foreign exchange negatively impacted
full service lease revenue growth by 200 basis points. The average number of full service lease vehicles increased 4% from the prior year. Commercial rental
revenue increased 7% in 2015 , reflecting higher North American demand and increased pricing (up 3% in 2015 ). Foreign exchange negatively impacted
commercial rental revenue growth by 200 basis points. Contract maintenance revenue increased 4% in 2015 , primarily due to higher volumes and new business.
Contract-related maintenance revenue increased 3% in 2015 , reflecting higher volumes and new business. Both contract-related maintenance and contract
maintenance were positively impacted in 2015 by the full year impact of the 2014 acquisition of Bullwell Trailer Solutions. Fuel services revenue declined 32% in
2015 due to lower prices passed through to customers.
FMS EBT increased 7% in 2015 to $462 million primarily due to higher full service lease results and strong commercial rental performance, partially offset
by lower used vehicle sales results. Full service lease comparisons benefited from growth in fleet size and higher per-vehicle pricing. Commercial rental
performance improved 8% in 2015 from the prior year, reflecting increased North American demand and higher pricing. Rental power fleet utilization was 76.5%
in 2015 , down from 77.6% in 2014 on an 8% larger average rental power fleet. Full service lease and commercial rental results benefited from lower depreciation
of $40 million due to residual value changes implemented January 1, 2015 . Used vehicle sales results decreased due to lower volume, partially offset by higher
proceeds per unit.
The following table provides commercial rental statistics on our global fleet:
2016
2015
2014
2016/2015
2015/2014
Change
Rental revenue from non-lease customers
Rental revenue from lease customers (1)
Average commercial rental power fleet size – in
service (2), (3)
Commercial rental utilization – power fleet (2)
$
$
528,892
317,439
(Dollars in thousands)
571,985
368,060
31,500
74.7%
33,800
76.5%
523,063
353,931
(8)%
(14)%
31,200
(7)%
9%
4%
8%
77.6%
(180) bps
(110) bps
______________
(1) Represents revenue from rental vehicles provided to our existing full service lease customers, generally in place of a lease vehicle.
(2) Number of units rounded to nearest hundred and calculated using quarterly average unit counts.
(3) Excluding trailers.
35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Our global fleet of owned and leased revenue earning equipment and contract maintenance vehicles is summarized as follows (number of units rounded to
2016
2015
2014
2016/2015
2015/2014
Change
the nearest hundred):
End of period vehicle count
By type:
Trucks (1)
Tractors (2)
Trailers (3), (4)
Other
Total
By ownership:
Owned
Leased
Total
By product line: (4)
Full service lease
Commercial rental
Service vehicles and other
Active units
Held for sale
Total
Customer vehicles under contract maintenance
Total vehicles serviced
Average vehicle count
By product line:
Full service lease
Commercial rental
Service vehicles and other
Active units
Held for sale
Total
73,300
67,900
42,800
1,100
72,800
68,700
42,400
1,300
68,900
62,400
41,400
1,400
185,100
185,200
174,100
183,700
1,400
185,100
184,700
500
185,200
172,300
1,800
174,100
136,500
131,800
125,500
37,800
3,300
177,600
7,500
185,100
49,000
234,100
42,100
3,300
177,200
8,000
185,200
46,700
231,900
39,900
3,200
168,600
5,500
174,100
42,400
1%
(1)
1
(15)
—%
(1)%
180
—%
4%
(10)
—
—
(6)
—
5
216,500
1%
134,400
128,800
123,400
39,200
3,400
177,000
8,400
185,400
42,400
3,200
174,400
6,100
180,500
39,800
3,100
166,300
6,500
172,800
4%
(8)
6
1
38
3
6%
10
2
(7)
6%
7%
(72)
6%
5%
6
3
5
45
6
10
7%
4%
7
3
5
(6)
4
10%
18%
6%
Customer vehicles under contract maintenance
49,200
43,300
39,500
14%
Customer vehicles under on-demand maintenance (5)
21,000
20,000
17,000
Total vehicles serviced
255,600
243,800
229,300
5%
5%
__________________
(1) Generally comprised of Class 1 through Class 7 type vehicles with a Gross Vehicle Weight (GVW) up to 33,000 pounds.
(2) Generally comprised of over the road on highway tractors and are primarily comprised of Class 8 type vehicles with a GVW of over 33,000 pounds.
(3) Generally comprised of dry, flatbed and refrigerated type trailers.
(4)
Includes 5,300 UK trailers ( 3,300 full service lease and 2,000 commercial rental), 6,100 UK trailers ( 3,900 full service lease and 2,200 commercial rental) and 6,800 UK trailers ( 4,400
full service lease and 2,400 commercial rental) as of December 31, 2016 , 2015 and 2014 , respectively, primarily acquired as part of the Hill Hire acquisition.
(5) Comprised of the number of unique vehicles serviced under on-demand maintenance agreements. Vehicles included in the end of period count may have been serviced more than one time
during the respective annual period.
Note:
Average vehicle counts were computed using a 24-point average based on monthly information.
36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The totals in the previous table include the following non-revenue earning equipment for the global fleet (number of units rounded to the nearest hundred):
Number of Units
2016
2015
2014
1,700
2,800
2,300
Change
2016/2015
(39)%
2015/2014
22%
Not yet earning revenue (NYE)
No longer earning revenue (NLE):
Units held for sale
Other NLE units
Total
7,500
4,400
13,600
8,000
3,300
14,100
5,500
3,000
(6)
33
10,800
(4)%
45
10
31%
NYE units represent new vehicles on hand that are being prepared for deployment to a lease customer or into the rental fleet. Preparations include activities
such as adding lift gates, paint, decals, cargo area and refrigeration equipment. For 2016 , the number of NYE units decreased 39% compared with December 31,
2015 , reflecting lower lease fleet growth and the redeployment of used vehicles to fulfill lease sales. NLE units represent all vehicles held for sale and vehicles for
which no revenue has been earned in the previous 30 days. Accordingly, these vehicles may be temporarily out of service, being prepared for sale or awaiting
redeployment. For 2016 , the number of NLE units increased 5% , reflecting higher used vehicle inventories and a higher number of vehicles being prepared for
sale. We expect NLE units to decline in 2017 , as a result of lower expected used vehicle inventories and units being transferred to our used vehicle locations as
they are prepared for sale.
Dedicated Transportation Solutions
DTS Total revenue (1)
DTS Operating revenue (2)
DTS EBT
DTS EBT as a % of DTS total revenue
DTS EBT as a % of DTS operating revenue (1)
Memo:
Average fleet
2016
2015
2014
2016/2015
2015/2014
Change
$
$
$
(Dollars in thousands)
1,020,895
895,538
899,802
774,319
714,453
661,228
63,611
45,800
44,556
6.2%
8.2%
5.1%
6.4%
5.0%
6.7%
14%
8%
39%
110 bps
180 bps
—%
8%
3%
10 bps
(30) bps
8,200
7,700
7,300
6%
5%
__________________
(1)
(2) Non-GAAP financial measures. Reconciliations of DTS total revenue to DTS operating revenue, DTS EBT as a % of DTS total revenue to DTS EBT as a % of DTS operating revenue, as
Includes intercompany fuel sales from FMS to DTS.
well as the reasons why management believes these measures are important to investors are included in the “Non-GAAP Financial Measures” section of this MD&A.
Total revenue increased 14% in 2016 to $1.02 billion and remained unchanged at $ 896 million in 2015 . DTS operating revenue (a non-GAAP measure
excluding fuel and subcontracted transportation) increased 8% in 2016 to $774 million and 8% in 2015 to $714 million .
37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The following table summarizes the components of the change in revenue on a percentage basis versus the prior year:
Organic, including price and volume
Fuel
Total increase
2016
2015
Total
16%
(2)
14%
Operating (1)
8%
—
8%
Total
5%
(5)
—%
Operating (1)
8%
—
8%
————————————
(1) Non-GAAP financial measure. A reconciliation of DTS total revenue to DTS operating revenue, as well as the reasons why management believes this measure is important to investors is
included in the "Non-GAAP Financial Measures" section of this MD&A.
We expect favorable operating revenue comparisons to continue next year, however, at a lower growth rate.
2016 versus 2015
In 2016 , total revenue increased 14% reflecting organic growth, partially offset by lower fuel prices passed through to our customers. Operating revenue
increased 8% due to new business, increased volumes and higher pricing. DTS EBT increased 39% due to increased revenue and, to a lesser extent, lower
insurance costs.
2015 versus 2014
In 2015 , total revenue was consistent with the prior year as increased operating revenue was offset by declining fuel prices and lower subcontracted
transportation costs passed through to customers. Operating revenue increased 8% due to new business, increased pricing and higher volumes. DTS EBT increased
3% due to the benefits of higher operating revenue partially offset by unfavorable self-insurance developments and customer-related bankruptcy charges.
Supply Chain Solutions
Automotive
Technology and healthcare
CPG and retail
Industrial and other
Subcontracted transportation
Fuel costs (1)
SCS total revenue
2016
2015
2014
2016/2015
2015/2014
Change
$
548,659
242,474
436,368
124,576
224,060
61,713
(Dollars in thousands)
469,178
251,188
431,571
104,372
226,880
64,574
454,888
236,380
405,929
104,053
264,377
95,720
$
1,637,850
$
1,547,763
$
1,561,347
17%
(3)
1
19
(1)
(4)
6%
8%
13%
30 bps
30 bps
3%
6
6
—
(14)
(33)
(1)%
5%
21%
110 bps
100 bps
SCS operating revenue (2)
1,352,077
1,256,309
1,201,250
SCS EBT
$
105,561
93,754
77,800
SCS EBT as a % of SCS total revenue
SCS EBT as a % of SCS operating revenue (2)
6.4%
7.8%
6.1%
7.5%
5.0%
6.5%
Memo:
Average fleet
7,200
6,300
6,000
14%
5%
————————————
(1)
(2) Non-GAAP financial measures. Reconciliations of SCS total revenue to SCS operating revenue, SCS EBT as a % of SCS total revenue to SCS EBT as a % of SCS operating revenue, as
Includes intercompany fuel sales from FMS to SCS.
well as the reasons why management believes these measures are important to investors are included in the “Non-GAAP Financial Measures” section of this MD&A.
38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Total revenue increased 6% in 2016 to $1.64 billion and decreased 1% in 2015 to $1.55 billion . Operating revenue (a non-GAAP measure excluding fuel
and subcontracted transportation) increased 8% in 2016 to $1.35 billion and 5% in 2015 to $1.26 billion .
The following table summarizes the components of the change in revenue on a percentage basis versus the prior year:
Organic, including price and volume
Foreign exchange
Fuel
Total increase/(decrease)
2016
2015
Total
8%
(2)
—
6%
Operating (1)
9%
(1)
—
8%
Total
5%
(4)
(2)
(1)%
Operating (1)
8%
(3)
—
5%
————————————
(1) Non-GAAP financial measure. A reconciliation of SCS total revenue to SCS operating revenue, as well as the reasons why management believes this measure is important to investors is
included in the "Non-GAAP Financial Measures" section of this MD&A.
We expect favorable operating revenue comparisons to continue next year in line with 2016 performance.
2016 versus 2015
Total revenue increased 6% in 2016 as increased operating revenue was partially offset by a negative impact from foreign exchange. SCS operating revenue
increased 8% due to new business, increased volumes and higher pricing, partially offset by a negative impact from foreign exchange. SCS EBT increased 13% in
2016 to $106 million due to increased revenue.
2015 versus 2014
Total revenue decreased 1% in 2015 primarily due to negative impacts from foreign exchange, lower fuel costs passed through to customers and lower
subcontracted transportation costs, partially offset by operating revenue growth. Operating revenue increased 5% due to new business, higher volumes and
increased pricing, partially offset by a negative impact from foreign exchange. SCS EBT increased 21% in 2015 to $94 million due to increased operating revenue
and favorable comparisons to 2014 , despite being negatively impacted by lost automotive business, start-up costs and severe winter weather. These favorable
comparisons in 2015 were partially offset by foreign exchange, large medical claims, higher compensation-related expenses and insurance developments that
benefited the prior year.
39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Central Support Services
Human resources
Finance
Corporate services and public affairs
Information technology
Legal and safety
Marketing
Other
Total CSS
Allocation of CSS to business segments
Unallocated CSS
2016 versus 2015
2016
2015
2014
2016/2015
2015/2014
Change
$
$
17,501
59,445
11,682
82,087
23,977
18,029
24,353
237,074
(196,129)
40,945
(In thousands)
20,150
60,998
12,303
84,729
24,522
22,206
33,698
258,606
(210,096)
48,510
19,255
57,510
11,142
79,498
23,917
21,409
36,689
249,420
(197,680)
(13)%
(3)
(5)
(3)
(2)
(19)
(28)
(8)
(7)
5%
6
10
7
3
4
(8)
4
6
51,740
(16)%
(6)%
Total CSS costs decreased 8% in 2016 to $237 million , due to lower compensation-related expenses and lower marketing-related and information
technology costs. Unallocated CSS costs decreased 16% in 2016 to $41 million , primarily due to the 2015 settlement of a customer-extended insurance claim that
adversely impacted costs in the prior year and lower compensation-related expenses.
2015 versus 2014
Total CSS costs increased 4% in 2015 to $259 million , primarily driven by planned investments in information technology and a settlement of a customer-
extended insurance claim, partially offset by lower compensation-related expenses. Unallocated CSS costs decreased 6% in 2015 to $49 million , due to a new
allocation of marketing-related costs to the business segments in 2015 and lower compensation-related expenses, partially offset by the insurance settlement and
investments in information technology.
40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
FOURTH QUARTER CONSOLIDATED RESULTS
Total revenue
Operating revenue (1)
EBT
Comparable EBT (2)
Earnings from continuing operations
Comparable earnings from continuing operations (2)
Net earnings
Earnings per common share (EPS) — Diluted
Continuing operations
Comparable (2)
Net earnings
Three months ended December 31,
2016
2015
(Dollars in thousands, except
per share amounts)
$
$
$
$
1,729,150
1,466,878
69,196
82,307
49,275
57,519
48,181
0.92
1.07
0.91
1,672,743
1,441,708
111,691
130,751
75,935
88,832
76,201
1.42
1.66
1.43
Change
2016/2015
3%
2
(38)%
(37)
(35)
(35)
(37)
(35)%
(36)
(36)
————————————
(1) Non-GAAP financial measure. Refer to the“Non-GAAP Financial Measures” section of this MD&A for a reconciliation of total revenue to operating revenue and the reasons why management believes this
measure is important to investors.
(2) Non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section for a reconciliation of EBT, net earnings and earnings per diluted common share to their respective comparable
measures and the reasons why management believes these measures are important to investors.
Total revenue increased 3% in the fourth quarter of 2016 to $1.73 billion . Operating revenue (a non-GAAP measure excluding fuel and subcontracted
transportation) increased 2% in the fourth quarter of 2016 to $1.47 billion . The following table summarizes the components of the change in revenue on a
percentage basis versus the prior year:
Organic, including price and volume
Foreign exchange
Total increase
Three months ended December 31, 2016
Total
5%
(2)
3%
Operating (1)
3%
(1)
2%
————————————
(1) Non-GAAP financial measure. Refer to the“Non-GAAP Financial Measures” section of this MD&A for a reconciliation of total revenue to operating revenue and the reasons why management believes this
measure is important to investors.
EBT decreased 38% in the fourth quarter of 2016 to $69 million . The decrease in EBT reflects lower used vehicle sales results and, to a lesser extent, lower
commercial rental results in FMS, partially offset by revenue growth in SCS and DTS. See “Fourth Quarter Operating Results by Business Segment” for further
discussion of segment operating results.
41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
FOURTH QUARTER OPERATING RESULTS BY BUSINESS SEGMENT
Revenue:
Fleet Management Solutions
Dedicated Transportation Solutions
Supply Chain Solutions
Eliminations
Total
Operating Revenue: (1)
Fleet Management Solutions
Dedicated Transportation Solutions
Supply Chain Solutions
Eliminations
Total
EBT:
Fleet Management Solutions
Dedicated Transportation Solutions
Supply Chain Solutions
Eliminations
Unallocated Central Support Services
Non-operating pension costs
Restructuring and other charges, net and other items
Earnings from continuing operations before income taxes
Three months ended December 31,
2016
2015
(In thousands)
Change
2016/2015
$
1,151,742
1,151,615
—%
256,870
430,185
(109,647)
1,729,150
992,274
193,106
352,650
(71,152)
232,444
392,463
(103,779)
1,672,743
999,385
187,571
322,056
(67,304)
1,466,878
1,441,708
11
10
(6)
3%
(1)%
3
9
(6)
2%
64,367
15,284
26,440
(13,032)
93,059
(10,752)
(8,037)
(5,074)
69,196
123,506
(48)%
11,099
23,793
(12,073)
146,325
(15,574)
(4,835)
(14,225)
111,691
38
11
(8)
(36)
31
(66)
NM
(38)%
$
$
$
$
$
————————————
(1) Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for a reconciliation of total revenue to operating revenue, and segment total revenue
to segment operating revenue, as well as the reasons why management believes these measures are important to investors.
Fleet Management Solutions
Total revenue remained at $1.15 billion in the fourth quarter of 2016 . Operating revenue (a non-GAAP measure excluding fuel) decreased 1% in the fourth
quarter of 2016 to $992 million . The following table summarizes the components of the change in revenue on a percentage basis versus the prior year.
Organic, including price and volume
Fuel
Foreign exchange
Total decrease
Three months ended December 31, 2016
Total
1%
1
(2)
—%
Operating (1)
1%
—
(2)
(1)%
————————————
(1) Non-GAAP financial measure. A reconciliation of FMS total revenue to FMS operating revenue as well as the reasons why management believes this measure is important to investors is
included in the "Non-GAAP Financial Measures" section of this MD&A.
Fuel services revenue increased 5% to $159 million in the fourth quarter of 2016 due to higher fuel prices passed through to customers. Full service lease
revenue increased 5% in the fourth quarter of 2016 , reflecting a larger average lease fleet size and higher prices on replacement vehicles. Foreign exchange
negatively impacted full service lease revenue growth by 100 basis points. Commercial rental revenue declined 14% in the fourth quarter of 2016 due to lower
demand.
42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
FMS EBT decreased 48% in the fourth quarter of 2016 to $64 million , primarily reflecting lower used vehicle sales results, lower commercial rental results
and accelerated depreciation on vehicles expected to be made available for sale through June 2018 of $10 million. FMS EBT benefited from higher full service
lease results and lower overhead spending. Used vehicles sales results were impacted by lower pricing and increased used vehicle inventory valuation reserves.
Lower pricing, in part, reflects increased wholesaling to bring used vehicle inventories closer to our target range. Commercial rental results declined from lower
demand. Rental power fleet utilization decreased slightly to 77.3% in the fourth quarter of 2016 from 77.6% in the year-earlier period. Full service lease results
benefited from fleet growth. Full service lease and commercial rental results benefited from approximately $9 million of lower depreciation in the fourth quarter
due to residual value changes implemented January 1, 2016.
Dedicated Transportation Solutions
Total revenue increased 11% in the fourth quarter of 2016 to $257 million . Operating revenue (a non-GAAP measure excluding fuel and subcontracted
transportation) increased 3% in the fourth quarter of 2016 to $193 million . The growth in total revenue reflects higher subcontracted transportation and higher
operating revenue. DTS operating revenue grew as a result of increased volumes, as well as new business and increased pricing. DTS EBT increased 38% from the
fourth quarter of the prior year due to revenue growth, improved operating performance and prior year customer-related bankruptcy charges.
Supply Chain Solutions
Total revenue increased 10% in the fourth quarter of 2016 to $430 million . Operating revenue (a non-GAAP measure excluding fuel and subcontracted
transportation) increased 9% in the fourth quarter of 2016 to $353 million . The following table summarizes the components of the change in revenue on a
percentage basis versus the prior year:
Organic, including price and volume
Foreign exchange
Total increase/(decrease)
Three months ended December 31, 2016
Total
12%
(2)
10%
Operating (1)
11%
(2)
9%
————————————
(1) Non-GAAP financial measure. A reconciliation of SCS total revenue to SCS operating revenue, as well as the reasons why management believes this measure is important to investors is
included in the "Non-GAAP Financial Measures" section of this MD&A.
SCS total and operating revenue grew as a result of new business and increased volumes, partially offset by the effects of foreign exchange. SCS EBT
increased 11% in the fourth quarter of 2016 to $26 million reflecting the impact of revenue growth.
Central Support Services
Unallocated CSS costs decreased 31% in the fourth quarter of 2016 to $11 million due to the settlement of a customer-extended insurance claim in the prior
year and lower compensation-related costs in 2016.
FINANCIAL RESOURCES AND LIQUIDITY
Cash Flows
The following is a summary of our cash flows from continuing operations:
Net cash provided by (used in):
Operating activities
Financing activities
Investing activities
Effect of exchange rates on cash
Net change in cash and cash equivalents
2016
2015
(In thousands)
2014
$
$
1,601,022
(185,922)
(1,405,833)
(9,482)
(215)
1,441,788
731,485
(2,161,355)
37
11,955
1,382,818
311,650
(1,704,510)
297
(9,745)
43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Cash provided by operating activities from continuing operations increased to $1.60 billion in 2016 , compared with $1.44 billion in 2015 , reflecting higher
earnings adjusted for non-cash items, primarily depreciation, and working capital improvements, partially offset by higher pension contributions. The working
capital improvements were primarily driven by the timing of trade accounts payable payments to vendors. Cash used in financing activities was $186 million in
2016 , compared to cash provided from financing activities of $731 million in 2015 due to lower borrowing needs. Cash used in investing activities decreased to
$1.41 billion in 2016 , compared with $2.16 billion in 2015 , primarily due to lower payments for capital expenditures.
Cash provided by operating activities from continuing operations increased to $1.44 billion in 2015 , compared with $1.38 billion in 2014 , reflecting higher
earnings, excluding depreciation, and lower pension contributions, partially offset by increased working capital needs. The increased working capital needs were
primarily driven by timing of trade account payments to vendors and increased receivables related to revenue growth. Cash provided by financing activities
increased to $731 million in 2015 from $312 million in 2014 , due to increased borrowing needs to fund investing activities. Cash used in investing activities
increased to $2.16 billion in 2015 , compared with $1.70 billion in 2014 , primarily due to higher net capital spending and lower proceeds from revenue earning
equipment sales.
The following table shows the components of our free cash flow:
Net cash provided by operating activities
Sales of revenue earning equipment (1)
Sales of operating property and equipment (1)
Collections on direct finance leases and other (1)
Total cash generated (2)
Purchases of property and revenue earning equipment (1)
Free cash flow (2)
Memo:
Net cash (used in) provided by financing activities
Net cash used in investing activities
2016
2015
(In thousands)
1,601,022
414,249
7,051
76,510
2,098,832
(1,905,157)
193,675
1,441,788
423,605
3,891
70,980
1,940,264
(2,667,978)
(727,714)
2014
1,382,818
493,477
3,486
64,267
1,944,048
(2,259,164)
(315,116)
(185,922)
(1,405,833)
731,485
(2,161,355)
311,650
(1,704,510)
$
$
$
$
———————————
(1)
(2) Non-GAAP financial measures. Reconciliations of net cash provided by operating activities to total cash generated and to free cash flow are set forth in this table. Refer to the “Non-
Included in cash flows from investing activities.
GAAP Financial Measures” section of this MD&A for the reasons why management believes these measures are important to investors.
Free cash flow increased to positive $194 million in 2016 from negative $728 million in 2015 due to lower capital expenditures in 2016 . Free cash flow
decreased to negative $728 million in 2015 from negative $315 million in 2014 due to higher capital expenditures and lower proceeds from vehicle sales in 2015 .
We expect cash provided by operating activities from continuing operations to increase approximately $100 million to $1.7 billion in 2017, primarily due to
higher earnings adjusted for non-cash items, mainly depreciation. We also expect 2017 free cash flow to increase to $250 million reflecting higher cash provided
by operating activities, partially offset by higher capital spending.
44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Capital expenditures are generally used to purchase revenue earning equipment (trucks, tractors and trailers) within our FMS segment. These expenditures
primarily support the full service lease and commercial rental product lines. The level of capital required to support the full service lease product line varies based
on customer contract signings for replacement vehicles and growth. These contracts are long-term agreements that result in predictable cash flows typically over a
three to seven year term for trucks and tractors and ten years for trailers. We utilize capital for the purchase of vehicles in our commercial rental product line to
replenish and expand the fleet available for shorter-term use by contractual or occasional customers. Operating property and equipment expenditures primarily
relate to spending on items such as vehicle maintenance facilities and equipment, computer and telecommunications equipment, investments in technologies, and
warehouse facilities and equipment.
The following is a summary of capital expenditures:
Revenue earning equipment:
Full service lease
Commercial rental
Operating property and equipment
Total capital expenditures (1)
Changes in accounts payable related to purchases of revenue earning equipment
Cash paid for purchases of property and revenue earning equipment
2016
2015
(In thousands)
2014
$
$
1,547,717
82,580
1,630,297
132,603
1,762,900
142,257
1,905,157
2,060,254
522,940
2,583,194
112,918
2,696,112
(28,134)
2,667,978
1,732,904
415,186
2,148,090
150,145
2,298,235
(39,071)
2,259,164
_____________
(1) Non-cash additions exclude approximately $1 million , $6 million and $8 million in 2016 , 2015 and 2014 , respectively, in assets held under capital leases resulting from the extension of
existing operating leases and other additions.
Capital expenditures decreased in 2016 , reflecting planned lower investments in the full service lease and commercial rental fleets. Capital expenditures
increased in 2015 , reflecting planned higher investments in the full service lease and commercial rental fleets. We expect capital expenditures to increase to
approximately $2.0 billion in 2017 , primarily due to a planned increase in capital spending in commercial rental. We expect to fund 2017 capital expenditures
primarily with internally generated funds and additional debt financing.
Working Capital
Current assets
Current liabilities
Working capital
2016
2015
(In thousands)
1,101,557 $
1,744,069
(642,512) $
1,098,302
1,680,255
(581,953)
$
$
Our net working capital was negative $643 million at December 31, 2016 compared with negative $582 million at December 31, 2015 . The change in net
working capital is primarily driven by a $157 million increase in the current portion of long term debt as we intend to repay certain short-term borrowings with
positive free cash flow instead of refinancing these borrowings on a long-term basis under the global revolving credit facility. Our global revolving credit facility is
used primarily to finance working capital needs. See "Financing and Other Funding Transactions" for further discussion on the adequacy of our funding sources to
meet our operating, investing and financing needs.
Financing and Other Funding Transactions
We utilize external capital primarily to support working capital needs and growth in our asset-based product lines. The variety of financing alternatives
typically available to fund our capital needs include commercial paper, long-term and medium-term public and private debt, asset-backed securities, bank term
loans, leasing arrangements and bank credit facilities. Our principal sources of financing are issuances of commercial paper and medium-term notes.
45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Our ability to access unsecured debt in the capital markets is impacted by both our short-term and long-term debt ratings. These ratings are intended to
provide guidance to fixed income investors in determining the credit risk associated with particular Ryder securities based on current information obtained by the
rating agencies from us or from other sources. Lower ratings generally result in higher borrowing costs, as well as reduced access to unsecured capital markets. A
significant downgrade of our short-term debt ratings would impair our ability to issue commercial paper and likely require us to rely on alternative funding sources.
A significant downgrade would not affect our ability to borrow amounts under our revolving credit facility described below, assuming ongoing compliance with
the terms and conditions of the credit facility.
Our debt ratings and rating outlooks at December 31, 2016 were as follows:
Moody’s Investors Service
Standard & Poor’s Ratings Services
Fitch Ratings
Short-term
Rating
Outlook Rating
Long-term
Outlook
P2
A2
F2
Stable
Stable
Stable
Baa1
BBB+
A-
Stable (affirmed February 2016)
Stable (upgraded December 2016)
Stable (affirmed October 2016)
Cash and equivalents totaled $59 million as of December 31, 2016 . Approximately $21 million was held outside the U.S. as of December 31, 2016 and is
available to fund operations and other growth of our non-U.S. subsidiaries. Our intent is to indefinitely reinvest these foreign amounts outside the U.S. If we decide
to repatriate cash and equivalents held outside the U.S., we may be subject to additional U.S. income taxes and foreign withholding taxes. However, our intent is to
permanently reinvest these foreign amounts outside the U.S. and our current plans do not demonstrate a need to repatriate these foreign amounts to fund our U.S.
operations.
We believe that our operating cash flows, together with our access to the public unsecured bond market, commercial paper market and other available debt
financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. However, there can be no assurance that unanticipated
volatility and disruption in the public unsecured debt market or the commercial paper market would not impair our ability to access these markets on terms
commercially acceptable to us or at all. If we cease to have access to public bonds, commercial paper and other sources of unsecured borrowings, we would meet
our liquidity needs by drawing upon contractually committed lending agreements as described below and/or by seeking other funding sources.
At December 31, 2016 , we had the following amounts available to fund operations:
Global revolving credit facility
Trade receivables program
(In millions)
$675
$175
Refer to Note 15 , “ Debt ,” in the Notes to Consolidated Financial Statements for a discussion of these debt facilities.The following table shows the
movements in our debt balance:
Debt balance at January 1
Cash-related changes in debt:
Net change in commercial paper borrowings and revolving credit facilities
Proceeds from issuance of medium-term notes
Proceeds from issuance of other debt instruments
Retirement of medium-term notes
Other debt repaid
Debt issuance costs paid
Non-cash changes in debt:
Fair market value adjustment on notes subject to hedging
Addition of capital lease obligations
Changes in foreign currency exchange rates and other non-cash items
Total changes in debt
Debt balance at December 31
2016
2015
(In thousands)
$
5,502,627
4,717,524
(77,798)
596,283
78,645
(600,000)
(69,047)
(1,254)
(73,171)
(4,143)
1,231
(35,270)
(111,353)
5,391,274
323,359
998,576
284,647
(660,000)
(138,311)
(2,134)
806,137
423
5,959
(27,416)
785,103
5,502,627
$
46
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
In accordance with our funding philosophy, we attempt to match the aggregate average remaining re-pricing life of our vehicle-related debt with the
aggregate average remaining re-pricing life of our vehicle assets. We utilize both fixed-rate and variable-rate debt to achieve this match and generally target a mix
of 20% - 40% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total debt (including notional value of swap agreements)
was 30% at both December 31, 2016 and 2015 .
Ryder's debt to equity ratios were 263% and 277% at December 31, 2016 and 2015 , respectively. The debt to equity ratio represents total debt divided by
total equity. Additional obligations, including the present value of minimum lease payments under operating leases for vehicles, were not significant as of
December 31, 2016 or December 31, 2015 . Our debt to equity ratio decreased as of December 31, 2016 , due to the impact of foreign exchange rates and lower
borrowing needs reflecting lower planned capital expenditures.
Off-Balance Sheet Arrangements
Guarantees. Refer to Note 17 , “ Guarantees ,” in the Notes to Consolidated Financial Statements for a discussion of our agreements involving guarantees.
47
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Contractual Obligations and Commitments
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as debt agreements, lease
agreements and unconditional purchase obligations. The following table summarizes our expected future contractual cash obligations and commitments at
December 31, 2016 :
2017
2018-2019
2020-2021
Thereafter
Total
Debt
Capital lease obligations
Total debt, including capital leases (1)
$
Interest on debt (2)
Operating leases (3)
Purchase obligations (4)
Total contractual cash obligations
Insurance obligations (primarily self-insurance)
Other long-term liabilities (5), (6), (7)
957,358
8,827
966,185
137,179
73,064
248,743
458,986
107,136
5,233
(In thousands)
1,859,981
2,310,795
237,846
5,365,980
12,316
2,304
737
24,184
1,872,297
2,313,099
238,583
5,390,164
203,595
93,178
29,905
326,678
100,773
6,848
105,818
33,774
11,757
151,349
40,468
4,740
53,992
22,276
663
76,931
93,096
59,846
500,584
222,292
291,068
1,013,944
341,473
76,667
Total
$
1,537,540
2,306,596
2,509,656
468,456
6,822,248
____________
(1) Net of unamortized discount and excludes the fair market value adjustment on notes subject to hedging.
(2) Total debt matures at various dates through fiscal year 2025 and bears interest principally at fixed rates. Interest on variable-rate debt is calculated based on the applicable rate at
December 31, 2016 . Amounts are based on existing debt obligations, including capital leases, and do not consider potential refinancing of expiring debt obligations.
(3) Represents future lease payments associated with vehicles, equipment and properties under operating leases. Amounts are based upon the general assumption that the leased asset will
remain on lease for the length of time specified by the respective lease agreements. No effect has been given to renewals, cancellations, contingent rentals or future rate changes.
(4) The majority of our purchase obligations are pay-as-you-go transactions made in the ordinary course of business. Purchase obligations include agreements to purchase goods or services
that are legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed minimum or variable price provisions; and the approximate
timing of the transaction. The most significant item included in the above table are purchase obligations related to vehicles. Purchase orders made in the ordinary course of business that
are cancelable are excluded from the above table. Any amounts for which we are liable under purchase orders for goods received are reflected in our Consolidated Balance Sheets as
“Accounts payable” and “Accrued expenses and other current liabilities” and are excluded from the above table.
(5) Represents other long-term liability amounts reflected in our Consolidated Balance Sheets that have known payment streams. The most significant items included were asset retirement
obligations and deferred compensation obligations.
(6) The amounts exclude our estimated pension contributions. For 2017 , our pension contributions, including our minimum funding requirements as set forth by ERISA and international
regulatory bodies, are expected to be $22 million . Our minimum funding requirements after 2017 are dependent on several factors. However, we estimate that the undiscounted required
global contributions over the next five years are approximately $272 million (pre-tax) (assuming expected long-term rate of return realized and other assumptions remain unchanged). We
also have payments due under our other postretirement benefit (OPEB) plans. These plans are not required to be funded in advance, but are pay-as-you-go. See Note 22 ,“ Employee
Benefit Plans ,” in the Notes to Consolidated Financial Statements for further discussion.
(7) The amounts exclude $67 million of liabilities associated with uncertain tax positions as we are unable to reasonably estimate the ultimate amount or timing of settlement. See Note 13 , “
Income Taxes ,” in the Notes to Consolidated Financial Statements for further discussion.
48
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Pension Information
We have defined benefit retirement plans which are frozen for non-grandfathered and certain non-union employees in the U.S., Canada and the United
Kingdom. The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates.
We review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans, which exceed the amounts required by
statute. During 2016 , total global pension contributions were $128 million compared with $34 million in 2015 . We estimate 2017 required pension contributions
will be $22 million . The projected present value of estimated global pension contributions that would be required over the next 5 years totals approximately $246
million (pre-tax). Changes in interest rates and the market value of the securities held by the plans could materially change, positively or negatively, the funded
status of the plans and affect the level of pension expense and required contributions in future years. The ultimate amount of contributions is also dependent upon
the requirements of applicable laws and regulations. See Note 22 , “ Employee Benefit Plans ,” in the Notes to Consolidated Financial Statements for additional
information.
Due to the underfunded status of our defined benefit plans, we had an accumulated net pension equity charge (after-tax) of $627 million and $577 million
at December 31, 2016 and 2015 , respectively. The total asset return was positive 10% in 2016 .
Pension expense totaled $61 million in 2016 compared to $42 million in 2015 . The increase in pension expense is primarily due to the impact of a lower
asset return assumption and a higher discount rate as well as a $8 million one-time charge in the second quarter to reflect pension benefit improvements made in
2009 that were not fully reflected in our pension benefit obligation in prior years. We expect 2017 pension expense to decrease approximately $8 million primarily
due to the impact of lower expected interest cost. Our 2017 pension expense estimates are subject to change based upon the completion of the actuarial analysis for
all pension plans. See the “Critical Accounting Estimates — Pension Plans” section for further discussion on pension accounting estimates.
We participate in certain U.S. multi-employer pension (MEP) plans that provide defined benefits to employees covered by collective bargaining agreements.
At December 31, 2016 , approximately 1,300 employees (approximately 4% of total employees) participated in these MEP plans. The annual net pension cost of
the MEP plans is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. Our current year MEP plan
contributions total approximately $10 million . Pursuant to current U.S. pension laws, if any MEP plans fail to meet certain minimum funding thresholds, we could
be required to make additional MEP plan contributions, until the respective labor agreement expires, of up to 10% of current contractual requirements. Several
factors could cause MEP plans not to meet these minimum funding thresholds, including unfavorable investment performance, changes in participant
demographics, and increased benefits to participants. The plan administrators and trustees of the MEP plans provide us with the annual funding notice as required
by law. This notice sets forth the funded status of the plan as of the beginning of the prior year but does not provide any company-specific information.
Employers participating in MEP plans can elect to withdraw from the plans, contingent upon certain requirements, and be subject to a withdrawal obligation
based on, among other factors, the MEP plan’s unfunded vested benefits. U.S. pension regulations provide that an employer can fund its withdrawal obligation in a
lump sum or over a time period of up to 20 years based on previous contribution rates. During 2016, we determined that certain pension benefit improvements
made in 2009 had not been fully reflected in our projected benefit obligation. Because the amounts were not material to our consolidated financial statements in
any individual period, and the cumulative amount is not material to 2016 results, we recognized a one-time, non-cash charge of $8 million in "Selling, general and
administrative expenses" and a $13 million pre-tax increase to "Accumulated other comprehensive loss" in our consolidated financial statements to correctly state
the pension benefit obligation and account for these 2009 benefit improvements. See Note 22 , “ Employee Benefit Plans ,” in the Notes to Consolidated Financial
Statements for additional information.
Share Repurchase Programs and Cash Dividends
Refer to Note 18 , “ Share Repurchase Programs ,” in the Notes to Consolidated Financial Statements for a discussion on our share repurchase programs.
Cash dividend payments to shareholders of common stock were $91 million in 2016 , $83 million in 2015 , and $75 million in 2014 . During 2016 , we
increased our annual dividend 7% to $1.76 per share of common stock.
49
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Market Risk
In the normal course of business, we are exposed to fluctuations in interest rates, foreign currency exchange rates and fuel prices. We manage these
exposures in several ways, including, in certain circumstances, the use of a variety of derivative financial instruments when deemed prudent. We do not enter into
leveraged derivative financial transactions or use derivative financial instruments for trading purposes.
Exposure to market risk for changes in interest rates exists for our debt obligations. Our interest rate risk management program objectives are to limit the
impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. A hypothetical 100 basis point change in short-term market
interest rates would change annual pre-tax earnings by $14 million . We manage our exposure to interest rate risk primarily through the proportion of fixed-rate and
variable-rate debt we hold in the total debt portfolio. From time to time, we also use interest rate swap agreements to manage our fixed-rate and variable-rate
exposure and to better match the repricing of debt instruments to that of our portfolio of assets. See Note 16 , “ Derivatives ,” in the Notes to Consolidated
Financial Statements for further discussion on interest rate swap agreements.
At December 31, 2016 , we had $3.32 billion of fixed-rate debt outstanding (excluding capital leases) with a weighted-average interest rate of 3% and a fair
value of $3.35 billion . A hypothetical 10% decrease or increase in the December 31, 2016 market interest rates would impact the fair value of our fixed-rate debt
by approximately $32 million at December 31, 2016 . Changes in the relative sensitivity of the fair value of our financial instrument portfolio for these theoretical
changes in the level of interest rates are primarily driven by changes in our debt maturities, interest rate profile and amount.
At December 31, 2016 , we had $1.60 billion of variable-rate debt, including $825 million of fixed-rate debt instruments swapped to LIBOR-based floating-
rate debt. Changes in the fair value of the interest rate swaps were offset by changes in the fair value of the debt instruments and no net gain or loss was recognized
in earnings. The fair value of our interest rate swap agreements at December 31, 2016 was a net asset of $1 million . The fair value of our variable-rate debt at
December 31, 2016 was $1.62 billion . A hypothetical 10% increase in market interest rates would have impacted 2016 pre-tax earnings from continuing
operations by approximately $3 million .
We are also subject to interest rate risk with respect to our pension and postretirement benefit obligations, as changes in interest rates will effectively increase
or decrease our liabilities associated with these benefit plans, which also results in changes to the amount of pension and postretirement benefit expense recognized
each period.
Exposure to market risk for changes in foreign currency exchange rates relates primarily to our foreign operations’ buying, selling and financing in
currencies other than local currencies and to the carrying value of net investments in foreign subsidiaries. The majority of our transactions are denominated in U.S.
dollars. The principal foreign currency exchange rate risks to which we are exposed include the Canadian dollar, British pound sterling and Mexican peso. We
manage our exposure to foreign currency exchange rate risk related to our foreign operations’ buying, selling and financing in currencies other than local
currencies by naturally offsetting assets and liabilities not denominated in local currencies to the extent possible. A hypothetical uniform 10% strengthening in the
value of the dollar relative to all the currencies in which our transactions are denominated would result in a decrease to pre-tax earnings from continuing operations
of approximately $1 million . We also use foreign currency option contracts and forward agreements from time to time to hedge foreign currency transactional
exposure. We generally do not hedge the foreign currency exposure related to our net investment in foreign subsidiaries, since we have no near-term intent to
repatriate funds from such subsidiaries.
Exposure to market risk for fluctuations in fuel prices relates to a small portion of our service contracts for which the cost of fuel is integral to service
delivery and the service contract does not have a mechanism to adjust for increases in fuel prices. At December 31, 2016 , we also had various fuel purchase
arrangements in place to ensure delivery of fuel at market rates in the event of fuel shortages. We are exposed to fluctuations in fuel prices in these arrangements
since none of the arrangements fix the price of fuel to be purchased. Increases and decreases in the price of fuel are generally passed on to our customers for which
we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by sudden
increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on trailing market fuel costs. We
believe the exposure to fuel price fluctuations would not materially impact our results of operations, cash flows or financial position.
ENVIRONMENTAL MATTERS
Refer to Note 23 , “ Environmental Matters ,” in the Notes to Consolidated Financial Statements for a discussion surrounding environmental matters.
50
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. Our significant accounting policies
are described in the Notes to Consolidated Financial Statements. Certain of these policies require the application of subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates and assumptions are based on historical experience,
changes in the business environment and other factors that we believe to be reasonable under the circumstances. Different estimates that could have been applied in
the current period or changes in the accounting estimates that are reasonably likely can result in a material impact on our financial condition and operating results
in the current and future periods. We review the development, selection and disclosure of these critical accounting estimates with Ryder’s Audit Committee on an
annual basis.
The following discussion, which should be read in conjunction with the descriptions in the Notes to Consolidated Financial Statements, is furnished for
additional insight into certain accounting estimates that we consider to be critical.
Depreciation and Residual Value Guarantees. We periodically review and adjust the residual values and useful lives of revenue earning equipment of our
FMS business segment as described in Note 1 , “ Summary of Significant Accounting Policies — Revenue Earning Equipment, Operating Property and
Equipment, and Depreciation” in the Notes to Consolidated Financial Statements. Reductions in residual values (i.e., the price at which we ultimately expect to
dispose of revenue earning equipment) or useful lives will result in an increase in depreciation expense over the life of the equipment. Based on the mix of revenue
earning equipment at December 31, 2016 , a 10% decline in expected vehicle residual values would increase depreciation expense in 2017 by approximately $125
million . We review residual values and useful lives of revenue earning equipment on an annual basis or more often if deemed necessary for specific groups of our
revenue earning equipment. Reviews are performed based on vehicle class, generally subcategories of trucks, tractors and trailers by weight and usage. Our annual
review is established with a long-term view considering historical market price changes, current and expected future market price trends, expected life of vehicles
included in the fleet and extent of alternative uses for leased vehicles (e.g., rental fleet, and DTS and SCS applications). As a result, future depreciation expense
rates are subject to change based upon changes in these factors. While we believe that the carrying values and estimated sales proceeds for revenue earning
equipment are appropriate, there can be no assurance that deterioration in economic conditions or adverse changes to expectations of future sales proceeds will not
occur, resulting in lower gains or losses on sales.
At the end of each year, we complete our annual review of the residual values and useful lives of revenue earning equipment. Based on the results of our
analysis, we adjust the residual values and useful lives of certain classes of our revenue earning equipment effective January 1 of each year. The approximate
(unfavorable) / favorable impact on the annual depreciation expense resulting from the residual value and useful life reviews is as follows:
2017
($4 million)
2016
$35 million
2015
$40 million
In addition, we also monitor market trends throughout the year and assess residual values of vehicles expected to be sold in the near term and may adjust
residual values for the vehicles.
Factors that could cause actual results to materially differ from the estimated results include significant changes in the used equipment market brought on by
unforeseen changes in technology innovations and any resulting changes in the useful lives of used equipment.
Depreciation expense was $1.19 billion , $1.12 billion and $1.05 billion in 2016 , 2015 and 2014 , respectively. Depreciation expense relates primarily to
FMS revenue earning equipment. Depreciation expense increased 6% in 2016 , driven by a larger average full service lease fleet and accelerated depreciation on
vehicles expected to be made available for sale through June 2018 of $10 million, partially offset by a smaller average commercial rental fleet. Depreciation
expense increased 7% in 2015 , driven by larger average full service lease and commercial rental fleets. The increases in both years were partially offset by $35
million and $40 million , respectively, from increases in residual values.
51
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Pension Plans. We apply actuarial methods to determine the annual net periodic pension expense and pension plan liabilities on an annual basis, or on an
interim basis if there is an event requiring remeasurement. Each December, we review actual experience compared with the assumptions used and make
adjustments to our assumptions, if warranted. In determining our annual estimate of periodic pension cost, we are required to make an evaluation of critical factors
such as discount rate, expected long-term rate of return on assets, expected increase in compensation levels, retirement rate and mortality. Discount rates are based
upon a duration analysis of expected benefit payments and the equivalent average yield for high quality corporate fixed income investments as of our December 31
annual measurement date. In order to estimate the discount rate relevant to our plan, we use models that match projected benefits payments of our primary U.S.
plan to coupons and maturities from a hypothetical portfolio of high quality corporate bonds. Long-term rate of return assumptions are based on actuarial review of
our asset allocation strategy and long-term expected asset returns. Investment management and other fees paid using plan assets are factored into the determination
of asset return assumptions.
Assumptions as to mortality of the participants in our pension plan is a key estimate in measuring the expected payments participants may receive over their
lifetime, and therefore the amount of expense we will recognize. We update our mortality assumptions as deemed necessary by taking into consideration relevant
actuarial studies as they become available as well as reassessing our own historical experience.
As part of our strategy to manage future pension costs and net funded status volatility, we regularly assess our pension investment strategy. Our U.S. pension
investment policy and strategy seek to reduce the effects of future volatility on the fair value of our pension assets relative to our pension liabilities by increasing
our allocation of high quality, longer-term fixed income securities and reducing our allocation of equity investments as the funded status of the plan improves. The
composition of our pension assets was 51% equity securities and alternative assets and 49% debt securities and other investments at December 31, 2016 . We
continually evaluate our mix of investments between equity and fixed income securities and adjust the composition of our pension assets when appropriate. In 2016
, we adjusted our long-term expected rate of return assumption for our primary U.S. plan to 5.85% from 5.95% based on our expected asset mix. The expected rate
of return assumption for the fixed income portion of our portfolio mirrors the discount rate in order to align the expected return on fixed income securities with the
movement in the pension liability under our strategy.
Accounting guidance applicable to pension plans does not require immediate recognition of the effects of a deviation between these assumptions and actual
experience or the revision of an estimate. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted and included
in “Accumulated other comprehensive loss.” We had a pre-tax actuarial loss of $961 million and $906 million at the end of 2016 and 2015 , respectively. To the
extent the amount of cumulative actuarial gains and losses exceed 10% of the greater of the benefit obligation or plan assets, the excess amount is amortized over
the average remaining life expectancy of active participants or the remaining life expectancy of inactive participants if all or almost all of a plan’s participants are
inactive. The amount of the actuarial loss subject to amortization in 2017 and future years will be $738 million . We expect to recognize approximately $34 million
of the net actuarial loss as a component of pension expense in 2017 . The effect on years beyond 2017 will depend substantially upon the actual experience of our
plans.
Disclosure of the significant assumptions used in arriving at the 2016 net pension expense is presented in Note 22 , “ Employee Benefit Plans ,” in the Notes
to Consolidated Financial Statements. A sensitivity analysis of 2016 net pension expense to changes in key underlying assumptions for our primary plan, the U.S.
pension plan, is presented below.
Expected long-term rate of return on assets
Discount rate increase
Discount rate decrease
Actual return on assets
Contributions at the beginning of the year
Assumed Rate
Change
Impact on 2016 Net
Pension Expense
Effect on
December 31, 2016
Projected Benefit Obligation
+/- 0.25
+ 0.25
- 0.25
+/- 0.25
+ $50 million
+/- $3.0 million
+ $4.0 million
- $4.0 million
-/+ $0.2 million
- $2.8 million
- $54 million
+ $54 million
5.85%
4.50%
4.50%
5.85%
52
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Self-Insurance Accruals. Self-insurance accruals were $337 million and $312 million as of December 31, 2016 and 2015 , respectively. The majority of our
self-insurance relates to vehicle liability and workers’ compensation. We use a variety of statistical and actuarial methods that are widely used and accepted in the
insurance industry to estimate amounts for claims that have been reported but not paid and claims incurred but not reported. In applying these methods and
assessing their results, we consider such factors as frequency and severity of claims, claim development and payment patterns and changes in the nature of our
business, among other factors. Such factors are analyzed for each of our business segments. Our estimates may be impacted by such factors as increases in the
market price for medical services, unpredictability of the size of jury awards and limitations inherent in the estimation process. During 2016 , we recognized a $9
million charge from the development of estimated prior years’ self-insured loss reserves. For 2015 and 2014 , we recognized a charge of $4 million and a benefit of
$14 million , respectively, from the development of estimated prior years’ self-insured loss reserves. Based on self-insurance accruals at December 31, 2016 , a 5%
adverse change in actuarial claim loss estimates would increase operating expense in 2017 by approximately $15 million .
Goodwill Impairment. We assess goodwill for impairment, as described in Note 1 , “ Summary of Significant Accounting Policies — Goodwill and Other
Intangible Assets,” in the Notes to Consolidated Financial Statements, on an annual basis or more often if deemed necessary. At December 31, 2016 , goodwill
totaled $387 million . To determine whether goodwill impairment indicators exist, we are required to assess the fair value of the reporting unit and compare it to
the carrying value. A reporting unit is a component of an operating segment for which discrete financial information is available and management regularly
reviews its operating performance. In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether further
impairment testing is necessary.
Our annual impairment test performed as of April 1, 2016 , did not result in any impairment of goodwill. We performed quantitative tests on two of our
reporting units consistent with our policy of periodically updating our reporting units' fair values. Based on our quantitative analyses, we determined there was no
impairment.
We performed qualitative assessments for three reporting units, which considered individual factors such as macroeconomic conditions, changes in our
industry, and the markets in which we operate, as well as our historical and expected future financial performance. Examples of factors we considered included the
results of our most recent impairment tests, declines in our financial performance, a lack of significant changes in our competitive landscape, changes in our stock
price as compared to a relatively stable carrying value since our most recent impairment tests and improvements in macroeconomic conditions since 2014. After
performing the qualitative assessments, we concluded it is more likely than not that fair values are greater than carrying values and no additional testing was
performed.
As of December 31, 2016 , there have been no events or changes in circumstances that would change our conclusion.
53
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Income Taxes. Our overall tax position is complex and requires careful analysis by management to estimate the expected realization of income tax assets and
liabilities.
Tax regulations require items to be included in the tax return at different times than the items are reflected in the financial statements. As a result, the
effective tax rate reflected in the financial statements is different than that reported in the tax return. Some of these differences are permanent, such as expenses
that are not deductible on the tax return, and some are timing differences, such as depreciation expense. Timing differences create deferred tax assets and liabilities.
Deferred tax assets generally represent items that can be used as a tax deduction or credit in the tax return in future years, for which we have already recognized the
tax benefit in the financial statements. Deferred tax assets were $809 million and $810 million at December 31, 2016 and 2015 , respectively. We recognize a
valuation allowance for deferred tax assets to reduce such assets to amounts expected to be realized. At December 31, 2016 and 2015 , the deferred tax valuation
allowance, principally attributed to foreign tax loss carryforwards in the SCS business segment, was $16 million and $15 million , respectively. In determining the
required level of valuation allowance, we consider whether it is more likely than not that all or some portion of deferred tax assets will not be realized. This
assessment is based on management’s expectations as to whether sufficient taxable income of an appropriate character will be realized within tax carryback and
carryforward periods. Our assessment involves estimates and assumptions about matters that are inherently uncertain, and unanticipated events or circumstances
could cause actual results to differ from these estimates. Should we change our estimate of the amount of deferred tax assets that we would be able to realize, an
adjustment to the valuation allowance would result in an increase or decrease to the provision for income taxes in the period such a change in estimate was made.
As part of our calculation of the provision for income taxes, we determine whether the benefits of our tax positions are at least more likely than not of being
sustained upon audit based on the technical merits of the tax position. We accrue the largest amount of the benefit that is more likely than not of being sustained in
our consolidated financial statements. These accruals require management to make estimates and judgments with respect to the ultimate outcome of a tax audit.
Actual results could vary materially from these estimates. We adjust these reserves, including any impact on the related interest and penalties, in light of changing
facts and circumstances, such as the progress of a tax audit.
A number of years may elapse before a particular matter for which we have established a reserve is audited and finally resolved. The number of years with
open tax audits varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the “more likely than not”
recognition threshold would be recognized in our income tax expense in the first interim period when the uncertainty is resolved under any one of the following
conditions: (1) the tax position has been determined to be “more likely than not” sustained, (2) the tax position, amount and/or timing is ultimately settled through
negotiation or litigation, or (3) the statute of limitations for the tax position has expired. Settlement of any particular issue would usually require the use of cash.
See Note 13 , “ Income Taxes ,” in the Notes to Consolidated Financial Statements for further discussion of the status of tax audits and uncertain tax positions.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 , “ Recent Accounting Pronouncements ,” in the Notes to Consolidated Financial Statements for a discussion of recent accounting
pronouncements.
54
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
NON-GAAP AND SEGMENT FINANCIAL MEASURES
Non-GAAP Financial Measures. This Annual Report on Form 10-K includes information extracted from consolidated financial information that is not required
by generally accepted accounting principles (GAAP) to be presented in the financial statements. Certain elements of this information are considered “non-GAAP
financial measures” as defined by SEC rules. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other
measures of financial performance or liquidity prepared in accordance with GAAP. Also, our non-GAAP financial measures may not be comparable to financial
measures used by other companies. We provide a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure in the
management's discussion and analysis or in this non-GAAP financial measures section. We also provide the reasons why management believes each non-GAAP
financial measure is useful to investors in this section.
Specifically, we refer to the following non-GAAP financial measures in this Form 10-K:
Non-GAAP Financial Measure
Comparable GAAP Measure
Reconciliation in Section Entitled
Page
Operating Revenue Measures:
Operating Revenue
FMS Operating Revenue
DTS Operating Revenue
SCS Operating Revenue
Total Revenue
FMS Total Revenue
DTS Total Revenue
SCS Total Revenue
MD&A - Non-GAAP Financial Measures section
MD&A - Non-GAAP Financial Measures section
MD&A - Non-GAAP Financial Measures section
MD&A - Non-GAAP Financial Measures section
FMS EBT as a % of FMS Operating Revenue FMS EBT as a % of FMS Total Revenue
MD&A - Non-GAAP Financial Measures section
DTS EBT as a % of DTS Operating Revenue DTS EBT as a % of DTS Total Revenue
MD&A - Non-GAAP Financial Measures section
SCS EBT as a % of SCS Operating Revenue
SCS EBT as a % of SCS Total Revenue
MD&A - Non-GAAP Financial Measures section
Comparable Earnings Measures:
Comparable Earnings Before Income Tax
Earnings Before Income Tax
Comparable Earnings
Comparable EPS
Adjusted Return on Average Capital (ROC)
Earnings from Continuing Operations
EPS from Continuing Operations
Not Applicable. However, non-GAAP elements
of the calculation have been reconciled to the
corresponding GAAP measures. A numerical
reconciliation of net earnings to adjusted net
earnings and average total debt and average
shareholders' equity to adjusted average total
capital is provided.
MD&A - Non-GAAP Financial Measures section
60
61
61
61
61
61
61
58
58
63
62
Cash Flow Measures:
Total Cash Generated and Free Cash Flow
Cash Provided by Operating Activities
MD&A - Non-GAAP Financial Measures section
60
55
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Set forth in the table below is an overview of each non-GAAP financial measure and why management believes that presentation of each non-GAAP financial
measure provides useful information to investors. See reconciliations for each of these measures following this table.
Operating Revenue Measures:
Operating Revenue
FMS Operating Revenue
DTS Operating Revenue
SCS Operating Revenue
FMS EBT as a % of FMS Operating Revenue
DTS EBT as a % of DTS Operating Revenue
SCS EBT as a % of SCS Operating Revenue
Comparable Earnings Measures:
Comparable earnings before income tax (EBT)
Comparable Earnings
Comparable earnings per diluted common
share (EPS)
Adjusted Return on Average Capital (ROC)
Operating revenue is defined as total revenue for Ryder System, Inc. or each business segment (FMS, DTS and
SCS), respectively, excluding any (1) fuel and (2) subcontracted transportation. We believe operating revenue
provides useful information to investors as we use it to evaluate the operating performance of our core
businesses and as a measure of sales activity at the consolidated level for Ryder System, Inc., as well as for each
of our business segments. We also use segment EBT as a percentage of segment operating revenue for each
business segment for the same reason. Note: FMS EBT, DTS EBT and SCS EBT, our primary measures of
segment performance, are not non-GAAP measures.
Fuel : We exclude FMS, DTS and SCS fuel from the calculation of our operating revenue measures, as fuel is an
ancillary service that we provide our customers, which is impacted by fluctuations in market fuel prices, and the
costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during
periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid
changes in market fuel prices during a short period of time, as customer pricing for fuel services is established
based on trailing market fuel costs.
Subcontracted transportation : We also exclude subcontracted transportation from the calculation of our
operating revenue measures, as these services are also typically a pass-through to our customers and, therefore,
fluctuations result in minimal changes to our profitability. While our DTS and SCS business segments
subcontract certain transportation services to third party providers, our FMS business segment does not engage
in subcontracted transportation and, therefore, this item is not applicable to FMS.
Comparable EBT, comparable earnings and comparable EPS are defined, respectively, as GAAP EBT, earnings
and EPS, all from continuing operations, excluding (1) non-operating pension costs and (2) any other significant
items that are not representative of our business operations. We believe these comparable earnings measures
provide useful information to investors and allow for better year-over-year comparison of operating
performance.
Non-Operating Pension Costs : Our comparable earnings measures exclude non-operating pension costs, which
include the amortization of net actuarial loss, interest cost and expected return on plan assets components of
pension and postretirement costs. We exclude non-operating pension costs because we consider these to be
impacted by financial market performance and outside the operational performance of our business.
Other Significant Items : Our comparable earnings measures also exclude other significant items that are not
representative of our business operations as detailed in the reconciliation table below page 58. These other
significant items vary from period to period and, in some periods, there may be no such significant items.
Calculation of comparable tax rate : The comparable provision for income taxes is computed using the same
methodology as the GAAP provision for income taxes. Income tax effects of non-GAAP adjustments are
calculated based on the statutory tax rates of the jurisdictions to which the non-GAAP adjustments relate.
Adjusted ROC: Adjusted ROC is defined as adjusted net earnings divided by average total capital and represents
the rate of return generated by the capital deployed in our business. The adjustments represent the comparable
items described above, which are excluded, as applicable, from the calculation of net earnings and average
shareholders' equity (a component of average total capital).
We use adjusted ROC as an internal measure of how effectively we use the capital invested (borrowed or
owned) in our operations.
56
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Total Cash Generated
Free Cash Flow
We consider total cash generated and free cash flow to be important measures of comparative operating
performance, as our principal sources of operating liquidity are cash from operations and proceeds from the sale
of revenue earning equipment.
Total Cash Generated : Total cash generated is defined as the sum of (1) net cash provided by operating
activities, (2) net cash provided by the sale of revenue earning equipment and (3) operating property and
equipment, (4) collections on direct finance leases and (5) other cash inflows from investing activities. We
believe total cash generated is an important measure of total cash flows generated from our ongoing business
activities.
Free Cash Flow : We refer to the net amount of cash generated from operating activities and investing activities
(excluding changes in restricted cash and acquisitions) from continuing operations as “free cash flow”. We
calculate free cash flow as the sum of (1) net cash provided by operating activities, (2) net cash provided by the
sale of revenue earning equipment and (3) operating property and equipment, (4) collections on direct finance
leases and (5) other cash inflows from investing activities, less (6) purchases of property and revenue earning
equipment. We believe free cash flow provides investors with an important perspective on the cash available for
debt service and for shareholders, after making capital investments required to support ongoing business
operations. Our calculation of free cash flow may be different from the calculation used by other companies and,
therefore, comparability may be limited.
57
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The following table provides a numerical reconciliation of earnings from continuing operations before income taxes (EBT), earnings from continuing
operations and earnings per diluted common share from continuing operations to comparable earnings from continuing operations before income taxes, comparable
earnings from continuing operations and comparable earnings per diluted common share from continuing operations, respectively, for the years ended
December 31, 2016 , 2015 , 2014 , 2013 and 2012 . EPS amounts may not be additive due to rounding.
EBT
Non-operating pension costs (1)
Pension lump sum settlement expense (2)
Pension-related adjustments (2)
Restructuring and other charges (recoveries), net (3)
Acquisition-related tax adjustment (4)
Acquisition transaction costs
Consulting fees (4)
Superstorm Sandy vehicle-related (recoveries) losses (4)
Foreign currency translation benefit (4)
Comparable EBT (6)
Earnings
Non-operating pension costs (1)
Pension lump sum settlement expense (2)
Pension-related adjustments (2)
Restructuring and other charges (recoveries), net (3)
Acquisition-related tax adjustment (4)
Acquisition transaction costs
Consulting fees (4)
Tax law changes and/or benefits from reserve reversals (5)
Superstorm Sandy vehicle-related (recoveries) losses (4)
Foreign currency translation benefit (4)
Tax benefit associated with resolution of prior year tax item
Continuing Operations
2016
2015
2014
2013
2012
$
406,381
469,215
338,267
369,015
302,768
(Dollars in thousands, except per share amounts)
$
$
29,728
19,186
—
7,650
5,074
—
—
—
—
—
—
(509)
14,225
—
—
3,843
—
—
9,768
97,231
12,564
2,387
1,808
566
400
—
—
24,285
31,423
—
2,820
(470)
—
—
—
(600)
(1,904)
—
—
8,070
—
368
—
8,230
—
448,833
505,960
462,991
393,146
350,859
264,640
305,989
220,225
243,275
200,668
17,387
10,982
—
4,817
3,513
—
—
—
—
—
—
—
—
(309)
10,358
—
—
2,424
(2,113)
—
—
—
5,411
61,333
7,623
1,548
1,808
444
252
(1,776)
—
—
—
14,292
19,370
—
1,711
(360)
—
—
—
—
(374)
(1,904)
—
—
5,263
—
277
—
856
5,117
—
—
(4,967)
Comparable Earnings (6)
$
290,357
327,331
296,868
256,640
226,584
Diluted EPS
$
Non-operating pension costs (1)
Pension lump sum settlement expense (2)
Pension-related adjustments (2)
Restructuring and other charges (recoveries), net (3)
Acquisition-related tax adjustment (4)
Acquisition transaction costs
Consulting fees (4)
Tax law changes and/or benefits from reserve reversals (5)
Superstorm Sandy vehicle-related (recoveries) losses (4)
Foreign currency translation benefit (4)
Tax benefit associated with resolution of prior year tax item
4.94
0.33
—
0.09
0.06
—
—
—
—
—
—
—
5.73
0.21
—
(0.01)
0.19
—
—
0.04
(0.04)
—
—
—
4.14
0.10
1.16
0.14
0.03
0.03
0.01
—
(0.03)
—
—
—
Comparable EPS (6)
$
5.42
6.13
5.58
4.63
0.28
—
0.03
(0.01)
—
—
—
—
(0.01)
(0.04)
—
4.88
3.90
0.37
—
—
0.11
—
—
—
0.02
0.10
—
(0.10)
4.40
_________________
(1)
Includes the amortization of actuarial loss, interest cost and expected return on plan assets components of pension and post-retirement costs, which are tied to financial market
performance. 2013 also includes $4 million ($2 million after-tax) or $0.05 charge related to an understatement of pension obligations.
(2) Refer to Note 22 , “ Employee Benefit Plans ,” in the Notes to Consolidated Financial Statements for further discussion.
(3) Refer to Note 4 , “ Restructuring and Other Charges ,” in the Notes to Consolidated Financial Statements for additional information.
(4) Refer to Note 24 , “ Other Items Impacting Comparability ,” in the Notes to Consolidated Financial Statements for further discussion.
(5) Refer to Note 13 , “ Income Taxes ,” in the Notes to Consolidated Financial Statements for further discussion.
(6) Refer to page 59 for information on the tax impact of our comparable earnings measures.
58
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The following table provides a numerical reconciliation of EBT from continuing operations, earnings from continuing operations and earnings per diluted
common share from continuing operations to comparable EBT from continuing operations, comparable earnings from continuing operations and comparable
earnings per diluted common share from continuing operations, respectively, for the three months ended December 31, 2016 and 2015 . EPS amounts may not be
additive due to rounding:
Three months ended December 31
EBT/Earnings/EPS
Non-operating pension costs (1)
Restructuring and other charges (recoveries), net (2)
Tax law change (3)
Comparable
Continuing Operations
EBT
Earnings
Diluted EPS
2016
2015
2016
2015
2016
2015
(Dollars in thousands except per share amounts)
$
69,196
111,691 $
49,275
75,935 $
8,037
5,074
—
4,835
14,225
—
4,734
3,510
—
2,792
10,358
(253)
0.92
0.09
0.06
—
$
82,307
130,751 $
57,519
88,832 $
1.07
1.42
0.05
0.19
—
1.66
_________________
(1)
Includes the amortization of actuarial loss, interest cost and expected return on plan assets components of pension and post-retirement costs, which are tied to financial market
performance.
(2) Refer to Note 4 , " Restructuring and Other Charges ,” in the Notes to Consolidated Financial Statements for additional information.
(3) Refer to the table below for the information on the tax impact of our comparable earnings measures.
The following table provides a reconciliation of the provision for income taxes to the comparable provision for income taxes:
Three months ended December 31,
Twelve months ended December 31,
2016
2015
2016
2015
2014
2013
2012
(Dollars in thousands)
Provision for income taxes (1)
$
(19,921)
(35,756) $
(141,741)
(163,226)
(118,042)
(125,740)
(102,218)
Income tax effects of non-GAAP
adjustments (1)
Tax law change (1)
Comparable provision for income
taxes (1)
(4,867)
—
(5,910)
(253)
(16,735)
—
(13,290)
(2,113)
(46,305)
(1,776)
(10,766)
(23,031)
—
856
$
(24,788)
(41,919) $
(158,476)
(178,629)
(166,123)
(136,506)
(124,393)
———————————
(1)
The comparable provision for income taxes is computed using the same methodology as the GAAP provision of income taxes. Income tax effects of non-GAAP adjustments are
calculated based on statutory tax rates of the jurisdictions to which the non-GAAP adjustments related.
59
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The following table provides a numerical reconciliation of net cash provided by operating activities to total cash generated and to free cash flow for the years
ended December 31, 2016, 2015, 2014, December 31, 2013 and 2012 :
Net cash provided by operating activities
Sales of revenue earning equipment (1)
Sales of operating property and equipment (1)
Collections on direct finance leases (1)
Other, net (1)
Total cash generated
2016
2015
2014
(In thousands)
2013
2012
$
1,601,022
1,441,788
1,382,818
1,251,811
414,249
7,051
76,510
—
423,605
3,891
70,980
—
493,477
3,486
64,267
—
445,589
6,782
70,677
8,173
1,160,175
405,440
7,350
71,897
—
2,098,832
1,940,264
1,944,048
1,783,032
1,644,862
Purchases of property and revenue earning equipment
(1,905,157)
(2,667,978)
(2,259,164)
(2,122,628)
(2,133,235)
Free cash flow
Memo:
Net cash (used)/provided by financing activities
Net cash used in investing activities
_________________
(1)
Included in cash flows from investing activities.
$
$
$
193,675
(727,714)
(315,116)
(339,596)
(488,373)
(185,922)
731,485
311,650
347,070
333,805
(1,405,833)
(2,161,355)
(1,704,510)
(1,603,818)
(1,504,273)
The following table provides a numerical reconciliation of total revenue to operating revenue for the years ended December 31, 2016 , 2015 , 2014 , 2013 and
2012:
Total revenue
Fuel
Subcontracted transportation
Operating revenue
2016
2015
2014
2013
2012
(In thousands)
$
6,786,984
6,571,893
6,638,774
6,419,285
6,256,967
(628,525)
(367,562)
(722,734)
(288,082)
$
5,790,897
5,561,077
(1,050,135)
(1,098,843)
(1,113,458)
(336,422)
5,252,217
(354,624)
4,965,818
(373,250)
4,770,259
The following table provides a numerical reconciliation of total revenue to operating revenue for the three months ended December 31, 2016 and 2015 :
Total revenue
Fuel
Subcontracted transportation
Operating revenue
Three months ended December 31,
2016
2015
(In thousands)
$
$
1,729,150
(164,349)
(97,923)
1,466,878
1,672,743
(157,727)
(73,308)
1,441,708
60
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The following table provides a reconciliation of FMS total revenue to FMS operating revenue, for the three months ended December 31, 2016 and 2015 and
for the years ended December 31, 2016, 2015 and 2014:
FMS total revenue
Fuel (1)
FMS operating revenue
FMS EBT
FMS EBT as a % of FMS total revenue
FMS EBT as a % of FMS operating revenue
————————————
(1)
Includes intercompany fuel sales from FMS to DTS and SCS.
$
$
$
Three months ended December 31,
Twelve months ended December 31,
2016
2015
2016
2015
2014
1,151,742
(159,468)
992,274
(In thousands)
1,151,615
$
4,556,194
(152,230)
(608,454)
999,385
$
3,947,740
4,545,692
(699,646)
3,846,046
4,655,758
(1,025,237)
3,630,521
64,367
123,506
$
370,754
462,109
433,736
5.6%
6.5%
10.7%
12.4%
8.1%
9.4%
10.2%
12.0%
9.3%
11.9%
The following table provides a reconciliation of DTS total revenue to DTS operating revenue, for the three months ended December 31, 2016 and 2015 and
for the years ended December 31, 2016, 2015 and 2014:
DTS total revenue
Subcontracted transportation
Fuel (1)
DTS operating revenue
DTS EBT
DTS EBT as a % of DTS total revenue
DTS EBT as a % of DTS operating revenue
————————————
(1)
Includes intercompany fuel sales from FMS to DTS.
$
$
$
Three months ended December 31,
Twelve months ended December 31,
2016
2015
2016
2015
2014
256,870
(36,606)
(27,158)
193,106
232,444
$
(18,385)
(26,488)
187,571
$
(In thousands)
1,020,895
(143,502)
(103,074)
774,319
895,538
(61,202)
(119,883)
714,453
899,802
(72,045)
(166,529)
661,228
15,284
11,099
$
63,611
45,800
44,556
6.0%
7.9%
4.8%
5.9%
6.2%
8.2%
5.1%
6.4%
5.0%
6.7%
The following table provides a reconciliation of SCS total revenue to SCS operating revenue for the three months ended December 31, 2016 and 2015 and for
the years ended December 31, 2016, 2015 and 2014:
SCS total revenue
Subcontracted transportation
Fuel (1)
SCS operating revenue
SCS EBT
SCS EBT as a % of SCS total revenue
SCS EBT as a % of SCS operating revenue
————————————
(1)
Includes intercompany fuel sales from FMS to SCS.
$
$
$
Three months ended December 31,
Twelve months ended December 31,
2016
2015
2016
2015
2014
430,185
(61,317)
(16,218)
352,650
(In thousands)
392,463
$
1,637,850
(54,923)
(15,484)
(224,060)
(61,713)
322,056
$
1,352,077
1,547,763
(226,880)
(64,574)
1,256,309
1,561,347
(264,377)
(95,720)
1,201,250
26,440
23,793
$
105,561
93,754
77,800
6.1%
7.5%
6.1%
7.4%
6.4%
7.8%
6.1%
7.5%
5.0%
6.5%
61
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The following table provides numerical reconciliations of the non-GAAP elements of the calculation to the corresponding GAAP measures and of net
earnings to adjusted net earnings and average total debt and average shareholders' equity to adjusted average total capital used to calculate the adjusted return on
average capital for the years ended December 31, 2016 , 2015 , 2014 , 2013 and 2012 :
Net earnings
$
262,477
304,768
218,341
237,871
209,748
2016
2015
2014
2013
2012
(Dollars in thousands)
Restructuring and other charges (recoveries), net and
other items (1)
Income taxes
Adjusted earnings before income taxes
Adjusted interest expense (2)
Adjusted income taxes (3)
Adjusted net earnings for adjusted return on average capital
12,585
141,623
416,685
148,043
17,559
163,649
485,976
150,640
114,956
118,120
451,417
144,991
(154)
125,693
363,410
140,738
16,668
90,943
317,359
143,530
(198,248)
(224,033)
(213,738)
(177,308)
(166,666)
[A]
$
366,480
412,583
382,670
326,840
294,223
Average total debt
Average off-balance sheet debt
Average shareholders’ equity
Average adjustments to shareholders’ equity (4)
$
5,549,458
1,472
2,052,371
1,728
Adjusted average total capital [B]
$
7,605,029
5,177,012
1,467
1,894,917
10,843
7,084,239
4,653,476
1,919
1,925,824
7,758
6,588,977
4,015,178
961
1,593,942
(2,088)
3,777,881
1,555
1,405,640
(2,933)
5,607,993
5,182,143
Adjusted return on average capital [A]/[B]
4.8%
5.8%
5.8%
5.8%
5.7%
________________
(1) For 2016 , 2015 and 2014 , see Note 4 , “ Restructuring and Other Charges ” and Note 24 , “ Other Items Impacting Comparability ,” in the Notes to Consolidated Financial Statements;
2012 includes $8 million of restructuring and other charges primarily related to position eliminations as a result of cost containment actions.
(2) Represents reported interest expense plus imputed interest on off-balance sheet obligations.
(3) Represents provision for income taxes plus income taxes on restructuring and other items and adjusted interest expense.
(4) Represents the impact to equity of items to arrive at comparable earnings.
62
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The following table provides a numerical reconciliation of forecasted earnings per diluted common share from continuing operations to forecasted
comparable earnings per diluted common share from continuing operations for 2017 which was not provided within the MD&A discussion:
EPS from continuing operations forecast
Non-operating pension costs
Comparable EPS from continuing operations forecast
2017
$4.78 - 5.08
0.32
$5.10 - 5.40
Segment Financial Measures. The following table reconciles FMS segment revenue to revenue from external customers for the years ended December 31, 2016 ,
2015 and 2014 :
Full service lease revenue
Commercial rental revenue
Full service lease and commercial rental revenue
Intercompany revenue
Full service lease and commercial rental revenue from external customers
FMS services revenue
Intercompany revenue
FMS services revenue from external customers
FMS fuel services revenue
Intercompany revenue
FMS fuel services revenue from external customers
2016
2015
(In thousands)
2014
$
2,573,638
846,331
3,419,969
(249,017)
3,170,952
527,771
(34,222)
493,549
608,454
(144,716)
463,738
$
$
$
$
$
2,406,711
940,045
3,346,756
(225,203)
3,121,553
499,290
(30,528)
468,762
699,646
(161,369)
538,277
2,276,381
876,994
3,153,375
(213,953)
2,939,422
477,146
(26,830)
450,316
1,025,237
(237,350)
787,887
63
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking statements (within the meaning of the Federal Private Securities Litigation Reform Act of 1995) are statements that relate to expectations,
beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. These statements are often preceded by
or include the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “could,” “should” or similar expressions. This Annual Report contains
forward-looking statements including, but not limited to, statements regarding:
• our expectations as to anticipated revenue and earnings growth specifically, total revenue, operating revenue and product line revenues, used vehicle sales,
demand, pricing, inventory and volumes, contract revenues, full service lease growth, on-demand maintenance growth, commercial rental pricing and
demand, and actual and planned new sales activity in lease, DTS and SCS;
• our expectations relating to further deterioration in the used vehicle sales market;
• the size and impact of strategic investments;
• our expected cost savings from workforce reductions and restructuring actions;
• the continuing benefits of our maintenance initiatives and a newer fleet;
• our ability to successfully achieve the operational goals that are the basis of our business strategies, including driving fleet growth, delivering a consistent,
industry-leading and cost-effective maintenance program, optimizing asset utilization and management, providing differentiated quality of service and best
execution, developing broad-based capabilities, creating a culture of innovation, focusing on continuous improvement and standardization and successfully
implementing sales and marketing strategies;
• impact of losses from conditional obligations arising from guarantees;
• number of NLE and used vehicles in inventory and the appropriate size of our commercial rental fleet given commercial rental market expectations;
• estimates of cash flows from operations, free cash flow and capital expenditures for 2017 ;
• the adequacy of our accounting estimates and reserves for pension expense, compensation-related expense, postretirement benefit expense, depreciation
and residual value guarantees, rent expense under operating leases, self-insurance reserves, goodwill impairment, accounting changes and income taxes;
• our ability to meet our operating, investing and financing needs in the foreseeable future through internally generated funds and outside funding sources;
• our expected level of use of outside funding sources, anticipated future payments under debt, lease and purchase agreements, and risk of losses resulting
from counterparty default under hedging and derivative agreements;
• anticipated impact of exchange rate fluctuations;
• the anticipated impact of fuel price fluctuations on our operations, cash flows and financial position;
• our expectations as to future pension expense and contributions, as well as the continued effect of the freeze of our pension plans on our benefit funding
requirements;
• the anticipated deferral of tax gains on disposal of eligible revenue earning equipment under our vehicle like-kind exchange program;
• our expectations relating to withdrawal liabilities and funding levels of multi-employer plans;
• the status of our unrecognized tax benefits related to the U.S. federal, state and foreign tax positions;
• our expectations regarding the completion and ultimate outcome of certain tax audits;
• the ultimate disposition of legal proceedings and estimated environmental liabilities;
• our expectations relating to compliance with new regulatory requirements;
• our expectations regarding the effects of the adoption of recent accounting pronouncements; and
• our plans regarding renewal of our automatic shelf registration statement.
These statements, as well as other forward-looking statements contained in this Annual Report, are based on our current plans and expectations and are
subject to risks, uncertainties and assumptions. We caution readers that certain important factors could cause actual results and events to differ significantly from
those expressed in any forward-looking statements. For a detailed description of certain of these risk factors, please see “Item 1A—Risk Factors” of this Annual
Report.
The risks included in the Annual Report are not exhaustive. New risk factors emerge from time to time and it is not possible for management to predict all
such risk factors or to assess the impact of such risk factors on our business. As a result, no assurance can be given as to our future results or achievements. You
should not place undue reliance on the forward-looking statements contained herein, which speak only as of the date of this Annual Report. We do not intend, or
assume any obligation, to update or revise any forward-looking statements contained in this Annual Report, whether as a result of new information, future events
or otherwise.
64
The information required by ITEM 7A is included in ITEM 7 of PART II of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
65
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Certified Public Accounting Firm
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements:
Note 1. Summary of Significant Accounting Policies
Note 2. Recent Accounting Pronouncements
Note 3. Acquisitions
Note 4. Restructuring and Other Charges (Recoveries)
Note 5. Receivables
Note 6. Prepaid Expenses and Other Current Assets
Note 7. Revenue Earning Equipment
Note 8. Operating Property and Equipment
Note 9. Goodwill
Note 10. Intangible Assets
Note 11. Direct Financing Leases and Other Assets
Note 12. Accrued Expenses and Other Liabilities
Note 13. Income Taxes
Note 14. Leases
Note 15. Debt
Note 16. Derivatives
Note 17. Guarantees
Note 18. Share Repurchase Programs
Note 19. Accumulated Other Comprehensive Loss
Note 20. Earnings Per Share
Note 21. Share-Based Compensation Plans
Note 22. Employee Benefit Plans
Note 23. Environmental Matters
Note 24. Other Items Impacting Comparability
Note 25. Other Matters
Note 26. Supplemental Cash Flow Information
Note 27. Segment Reporting
Note 28. Quarterly Information (unaudited)
Consolidated Financial Statement Schedule for the Years Ended December 31, 2015, 2014 and 2013:
Schedule II — Valuation and Qualifying Accounts
Page No.
67
68
69
70
71
72
73
74
82
83
83
84
84
85
86
87
87
88
89
90
93
95
97
98
98
99
100
100
104
112
113
114
114
115
119
120
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
66
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
TO THE SHAREHOLDERS OF RYDER SYSTEM, INC.:
Management of Ryder System, Inc., together with its consolidated subsidiaries (Ryder), is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a- 15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Ryder’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for
external purposes in accordance with accounting principles generally accepted in the United States of America.
Ryder’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of Ryder; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of Ryder’s management and directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of Ryder’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Management assessed the effectiveness of Ryder’s internal control over financial reporting as of December 31, 2016 . In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control — Integrated Framework
(2013).” Based on our assessment and those criteria, management determined that Ryder maintained effective internal control over financial reporting as of
December 31, 2016 .
Ryder’s independent registered certified public accounting firm has audited the effectiveness of Ryder’s internal control over financial reporting. Their report
appears on the subsequent page.
67
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RYDER SYSTEM, INC.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, comprehensive income, cash flows and
shareholders’ equity present fairly, in all material respects, the financial position of Ryder System, Inc. and its subsidiaries at December 31, 2016 and 2015 , and
the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in
all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over
Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal
control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
February 14, 2017
68
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Lease and rental revenues
Services revenue
Fuel services revenue
Total revenues
Cost of lease and rental
Cost of services
Cost of fuel services
Other operating expenses
Selling, general and administrative expenses
Pension lump sum settlement expense
Used vehicle sales, net
Interest expense
Miscellaneous income, net
Restructuring and other charges, net
Earnings from continuing operations before income taxes
Provision for income taxes
Earnings from continuing operations
Loss from discontinued operations, net of tax
Net earnings
Earnings (loss) per common share — Basic
Continuing operations
Discontinued operations
Net earnings
Earnings (loss) per common share — Diluted
Continuing operations
Discontinued operations
Net earnings
See accompanying notes to consolidated financial statements.
Note: EPS amounts may not be additive due to rounding.
Years ended December 31,
2016
2015
2014
(In thousands, except per share amounts)
3,170,952
3,152,294
463,738
6,786,984
2,234,284
2,602,978
448,306
113,461
842,697
—
(972)
147,843
(13,068)
5,074
3,121,553
2,912,063
538,277
6,571,893
2,153,450
2,413,156
519,843
117,082
844,497
—
(99,853)
150,434
(10,156)
14,225
6,380,603
6,102,678
406,381
141,741
264,640
(2,163)
262,477
4.98
(0.04)
4.94
4.94
(0.04)
4.90
469,215
163,226
305,989
(1,221)
304,768
5.78
(0.02)
5.75
5.73
(0.02)
5.71
2,939,422
2,911,465
787,887
6,638,774
2,036,881
2,447,867
768,292
115,808
816,975
97,231
(116,060)
144,739
(13,613)
2,387
6,300,507
338,267
118,042
220,225
(1,884)
218,341
4.18
(0.04)
4.14
4.14
(0.03)
4.11
$
$
$
$
$
$
69
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net earnings
Other comprehensive loss:
Years ended December 31,
2016
2015
2014
(In thousands)
$
262,477
304,768
218,341
Changes in cumulative translation adjustment and other
(70,590)
(99,933)
(71,962)
Amortization of pension and postretirement items
Income tax expense related to amortization of pension and postretirement items
Amortization of pension and postretirement items, net of tax
Reclassification of net actuarial loss from pension settlement
Change in net actuarial loss and prior service credit
Income tax benefit (expense) related to change in net actuarial loss and prior service credit
Change in net actuarial loss and prior service credit, net of taxes
29,493
(10,452)
19,041
—
(98,092)
28,344
(69,748)
27,731
(9,637)
18,094
18,601
(6,411)
12,190
—
97,231
(23,979)
(281,173)
13,353
61,692
(10,626)
(122,250)
Other comprehensive loss, net of taxes
(121,297)
(92,465)
(182,022)
Comprehensive income
$
141,180
212,303
36,319
See accompanying notes to consolidated financial statements.
70
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2016
2015
(Dollars in thousands, except
per share amount)
$
58,801
831,947
69,529
141,280
1,101,557
8,147,722
745,870
386,772
48,249
472,284
60,945
835,489
63,725
138,143
1,098,302
8,184,735
714,970
389,135
55,192
510,246
$
10,902,454
10,952,580
Assets:
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses and other current assets
Total current assets
Revenue earning equipment, net
Operating property and equipment, net
Goodwill
Intangible assets
Direct financing leases and other assets
Total assets
Liabilities and shareholders’ equity:
Current liabilities:
Short-term debt and current portion of long-term debt
$
Accounts payable
Accrued expenses and other current liabilities
Total current liabilities
Long-term debt
Other non-current liabilities
Deferred income taxes
Total liabilities
Shareholders’ equity:
791,410
445,470
507,189
1,744,069
4,599,864
817,565
1,688,681
8,850,179
634,530
502,373
543,352
1,680,255
4,868,097
829,595
1,587,522
8,965,469
Preferred stock, no par value per share — authorized, 3,800,917; none outstanding, December 31, 2016
or 2015
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, December 31, 2016
— 53,463,118; December 31, 2015 — 53,490,603
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
—
—
26,732
1,032,549
1,827,026
(834,032)
2,052,275
$
10,902,454
26,745
1,006,021
1,667,080
(712,735)
1,987,111
10,952,580
71
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net earnings
Less: Loss from discontinued operations, net of tax
Earnings from continuing operations
Depreciation expense
Used vehicle sales, net
Share-based compensation expense
Pension lump sum settlement expense
Amortization expense and other non-cash charges, net
Deferred income tax expense
Changes in operating assets and liabilities, net of acquisitions:
Receivables
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other non-current liabilities
Net cash provided by operating activities from continuing operations
Cash flows from financing activities from continuing operations:
Net change in commercial paper borrowings and revolving credit facilities
Debt proceeds
Debt repaid, including capital lease obligations
Dividends on common stock
Common stock issued
Common stock repurchased
Debt issuance costs and other items
Net cash (used in) provided by financing activities from continuing operations
Cash flows from investing activities from continuing operations:
Purchases of property and revenue earning equipment
Sales of revenue earning equipment
Sales of operating property and equipment
Acquisitions
Collections on direct finance leases and other
Changes in restricted cash
Net cash used in investing activities from continuing operations
Effect of exchange rates on cash
(Decrease) increase in cash and cash equivalents from continuing operations
Decrease in cash and cash equivalents from discontinued operations
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at January 1
Cash and cash equivalents at December 31
See accompanying notes to consolidated financial statements.
$
$
72
Years ended December 31,
2016
2015
2014
(In thousands)
262,477
(2,163)
264,640
1,187,050
(972)
18,664
—
68,260
124,886
(51,754)
(5,906)
(14,211)
94,320
(83,955)
1,601,022
(77,798)
674,928
(669,047)
(91,043)
18,087
(37,274)
(3,775)
(185,922)
(1,905,157)
414,249
7,051
—
76,510
1,514
(1,405,833)
(9,482)
(215)
(1,929)
(2,144)
60,945
58,801
304,768
(1,221)
305,989
1,121,966
(99,853)
21,181
—
70,762
154,042
(40,323)
1,448
(292)
(74,381)
(18,751)
1,441,788
323,359
1,283,223
(798,311)
(83,201)
23,635
(6,141)
(11,079)
731,485
(2,667,978)
423,605
3,891
—
70,980
8,147
(2,161,355)
37
11,955
(1,102)
10,853
50,092
60,945
218,341
(1,884)
220,225
1,047,049
(116,060)
20,905
97,231
47,263
104,713
(20,687)
(2,153)
(16,040)
53,481
(53,109)
1,382,818
(221,082)
965,533
(293,488)
(74,871)
46,568
(106,286)
(4,724)
311,650
(2,259,164)
493,477
3,486
(9,972)
64,267
3,396
(1,704,510)
297
(9,745)
(1,725)
(11,470)
61,562
50,092
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Balance at January 1, 2014
$
Comprehensive income
Common stock dividends declared and paid—$1.42
per share
Common stock issued under employee stock option
and stock purchase plans (1)
Benefit plan stock purchases (2)
Common stock repurchases
Share-based compensation
Tax benefits from share-based compensation
Balance at December 31, 2014
Comprehensive income
Common stock dividends declared and paid—$1.56
per share
Common stock issued under employee stock option
and stock purchase plans (1)
Benefit plan stock sales (2)
Common stock repurchases
Share-based compensation
Tax benefits from share-based compensation
Balance at December 31, 2015
Comprehensive income
Common stock dividends declared—$1.70 per share
Common stock issued under employee stock option
and stock purchase plans (1)
Benefit plan stock sales (2)
Common stock repurchases
Share-based compensation
Adoption of new accounting standard
Balance at December 31, 2016
$
Preferred
Stock
Amount
Common Stock
Shares
Par
Additional
Paid-In Capital
Retained
Earnings
Accumulated
Other
Comprehensive Loss
Total
53,335,386 $
—
—
1,019,341
8,239
(1,323,278)
—
—
53,039,688
—
(Dollars in thousands, except per share amounts)
1,390,603
917,539
26,667
218,341
—
—
—
511
4
(662)
—
—
26,520
—
—
(75,631)
45,371
682
(22,820)
20,905
651
962,328
—
—
—
(82,804)
—
—
1,450,509
304,768
—
—
—
(83,306)
519,271
751
(69,107)
—
—
53,490,603
—
—
507,104
1,709
(536,298)
—
—
53,463,118 $
260
—
(35)
—
—
26,745
—
—
254
1
(268)
—
—
26,732
23,292
83
(1,215)
21,181
352
1,006,021
—
—
17,752
80
(9,968)
18,664
—
1,032,549
—
—
(4,891)
—
—
1,667,080
262,477
(91,100)
—
—
(27,038)
—
15,607
1,827,026
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(438,248)
(182,022)
1,896,561
36,319
—
—
—
—
—
—
(75,631)
45,882
686
(106,286)
20,905
651
(620,270)
1,819,087
(92,465)
212,303
—
—
—
—
—
—
(712,735)
(121,297)
—
—
—
—
—
—
(83,306)
23,552
83
(6,141)
21,181
352
1,987,111
141,180
(91,100)
18,006
81
(37,274)
18,664
15,607
(834,032)
2,052,275
__________________
(1)
(2)
Net of common shares delivered as payment for the exercise price or to satisfy the holders’ withholding tax liability upon exercise of options.
Represents open-market transactions of common shares by the trustee of Ryder’s deferred compensation plans.
See accompanying notes to consolidated financial statements.
73
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Presentation
The consolidated 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”) where Ryder is determined to be the primary beneficiary. Ryder is deemed to be the primary beneficiary if
we have the power to direct the activities that most significantly impact the entity’s economic performance and we share in the significant risks and rewards of the
entity. All significant intercompany accounts and transactions have been eliminated in consolidation.
Beginning in 2016, we reclassified the losses from fair value adjustments on our used vehicles from "Other operating expenses" to "Used vehicle sales, net"
within the Consolidated Statement of Earnings. Prior year amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. These estimates are based on management’s best knowledge of historical trends, actions that we may
take in the future, and other information available when the consolidated financial statements are prepared. Changes in estimates are recognized in accordance with
the accounting rules for the estimate, which is typically in the period when new information becomes available. Areas where the nature of the estimate make it
reasonably possible that actual results could materially differ from the amounts estimated include: depreciation and residual value guarantees, employee benefit
plan obligations, self-insurance accruals, impairment assessments on long-lived assets (including goodwill and indefinite-lived intangible assets), allowance for
accounts receivable, income tax liabilities and contingent liabilities.
Cash Equivalents
Cash equivalents represent cash in excess of current operating requirements invested in short-term, interest-bearing instruments with maturities of three
months or less at the date of purchase and are stated at cost.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, the services have been rendered to customers or delivery has occurred, the pricing
is fixed or determinable, and collectibility is reasonably assured. In our evaluation of whether the price is fixed or determinable, we determine whether the total
contract consideration in the arrangement could change based on one or more factors. These factors, which vary among each of our segments, are further discussed
below. Generally, the judgments made for these purposes do not materially impact the revenue recognized in any period. Sales tax collected from customers and
remitted to the applicable taxing authorities is accounted for on a net basis, with no impact on revenue.
Our judgments on collectibility are initially established when a business relationship with a customer is initiated and is continuously monitored as services
are provided. We have a credit rating system based on internally developed standards and ratings provided by third parties. Our credit rating system, along with
monitoring for delinquent payments, allows us to make decisions as to whether collectibility may not be reasonably assured. Factors considered during this process
include historical payment trends, industry risks, liquidity of the customer, years in business, and judgments, liens or bankruptcies. When collectibility is not
considered reasonably assured (typically when a customer is 120 days past due), revenue is not recognized until cash is collected from the customer.
We generate revenue primarily through the lease, rental and maintenance of revenue earning equipment and by providing logistics management and
dedicated services. We classify our revenues in one of the following categories:
Lease and rental
Lease and rental includes lease and commercial rental revenues from our FMS business segment. We offer a full service lease as well as a lease with more
flexible maintenance options which are marketed, priced and managed as bundled lease arrangements, and include equipment, service and financing components.
We do not offer a stand-alone unbundled finance lease of vehicles. For these reasons, both the lease and service components of our leases are included within lease
and rental revenues.
74
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Our lease arrangements include lease deliverables such as the lease of a vehicle and the executory agreement for the maintenance, insurance, taxes and other
services related to the leased vehicles during the lease term. Arrangement consideration is allocated between lease deliverables and non-lease deliverables based on
management’s best estimate of the relative fair value of each deliverable. The arrangement consideration allocated to lease deliverables is accounted for pursuant to
accounting guidance on leases. Our full service lease arrangements provide for a fixed charge billing and a variable charge billing based on mileage or time usage.
Fixed charges are typically billed at the beginning of the month for the services to be provided that month. Variable charges are typically billed a month in arrears.
Costs associated with the activities performed under our full service leasing arrangements are primarily comprised of labor, parts, outside work, depreciation,
licenses, insurance, operating taxes and vehicle financing. These costs are expensed as incurred except for depreciation. Refer to “Summary of Significant
Accounting Policies – Revenue Earning Equipment, Operating Property and Equipment, and Depreciation” for information regarding our depreciation policies.
Non-chargeable maintenance costs have been allocated and reflected within “Cost of lease and rental” based on the maintenance-related labor costs relative to all
product lines.
Revenue from lease and rental agreements is recognized based on the classification of the arrangement, typically as either an operating or direct financing
lease (DFL).
• The majority of our leases and all of our rental arrangements are classified as operating leases and, therefore, we recognize lease and commercial rental
revenue on a straight-line basis as it becomes receivable over the term of the lease or rental arrangement. Lease and rental agreements do not usually
provide for scheduled rent increases or escalations. However, most lease agreements allow for rate changes based upon changes in the Consumer Price
Index (CPI). Lease and rental agreements also provide for vehicle usage charges based on a time charge and/or a fixed per-mile charge. The fixed time
charge, the fixed per-mile charge and the changes in rates attributed to changes in the CPI are considered contingent rentals and are not considered fixed or
determinable until the effect of CPI changes is implemented or the equipment usage occurs.
• The non-lease deliverables of our full service lease arrangements are comprised of access to substitute vehicles, emergency road service, and safety
services. These services are available to our customers throughout the lease term. Accordingly, revenue is recognized on a straight-line basis over the lease
term.
• Leases not classified as operating leases are generally considered direct financing leases. We recognize revenue for direct financing leases using the
effective interest method, which provides a constant periodic rate of return on the outstanding investment on the lease. Cash receipts on impaired direct
financing lease receivables are first applied to the direct financing lease receivable and then to any unrecognized income. A direct financing lease
receivable is considered impaired, based on current information and events, if it is probable that we will be unable to collect all amounts due according to
the contractual terms of the lease.
Services
Services include contract maintenance, contract-related maintenance and other revenues from our FMS business segment and all DTS and SCS revenues.
Under our contract maintenance arrangements, we provide maintenance and repairs required to keep a vehicle in good operating condition, schedule
preventive maintenance inspections and provide access to emergency road service and substitute vehicles. The vast majority of our services are routine services
performed on a recurring basis throughout the term of the arrangement. From time to time, we provide non-routine major repair services in order to place a vehicle
back in service. Revenue from maintenance service contracts is recognized on a straight-line basis as maintenance services are rendered over the terms of the
related arrangements.
Contract maintenance arrangements are generally cancelable, without penalty, after one year with 60 days prior written notice. Our maintenance service
arrangement provides for a monthly fixed charge and a monthly variable charge based on mileage or time usage. Fixed charges are typically billed at the beginning
of the month for the services to be provided that month. Variable charges are typically billed a month in arrears. Most contract maintenance agreements allow for
rate changes based upon changes in the CPI. The fixed per-mile charge and the changes in rates attributed to changes in the CPI are recognized as earned. Costs
associated with the activities performed under our contract maintenance arrangements are primarily comprised of labor, parts and outside work. These costs are
expensed as incurred. Non-chargeable maintenance costs have been allocated and reflected within “Cost of services” based on the proportionate maintenance-
related labor costs relative to all product lines.
75
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue from DTS and SCS service contracts is recognized as services are rendered in accordance with contract terms, which typically include discrete
billing rates for the services. In certain contracts, a portion of the contract consideration may be contingent upon the satisfaction of performance criteria, attainment
of pain/gain share thresholds or volume thresholds. The contingent portion of the revenue in these arrangements is not considered fixed or determinable until the
performance criteria or thresholds have been met. In transportation management arrangements where we act as principal, revenue is reported on a gross basis,
without deducting third-party purchased transportation costs. To the extent that we are acting as an agent in the arrangement, revenue is reported on a net basis,
after deducting purchased transportation costs.
Fuel
Fuel services include fuel services revenue from our FMS business segment. Revenue from fuel services is recognized when fuel is delivered to customers.
Fuel is largely a pass-through to our customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However,
profitability may be positively or negatively impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for
fuel services is established based on trailing market fuel costs.
Accounts Receivable Allowance
We maintain an allowance for uncollectible customer receivables and an allowance for billing adjustments related to certain discounts and billing
corrections. Estimates are updated regularly based on historical experience of bad debts and billing adjustments processed, current collection trends and aging
analysis. Accounts are charged against the allowance when determined to be uncollectible.
Inventories
Inventories, which consist primarily of fuel, tires and vehicle parts, are valued using the lower of weighted-average cost or market.
Revenue Earning Equipment, Operating Property and Equipment, and Depreciation
Revenue earning equipment, comprised of vehicles and operating property and equipment are initially recorded at cost inclusive of vendor rebates. Revenue
earning equipment and operating property and equipment under capital lease are initially recorded at the lower of the present value of minimum lease payments or
fair value. Vehicle repairs and maintenance that extend the life or increase the value of a vehicle are capitalized, whereas ordinary maintenance and repairs
(including tire replacement or repair) are expensed as incurred. Direct costs incurred in connection with developing or obtaining internal-use software are
capitalized. Costs incurred during the preliminary software development project stage, as well as maintenance and training costs, are expensed as incurred.
Leasehold improvements are depreciated over the shorter of their estimated useful lives or the term of the related lease, which may include one or more
option renewal periods where failure to exercise such options would result in an economic penalty in such amount that renewal appears, at the inception of the
lease, to be reasonably assured. If a substantial additional investment is made in a leased property during the term of the lease, we re-evaluate the lease term to
determine whether the investment, together with any penalties related to non-renewal, would constitute an economic penalty in such amount that renewal appears
to be reasonably assured.
Provision for depreciation is computed using the straight-line method on all depreciable assets. Depreciation expense has been recognized throughout the
Consolidated Statement of Earnings depending on the nature of the related asset. We periodically review and adjust, as appropriate, the residual values and useful
lives of revenue earning equipment. Our review of the residual values and useful lives of revenue earning equipment is established with a long-term view
considering historical market price changes, current and expected future market price trends, expected lives of vehicles and extent of alternative uses. Factors that
could cause actual results to materially differ from estimates include, but are not limited to, unforeseen changes in technology innovations. In addition, we also
monitor market trends throughout the year and assess residual values of vehicles expected to be sold in the near term and may adjust residual values for these
vehicles.
We routinely dispose of used revenue earning equipment as part of our FMS business. Revenue earning equipment held for sale is stated at the lower of
carrying amount or fair value less costs to sell. 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 is determined based upon recent market
prices obtained from our own sales experience for sales of each class of similar assets and vehicle condition, as well as anticipated market price changes. 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 "Used
vehicle sales, net" in the Consolidated Statements of Earnings.
Gains and losses on sales of operating property and equipment are reflected in “Miscellaneous income, net.”
76
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Goodwill and Other Intangible Assets
Goodwill on acquisitions represents the excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets. Factors
that contribute to the recognition of goodwill in our acquisitions include (i) expected growth rates and profitability of the acquired companies, (ii) securing buyer-
specific synergies that increase revenue and profits and are not otherwise available to market participants, (iii) significant cost savings opportunities,
(iv) experienced workforce and (v) our strategies for growth in sales, income and cash flows.
Goodwill and other intangible assets with indefinite useful lives are not amortized, but rather, are tested for impairment at least annually (April 1 st ). In
evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether further impairment testing is necessary. Among
other relevant events and circumstances that affect the fair value of reporting units, we consider individual factors such as macroeconomic conditions, changes in
our industry and the markets in which we operate, as well as our reporting units' historical and expected future financial performance. If we conclude that it is more
likely than not that a reporting unit's fair value is less than its carrying value, recoverability of goodwill is evaluated using a two-step process. The first step
involves a comparison of the fair value of each of our reporting units with its carrying amount. If a reporting unit’s carrying amount exceeds its fair value, the
second step is performed. The second step involves a comparison of the implied fair value and carrying value of that reporting unit’s goodwill. To the extent that a
reporting unit’s carrying amount exceeds the implied fair value of its goodwill, an impairment loss is recognized.
Our valuation of fair value for certain reporting units is determined based on a discounted future cash flow model that uses five years of projected cash flows
and a terminal value based on growth assumptions. For certain reporting units, fair value is determined based on the application of current trading multiples for
comparable publicly-traded companies and the historical pricing multiples for comparable merger and acquisition transactions that have occurred in our industry.
Rates used to discount cash flows are dependent upon interest rates and the cost of capital based on our industry and capital structure, adjusted for equity and size
risk premiums based on market capitalization. Estimates of future cash flows are dependent on our knowledge and experience about past and current events and
assumptions about conditions we expect to exist, including long-term growth rates, capital requirements and useful lives. Our estimates of cash flows are also
based on historical and future operating performance, economic conditions and actions we expect to take. In addition to these factors, our DTS and SCS reporting
units are dependent on several key customers or industry sectors. The loss of a key customer may have a significant impact to our DTS or SCS reporting units,
causing us to assess whether or not the event resulted in a goodwill impairment loss.
In making our assessments of fair value, we rely on our knowledge and experience about past and current events and assumptions about conditions we expect
to exist in the future. These assumptions are based on a number of factors, including future operating performance, economic conditions, actions we expect to take
and present value techniques. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill
impairment. It is possible that assumptions underlying the impairment analysis will change in such a manner that impairment in value may occur in the future.
Identifiable intangible assets not subject to amortization are assessed for impairment using a similar process used to evaluate goodwill as described above.
Intangible assets with finite lives are amortized over their respective estimated useful lives. Identifiable intangible assets that are subject to amortization are
evaluated for impairment using a similar process used to evaluate long-lived assets described below.
Impairment of Long-Lived Assets Other than Goodwill
Long-lived assets held and used, including revenue earning equipment, operating property and equipment and intangible assets with finite lives, are tested for
recoverability when circumstances indicate that the carrying amount of assets may not be recoverable. Recoverability of long-lived assets is evaluated by
comparing the carrying value of an asset or asset group to management’s best estimate of the undiscounted future operating cash flows (excluding interest charges)
expected to be generated by the asset or asset group. If these comparisons indicate that the carrying value of the asset or asset group is not recoverable, an
impairment loss is recognized for the amount by which the carrying value of the asset or asset group exceeds fair value. Fair value is determined by a quoted
market price, if available, or an estimate of projected future operating cash flows, discounted using a rate that reflects the related operating segment’s average cost
of funds. Long-lived assets to be disposed of, including revenue earning equipment, operating property and equipment and indefinite-lived intangible assets, are
reported at the lower of carrying amount or fair value less costs to sell.
77
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Self-Insurance Accruals
We retain a portion of the accident risk under auto liability, workers’ compensation and other insurance programs. Under our insurance programs, we retain
the risk of loss in various amounts, generally up to $3 million on a per occurrence basis. Self-insurance accruals are based primarily on an actuarially estimated,
undiscounted cost of claims, which includes claims incurred but not reported. Such liabilities are based on estimates. Historical loss development factors are
utilized to project the future development of incurred losses, and these amounts are adjusted based upon actual claim experience and settlements. While we believe
that the amounts are adequate, there can be no assurance that changes to our actuarial estimates may not occur due to limitations inherent in the estimation process.
Changes in the actuarial estimates of these accruals are charged or credited to earnings in the period determined. Amounts estimated to be paid within the next year
have been classified as “Accrued expenses and other current liabilities” with the remainder included in “Other non-current liabilities” in our Consolidated Balance
Sheets.
We also maintain additional insurance at certain amounts in excess of our respective underlying retention. Amounts recoverable from insurance companies
are not offset against the related accrual as our insurance policies do not extinguish or provide legal release from the obligation to make payments related to such
risk-related losses. Amounts expected to be received within the next year from insurance companies have been included within “Receivables, net” with the
remainder included in “Direct financing leases and other assets” and are recognized only when realization of the claim for recovery is considered probable. The
accrual for the related claim has been classified within “Accrued expenses and other current liabilities” if it is estimated to be paid within the next year, otherwise it
has been classified in “Other non-current liabilities” in our Consolidated Balance Sheets.
Income Taxes
Our provision for income taxes is based on reported earnings before income taxes. Deferred taxes are recognized for the future tax effects of temporary
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, using tax rates in effect for the years in
which the differences are expected to reverse.
The effects of changes in tax laws on deferred tax balances are recognized in the period the new legislation is enacted. Valuation allowances are recognized
to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessing the likelihood of realization, management considers estimates of
future taxable income. We calculate our current and deferred tax position based on estimates and assumptions that could differ from the actual results reflected in
income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified.
We are subject to tax audits in numerous jurisdictions in the U.S. and around the world. Tax audits by their very nature are often complex and can require
several years to complete. In the normal course of business, we are subject to challenges from the Internal Revenue Service (IRS) and other tax authorities
regarding amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax
jurisdictions. As part of our calculation of the provision for income taxes on earnings, we determine whether the benefits of our tax positions are at least more
likely than not of being sustained upon audit based on the technical merits of the tax position. The tax benefit to be recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Such accruals require management to make estimates and judgments with
respect to the ultimate outcome of a tax audit. Actual results could vary materially from these estimates. We adjust these reserves as well as the impact of any
related interest and penalties in light of changing facts and circumstances, such as the progress of a tax audit.
Interest and penalties related to income tax exposures are recognized as incurred and included in “Provision for income taxes” in our Consolidated
Statements of Earnings. Accruals for income tax exposures, including penalties and interest, expected to be settled within the next year are included in “Accrued
expenses and other current liabilities” with the remainder included in “Other non-current liabilities” in our Consolidated Balance Sheets. The federal benefit from
state income tax exposures is included in “Deferred income taxes” in our Consolidated Balance Sheets.
78
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Severance and Contract Termination Costs
We recognize liabilities for severance and contract termination costs based upon the nature of the cost to be incurred. For involuntary separation plans that
are completed within the guidelines of our written involuntary separation plan, we recognize the liability when it is probable and reasonably estimable. For one-
time termination benefits, such as additional severance pay or benefit payouts, and other exit costs, such as contract termination costs, the liability is measured and
recognized initially at fair value in the period in which the liability is incurred, with subsequent changes to the liability recognized as adjustments in the period of
change. Severance related to position eliminations that are part of a restructuring plan is included in "Restructuring and other charges, net” in the Consolidated
Statements of Earnings. Severance costs that are not part of a restructuring plan are recognized in the period incurred as a direct cost of revenue or within “Selling,
general and administrative expenses,” in the Consolidated Statements of Earnings depending upon the nature of the eliminated position.
Environmental Expenditures
We recognize liabilities for environmental assessments and/or cleanup when it is probable a loss has been incurred and the costs can be reasonably estimated.
Environmental liability estimates may include costs such as anticipated site testing, consulting, remediation, disposal, post-remediation monitoring and legal fees,
as appropriate. The liability does not reflect possible recoveries from insurance companies or reimbursement of remediation costs by state agencies, but does
include estimates of cost sharing with other potentially responsible parties. Estimates are not discounted, as the timing of the anticipated cash payments is not fixed
or readily determinable. Subsequent adjustments to initial estimates are recognized as necessary based upon additional information developed in subsequent
periods. In future periods, new laws or regulations, advances in remediation technology and additional information about the ultimate remediation methodology to
be used could significantly change our estimates. Claims for reimbursement of remediation costs are recognized when recovery is deemed probable.
Derivative Instruments and Hedging Activities
We use financial instruments, including forward exchange contracts and swaps to manage our exposures to movements in interest rates and foreign currency
exchange rates. The use of these financial instruments modifies the exposure of these risks with the intent to reduce the risk or cost to us. We do not enter into
derivative financial instruments for trading purposes. We limit our risk that counterparties to the derivative contracts will default and not make payments by
entering into derivative contracts only with counterparties comprised of large banks and financial institutions that meet established credit criteria. We do not expect
to incur any losses as a result of counterparty default.
On the date a derivative contract is executed, we formally document, among other items, the intended hedging designation and relationship, along with the
risk management objectives and strategies for entering into the derivative contract. We also formally assess, both at inception and on an ongoing basis, whether the
derivatives we used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Cash flows from derivatives that
are accounted for as hedges are classified in the Consolidated Statements of Cash Flows in the same category as the items being hedged. When it is determined that
a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, we discontinue hedge accounting prospectively.
The hedging designation may be classified as one of the following:
No Hedging Designation. The unrealized gain or loss on a derivative instrument not designated as an accounting hedging instrument is recognized
immediately in earnings.
Fair Value Hedge. A hedge of a recognized asset or liability or an unrecognized firm commitment is considered a fair value hedge. For fair value hedges,
both the effective and ineffective portions of the changes in the fair value of the derivative, along with the gain or loss on the hedged item that is attributable to the
hedged risk, are both recognized in earnings.
Cash Flow Hedge. A hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability is
considered a cash flow hedge. The effective portion of the change in the fair value of a derivative that is declared as a cash flow hedge is recognized net of tax in
“Accumulated other comprehensive loss” until earnings are affected by the variability in cash flows of the designated hedged item.
Net Investment Hedge . A hedge of a net investment in a foreign operation is considered a net investment hedge. The effective portion of the change in the
fair value of the derivative used as a net investment hedge of a foreign operation is recognized in the currency translation adjustment account within “Accumulated
other comprehensive loss.” The ineffective portion, if any, on the hedged item that is attributable to the hedged risk is recognized in earnings and reported in
“Miscellaneous income, net” in the Consolidated Statements of Earnings.
79
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Foreign Currency Translation
Our foreign operations generally use local currency as their functional currency. Assets and liabilities of these operations are translated at the exchange rates
in effect on the balance sheet date. Items in the Consolidated Statements of Earnings are translated at the average exchange rates for the year. The impact of
currency fluctuations is presented in “Changes in cumulative translation adjustment and other” in the Consolidated Statements of Comprehensive Income. Upon
sale or upon complete or substantially complete liquidation of an investment in a foreign operation, the currency translation adjustment attributable to that
operation is removed from accumulated other comprehensive loss and is reported as part of the gain or loss on sale or liquidation of the investment for the period
during which the sale or liquidation occurs. Gains and losses resulting from foreign currency transactions are recognized in “Miscellaneous income, net” in the
Consolidated Statements of Earnings.
Share-Based Compensation
The fair value of stock option awards and nonvested stock awards other than restricted stock units (RSUs), is expensed on a straight-line basis over the
vesting period of the awards. RSUs are expensed in the year they are granted. Beginning in 2016, we adopted ASU No. 2016-09, Stock Compensation . This
standard changed the presentation of cash flows from the tax benefits resulting from tax deductions in excess of the compensation expense recognized for those
options (windfall tax benefits) as well as tax shortfalls to be in operating cash flows in the statement of cash flows. In addition, windfall tax benefits and tax
shortfalls are now charged directly to income tax expense.
Earnings Per Share
Earnings per share is computed using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that
determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights
in undistributed earnings. Restricted stock units are considered participating securities since the share-based awards contain a non-forfeitable right to dividend
equivalents irrespective of whether the awards ultimately vest. Under the two-class method, earnings per common share are computed by dividing the sum of
distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares
outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the
weighted average shares outstanding during the period.
Diluted earnings per common share reflect the dilutive effect of potential common shares from stock options and other nonparticipating nonvested stock. The
dilutive effect of stock options is computed using the treasury stock method, which assumes any proceeds that could be obtained upon the exercise of stock options
would be used to purchase common shares at the average market price for the period. The assumed proceeds include the purchase price the grantee pays, the
windfall tax benefit that we receive upon assumed exercise and the unrecognized compensation expense at the end of each period.
Share Repurchases
Repurchases of shares of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other
factors. The cost of share repurchases is allocated between common stock and retained earnings based on the amount of additional paid-in capital at the time of the
share repurchase.
Defined Benefit Pension and Postretirement Benefit Plans
The funded status of our defined benefit pension plans and postretirement benefit plans are recognized in the Consolidated Balance Sheets. The funded status
is measured as the difference between the fair value of plan assets and the benefit obligation at December 31, the measurement date. The fair value of plan assets
represents the current market value of contributions made to irrevocable trusts, held for the sole benefit of participants, which are invested by the trusts. For
defined benefit pension plans, the benefit obligation represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future
compensation levels. For postretirement benefit plans, the benefit obligation represents the actuarial present value of postretirement benefits attributed to employee
services already rendered. Overfunded plans, with the fair value of plan assets exceeding the benefit obligation, are aggregated and reported as a prepaid pension
asset. Underfunded plans, with the benefit obligation exceeding the fair value of plan assets, are aggregated and reported as a pension and postretirement benefit
liability.
The current portion of pension and postretirement benefit liabilities represents the actuarial present value of benefits payable within the next year exceeding
the fair value of plan assets (if funded), measured on a plan-by-plan basis. These liabilities are recognized in “Accrued expenses and other current liabilities” in the
Consolidated Balance Sheets.
80
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension and postretirement benefit expense includes service cost, interest cost, expected return on plan assets (if funded), and amortization of prior service
credit and net actuarial loss. Service cost represents the actuarial present value of participant benefits earned in the current year. The expected return on plan assets
represents the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the obligation. Prior service credit
represents the impact of negative plan amendments. Net actuarial losses arise as a result of differences between actual experience and assumptions or as a result of
changes in actuarial assumptions. Net actuarial loss and prior service credit not recognized as a component of pension and postretirement benefit expense as they
arise are recognized as "Change in net actuarial loss and prior service credit, net of tax" in the Consolidated Statements of Comprehensive Income. These pension
and postretirement items are subsequently amortized as a component of pension and postretirement benefit expense over the remaining service period, if the
majority of the employees are active, otherwise over the remaining life expectancy, provided such amounts exceed thresholds which are based upon the benefit
obligation or the value of plan assets.
The measurement of benefit obligations and pension and postretirement benefit expense is based on estimates and assumptions approved by management.
These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain
assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation increases, interest rates and mortality rates.
Fair Value Measurements
We carry various assets and liabilities at fair value in the Consolidated Balance Sheets. The most significant assets and liabilities are vehicles held for sale,
which are stated at the lower of carrying amount or fair value less costs to sell, investments held in Rabbi Trusts and derivatives.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are
classified based on the following fair value hierarchy:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. An
active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to
provide pricing information on an ongoing basis.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or
model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.
Level 3 Unobservable inputs for the asset or liability. These inputs reflect our own assumptions about the assumptions a market participant would use in
pricing the asset or liability.
When available, we use unadjusted quoted market prices to measure fair value and classify such measurements within Level 1. If quoted prices are not
available, fair value is based upon model-driven valuations that use current market-based or independently sourced market parameters such as interest rates and
currency rates. Items valued using these models are classified according to the lowest level input or value driver that is significant to the valuation.
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair
value due to the immediate or short-term maturities of these financial instruments. Revenue earning equipment held for sale is measured at fair value on a
nonrecurring basis and is stated at the lower of carrying amount or fair value less costs to sell. Investments held in Rabbi Trusts and derivatives are carried at fair
value on a recurring basis. Investments held in Rabbi Trusts include exchange-traded equity securities and mutual funds. Fair values for these investments are
based on quoted prices in active markets. For derivatives, fair value is based on model-driven valuations using the LIBOR rate or observable forward foreign
exchange rates, which are observable at commonly quoted intervals for the full term of the financial instrument.
81
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. RECENT ACCOUNTING PRONOUNCEMENTS
Intangibles - Goodwill and Other
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment , which requires an entity to perform a one-step quantitative
impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the
total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is
measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The standard is effective January 1, 2020,
with early adoption as of January 1, 2017 permitted. We do not expect this standard to have a material impact on our consolidated financial position, results of
operations and cash flows.
Statement of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows, which clarifies how companies present and classify certain cash receipts and
cash payments in the statement of cash flows. In November 2016, the FASB issued additional guidance related to the statement of cash flows, which requires
companies to explain the change during the period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The standard is effective
January 1, 2018, with early adoption permitted. The standard will be adopted on a retrospective basis. We do not expect this standard to have a material impact on
the presentation of our consolidated cash flows.
Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which requires the measurement and recognition of expected credit
losses for financial assets held at amortized cost. The standard applies to financial instruments including, but not limited to, trade and other receivables, held-to-
maturity debt securities, loans and net investments in leases. The standard requires estimating expected credit losses over the remaining life of an instrument or a
portfolio of instruments with similar risk characteristics based on relevant information about past events, current conditions and reasonable forecasts. The initial
estimate of and the subsequent changes in expected credit losses will be recognized as credit loss expense through current earnings and will be reflected as an
allowance for credit losses offsetting the carrying value of the financial instrument(s) on the balance sheet. The standard is effective January 1, 2020, with early
adoption as of January 1, 2019 permitted. The standard is to be applied using a modified retrospective transition method. We do not expect this standard to have a
material impact on our consolidated financial position, results of operations and cash flows.
Share-Based Payments
In March 2016, the FASB issued ASU No. 2016-09, Stock Compensation, which is intended to simplify several aspects of the accounting for share-based
payment award transactions. The guidance changed several aspects of the accounting for share-based awards, including accounting for income taxes, forfeitures,
and the minimum statutory tax withholding requirements for share-based awards. The standard eliminates the requirement to record the tax benefits resulting from
tax deductions in excess of share-based compensation expense (windfall tax benefits) as well as tax shortfalls to additional paid in capital in the balance sheet. The
standard also requires all tax effects related to share-based payments at settlement (or expiration) be recorded to income tax expense and changes the cash flow
presentation of excess tax benefits or shortfalls from share-based awards from financing activities to operating activities. The standard is effective January 1, 2017,
with early adoption permitted. We adopted the standard during 2016, and recorded a $16 million cumulative-effect adjustment to retained earnings as of January 1,
2016, related to historical excess tax benefits. The impact of the standard was not material to our consolidated financial position, results of operations and cash
flows.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of
leases. The standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases. This classification will determine whether the
lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-
use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be
accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially
equivalent to existing guidance for sales-type leases, direct
82
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
financing leases and operating leases. We will adopt the standard effective January 1, 2019 using the modified retrospective transition method. We do not
anticipate a material impact upon adoption of the standard on our consolidated financial position, results of operations and cash flows.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers , which together with related, subsequently issued guidance,
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 adoption of
ASU 2014-09 will primarily impact our full service lease product line, which includes a vehicle lease as well as maintenance and other services related to the
vehicle. We will generally continue to recognize revenue for the vehicle lease portion of the product line on a straight-line basis. Revenue from the non-lease
portion of the product line, primarily maintenance services, will be recognized at the time the maintenance services are performed, which will generally require the
deferral of some portion of the customer's lease payments when received, as maintenance services are not performed evenly over the life of a full service lease
contract. Under current GAAP, substantially all revenues from our full service lease arrangements are recognized on a straight line basis over the term of the lease.
We will adopt the standard on January 1, 2018, using the full retrospective transition method, which will result in a cumulative-effect adjustment for deferred
revenue to the opening balance sheet for 2016 and the restatement of the financial statements for all prior periods presented (2016 and 2017). We continue to
evaluate the impact of adoption of this standard on our consolidated financial position, results of operations and cash flows.
Presentation of Debt Issuance Costs
In April 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. We adopted this guidance on January 1, 2016 and reclassified $ 15
million from other assets to long-term debt in our December 31, 2015 balance sheet. Other than the change in presentation within the Consolidated Balance Sheets,
this accounting guidance did not impact our consolidated financial position, results of operations and cash flows.
3. ACQUISITIONS
On August 1, 2014 , we acquired all of the common stock of Bullwell Trailer Solutions, Ltd., a U.K.-based trailer repair and maintenance company, for a
purchase price of approximately $ 15 million , net of cash acquired. The purchase price, which included $ 6 million in contingent consideration, was paid in total as
of December 31, 2016 . The acquisition complements our FMS business segment coverage in the U.K. The purchase accounting for this acquisition resulted in
goodwill and customer relationship intangible assets of $12 million and $2 million , respectively, with the remaining amount allocated to tangible assets, less
liabilities assumed. Transaction costs related to the acquisition were not material.
4. RESTRUCTURING AND OTHER CHARGES
In the fourth quarters of 2016 , 2015 and 2014 , we approved plans to reduce our workforce in multiple locations as a result of cost containment actions,
resulting in charges of $5 million , $9 million and $2 million in each of the respective years. In addition, we committed to a plan to divest our Ryder Canadian
Retail Shippers Association Logistics (CRSAL) operations and shutdown our Ryder Container Terminals (RCT) business in Canada in the fourth quarter of 2015 .
We recognized charges for employee termination costs of $3 million and asset impairment of $2 million to adjust assets held for sale, including goodwill and
intangible assets, to fair value less costs to sell in 2015. We sold CRSAL to a third party for approximately $2 million during 2016 .
83
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the activities within, and components of, restructuring liabilities for 2016 , 2015 and 2014 (in thousands):
Employee Termination
Costs
Other Charges
Total
Balance as of December 31, 2013
Workforce reduction charges
Utilization (1)
Balance as of December 31, 2014
Workforce reduction charges
CRSAL divestiture and RCT shut-down
Utilization (1)
Balance as of December 31, 2015
Workforce reduction charges
Utilization (1)
Balance as of December 31, 2016 (2)
$
$
340
2,387
(241)
2,486
8,830
3,225
(2,208)
12,333
5,074
(10,129)
7,278
319
—
(319)
—
—
—
—
—
—
—
—
659
2,387
(560)
2,486
8,830
3,225
(2,208)
12,333
5,074
(10,129)
7,278
_________________
Note: The restructuring liabilities shown above are included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets.
(1) Principally represents cash payments.
(2) The majority of the balance remaining for employee termination costs is expected to be paid by the end of 2017.
As discussed in Note 27 , “ Segment Reporting ,” our primary measure of segment financial performance excludes, among other items, restructuring and
other charges, net. However, the applicable portion of the restructuring and other charges (recoveries), net that related to each segment in 2016 , 2015 and 2014
were as follows:
Fleet Management Solutions
Dedicated Transportation Solutions
Supply Chain Solutions
Central Support Services
Total
5. RECEIVABLES
Trade
Direct financing leases
Other, primarily warranty and insurance
Allowance
Total
Years ended December 31,
2016
2015
(In thousands)
2014
$
$
3,550
22
278
1,224
5,074
4,817
250
7,033
2,125
14,225
515
154
797
921
2,387
December 31,
2016
2015
(In thousands)
$
$
739,743
76,322
30,797
846,862
(14,915)
831,947
708,832
90,055
52,162
851,049
(15,560)
835,489
84
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Restricted cash
Prepaid vehicle licenses
Prepaid operating taxes
Prepaid sales commission
Prepaid Insurance
Other
Total
December 31,
2016
2015
(In thousands)
$
3,838
50,343
20,242
9,731
12,074
45,052
$
141,280
5,352
47,806
18,510
11,446
9,057
45,972
138,143
7. REVENUE EARNING EQUIPMENT
Estimated
Useful
Lives
(In years)
December 31, 2016
Accumulated
Depreciation
Cost
Net (1)
Cost
(In thousands)
December 31, 2015
Accumulated
Depreciation
Net (1)
3 — 12
$
9,486,977
(3,031,937)
6,455,040
8,839,941
(2,723,605)
6,116,336
4.5 — 12
2,499,010
(935,346)
1,563,664
2,811,715
(907,412)
1,904,303
494,355
(365,337)
129,018
496,634
(332,538)
164,096
$
12,480,342
(4,332,620)
8,147,722
12,148,290
(3,963,555)
8,184,735
Held for use:
Full service lease
Commercial rental
Held for sale
Total
_______________
(1) Revenue earning equipment, net includes vehicles under capital leases of $43 million , less accumulated depreciation of $22 million , at December 31, 2016 and $47 million , less
accumulated depreciation of $22 million , at December 31, 2015 .
Depreciation expense was $1.10 billion , $1.04 billion and $968 million in 2016 , 2015 and 2014 , respectively.
In 2016, based on current and expected market conditions, we accelerated depreciation on certain classes of vehicles expected to be made available for sale
through June 2018. The impact of the change increased depreciation by $10 million in 2016. 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 "Used vehicle sales, net" in the Consolidated 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. For a certain population of revenue earning equipment held for sale, 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. Expected declines in market prices were also considered when valuing the
vehicles held for sale.These vehicles held for sale were classified within Level 3 of the fair value hierarchy. During 2016 , 2015 , and 2014 , we recognized losses
to reflect changes in fair value of $67 million , $18 million and $11 million , respectively.
85
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents our assets that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:
Assets held for sale:
Revenue earning equipment: (1)
Trucks
Tractors
Trailers
Total assets at fair value
December 31,
Total Losses (2)
Year ended December 31,
2016
2015
2016
2015
$
$
28,638
82,576
2,839
114,053
11,469
$
19,479
2,475
33,423
$
14,645
47,597
5,173
67,415
7,660
7,620
2,676
17,956
______________
(1)
Assets held for sale in the above table only include the portion of revenue earning equipment held for sale where net book values exceeded fair values and fair value adjustments were recorded. The net book value of assets held
for sale not exceeding fair value was $15 million and $131 million as of December 31, 2016 and 2015 , respectively.
Total losses represent fair value adjustments for all vehicles held for sale throughout the period for which fair value less costs to sell was less than carrying value.
(2)
For the twelve months ended December 31, 2016 , the components of used vehicle sales, net were as follows:
Gains on vehicle sales, net
Losses from fair value adjustments
Used vehicle sales, net
8. OPERATING PROPERTY AND EQUIPMENT
Land
Buildings and improvements
Machinery and equipment
Other
Accumulated depreciation
Total
Twelve months ended December 31,
2016
2015
(In thousands)
2014
$
$
(68,387)
67,415
(972)
(117,809)
17,956
(99,853)
(126,824)
10,764
(116,060)
Estimated
Useful Lives
(In years)
—
10 — 40
3 — 10
3 — 10
December 31,
2016
2015
(In thousands)
$
$
212,660
808,909
737,899
114,442
1,873,910
(1,128,040)
745,870
203,543
776,304
709,173
109,554
1,798,574
(1,083,604)
714,970
Depreciation expense was $88 million , $84 million and $79 million in 2016 , 2015 and 2014 , respectively.
86
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. GOODWILL
The carrying amount of goodwill attributable to each reportable business segment with changes therein was as follows:
Balance at January 1, 2015
Goodwill
Accumulated impairment losses
Reclassification to assets held for sale
Foreign currency translation adjustment
Balance at December 31, 2015
Goodwill
Accumulated impairment losses
Foreign currency translation adjustment
Balance at December 31, 2016
Goodwill
Accumulated impairment losses
Fleet
Management
Solutions
Dedicated
Transportation
Solutions
Supply
Chain
Solutions
Total
(In thousands)
$
233,217
(10,322)
222,895
—
(1,859)
231,358
(10,322)
221,036
(2,526)
228,832
(10,322)
$
218,510
40,808
—
40,808
—
—
40,808
—
40,808
—
40,808
—
40,808
148,225
(18,899)
129,326
(852)
(1,183)
146,190
(18,899)
127,291
163
146,353
(18,899)
127,454
422,250
(29,221)
393,029
(852)
(3,042)
418,356
(29,221)
389,135
(2,363)
415,993
(29,221)
386,772
We assess goodwill for impairment on April 1st of each year or more often if deemed necessary. In the second quarter of 2016 , we completed our annual
goodwill impairment test. We performed quantitative assessments on two of our reporting units and determined there was no impairment. We performed
qualitative assessments for three reporting units, which considered individual factors such as macroeconomic conditions, changes in our industry and the markets
in which we operate, as well as our historical and expected future financial performance. After performing the qualitative assessments, we concluded it is more
likely than not that fair value is greater than the carrying value and determined there was no impairment.
10. INTANGIBLE ASSETS
Indefinite lived intangible assets — Trade name
Finite lived intangible assets:
Customer relationship intangibles
Other intangibles, primarily trade name
Accumulated amortization
Foreign currency translation adjustment
Total
December 31,
2016
2015
(In thousands)
8,731
91,523
2,367
(51,578)
42,312
(2,794)
48,249
8,731
91,523
2,367
(45,736)
48,154
(1,693)
55,192
$
$
The Ryder trade name has been identified as having an indefinite useful life. Customer relationship intangibles are being amortized on a straight-line basis
over their estimated useful lives, generally 7 - 19 years. We recognized amortization expense associated with finite lived intangible assets of approximately $6
million in 2016 and $7 million in both 2015 and 2014 . The future amortization expense for each of the five succeeding years related to all intangible assets that are
currently reported in the Consolidated Balance Sheets is estimated to range from $4 - $6 million per year for 2017 - 2021 .
87
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. DIRECT FINANCING LEASES AND OTHER ASSETS
Direct financing leases, net
Investments held in Rabbi Trusts
Contract incentives
Insurance receivables
Debt issuance costs
Prepaid pension asset
Interest rate swap agreements
Other
Total
December 31,
2016
2015
(In thousands)
$
$
333,152
48,451
27,324
18,402
2,593
14,049
1,864
26,449
472,284
347,703
41,720
23,691
28,999
3,365
44,124
5,421
15,223
510,246
Investments held in Rabbi Trusts are assets measured at fair value on a recurring basis, all of which are considered Level 1 of the fair value hierarchy. The
following table presents the asset classes at December 31, 2016 and 2015 :
Cash and cash equivalents
U.S. equity mutual funds
Foreign equity mutual funds
Fixed income mutual funds
Total Investments held in Rabbi Trusts
88
December 31,
2016
2015
(In thousands)
$
$
5,391
30,229
5,232
7,599
48,451
5,214
24,824
4,713
6,969
41,720
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. ACCRUED EXPENSES AND OTHER LIABILITIES
Salaries and wages
Deferred compensation
Pension benefits
Other postretirement benefits
Other employee benefits
Insurance obligations (1)
Operating taxes
Income taxes
Interest
Deposits, mainly from customers
Deferred revenue
Other
Total
Accrued
Expenses
December 31, 2016
Non-Current
Liabilities
Total
Accrued
Expenses
Non-Current
Liabilities
Total
December 31, 2015
$
90,913
2,992
3,796
1,506
29,358
127,470
92,150
4,197
27,277
61,225
14,064
52,241
—
46,541
451,940
19,459
5,854
234,336
—
23,174
—
4,569
—
31,692
(In thousands)
90,913
49,533
455,736
20,965
35,212
361,806
92,150
27,371
27,277
65,794
14,064
83,933
99,032
2,252
3,790
1,624
8,956
157,014
101,649
3,378
31,218
61,869
13,038
59,532
$
507,189
817,565
1,324,754
543,352
—
41,691
484,892
20,002
9,706
213,256
—
22,366
—
5,085
—
32,597
829,595
99,032
43,943
488,682
21,626
18,662
370,270
101,649
25,744
31,218
66,954
13,038
92,129
1,372,947
_________________
(1) Insurance obligations are primarily comprised of self-insured claim liabilities.
We retain a portion of the accident risk under vehicle liability and workers’ compensation insurance programs. Self-insurance accruals are primarily based
on actuarially estimated, undiscounted cost of claims, and include claims incurred but not reported. Such liabilities are based on estimates. Historical loss
development factors are utilized to project the future development of incurred losses, and these amounts are adjusted based upon actual claim experience and
settlements. While we believe the amounts are adequate, there can be no assurance that changes to our estimates may not occur due to limitations inherent in the
estimation process. During 2016 and 2015 , we recognized charges within earnings from continuing operations of $9 million and $4 million from the development
of estimated prior years’ self-insured loss reserves for the reasons noted above, as well as a settlement of a customer-extended insurance claim in 2015 . In 2014 ,
we recognized a benefit within earnings from continuing operations of $14 million from the development of estimated prior years’ self-insured loss reserves for the
reasons noted above.
89
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. INCOME TAXES
The components of earnings from continuing operations before income taxes and the provision for income taxes from continuing operations were as follows:
Earnings from continuing operations before income taxes:
United States
Foreign
Total
Current tax expense (benefit) from continuing operations:
Federal (1)
State (1)
Foreign
Deferred tax expense from continuing operations:
Federal
State
Foreign
Provision for income taxes from continuing operations
2016
Years ended December 31,
2015
(In thousands)
2014
$
$
$
$
344,614
61,767
406,381
2,731
7,713
6,411
16,855
106,513
16,259
2,114
124,886
141,741
408,757
60,458
469,215
(1,836)
5,748
5,272
9,184
135,585
20,111
(1,654)
154,042
163,226
275,630
62,637
338,267
(230)
6,396
7,163
13,329
90,056
12,429
2,228
104,713
118,042
______________
(1) Excludes federal and state tax benefits resulting from the exercise of stock options and vesting of restricted stock awards, which were credited directly to “Additional paid-in capital” for
years ended December 31, 2015 and 2014.
A reconciliation of the federal statutory tax rate with the effective tax rate from continuing operations follows:
Federal statutory tax rate
Impact on deferred taxes for changes in tax rates
State income taxes, net of federal income tax benefit
Foreign rates varying from federal statutory tax rate
Tax reviews and audits
Other, net
Effective tax rate
90
Years ended December 31,
2016
2015
2014
(Percentage of pre-tax earnings)
35.0
(0.7)
5.0
(3.3)
(0.7)
(0.4)
34.9
35.0
(0.9)
5.0
(3.3)
(1.3)
0.3
34.8
35.0
(0.9)
5.2
(3.7)
(1.1)
0.4
34.9
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Tax Law Changes
The effects of changes in tax laws on deferred tax balances are recognized in the period the new legislation is enacted. The following provides a summary of
the increases to net earnings from continuing operations from changes in tax laws by tax jurisdiction:
Tax Jurisdiction
2016
North Carolina
2015
Connecticut
Other Jurisdictions
2014
New York
Rhode Island
Enactment Date
August 4, 2016
June 30, 2015
April 13, 2015 - November 18, 2015
March 31, 2014
June 19, 2014
Net Earnings
(in thousands)
$585
$1,616
$497
$1,776
$626
Deferred Income Taxes
The components of the net deferred income tax liability were as follows:
Deferred income tax assets:
Self-insurance accruals
Net operating loss carryforwards
Alternative minimum taxes
Accrued compensation and benefits
Federal benefit on state tax positions
Pension benefits
Miscellaneous other accruals
Valuation allowance
Deferred income tax liabilities:
Property and equipment basis difference
Other
Net deferred income tax liability (1)
December 31,
2016
2015
(In thousands)
$
$
107,252
396,313
13,901
81,454
19,247
162,141
28,313
808,621
(16,387)
792,234
(2,451,151)
(20,735)
(2,471,886)
(1,679,652)
93,352
429,458
10,727
76,363
18,912
148,671
32,763
810,246
(14,991)
795,255
(2,362,194)
(20,583)
(2,382,777)
(1,587,522)
______________
(1) Deferred tax assets of $9 million have been included in "Direct financing leases and other assets" at December 31, 2016.
U.S. deferred income taxes have not been provided on certain undistributed earnings of foreign subsidiaries, which were $762 million at December 31, 2016
. The determination of the amount of the related unrecognized deferred tax liability is not practicable because of the complexities associated with the hypothetical
calculations. We have historically reinvested such earnings overseas in foreign operations indefinitely and expect future earnings will also be reinvested overseas
indefinitely.
91
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 2016 , we had U.S. federal tax effected net operating loss carryforwards of $359 million and various U.S. subsidiaries had state tax effected
net operating loss carryforwards of $22 million both expiring through tax year 2034. We also had foreign tax effected net operating losses of $15 million that are
available to reduce future income tax payments in several countries, subject to varying expiration rules. A valuation allowance has been established to reduce
deferred income tax assets, principally foreign tax loss carryforwards, to amounts more likely than not to be realized. We had unused alternative minimum tax
credits of $14 million at December 31, 2016 , which are available to reduce future income tax liabilities. The alternative minimum tax credits may be carried
forward indefinitely.
Uncertain Tax Positions
The following is a summary of tax years that are no longer subject to examination:
Federal — audits of our U.S. federal income tax returns are closed through fiscal year 2009.
State — for the majority of states, tax returns are closed through fiscal year 2009.
Foreign — we are no longer subject to foreign tax examinations by tax authorities for tax years before 2009 in Canada, 2011 in Brazil, 2011 in Mexico and
2013 in the U.K., which are our major foreign tax jurisdictions.
The following table summarizes the activity related to unrecognized tax benefits (excluding the federal benefit received from state positions):
Balance at January 1
Additions based on tax positions related to the current year
Reductions due to lapse of applicable statutes of limitation
Gross balance at December 31
Interest and penalties
Balance at December 31
2016
60,740
3,855
(2,946)
61,649
5,219
66,868
$
$
December 31,
2015
(In thousands)
2014
60,482
4,220
(3,962)
60,740
4,912
65,652
56,813
6,896
(3,227)
60,482
5,125
65,607
Of the total unrecognized tax benefits, $48 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if
recognized, would favorably affect the effective tax rate in future periods. The total includes $5 million and $4 million of interest and penalties, at December 31,
2016 and 2015 , respectively, net of the federal benefit on state issues. For 2016 , 2015 and 2014 , we recognized an income tax benefit related to interest and
penalties of $1 million in each period, within “Provision for income taxes” in our Consolidated Statements of Earnings. Unrecognized tax benefits related to
federal, state and foreign tax positions may decrease by $3 million by December 31, 2017 , if audits are completed or tax years close during 2017 .
Like-Kind Exchange Program
We have a like-kind exchange program for certain of our U.S.-based revenue earning equipment. Pursuant to the program, we dispose of vehicles and
acquire replacement vehicles in a form whereby tax gains on disposal of eligible vehicles are deferred. To qualify for like-kind exchange treatment, we exchange
through a qualified intermediary eligible vehicles being disposed of with vehicles being acquired, allowing us to generally carryover the tax basis of the vehicles
sold (“like-kind exchanges”). The program results in a material deferral of federal and state income taxes, and a decrease in cash taxes in periods when we are not
in a net operating loss (NOL) position. As part of the program, the proceeds from the sale of eligible vehicles are restricted for the acquisition of replacement
vehicles and other specified applications. Due to the structure utilized to facilitate the like-kind exchanges, the qualified intermediary that holds the proceeds from
the sales of eligible vehicles and the entity that holds the vehicles to be acquired under the program are required to be consolidated in the accompanying
Consolidated Financial Statements in accordance with U.S. GAAP. The total assets, primarily revenue earning equipment, and the total liabilities, primarily vehicle
accounts payable, held by these consolidated entities are equal in value as these entities are solely structured to facilitate the like-kind exchanges. At December 31,
2016 and 2015 , these consolidated entities had total assets, primarily revenue earning equipment, and total liabilities, primarily accounts payable, of $140 million
and $237 million , respectively.
92
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. LEASES
Leases as Lessor
We lease revenue earning equipment to customers for periods ranging from three to seven years for trucks and tractors and up to ten years for trailers. From
time to time, we may also lease facilities to third parties. 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. The net investment in direct financing and sales-type leases
consisted of:
Total minimum lease payments receivable
Less: Executory costs
Minimum lease payments receivable
Less: Allowance for uncollectibles
Net minimum lease payments receivable
Unguaranteed residuals
Less: Unearned income
Net investment in direct financing and sales-type leases
Current portion
Non-current portion
December 31,
2016
2015
(In thousands)
$
$
647,111
(196,469)
450,642
(248)
450,394
45,748
(86,668)
409,474
(76,322)
333,152
684,600
(205,865)
478,735
(243)
478,492
52,885
(93,619)
437,758
(90,055)
347,703
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. Credit risk is assessed using an internally developed
model, which incorporates credit scores from third party providers and our own custom risk ratings and is updated on a monthly basis. The external credit scores
are developed based on the customer’s historical payment patterns and an overall assessment of the likelihood of delinquent payments. Our internal ratings are
weighted based on the industry that the customer operates in, company size, years in business and other credit-related indicators (i.e., profitability, cash flow,
liquidity, tangible net worth, etc.). Any one of the following factors may result in a customer being classified as high risk: i) history of late payments; ii) open
lawsuits, liens or judgments; iii) in business less than three years ; and iv) operates in an industry with low barriers to entry. 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 vehicle’s fair value, which further mitigates our credit risk.
The following table presents the credit risk profile by creditworthiness category of our direct financing lease receivables at December 31, 2016 and 2015 :
Very low risk to low risk
Moderate
Moderately high to high risk
December 31,
2016
2015
(In thousands)
$
$
192,853
194,234
63,555
450,642
203,388
197,484
77,863
478,735
As of December 31, 2016 and 2015 , the amount of direct financing lease receivables which were past due was not significant and there were no impaired
receivables. Accordingly, there was no material risk of default with respect to these receivables.
93
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Leases as Lessee
We lease facilities and office equipment. None of our leasing arrangements contain restrictive financial covenants.
During 2016 , 2015 and 2014 , rent expense (including rent of facilities and contingent rentals) was $127 million , $132 million and $128 million ,
respectively.
Lease Payments
Future minimum payments for leases in effect at December 31, 2016 were as follows:
2017
2018
2019
2020
2021
Thereafter
Total
Operating
Leases
As Lessor (1)
Direct Financing and
Sales-Type
Leases
(In thousands)
As Lessee
Operating
Leases
$
1,093,917
888,570
601,994
461,278
285,233
227,563
97,877
87,195
71,547
62,298
49,515
82,210
73,064
55,481
37,697
20,663
13,111
22,276
$
3,558,555
450,642
222,292
____________________
(1) Amounts do not include contingent rentals, which may be received under certain leases on the basis of miles or changes in the Consumer Price Index. Contingent rentals from operating
leases included in revenue were $ 342 million in 2016 and $ 329 million in both 2015 and 2014 . Contingent rentals from direct financing leases included in revenue were $12 million in
2016 , $12 million in 2015 and $11 million in 2014 .
The amounts in the previous table related to the lease of revenue earning equipment are based upon the general assumption that revenue earning equipment
will remain on lease for the length of time specified by the respective lease agreements. The future minimum payments presented above related to the lease of
revenue earning equipment are not a projection of future lease revenue or expense, and no effect has been given to renewals, new business, cancellations,
contingent rentals or future rate changes.
94
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. DEBT
Weighted-Average
Interest Rate
December 31,
December 31,
2016
2015
Maturities
2016
2015
Short-term debt and current portion of long-term debt:
Short-term debt
1.07%
2.26%
$
Current portion of long-term debt, including capital leases
Total short-term debt and current portion of long-term debt
Total long-term debt:
U.S. commercial paper (1)
Global revolving credit facility
Unsecured U.S. notes – Medium-term notes (1)
Unsecured U.S. obligations, principally bank term loans
Unsecured foreign obligations
Asset backed U.S. obligations (2)
Capital lease obligations
Total before fair market value adjustment
Fair market value adjustment on notes subject to hedging (3)
Debt issuance costs (4)
Current portion of long-term debt, including capital leases
Long-term debt
Total debt
0.87%
2.06%
2.67%
2.19%
1.55%
1.80%
3.17%
(In thousands)
177,629
613,781
791,410
342,480
4,703
35,947
598,583
634,530
547,130
25,291
0.55%
2.31%
2020
2020
2.84%
2017-2025
4,113,421
4,112,519
1.73%
2018
1.92%
2017-2020
1.81%
2017-2022
3.31%
2017-2023
50,000
232,092
459,876
24,184
50,000
275,661
434,001
32,054
5,226,756
5,476,656
1,110
5,253
(14,221)
(15,229)
5,213,645
5,466,680
(613,781)
(598,583)
4,599,864
4,868,097
$
5,391,274
5,502,627
_________________
(1) We had unamortized original issue discounts of $7 million and $8 million at December 31, 2016 and 2015 , respectively.
(2) Asset-backed U.S. obligations are related to financing transactions involving revenue earning equipment.
(3) The notional amount of the executed interest rate swaps designated as fair value hedges was $825 million at December 31, 2016 and 2015 . Refer to Note 16 , " Derivatives ," for
additional information.
See Note 2 , " Recent Accounting Pronouncements ," for further discussion of the presentation of debt issuance costs.
(4)
Maturities of total debt are as follows:
2017
2018
2019
2020
2021
Thereafter
Total
Imputed interest
Present value of minimum capitalized lease payments
Current portion
Long-term capitalized lease obligation
95
Capital Leases
Debt
(In thousands)
957,358
791,324
1,068,657
1,606,313
704,482
237,846
5,365,980
$
$
9,303
6,939
6,041
880
1,548
777
25,488
(1,304)
24,184
(8,695)
15,489
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Debt Facilities
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 December 31, 2016 ). 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 December 31, 2016 , was 201% . At December 31, 2016 , there was $675 million available under the credit facility.
Our global revolving credit facility enables us to refinance short-term obligations on a long-term basis. 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 December 31, 2016 , we classified $342 million of short-term
commercial paper and $350 million of the current portion of long-term debt as long-term debt. At December 31, 2015 , we classified $547 million of short-term
commercial paper, $300 million of current debt obligations and $25 million of short-term borrowings under our global revolving credit facilities as long-term.
In 2016 , we received $79 million 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 February 2016 , we issued $300 million of unsecured medium-term notes maturing in November 2021 . In November 2016 , we issued $300 million of
unsecured medium-term notes maturing in September 2021 . 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 holders can require us to repurchase all or a
portion of the notes at a purchase price equal to 101% of principal value 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 . In October 2016 , we renewed the trade receivables purchase and sale program. If no event occurs
which causes early termination, the 364-day program will expire on October 23, 2017 . 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. Sales of receivables under this program are accounted for
as secured borrowings based on our continuing involvement in the transferred assets. No amounts were outstanding under the program at December 31, 2016 and
2015 .
The fair value of total debt (excluding capital lease, asset backed U.S. obligations and debt issuance costs) was $4.97 billion at December 31, 2016 and $5.06
billion at December 31, 2015 . For publicly-traded debt, estimates of fair value were based on market prices. For other debt, fair value is estimated based on a
model-driven approach using rates currently available to us for debt with similar terms and remaining maturities. The fair value measurements of our publicly-
traded debt and our other debt were classified within Level 2 of the fair value hierarchy. The carrying amounts reported in the Consolidated 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.
In February 2016, Ryder filed an automatic shelf registration statement on Form S-3 with the SEC. The registration is for an indeterminate number of
securities and is effective for three years. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time various types of
securities, including common stock, preferred stock and debt securities, subject to market demand and ratings status.
96
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. DERIVATIVES
From time to time, we enter into interest rate derivatives to manage our fixed and variable interest rate exposure and to better match the repricing of debt
instruments to that of our portfolio of assets. We assess the risk that changes in interest rates will have either on the fair value of debt obligations or on the amount
of future interest payments by monitoring changes in interest rate exposures and by evaluating hedging opportunities. We regularly monitor interest rate risk
attributable to both our outstanding or forecasted debt obligations as well as our offsetting hedge positions. This risk management process involves the use of
analytical techniques, including cash flow sensitivity analyses, to estimate the expected impact of changes in interest rates on our future cash flows.
As of December 31, 2016 , we had interest rate swaps outstanding which are designated as fair value hedges for certain debt obligations, with a total notional
value of $825 million and maturities through 2020 . Interest rate swaps are measured at fair value on a recurring basis using Level 2 fair value inputs. The fair
value of these interest rate swaps was approximately $1 million and $5 million as of December 31, 2016 and 2015 , respectively. The amounts are presented in
"Direct financing leases and other assets" and "Other non-current liabilities" in our Consolidated Balance Sheets. Changes in the fair value of our interest rate
swaps were offset by changes in the fair value of the hedged debt instrument. Accordingly, there was no ineffectiveness related to the interest rate swaps.
97
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
17. GUARANTEES
We have executed various agreements with third parties that contain standard indemnifications that may require us to indemnify a third party against losses
arising from a variety of matters such as lease obligations, financing agreements, environmental matters, and agreements to sell business assets. In each of these
instances, payment by Ryder is contingent on the other party bringing about a claim under the procedures outlined in the specific agreement. Normally, these
procedures allow us to dispute the other party’s claim. Additionally, our obligations under these agreements may be limited in terms of the amount and/or timing of
any claim. We have entered into individual indemnification agreements with each of our independent directors, through which we will indemnify such director
acting in good faith against any and all losses, expenses and liabilities arising out of such director’s service as a director of Ryder. The maximum amount of
potential future payments under these agreements is generally unlimited.
We cannot predict the maximum potential amount of future payments under certain of these agreements, including the indemnification agreements, due to
the contingent nature of the potential obligations and the distinctive provisions that are involved in each individual agreement. Historically, no such payments made
by us have had a material adverse effect on our business. We believe that if a loss were incurred in any of these matters, the loss would not have a material adverse
impact on our consolidated results of operations or financial position.
At December 31, 2016 and 2015 , we had letters of credit and surety bonds outstanding, which primarily guarantee various insurance activities as noted in
the following table:
Letters of credit
Surety bonds
December 31,
2016
2015
$
(In thousands)
240,420
113,696
241,022
104,632
18. SHARE REPURCHASE PROGRAMS
In December 2015, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our
employee stock plans (the program). Under the program, management is authorized to repurchase (i) up to 1.5 million shares of common stock, the sum of which
will not exceed the number of shares issued to employees under the Company’s employee stock plans from December 1, 2015 to December 9, 2017, plus (ii) 0.5
million shares issued to employees that were not repurchased under the Company’s previous share repurchase program. The program limits aggregate share
repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and
are subject to market conditions, legal requirements and other factors. Management may establish prearranged written plans for the Company under Rule 10b5-1 of
the Securities Exchange Act of 1934 as part of the program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading
plan.
During 2016 , 2015 and 2014 , we repurchased 0.5 million , 0.1 million and 1.3 million shares for $ 37 million , $6 million and $106 million , respectively.
98
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
19. ACCUMULATED OTHER COMPREHENSIVE LOSS
Comprehensive income (loss) presents a measure of all changes in shareholders’ equity except for changes resulting from transactions with shareholders in
their capacity as shareholders. The following summary sets forth the components of accumulated other comprehensive loss, net of tax:
January 1, 2014
Amortization
Pension lump sum settlement expense
Other current period change
December 31, 2014
Amortization
Other current period change
December 31, 2015
Amortization
Other current period change
December 31, 2016
Currency
Translation
Adjustments and Other
$
35,875
—
—
(71,962)
(36,087)
—
(99,933)
(136,020)
—
(70,590)
(206,610)
$
Net Actuarial
Loss (1)
Prior Service
Credit (1)
(In thousands)
Accumulated
Other
Comprehensive
Loss
(477,883)
14,866
61,333
(184,257)
(585,941)
19,505
(10,557)
(576,993)
18,876
(62,175)
(620,292)
3,760
(2,676)
—
674
1,758
(1,411)
(69)
278
165
(7,573)
(7,130)
(438,248)
12,190
61,333
(255,545)
(620,270)
18,094
(110,559)
(712,735)
19,041
(140,338)
(834,032)
_______________________
(1)
These amounts are included in the computation of net periodic pension cost and pension settlement charge. See Note 22 , " Employee Benefit Plans ," for further information.
The loss from currency translation adjustments in 2016 of $71 million was primarily due to the weakening of the British Pound against the U.S. Dollar,
partially offset by the strengthening of the Canadian Dollar against the U.S. Dollar. The losses from currency translation adjustments in 2015 and 2014 of $100
million and $72 million , respectively, were due primarily to the weakening of the Canadian Dollar and British Pound against the U.S. Dollar.
99
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
20. EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share from continuing operations:
Earnings per share — Basic:
Earnings from continuing operations
Less: Distributed and undistributed earnings allocated to unvested stock
Earnings from continuing operations available to common shareholders — Basic
Years ended December 31,
2016
2015
2014
(In thousands, except per share amounts)
$
264,640
305,989
220,225
(840)
(877)
(858)
$
263,800
305,112
219,367
Weighted average common shares outstanding— Basic
53,015
52,814
52,536
Earnings from continuing operations per common share — Basic
$
4.98
5.78
4.18
Earnings per share — Diluted:
Earnings from continuing operations
Less: Distributed and undistributed earnings allocated to unvested stock
Earnings from continuing operations available to common shareholders — Diluted
$
264,640
305,989
220,225
(836)
(872)
(853)
$
263,804
305,117
219,372
Weighted average common shares outstanding— Basic
Effect of dilutive equity awards
Weighted average common shares outstanding— Diluted
53,015
52,814
346
446
53,361
53,260
Earnings from continuing operations per common share — Diluted
Anti-dilutive equity awards and market-based restrictive stock rights not included above
$
4.94
716
5.73
392
52,536
500
53,036
4.14
161
21. SHARE-BASED COMPENSATION PLANS
The following table provides information on share-based compensation expense and related income tax benefits recognized in 2016 , 2015 and 2014 :
Stock option and stock purchase plans
Unvested stock awards
Share-based compensation expense
Income tax benefit
Share-based compensation expense, net of tax
2016
Years ended December 31,
2015
(In thousands)
2014
$
$
7,244
11,420
18,664
(6,644)
12,020
8,048
13,133
21,181
(7,271)
13,910
9,023
11,882
20,905
(7,300)
13,605
Total unrecognized pre-tax compensation expense related to share-based compensation arrangements at December 31, 2016 was $17 million and is expected
to be recognized over a weighted-average period of approximately 1.7 years. The total fair value of equity awards vested during 2016 , 2015 and 2014 were $17
million , $16 million and $18 million , respectively.
100
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Share-Based Incentive Awards
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, unvested stock
and cash awards. Unvested stock awards include grants of market-based, performance-based, and time-vested restricted stock rights. Under the terms of our Plans,
dividends on unvested stock 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 date of grant of the award until the date the shares underlying the award are delivered. There are 4.4 million shares
authorized for issuance under the Plans as of December 31, 2016 . There are 3.5 million shares remaining available for future issuance under the Plans as of
December 31, 2016 .
Stock options are awards which allow employees to purchase shares of our stock at a fixed price. Stock option awards are granted at an exercise price equal
to the market price of our stock at the time of grant. These awards, which generally vest one-third each year, are fully vested three years from the grant date. Stock
options granted since 2013 have contractual terms of ten years.
Restricted stock awards are unvested stock rights that are granted to employees and entitle the holder to shares of common stock as the award vests. Time-
vested restricted stock rights typically vest in three years regardless of company performance. The fair value of the time-vested awards is determined and fixed
based on Ryder’s stock price on the date of grant.
Performance-based restricted stock awards (PBRSRs) include a performance-based vesting condition. The awards are segmented into three one -year
performance periods. For these awards, up to 125% of the awards may be earned based on Ryder's one-year adjusted return on capital (ROC) measured against an
annual ROC target. If earned, employees will receive the grant of stock three years after the grant date, provided they continue to be employed with Ryder, subject
to Compensation Committee approval. For accounting purposes, the awards are not considered granted until the Compensation Committee approves the annual
ROC target. During 2016 , 2015 and 2014 , 45,000 , 42,000 and 23,000 PBRSRs, respectively, were considered granted for accounting purposes. The fair value of
the PBRSRs is determined and fixed on the grant date based on Ryder’s stock price on the date of grant. Share-based compensation expense is recognized on a
straight-line basis over the vesting period, based upon the probability that the performance target will be met.
Market-based restricted stock awards include a market-based vesting provision. The awards are segmented into three performance periods of one, two and
three years. At the end of each performance period, up to 125% of the award may be earned based on Ryder's total shareholder return (TSR) compared to the target
TSR of a peer group over the applicable performance period. The awards compared Ryder's TSR to the TSR of a custom peer group. If earned, employees will
receive the grant of stock at the end of the relevant three-year performance period provided they continue to be employed with Ryder, subject to Compensation
Committee approval. The fair value of the market-based awards was determined on the date of grant using a Monte-Carlo valuation model. Share-based
compensation expense is recognized on a straight-line basis over the vesting period and is recognized regardless of whether the awards vest.
Certain employees also received cash awards as part of our long-term incentive compensation program. The cash awards have the same vesting provisions as
the market-based restricted stock awards granted in the respective years. The cash awards are accounted for as liability awards as they are based upon our own
stock performance and are settled in cash. As a result, the liability is adjusted to reflect fair value at the end of each reporting period. The fair value of the market-
based cash awards was estimated using a lattice-based option pricing valuation model that incorporates a Monte-Carlo simulation. The liability related to the cash
awards was $1 million at both December 31, 2016 and 2015 .
The following table is a summary of compensation expense recognized related to cash awards in addition to share-based compensation expense reported in
the previous table.
Cash awards
$
689
532
1,900
101
Years ended December 31
2016
2015
(In thousands)
2014
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
We grant restricted stock units (RSUs) to non-management members of the Board of Directors. Once granted, RSUs are eligible for non-forfeitable dividend
equivalents but have no voting rights. The fair value of the awards is determined and fixed based on Ryder’s stock price on the date of grant. A board member
receives the RSUs upon departure from the Board. The initial grant of RSUs will not vest unless the director has served a minimum of one year. When a board
member receives RSUs, they are redeemed for an equivalent number of shares of our common stock. Share-based compensation expense is recognized for RSUs in
the year the RSUs are granted.
Option Awards
The following is a summary of option activity under our stock option plans as of and for the year ended December 31, 2016 :
Options outstanding at January 1
Granted
Exercised
Forfeited or expired
Options outstanding at December 31
Vested and expected to vest at December 31
Exercisable at December 31
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
(In years)
Aggregate
Intrinsic Value
(In thousands)
Shares
(In thousands)
1,263
$
512
(188)
(58)
1,529
1,473
725
$
$
$
68.13
55.32
47.06
70.15
66.35
66.42
65.35
7.1
7.0
5.4
$
$
$
18,400
17,727
8,737
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the close price of our stock on the last
trading day of the year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders if all options
were exercised at year-end. This amount fluctuates based on the fair market value of our stock.
Restricted Stock Awards
The following is a summary of the status of Ryder’s unvested restricted stock awards as of and for the year ended December 31, 2016 :
Unvested stock outstanding at January 1
Granted
Vested (1)
Forfeited (2)
Unvested stock outstanding at December 31
Time-Vested
Market-Based
Performance-Based
Weighted-
Average
Grant Date
Fair Value
68.50
57.83
58.83
74.11
67.31
Shares
(In thousands)
473
$
133
(104)
(26)
476
$
Shares
(In thousands)
62
$
34
(21)
(9)
66
$
Weighted-
Average
Grant Date
Fair Value
66.97
54.10
53.43
69.10
64.33
Weighted-
Average
Grant Date
Fair Value
83.31
55.32
74.35
63.95
70.92
Shares
(In thousands)
76
$
45
(39)
(10)
72
$
(1) Includes awards attained above target.
(2) Includes awards canceled due to performance and market conditions not being achieved.
102
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Purchase Plan
We maintain an Employee Stock Purchase Plan (ESPP) that enables eligible participants in the U.S. and Canada to purchase full or fractional shares of Ryder
common stock through payroll deductions of up to 15% of eligible compensation. The ESPP provides for quarterly offering periods during which shares may be
purchased at 85% of the fair market value of our stock. Beginning with the second quarter of 2015, we amended the ESPP to calculate the exercise price based only
on the fair market value of the stock on the last trading day of the quarter. Prior to the second quarter of 2015, the exercise price was based on the lower of the fair
market value on the first or last trading day of the quarter. Stock purchased under the ESPP must be held for 90 days. There were 5.5 million shares authorized for
issuance under the existing ESPP at December 31, 2016 . There were 0.9 million shares remaining available to be purchased in the future under the ESPP at
December 31, 2016 .
During 2016 , 192,000 shares with a weighted average exercise price of $56.17 were granted and exercised. During 2015 , 178,000 shares with a weighted
average exercise price of $63.93 were granted and exercised. During 2014 , 150,000 shares with a weighted average exercise price of $82.27 were granted and
exercised.
Share-Based Compensation Fair Value Assumptions
The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option-pricing valuation model that uses the weighted-
average assumptions noted in the table below. Expected volatility is based on historical volatility of our stock and implied volatility from traded options on our
stock. The risk-free rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the
date the stock option award is granted with a maturity equal to the expected term of the stock option award. We use historical data to estimate stock option
exercises and forfeitures within the valuation model. The expected term of stock option awards granted is derived from historical exercise experience under the
share-based employee compensation arrangements and represents the period of time that stock option awards granted are expected to be outstanding. The fair value
of market-based restricted stock awards is estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. Estimates of
fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not
indicative of the reasonableness of the original estimates of fair value made by Ryder.
The following table presents the weighted-average assumptions used for options granted:
Option plans:
Expected dividends
Expected volatility
Risk-free rate
Expected term in years
Grant-date fair value
2016
3.0%
35.2%
1.1%
4.3 years
$12.53
Years ended December 31,
2015
1.6%
26.4%
1.4%
4.3 years
$18.47
2014
1.9%
29.1%
1.3%
4.3 years
$14.99
Exercise of Employee Stock Options and Purchase Plans
The total intrinsic value of options exercised during 2016 , 2015 and 2014 was $5 million , $11 million and $28 million , respectively. The total cash
received from employees under all share-based employee compensation arrangements for 2016 , 2015 and 2014 was $18 million , $24 million and $46 million ,
respectively. In connection with these exercises, the tax benefits generated from share-based employee compensation arrangements were $0.6 million , $0.4 million
and $1 million for 2016 , 2015 and 2014 , respectively. As discussed in Note 2 " Recent Accounting Pronouncements," excess tax benefits related to share-based
payments are recorded to income tax expense beginning in 2016.
103
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
22. EMPLOYEE BENEFIT PLANS
Pension Plans
We historically sponsored several defined benefit pension plans covering most employees not covered by union-administered plans, including certain
employees in foreign countries. These plans generally provided participants with benefits based on years of service and career-average compensation levels.
In past years, we made amendments to defined benefit retirement plans which froze the retirement benefits for non-grandfathered and certain non-union
employees in the U.S., Canada and the United Kingdom (U.K.). As a result of these amendments, non-grandfathered plan participants ceased accruing benefits
under the plan as of the respective amendment effective date and began receiving an enhanced benefit under a defined contribution plan. All retirement benefits
earned as of the amendment effective date were fully preserved and will be paid in accordance with the plan and legal requirements. The funding policy for these
plans is to make contributions based on annual service costs plus amortization of unfunded past service liability, but not greater than the maximum allowable
contribution deductible for federal income tax purposes. We may, from time to time, make voluntary contributions to our pension plans, which exceed the amount
required by statute. The majority of the plans’ assets are invested in a master trust that, in turn, is invested primarily in commingled funds whose investments are
listed stocks and bonds.
We also have a non-qualified supplemental pension plan covering certain U.S. employees, which provides for incremental pension payments from our funds
so that total pension payments equal the amounts that would have been payable from our principal pension plans if it were not for limitations imposed by income
tax regulations. The accrued pension liability related to this plan was $53 million and $51 million at December 31, 2016 and 2015 , respectively.
Pension Expense
Pension expense from continuing operations was as follows:
Company-administered plans:
Service cost
Interest cost
Expected return on plan assets
Pension lump sum settlement expense
Amortization of:
Net actuarial loss
Prior service loss (credit)
Union-administered plans
Net pension expense
Company-administered plans:
U.S.
Foreign
Union-administered plans
2016
Years ended December 31,
2015
(In thousands)
2014
$
$
$
$
12,977
94,476
(90,588)
—
31,777
2,976
51,618
9,597
61,215
53,319
(1,701)
51,618
9,597
61,215
13,820
88,013
(98,892)
—
30,741
(306)
33,376
8,328
41,704
34,986
(1,610)
33,376
8,328
41,704
13,023
100,909
(115,410)
97,231
23,573
(1,788)
117,538
21,118
138,656
118,797
(1,259)
117,538
21,118
138,656
104
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During 2016 , we determined that certain pension benefit improvements made in 2009 had not been fully reflected in our projected benefit obligation.
Because the amounts were not material to our consolidated financial statements in any individual period, and the cumulative amount is not material to 2016 results,
we recognized a one-time, non-cash charge of $8 million in "Selling, general and administrative expenses" and a $13 million pre-tax increase to “Accumulated
other comprehensive loss” in our consolidated financial statements to correctly state the pension benefit obligation and account for these 2009 benefit
improvements.
During 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.
During 2014 , we offered former vested employees in our U.S. defined benefit plan a one-time option to receive a lump sum distribution of their benefits. We
made payments totaling $224 million from the U.S. defined benefit plan assets, which resulted in a settlement of $259 million , representing approximately 12% of
our U.S. pension plan obligations. We recognized pension lump sum settlement expense of $97 million for unrecognized actuarial losses as a result of the partial
settlement of our pension plan liability. The amount of the lump sum settlement expense is based on the proportionate amount of unrecognized U.S. actuarial net
losses equal to the settled percentage of our pension benefit obligation.
The following table sets forth the weighted-average actuarial assumptions used for Ryder’s pension plans in determining annual pension expense:
Discount rate
Rate of increase in compensation levels
Expected long-term rate of return on plan assets
Gain and loss amortization period (years)
U.S. Plans
Years ended December 31,
Foreign Plans
Years ended December 31,
2016
4.50%
3.00%
5.85%
23
2015
4.15%
3.00%
5.95%
23
2014
5.00%
3.00%
6.50%
23
2016
3.70%
3.10%
5.44%
27
2015
3.70%
3.10%
5.50%
27
2014
4.57%
3.09%
5.94%
27
The return on plan assets assumption reflects the weighted-average of the expected long-term rates of return for the broad categories of investments held in
the plans. The expected long-term rate of return is adjusted when there are fundamental changes in expected returns or in asset allocation strategies of the plan
assets.
105
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Obligations and Funded Status
The following table sets forth the benefit obligations, assets and funded status associated with our pension plans:
Change in benefit obligations:
Benefit obligations at January 1
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Foreign currency exchange rate changes
Benefit obligations at December 31
Change in plan assets:
Fair value of plan assets at January 1
Actual return on plan assets
Employer contribution
Benefits paid
Foreign currency exchange rate changes
Fair value of plan assets at December 31
Funded status
Funded percent
December 31,
2016
2015
(In thousands)
$
2,091,844
2,221,115
12,977
94,476
189,523
(96,723)
(63,335)
13,820
88,013
(98,996)
(98,528)
(33,580)
2,228,762
2,091,844
1,647,286
1,775,417
176,066
127,991
(96,723)
(67,545)
1,787,075
(441,687)
$
(29,024)
33,746
(98,528)
(34,325)
1,647,286
(444,558)
80%
79%
The funded status of our pension plans was presented in the Consolidated Balance Sheets as follows:
Noncurrent asset
Current liability
Noncurrent liability
Net amount recognized
Amounts recognized in accumulated other comprehensive loss (pre-tax) consisted of:
Prior service credit
Net actuarial loss
Net amount recognized
December 31,
2016
2015
(In thousands)
14,049
(3,796)
(451,940)
(441,687)
44,124
(3,790)
(484,892)
(444,558)
December 31,
2016
2015
(In thousands)
11,714
961,010
972,724
—
905,944
905,944
$
$
$
$
In 2017 , we expect to recognize $34 million of net actuarial loss amortization as a component of pension expense.
106
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table sets forth the weighted-average actuarial assumptions used in determining funded status:
Discount rate
Rate of increase in compensation levels
U.S. Plans
December 31,
Foreign Plans
December 31,
2016
4.20%
3.00%
2015
4.50%
3.00%
2016
3.90%
3.10%
2015
4.00%
3.10%
At December 31, 2016 and 2015 , our accumulated benefit obligations, as well as, our pension obligations (accumulated benefit obligations (ABO), and
projected benefit obligations (PBO)), greater than the fair value of the related plan assets for our U.S. and foreign plans were as follows:
U.S. Plans
December 31,
Foreign Plans
December 31,
Total
December 31,
2016
2015
2016
2015
2016
2015
(In thousands)
Total accumulated benefit obligations
$
1,748,171
1,640,844
454,301
423,555
2,202,472
2,064,399
Plans with pension obligations in excess of plan
assets:
PBO
ABO
Fair value of plan assets
1,771,968
1,671,949
1,748,171
1,640,844
1,323,751
1,191,182
7,383
5,997
—
7,916
6,793
1,779,351
1,754,168
—
1,323,751
1,679,865
1,647,637
1,191,182
Plan Assets
Our pension investment strategy is to reduce the effects of future volatility on the fair value of our pension assets relative to our pension liabilities. We
increase our allocation of high quality, longer-term fixed income securities and reduce our allocation of equity investments as the funded status of the plans
improve. The plans utilize several investment strategies, including actively and passively managed equity and fixed income strategies. The investment policy
establishes targeted allocations for each asset class that incorporate measures of asset and liability risks. Deviations between actual pension plan asset allocations
and targeted asset allocations may occur as a result of investment performance and changes in the funded status from time to time. Rebalancing of our pension plan
asset portfolios is evaluated periodically and rebalanced if actual allocations exceed an acceptable range. U.S. plans account for approximately 74% of our total
pension plan assets. Equity securities primarily include investments in both domestic and international common collective trusts and publicly traded equities. Fixed
income securities primarily include domestic collective trusts and corporate bonds. Other types of investments include private equity fund-of-funds and hedge
fund-of-funds. Equity and fixed income securities in our international plans include actively and passively managed mutual funds.
107
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents the fair value of each major category of pension plan assets and the level of inputs used to measure fair value as of
December 31, 2016 and 2015 :
Asset Category
Equity securities:
U.S. common collective trusts
Foreign common collective trusts
Fixed income securities:
Corporate bonds
Common collective trusts
Private equity and hedge funds
Total
Asset Category
Equity securities:
U.S. common collective trusts
Foreign common collective trusts
Fixed income securities:
Corporate bonds
Common collective trusts
Private equity and hedge funds
Total
Fair Value Measurements at
December 31, 2016
Total
Level 1
Level 2
Level 3
(In thousands)
$
429,456
398,282
76,086
780,367
102,884
$
1,787,075
—
—
—
—
—
—
429,456
398,282
76,086
780,367
—
1,684,191
—
—
—
—
102,884
102,884
Fair Value Measurements at
December 31, 2015
Total
Level 1
Level 2
Level 3
$
387,123
374,858
64,834
719,840
100,631
$
1,647,286
(In thousands)
—
—
—
—
—
—
387,123
374,858
64,834
719,840
—
1,546,655
—
—
—
—
100,631
100,631
The following is a description of the valuation methodologies used for our pension assets as well as the level of input used to measure fair value:
Equity securities — These investments include common and preferred stocks and index common collective trusts that track U.S. and foreign indices. Fair
values for the common and preferred stocks were based on quoted prices in active markets and were therefore classified within Level 1 of the fair value hierarchy.
The common collective trusts were valued at the unit prices established by the funds’ sponsors based on the fair value of the assets underlying the funds. Since the
units of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy.
Fixed income securities — These investments include investment grade bonds of U.S. issuers from diverse industries, government issuers, index common
collective trusts that track the Barclays Aggregate Index and other fixed income investments (primarily mortgage-backed securities). Fair values for the corporate
bonds were valued using third-party pricing services. These sources determine prices utilizing market income models which factor in, where applicable,
transactions of similar assets in active markets, transactions of identical assets in infrequent markets, interest rates, bond or credit default swap spreads and
volatility. Since the corporate bonds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy. The
common collective trusts were valued at the unit prices established by the funds’ sponsors based on the fair value of the assets underlying the funds. Since the units
of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy. The other investments are not
actively traded and fair values are estimated using bids provided by brokers, dealers or quoted prices of similar securities with similar characteristics or pricing
models. Therefore, the other investments have been classified within Level 2 of the fair value hierarchy.
Private equity and hedge funds — These investments represent limited partnership interests in private equity and hedge funds. The partnership interests are
valued by the general partners based on the underlying assets in each fund. The limited partnership interests are valued using unobservable inputs and have been
classified within Level 3 of the fair value hierarchy.
108
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table presents a summary of changes in the fair value of the pension plans’ Level 3 assets for the years ended December 31, 2016 and 2015 :
Beginning balance at January 1
Return on plan assets:
Relating to assets still held at the reporting date
Relating to assets sold during the period
Purchases, sales, settlements and expenses
Ending balance at December 31
2016
2015
(In thousands)
$
100,631
89,727
1,548
703
2
$
102,884
5,399
226
5,279
100,631
The following table details pension benefits expected to be paid in each of the next five fiscal years and in aggregate for the five fiscal years thereafter:
2017
2018
2019
2020
2021
2022-2026
(In thousands)
102,378
$
105,256
109,348
113,471
117,724
633,451
For 2017 , required pension contributions to our pension plans are estimated to be $22 million .
Multi-employer Plans
We participate in multi-employer plans that provide defined benefits to certain employees covered by collective-bargaining agreements. Such plans are
usually administered by a board of trustees comprised of the management of the participating companies and labor representatives. The net pension cost of these
plans is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. Assets contributed to such plans are not
segregated or otherwise restricted to provide benefits only to our employees. The risks of participating in these multi-employer plans are different from single-
employer plans in the following respects: 1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees and
former employees of other participating employers; 2) if a participating employer is no longer able to contribute to the plan, the unfunded obligations of the plan
may be borne by the remaining participating employers at annual contribution rates under the collective bargaining agreements; 3) if there is a mass withdrawal of
substantially all employers from the plan, we may be required to pay the plan an annual contribution based on historical contribution levels as prescribed by federal
statute; and 4) if we choose to stop participating in some of our multi-employer plans, we may be required to pay those plans an amount based on the underfunded
status of the plan, which is referred to as a withdrawal liability.
During 2015 , we recognized a benefit of $1 million for adjustments to previously recognized estimated pension settlement charges related to our exit from
U.S. multi-employer pension plans. During 2014 , we recognized estimated pension settlement charges of $13 million related to the transition of employees from
two U.S. multi-employer plans into another multi-employer plan in which we participate, and our exit from two U.S. multi-employer pension plans. These
adjustments were included in "Selling, general, and administrative expenses" in our Consolidated Statement of Earnings and are a component of Union-
administered plans expense.
Our participation in these plans is outlined in the table below. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2016
and 2015 is for the plan years ended December 31, 2015 and December 31, 2014 , respectively. The zone status is based on information that we received from the
plan. Among other factors, plans in the red zone are generally less than sixty-five percent funded, plans in the yellow zone are less than eighty percent funded, and
plans in the green zone are at least eighty percent funded.
109
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension Fund
Western Conference
Teamsters
IAM National
Automobile Mechanics
Local No. 701
Central States Southeast and
Southwest Areas
Other funds
Total contributions
Pension settlement (benefit)
charges
Union-administered plans
Employer
Identification
Number
Pension Protection Act
Zone Status
2016
2015
FIP/RP Status
Pending/
Implemented (1)
Ryder Contributions
2016
2015
2014
(Dollars in thousands)
91-6145047
51-6031295
Green
Green
36-6042061
Yellow
36-6044243
Red
Green
Green
Red
Red
No
No
$ 2,613
4,162
2,430
3,801
2,315
3,311
RP Adopted
2,201
1,902
1,632
RP Adopted
259
501
9,736
254
450
8,837
211
1,085
8,554
(139)
$ 9,597
(509)
8,328
12,564
21,118
Surcharge
Imposed
Expiration Date(s) of
Collective-Bargaining
Agreement(s)
No
No
Yes
Yes
1/12/18 to 4/1/21
3/31/17 to 11/30/19
10/31/17 to 5/31/19
5/6/17 to 10/31/17
_____________
(1) The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented.
Our contributions are impacted by changes in contractual contributions rates as well as changes in the number of employees covered by each plan.
Savings Plans
Employees who do not actively participate in pension plans and are not covered by union-administered plans are generally eligible to participate in enhanced
savings plans. These plans provide for (i) a company contribution even if employees do not make contributions, (ii) a company match of employee contributions of
eligible pay, subject to tax limits and (iii) a discretionary company match. Savings plan costs totaled $38 million in both 2016 and 2015 and $35 million in 2014 .
Deferred Compensation and Long-Term Compensation Plans
We have deferred compensation plans that permit eligible U.S. employees, officers and directors to defer a portion of their compensation. The deferred
compensation liability, including Ryder matching amounts and accumulated earnings, totaled $50 million and $44 million at December 31, 2016 and 2015 ,
respectively.
We have established grantor trusts (Rabbi Trusts) to provide funding for benefits payable under the supplemental pension plan, deferred compensation plans
and long-term incentive compensation plans. The assets held in the trusts were $50 million and $43 million at December 31, 2016 and 2015 , respectively. The
Rabbi Trusts’ assets consist of short-term cash investments and a managed portfolio of equity securities, including our common stock. These assets, except for the
investment in our common stock, are included in “Direct financing leases and other assets” because they are available to our general creditors in the event of
insolvency. The equity securities are classified as trading securities and stated at fair value. Both realized and unrealized gains and losses are included in
“Miscellaneous income, net.” The Rabbi Trusts’ investment of $2 million and $1 million in our common stock at December 31, 2016 and 2015 , respectively, is
reflected at historical cost and included in shareholders’ equity.
Other Postretirement Benefits
We sponsor plans that provide retired U.S. and Canadian employees with certain healthcare and life insurance benefits. Substantially all U.S. and Canadian
employees not covered by union-administered health and welfare plans are eligible for the healthcare benefits. Healthcare benefits for our principal plan are
generally provided to qualified retirees under age 65 and eligible dependents. This plan requires employee contributions that vary based on years of service and
include provisions that limit our contributions. Effective January 1, 2014, we made amendments to our healthcare benefits for early retirees which modified future
eligibility requirements for non-grandfathered retirees in the U.S. The post-retirement medical plan was closed to participants who were not at least age 52 with 12
years of service as of December 31, 2013.
110
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Total postretirement benefit income was as follows:
Service cost
Interest cost
Amortization of:
Net actuarial gain
Prior service credit
Postretirement benefit income
U.S.
Foreign
Years ended December 31,
2016
2015
(In thousands)
2014
$
$
$
$
215
906
(1,989)
(231)
(1,099)
(1,429)
330
(1,099)
363
1,097
(1,773)
(1,083)
(1,396)
(1,887)
491
(1,396)
446
1,421
(725)
(2,459)
(1,317)
(1,839)
522
(1,317)
The following table sets forth the weighted-average discount rates used in determining annual postretirement benefit expense:
Discount rate
U.S. Plan
Years ended December 31,
Foreign Plan
Years ended December 31,
2016
4.50%
2015
4.15%
2014
5.00%
2016
4.00%
2015
4.00%
2014
4.80%
Our postretirement benefit plans are not funded. The following table sets forth the benefit obligations associated with our postretirement benefit plans:
Benefit obligations at January 1
Service cost
Interest cost
Actuarial gain
Benefits paid
Foreign currency exchange rate changes
Benefit obligations at December 31
Amounts recognized in the Consolidated Balance Sheets consisted of:
Current liability
Noncurrent liability
Amount recognized
111
December 31,
2016
2015
(In thousands)
21,626
215
906
(338)
(1,609)
165
20,965
December 31,
2016
2015
(In thousands)
1,506
19,459
20,965
29,001
363
1,097
(6,164)
(1,468)
(1,203)
21,626
1,624
20,002
21,626
$
$
$
$
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Amounts recognized in accumulated other comprehensive loss (pre-tax) consisted of:
Prior service credit
Net actuarial gain
Net amount recognized
December 31,
2016
2015
(In thousands)
(385)
(10,186)
(10,571)
(616)
(11,825)
(12,441)
$
$
In 2017 , we expect to recognize approximately $2 million of the net actuarial gain as a component of postretirement benefit expense. The amount of prior
service credit we expect to recognize in 2017 as a component of total postretirement benefit expense is not material.
Our annual measurement date is December 31 for both U.S. and foreign postretirement benefit plans. Assumptions used in determining accrued
postretirement benefit obligations were as follows:
Discount rate
Rate of increase in compensation levels
Healthcare cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
Year that the rate reaches the ultimate trend rate
U.S. Plan
December 31,
Foreign Plan
December 31,
2016
2015
2016
2015
4.50%
3.00%
7.50%
5.00%
2027
4.50%
3.00%
6.75%
5.00%
2023
3.90%
3.00%
5.00%
5.00%
2018
4.00%
3.00%
5.50%
5.00%
2017
Changing the assumed healthcare cost trend rates by 1% in each year would not have a material effect on the accumulated postretirement benefit obligation
at December 31, 2016 or annual postretirement benefit expense for 2016 .
The following table details other postretirement benefits expected to be paid in each of the next five fiscal years and in aggregate for the five fiscal years
thereafter:
2017
2018
2019
2020
2021
2022-2026
(In thousands)
1,521
$
1,513
1,502
1,478
1,496
6,923
23. ENVIRONMENTAL MATTERS
Our operations involve storing and dispensing petroleum products, primarily diesel fuel, regulated under environmental protection laws. These laws require
us to eliminate or mitigate the effect of such substances on the environment. In response to these requirements, we continually upgrade our operating facilities and
implement various programs to detect and minimize contamination. In addition, we have received notices from the Environmental Protection Agency (EPA) and
others that we have been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, the
Superfund Amendments and Reauthorization Act and similar state statutes. We may be required to share in the cost of cleanup of 19 identified disposal sites.
Our environmental expenses which are presented within “Cost of fuel services” in our Consolidated Statements of Earnings, consist of remediation costs as
well as normal recurring expenses such as licensing, testing and waste disposal fees. These expenses totaled $10 million , $9 million and $7 million in 2016 , 2015
and 2014 , respectively. The carrying amount of our environmental liabilities was $9 million and $10 million at December 31, 2016 and 2015 , respectively. Our
asset retirement obligations related to fuel tanks to be removed are not included above and are included in “Accrued expenses and other current liabilities” and
“Other non-current liabilities” in our Consolidated Balance Sheets.
112
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The ultimate cost of our environmental liabilities cannot presently be projected with certainty due to the presence of several unknown factors, primarily the
level of contamination, the effectiveness of selected remediation methods, the stage of investigation at individual sites, the determination of our liability in
proportion to other responsible parties and the recoverability of such costs from third parties. Based on information presently available, we believe that the ultimate
disposition of these matters, although potentially material to the results of operations in any one year, will not have a material adverse effect on our financial
condition or liquidity.
24. OTHER ITEMS IMPACTING COMPARABILITY
Our primary measure of segment performance as shown in Note 27 , " Segment Reporting ", excludes certain items we do not believe are representative of
the ongoing operations of the segment. Excluding these items from our segment measure of performance allows for better year over year comparison:
Years ended December 31,
2016
2015
2014
Pension-related adjustments (1)
Restructuring and other charges, net (2)
Pension lump sum settlement loss (1)
Acquisition-related tax adjustment
Acquisition transaction costs
Consulting fees
$
(In thousands)
(7,650)
(5,074)
509
(14,225)
—
—
—
—
—
—
—
(3,843)
(17,559)
(12,564)
(2,387)
(97,231)
(1,808)
(566)
(400)
(114,956)
Restructuring and other charges, net and other items
$
(12,724)
_______________
(1) Refer to Note 22 , " Employee Benefit Plans ," for additional information.
(2) Refer to Note 4 , " Restructuring and Other Charges ," for additional information.
During 2015 and 2014 , we incurred charges of $4 million and $0.4 million , respectively, in "Selling, general and administrative expenses" in our
Consolidated Statements of Earnings related to consulting fees associated with cost savings initiatives.
During 2014 , we incurred charges of $2 million related to tax adjustments for the 2011 Hill Hire acquisition. We reported the cumulative adjustment within
“Selling, general and administrative expenses” in our Consolidated Statements of Earnings.
113
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
25. OTHER MATTERS
We are a party to various claims, complaints and proceedings arising in the ordinary course of our continuing business operations including, but not limited
to, those relating to commercial and employment claims, environmental matters, risk management matters (e.g., vehicle liability, workers’ compensation, etc.) and
administrative assessments primarily associated with operating taxes. We have established loss provisions for matters in which losses are probable and can be
reasonably estimated. For matters from continuing operations, we believe that the resolution of these claims, complaints and legal proceedings will not have a
material effect on our consolidated financial statements.
Our estimates regarding potential losses and materiality are based on our judgment and assessment of the claims utilizing currently available information.
Although we will continue to reassess our reserves and estimates based on future developments, our objective assessment of the legal merits of such claims may
not always be predictive of the outcome and actual results may vary from our current estimates.
Although we discontinued our South American operations in 2009, we continue to be party to various federal, state and local legal proceedings involving
labor matters, tort claims and tax assessments. We have established loss provisions for any matters where we believe a loss is probable and can be reasonably
estimated. We believe that such losses will not have a material effect on our consolidated financial statements.
In Brazil, various matters related to income taxes and social contribution taxes, as well as tax credits used to offset those taxes, were assessed by the Revenue
Department for the 1997, 1998, 2004, 2005 and 2006 tax years. When available and appropriate, we have entered into various amnesty programs offered by the
Brazilian tax authorities to settle some of these assessments at a discount and continue to evaluate these when offered. Payments to resolve open matters through
these amnesty programs were not material and were reflected as costs in discontinued operations. Open matters, combined, total approximately $4 million in
assessments, penalties and interest and are pending at various levels of the administrative tax courts. We believe it is more likely than not that our position will
ultimately be sustained either in these administrative courts or in actions before the judicial courts, if required. We do not believe these matters will have a material
impact on our consolidated financial statements.
26. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information was as follows:
Interest paid
Income taxes paid
Changes in accounts payable related to purchases of revenue earning equipment
Operating and revenue earning equipment acquired under capital leases
114
Years ended December 31,
2016
2015
2014
(In thousands)
$
143,990
144,973
139,595
14,062
(142,256)
1,230
13,379
28,134
5,959
11,382
39,071
7,972
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
27. SEGMENT REPORTING
Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and
delivery methods. We report our financial performance in three business segments: (1) FMS, which provides full service leasing, commercial rental, contract
maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides
vehicles and drivers as part of a dedicated transportation solution in the U.S.; and (3) SCS, which provides comprehensive supply chain solutions including
distribution and transportation services in North America and Asia. Dedicated transportation services provided as part of an integrated, multi-service, supply chain
solution to SCS customers are reported in the SCS business segment.
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 (recoveries), net discussed in Note 4 , " Restructuring
and Other Charges " and items discussed in Note 24 , " 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. CSS costs attributable to the business segments are predominantly allocated to FMS, DTS and
SCS as follows:
•
Finance, corporate services, and health and safety — allocated based upon estimated and planned resource utilization;
• Human resources — individual costs within this category are allocated under various methods, including allocation based on estimated utilization and
number of personnel supported;
Information technology — principally allocated based upon utilization-related metrics such as number of users or minutes of CPU time. Customer-
•
related project costs and expenses are allocated to the business segment responsible for the project; and
• Other — represents legal and other centralized costs and expenses including certain share-based incentive compensation costs. Expenses, where
allocated, are based primarily on the number of personnel supported.
115
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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”).
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. Each business segment follows the same accounting policies as described in Note 1 , “ Summary of Significant Accounting Policies
.” Business segment revenue and EBT from continuing operations is as follows:
Revenue:
Fleet Management Solutions:
Full service lease
Commercial rental
Full service lease and commercial rental
Contract maintenance
Contract-related maintenance
Other
Fuel services revenue
Total Fleet Management Solutions from external customers
Inter-segment revenue
Fleet Management Solutions
Dedicated Transportation Solutions
Supply Chain Solutions
Eliminations
Total revenue
EBT:
Fleet Management Solutions
Dedicated Transportation Solutions
Supply Chain Solutions
Eliminations
Unallocated Central Support Services
Non-operating pension costs
Restructuring and other charges, net and other items (1)
Earnings before income taxes from continuing operations
2016
Years ended December 31,
2015
(In thousands)
2014
$
$
$
$
$
2,362,040
808,912
3,170,952
197,688
217,819
78,042
463,738
4,128,239
427,955
4,556,194
1,020,895
1,637,850
(427,955)
6,786,984
370,754
63,611
105,561
(50,148)
489,778
(40,945)
(29,728)
(12,724)
406,381
2,220,929
900,624
3,121,553
190,989
200,148
77,625
538,277
4,128,592
417,100
4,545,692
895,538
1,547,763
(417,100)
6,571,893
462,109
45,800
93,754
(47,193)
554,470
(48,510)
(19,186)
(17,559)
469,215
2,102,703
836,719
2,939,422
182,411
196,841
71,064
787,887
4,177,625
478,133
4,655,758
899,802
1,561,347
(478,133)
6,638,774
433,736
44,556
77,800
(41,361)
514,731
(51,740)
(9,768)
(114,956)
338,267
______________
(1)
See Note 24 , “ Other Items Impacting Comparability ,” for a discussion of items excluded from our primary measure of segment performance.
116
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table sets forth share-based compensation expense, depreciation expense, used vehicle sales, net, amortization expense and other non-cash
charges, net, interest expense (income), capital expenditures paid and total assets for the years ended December 31, 2016 , 2015 and 2014 , as provided to the chief
operating decision-maker for each of Ryder’s reportable business segments:
2016
Share-based compensation expense
Depreciation expense (1)
Used vehicle sales, net
Amortization expense and other non-cash charges, net
Interest expense (income) (2)
Capital expenditures paid
Total assets
2015
Share-based compensation expense
Depreciation expense (1)
Used vehicle sales, net
Amortization expense and other non-cash charges, net
Interest expense (income) (2)
Capital expenditures paid
Total assets
2014
Share-based compensation expense
Depreciation expense (1)
Used vehicle sales, net
Pension lump sum settlement expense
Amortization expense and other non-cash charges, net
Interest expense (income) (2)
Capital expenditures paid (3)
FMS
DTS
SCS
CSS
Eliminations
Total
(In thousands)
5,464
1,156,888
(724)
34,652
151,297
1,814,146
1,254
3,222
(90)
1,027
(1,901)
2,551
2,764
25,956
(158)
3,215
(1,663)
64,186
9,182
984
—
29,366
110
24,274
—
—
—
—
—
—
18,664
1,187,050
(972)
68,260
147,843
1,905,157
9,954,452
255,845
713,190
198,394
(219,427)
10,902,454
5,672
1,092,750
(99,758)
36,348
154,276
2,595,961
1,155
3,184
(54)
1,878
(1,597)
3,570
3,400
25,721
(41)
2,971
(2,174)
27,841
10,954
311
—
29,565
(71)
40,606
—
—
—
—
—
—
21,181
1,121,966
(99,853)
70,762
150,434
2,667,978
10,061,092
275,634
636,647
202,129
(222,922)
10,952,580
4,895
720
3,661
11,629
1,018,017
3,211
25,636
(115,646)
76,239
19,936
147,247
2,166,319
5
3,335
516
(1,520)
1,883
(419)
3,277
1,309
(807)
20,941
185
—
14,380
25,502
(181)
70,021
—
—
—
—
—
—
—
20,905
1,047,049
(116,060)
97,231
47,263
144,739
2,259,164
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total assets
____________
(1) Depreciation expense associated with CSS assets was allocated to business segments based upon estimated and planned asset utilization. Depreciation expense totaling $24 million , $22
8,998,788
(239,760)
211,388
673,876
193,484
9,837,776
$
(2)
million and $21 million during 2016 , 2015 and 2014 , respectively, associated with CSS assets was allocated to other business segments.
Interest expense was primarily allocated to the FMS segment since such borrowings were used principally to fund the purchase of revenue earning equipment used in FMS; however,
interest income was also reflected in DTS and SCS based on targeted segment leverage ratios.
(3) Excludes acquisition payments of $10 million in 2014 . See Note 3 , “ Acquisitions ,” for additional information.
117
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Geographic Information
Revenue:
United States
Foreign:
Canada
Europe
Mexico
Asia
Total
Long-lived assets:
United States
Foreign:
Canada
Europe
Mexico
Asia
Total
2016
Years ended December 31,
2015
(In thousands)
2014
$
5,892,384
5,603,697
5,614,037
387,713
339,420
139,176
28,291
894,600
408,325
391,339
139,583
28,949
968,196
6,786,984
6,571,893
435,280
400,853
158,481
30,123
1,024,737
6,638,774
7,854,845
7,817,628
6,790,946
532,403
472,027
33,979
338
1,038,747
8,893,592
504,027
545,630
31,993
427
1,082,077
8,899,705
530,316
553,467
26,230
521
1,110,534
7,901,480
$
$
$
Certain Concentrations
We have a diversified portfolio of customers across a full array of transportation and logistics solutions and across many industries. We believe this will help
to mitigate the impact of adverse downturns in specific sectors of the economy. Our portfolio of full service lease and commercial rental customers is not
concentrated in any one particular industry or geographic region. We derive a significant portion of our SCS revenue from the automotive industry, mostly from
manufacturers and suppliers of original equipment parts. During 2016 , 2015 and 2014 , the automotive industry accounted for approximately 44% , 41% and 43%
, respectively, of SCS total revenue.
118
RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
28. QUARTERLY INFORMATION (UNAUDITED)
Earnings from
Continuing
Operations Before
Income Taxes
Earnings from
Continuing
Operations
Revenue
Earnings from
Continuing
Operations per
Common Share
Net Earnings per
Common Share
Net Earnings
Basic
Diluted
Basic
Diluted
(In thousands, except per share amounts)
$
1,629,672
1,703,744
1,724,418
1,729,150
$
6,786,984
$
1,567,153
1,662,931
1,669,066
1,672,743
$
6,571,893
88,708
116,779
131,698
69,196
406,381
84,177
133,447
139,900
111,691
469,215
56,185
74,042
85,138
49,275
55,794
73,750
84,752
48,181
264,640
262,477
53,326
85,917
90,811
75,935
52,789
85,159
90,619
76,201
305,989
304,768
1.06
1.39
1.60
0.93
4.98
1.01
1.62
1.71
1.43
5.78
1.05
1.38
1.59
0.92
4.94
1.00
1.61
1.70
1.42
5.73
1.05
1.39
1.60
0.91
4.94
1.00
1.61
1.71
1.44
5.75 $
1.04
1.38
1.59
0.91
4.90
0.99
1.59
1.69
1.43
5.71
2016
First quarter
Second quarter
Third quarter
Fourth quarter
Full year
2015
First quarter
Second quarter
Third quarter
Fourth quarter
Full year
Note: EPS amounts may not be additive due to rounding.
Quarterly and year-to-date computations of per share amounts are made independently; therefore, the sum of per-share amounts for the quarters may not
equal per-share amounts for the year.
See Note 4 , “ Restructuring and Other Charges ,” and Note 24 , “ Other Items Impacting Comparability ,” for items included in earnings during 2016 and
2015 .
119
RYDER SYSTEM, INC. AND SUBSIDIARES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Description
2016
Accounts receivable allowance
Direct finance lease allowance
Self-insurance accruals (3)
Valuation allowance on deferred tax assets
2015
Accounts receivable allowance
Direct finance lease allowance
Self-insurance accruals (3)
Valuation allowance on deferred tax assets
2014
Accounts receivable allowance
Direct finance lease allowance
Self-insurance accruals (3)
Valuation allowance on deferred tax assets
______________
(1)
(2)
(3)
Balance at
Beginning
of Period
Charged to
Earnings
Additions
Transferred
from Other
Accounts (1)
(In thousands)
Deductions (2)
Balance
at End
of Period
$
$
$
$
$
$
$
$
$
$
$
$
15,560
243
311,821
14,991
16,388
288
300,994
24,742
16,955
501
290,255
33,793
13,118
396
337,554
98
11,172
1,495
308,026
(1,150)
7,086
47
273,509
(976)
—
—
71,703
—
—
—
68,999
—
—
—
62,548
—
13,763
391
384,177
(1,298)
12,000
1,540
366,198
8,601
7,653
260
325,318
8,075
14,915
248
336,901
16,387
15,560
243
311,821
14,991
16,388
288
300,994
24,742
Transferred from other accounts includes employee contributions made to the medical and dental self-insurance plans.
Deductions represent write-offs, lease termination payments, insurance claim payments during the period and net foreign currency translation adjustments.
Self-insurance accruals include vehicle liability, workers’ compensation, property damage, cargo and medical and dental, which comprise our self-insurance programs. Amounts charged to earnings include developments in prior
year selected loss development factors which charged earnings by $9 million and $4 million in 2016 and 2015 , respectively, and benefited earnings by $14 million in 2014 .
120
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Evaluation of Disclosure Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including
Ryder’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Ryder’s disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that at December 31, 2016 , Ryder’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were
effective.
Management’s Report on Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Certified Public Accounting Firm thereon are
set out in Item 8 of Part II of this Form 10-K Annual Report.
Changes in Internal Controls over Financial Reporting
During the three months ended December 31, 2016 , there were no changes in Ryder’s internal control over financial reporting that has materially affected or
is reasonably likely to materially affect such internal control over financial reporting.
None.
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 with respect to executive officers is included within Item 1 in Part I under the caption “Executive Officers of the
Registrant” of this Form 10-K Annual Report.
The information required by Item 10 with respect to directors, audit committee, audit committee financial experts and Section 16(a) beneficial ownership
reporting compliance is included under the captions “Election of Directors,” “Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance”
in our definitive proxy statement, which will be filed with the Commission within 120 days after the close of the fiscal year, and is incorporated herein by
reference.
Ryder has adopted a code of conduct applicable to all employees, including its Chief Executive Officer, Chief Financial Officer, Controller and Senior
Financial Management. We will provide a copy of our code of conduct to anyone, free of charge, upon request through our Investor Relations Page, on our website
at www.ryder.com .
The information required by Item 11 is included under the captions “Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation
Committee,” “Compensation Committee Report on Executive Compensation” and “Director Compensation” in our definitive proxy statement, which will be filed
with the Commission within 120 days after the close of the fiscal year, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
121
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 with respect to security ownership of certain beneficial owners and management is included under the captions
“Security Ownership of Officers and Directors” and “Security Ownership of Certain Beneficial Owners” in our definitive proxy statement, which will be filed with
the Commission within 120 days after the close of the fiscal year, and is incorporated herein by reference.
Securities Authorized for Issuance under Equity Compensation Plans
The following table includes information as of December 31, 2016 , about certain plans which provide for the issuance of common stock in connection with
the exercise of stock options and other share-based awards.
Plans
Equity compensation plans approved by security holders:
Broad based employee stock plans
Employee stock purchase plan
Non-employee directors' stock plans
Total
Number of Securities to be
issued upon Exercise of
Outstanding Options, Warrants
and Rights
Weighted-Average Exercise
Price of Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans Excluding
Securities Reflected in Column
(a)
(a)
(b)
(c)
2,018,334 (1)
—
182,328 (2)
2,200,662
$66.35 (3)
—
—
$66.35
3,535,433
943,086
39,098
4,517,617
_______________
(1)
Includes 1,529,365 stock options, 299,740 time-vested restricted stock awards, 66,420 market-based restricted stock awards and 122,809 performance-based restricted stock awards, which includes 50,662 performance-based
restricted stock rights not considered granted under accounting guidance for stock compensation. Refer to Note 21 , " Share-Based Compensation Plans ", for additional information.
Includes 176,683 time-vested restricted stock awards, as well as, 5,645 time-vested restricted stock awards vested in previous years and are not exercisable until six months after the director's retirement.
(2)
(3) Weighted-average exercise price of outstanding options excludes restricted stock awards and restricted stock units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
The information required by Item 13 is included under the captions “Board of Directors” and “Related Person Transactions” in our definitive proxy
statement, which will be filed with the Commission within 120 days after the close of the fiscal year, and is incorporated herein by reference.
The information required by Item 14 is included under the caption “Ratification of Independent Auditor” in our definitive proxy statement, which will be
filed with the Commission within 120 days after the close of the fiscal year, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
122
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
Items A through H and Schedule II are presented on the following pages of this Form 10-K Annual Report:
1. Financial Statements for Ryder System, Inc. and Consolidated Subsidiaries:
A) Management’s Report on Internal Control over Financial Reporting
B) Report of Independent Registered Certified Public Accounting Firm
C) Consolidated Statements of Earnings
D) Consolidated Statements of Comprehensive Income (Loss)
E) Consolidated Balance Sheets
F) Consolidated Statements of Cash Flows
G) Consolidated Statements of Shareholders’ Equity
H) Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule for the Years Ended December 31, 2016, 2015 and 2014
Schedule II — Valuation and Qualifying Accounts
Page No.
67
68
69
70
71
72
73
74
120
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
Supplementary Financial Information consisting of selected quarterly financial data is included in Item 8 of this report.
3. Exhibits:
The following exhibits are filed with this report or, where indicated, incorporated by reference (Forms 10-K, 10-Q and 8-K referenced herein have been filed
under the Commission’s file No. 1-4364). Ryder will provide a copy of the exhibits filed with this report at a nominal charge to those parties requesting them.
123
Exhibit
Number
3.1
3.2
4.1
4.2(a)
4.2(b)
4.3
4.4
10.1(a)
10.1(b)
10.1(c)
10.1(d)
10.4(a)
10.4(b)
10.4(c)
10.4(d)
10.4(e)
10.4(f)
10.4(g)
EXHIBIT INDEX
Description
The Ryder System, Inc. Restated Articles of Incorporation dated May 1, 2015 (conformed copy incorporating all amendments through
May 1, 2015), previously filed with the Commission on May 1, 2015 as an exhibit to Ryder's Current Report on Form 8-K, is
incorporated by reference in this report.
The Ryder System, Inc. By-Laws, as amended through February 22, 2016, previously filed with the Commission as an exhibit to Ryder's
Quarterly Report on Form 10-Q filed with the Commission on October 25, 2016, are incorporated by reference into this report.
Ryder hereby agrees, pursuant to paragraph (b)(4)(iii) of Item 601 of Regulation S-K, to furnish the Commission with a copy of any
instrument defining the rights of holders of long-term debt of Ryder, where such instrument has not been filed as an exhibit hereto and
the total amount of securities authorized there under does not exceed 10% of the total assets of Ryder and its subsidiaries on a
consolidated basis.
The Form of Indenture between Ryder System, Inc. and The Chase Manhattan Bank (National Association) dated as of June 1, 1984,
filed with the Commission on November 19, 1985 as an exhibit to Ryder's Registration Statement on Form S-3 (No. 33-1632), is
incorporated by reference into this report.
The First Supplemental Indenture between Ryder System, Inc. and The Chase Manhattan Bank (National Association) dated October 1,
1987, previously filed with the Commission as an exhibit to Ryder's Annual Report on Form 10-K for the year ended December 31,
1994, is incorporated by reference into this report.
The Form of Indenture between Ryder System, Inc. and The Chase Manhattan Bank (National Association) dated as of May 1, 1987,
and supplemented as of November 15, 1990 and June 24, 1992, filed with the Commission on July 30, 1992 as an exhibit to Ryder's
Registration Statement on Form S-3 (No. 33-50232), is incorporated by reference into this report.
The Form of Indenture between Ryder System, Inc. and J.P. Morgan Trust Company (National Association) dated as of October 3, 2003
filed with the Commission on August 29, 2003 as an exhibit to Ryder's Registration Statement on Form S-3 (No. 333-108391), is
incorporated by reference into this report.
The Form of Amended and Restated Severance Agreement for Chief Executive Officer filed with the Commission as an exhibit to this
Annual Report on Form 10-K.
The Form of Amended and Restated Severance Agreement for other named executive officers filed with the Commission as an exhibit
to this Annual Report on Form 10-K.
The Ryder System, Inc. Executive Severance Plan, effective as of January 1, 2013, previously filed with the Commission as an exhibit
to Ryder's Current Report on Form 8-K filed with the Commission on February 14, 2013, is incorporated by reference into this report.
Agreement, dated April 14, 2016, between Ryder System, Inc. and Gregory F. Greene, previously filed with the Commission on April
26, 2016 as an exhibit to Ryder’s Quarterly Report on Form 10-Q, is incorporated by reference into this report.
The Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission on March 30, 2005 as Appendix A to
Ryder's Definitive Proxy Statement on Schedule 14A, is incorporated by reference into this report.
The Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission on March 21, 2008, as Appendix A to
Ryder's Definitive Proxy Statement on Schedule 14A, is incorporated by reference into this report.
The Ryder System, Inc. Stock Purchase Plan for Employees, previously filed with the Commission on March 29, 2010, as Appendix B
to Ryder System, Inc.'s Definitive Proxy Statement on Schedule 14A, is incorporated by reference into this report.
Terms and Conditions applicable to restricted stock rights granted under the Ryder System, Inc. 2005 Equity Compensation Plan,
previously filed with the Commission as an exhibit to Ryder's Current Report on Form 8-K filed with the Commission on February 8,
2008, are incorporated by reference into this report.
Terms and Conditions applicable to restricted stock units granted under the Ryder System, Inc. 2005 Equity Compensation Plan,
previously filed with the Commission as an exhibit to Ryder's Quarterly Report on Form 8-K filed with the Commission on May 11,
2005, are incorporated by reference into this report.
Terms and Conditions applicable to the 2012 Non-Qualified Stock Options granted under the Ryder System, Inc. 2005 Equity
Compensation Plan, previously filed with the Commission as an exhibit to Ryder's report on Form 10-Q for the quarter ended March 31,
2012, are incorporated by reference into this report.
Terms and Conditions applicable to the 2012 Non-Qualified Stock Options granted to the Company's Chief Executive Officer under the
Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder's report on Form 10-Q
for the quarter ended March 31, 2012, are incorporated by reference into this report.
124
Exhibit
Number
10.4(h)
10.4(i)
10.4(j)
10.4(k)
10.4(l)
10.4(m)
10.4(n)
10.4(o)
10.4(p)
10.4(q)
10.4(r)
10.4(s)
10.4(t)
10.4(u)
10.4(v)
10.4(w)
10.4(x)
Description
Terms and Conditions applicable to the 2012 Performance-Based Restricted Stock Rights granted under the Ryder System, Inc. 2005 Equity
Compensation Plan, previously filed with the Commission as an exhibit to Ryder's report on Form 10-Q for the quarter ended March 31,
2012, are incorporated by reference into this report.
Terms and Conditions applicable to the 2012 Performance-Based Restricted Stock Rights granted to the Company's Chief Executive Officer
under the Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder's report on
Form 10-Q for the quarter ended March 31, 2012, are incorporated by reference into this report.
Terms and Conditions applicable to the 2012 Performance-Based Cash Awards granted under the Ryder System, Inc. 2005 Equity
Compensation Plan, previously filed with the Commission as an exhibit to Ryder's report on Form 10-Q for the quarter ended March 31,
2012, are incorporated by reference into this report.
Terms and Conditions applicable to the 2012 Performance-Based Cash Awards granted to the Company's Chief Executive Officer under the
Ryder System, Inc. 2005 Equity Compensation Plan, previously filed with the Commission as an exhibit to Ryder's report on Form 10-Q for
the quarter ended March 31, 2012, are incorporated by reference into this report.
Terms and Conditions applicable to the 2012 Restricted Stock Rights granted under the Ryder System, Inc. 2005 Equity Compensation Plan,
previously filed with the Commission as an exhibit to Ryder's report on Form 10-Q for the quarter ended March 31, 2012, are incorporated
by reference into this report.
Ryder System, Inc. 2012 Equity and Incentive Compensation Plan, previously filed with the Commission as an exhibit to Ryder's Current
Report on Form 8-K filed with the Commission on May 10, 2012, is incorporated by reference into this report.
Terms and Conditions applicable to non-qualified stock options granted under the Ryder System, Inc. 2012 Equity and Incentive
Compensation Plan, previously filed with the Commission as an exhibit to Ryder's Current Report on Form 8-K filed with the Commission
on May 10, 2012, are incorporated by reference into this report.
Terms and Conditions applicable to performance-based restricted stock rights granted under the Ryder System, Inc. 2012 Equity and
Incentive Compensation Plan, previously filed with the Commission as an exhibit to Ryder's Current Report on Form 8-K filed with the
Commission on May 10, 2012, are incorporated by reference into this report.
Terms and Conditions applicable to performance-based cash awards granted under the Ryder System, Inc. 2012 Equity and Incentive
Compensation Plan, previously filed with the Commission as an exhibit to Ryder's Current Report on Form 8-K filed with the Commission
on May 10, 2012, are incorporated by reference into this report.
Terms and Conditions applicable to restricted stock rights granted under the Ryder System, Inc. 2012 Equity and Incentive Compensation
Plan, previously filed with the Commission as an exhibit to Ryder's Current Report on Form 8-K filed with the Commission on May 10,
2012, are incorporated by reference into this report.
Terms and Conditions applicable to restricted stock units granted under the Ryder System, Inc. 2012 Equity and Incentive Compensation
Plan, previously filed with the Commission as an exhibit to Ryder's Current Report on Form 8-K filed with the Commission on May 10,
2012, are incorporated by reference into this report.
Terms and Conditions applicable to 2013 performance-based cash awards granted to named executive officers under the Ryder System, Inc.
2012 Equity and Incentive Compensation Plan, previously filed with the Commission as an exhibit to Ryder's Current Report on Form 8-K
filed with the Commission on February 14, 2013, are incorporated by reference into this report.
Terms and Conditions applicable to 2013 performance-based restricted stock rights granted to named executive officers under the Ryder
System, Inc. 2012 Equity and Incentive Compensation Plan, previously filed with the Commission as an exhibit to Ryder's Current Report
on Form 8-K filed with the Commission on February 14, 2013, are incorporated by reference into this report.
Form of Terms and Conditions applicable to 2014 annual cash incentive awards granted to named executive officers under the Ryder
System, Inc. 2012 Equity and Incentive Compensation Plan, previously filed as an exhibit to Ryder’s Current Report on Form 8-K filed with
the Commission on February 13, 2014, are incorporated by reference into this report.
Amended and Restated Ryder System, Inc. 2012 Equity and Incentive Compensation Plan, previously filed with the Commission on May
10, 2016 as an exhibit to Ryder’s Quarterly Report on Form 8-K, is incorporated by reference to this report.
Form of Terms and Conditions applicable to 2016 annual cash incentive awards granted under the Amended and Restated Ryder System,
Inc. 2012 Equity and Incentive Compensation Plan, previously filed with the Commission on July 27, 2016 as an exhibit to Ryder’s
Quarterly Report on Form 10-Q, are incorporated by reference to this report.
Form of Terms and Conditions applicable to non-qualified stock options granted under the Amended and Restated Ryder System, Inc. 2012
Equity and Incentive Compensation Plan, previously filed with the Commission on July 27, 2016 as an exhibit to Ryder’s Quarterly Report
on Form 10-Q, are incorporated by reference to this report.
125
Exhibit
Number
10.4(y)
10.4(z)
10.4(aa)
10.4(bb)
10.5(a)
10.5(b)
10.6
10.7
10.10
10.14(a)
10.14(b)
10.14(c)
10.14(d)
12
21.1
23.1
Description
Form of Terms and Conditions applicable to performance-based restricted stock rights granted under the Amended and Restated Ryder
System, Inc. 2012 Equity and Incentive Compensation Plan, previously filed with the Commission on July 27, 2016 as an exhibit to Ryder’s
Quarterly Report on Form 10-Q, are incorporated by reference to this report.
Form of Terms and Conditions applicable to performance-based cash awards granted under the Amended and Restated Ryder System, Inc.
2012 Equity and Incentive Compensation Plan, previously filed with the Commission on July 27, 2016 as an exhibit to Ryder’s Quarterly
Report on Form 10-Q, are incorporated by reference to this report.
Form of Terms and Conditions applicable to restricted stock rights granted under the Amended and Restated Ryder System, Inc. 2012 Equity
and Incentive Compensation Plan, previously filed with the Commission on July 27, 2016 as an exhibit to Ryder’s Quarterly Report on Form
10-Q, are incorporated by reference to this report.
Form of Terms and Conditions applicable to restricted stock units granted under the Amended and Restated Ryder System, Inc. 2012 Equity
and Incentive Compensation Plan, previously filed with the Commission on July 27, 2016 as an exhibit to Ryder’s Quarterly Report on Form
10-Q, are incorporated by reference to this report.
The Ryder System, Inc. Directors Stock Award Plan, as amended and restated at February 10, 2005, previously filed with the Commission as
an exhibit to Ryder's Annual Report on Form 10-K for the year ended December 31, 2004, is incorporated by reference into this report.
The Ryder System, Inc. Directors Stock Plan, as amended and restated at May 7, 2004, previously filed with the Commission as an exhibit to
Ryder's Annual Report on Form 10-K for the year ended December 31, 2004, is incorporated by reference into this report.
The Ryder System Benefit Restoration Plan, as amended and restated, previously filed with the Commission as an exhibit to Ryder's Current
Report on Form 8-K filed with the Commission on February 11, 2009, is incorporated by reference into this report.
Form of Indemnification Agreement for independent directors, effective as of February 24, 2016, previously filed with the Commission as
an exhibit to Ryder's Current Report on Form 8-K filed with the Commission on February 29, 2016, is incorporated by reference into this
report.
The Ryder System, Inc. Deferred Compensation Plan, effective as of January 1, 2009, previously filed with the Commission as an exhibit to
Ryder's Current Report on Form 8-K filed with the Commission on February 11, 2009, is incorporated by reference to this report.
Global Revolving Credit Agreement dated as of June 8, 2011, by and among, Ryder System, Inc., certain subsidiaries of Ryder System, Inc.,
and the lenders and agents named therein, previously filed with the Commission as an exhibit to Ryder's Current Report on Form 8-K filed
with the Commission on June 8, 2011, is incorporated by reference into this report.
Amendment No. 1 dated as of April 20, 2012 to Global Revolving Credit Agreement, by and among Ryder System, Inc., certain Ryder
System, Inc. subsidiaries, and the lenders and agents named therein, previously filed with the Commission as an exhibit to Ryder's report on
Form 10-Q for the quarter ended March 31, 2012, is incorporated by reference into this report.
Amendment No. 2 dated as of October 18, 2013 to Global Revolving Credit Agreement, by and among Ryder System, Inc., certain
subsidiaries of Ryder System, Inc., and the lenders and agents named therein, previously filed with the Commission as an exhibit to Ryder’s
report on Form 10-Q for the quarter ended September 30, 2013, is incorporated by reference into this report.
Amendment No. 3 dated as of January 30, 2015 to Global Revolving Credit Agreement, by and among Ryder System, Inc., certain
subsidiaries of Ryder System, Inc., and the lenders and agents named therein, previously filed with the Commission as an exhibit to Ryder’s
report on Form 8-K filed with the Commission on February 2, 2015, is incorporated by reference into this report.
Statements re: Computation of Ratios.
List of subsidiaries of the registrant, with the state or other jurisdiction of incorporation or organization of each, and the name under which
each subsidiary does business.
PricewaterhouseCoopers LLP consent to incorporation by reference in certain Registration Statements on Form S-8 and on Form S-3 of their
report on Consolidated Financial Statements financial statement schedule and effectiveness of internal controls over financial reporting of
Ryder System, Inc.
24.1
Manually executed powers of attorney for each of:
Robert J. Eck
Michael F. Hilton
Luis P. Nieto, Jr.
Abbie J. Smith
John M. Berra
L. Patrick Hassey
Tamara L. Lundgren
Robert A. Hagemann
E. Follin Smith
Hansel E. Tookes, II
31.1
31.2
32
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Certification of Robert E. Sanchez pursuant to Rule 13a-14(a) or Rule 15d-14(a).
Certification of Art A. Garcia pursuant to Rule 13a-14(a) or Rule 15d-14(a).
Certification of Robert E. Sanchez and Art A. Garcia pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
126
(b) Executive Compensation Plans and Arrangements:
Please refer to the description of Exhibits 10.1 through 10.10 set forth under Item 15(a)3 of this report for a listing of all management contracts and
compensation plans and arrangements filed with this report pursuant to Item 601(b)(10) of Regulation S-K.
127
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date:
February 14, 2017
RYDER SYSTEM, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By: /s/ Robert E. Sanchez
Robert E. Sanchez
Chairman, President and Chief Executive Officer
Date:
February 14, 2017
Date:
February 14, 2017
Date:
February 14, 2017
Date:
February 14, 2017
Date:
February 14, 2017
Date:
February 14, 2017
Date:
February 14, 2017
By: /s/ ROBERT E. SANCHEZ
Robert E. Sanchez
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ ART A. GARCIA
Art A. Garcia
Executive Vice President and Chief Financial Officer
(Principal Financial & Accounting Officer)
By: JOHN M. BERRA *
John M. Berra
Director
By: ROBERT J. ECK *
Robert J. Eck
Director
By: ROBERT A. HAGEMANN *
Robert A. Hagemann
Director
By: L. PATRICK HASSEY*
L. Patrick Hassey
Director
By: MICHAEL F. HILTON*
Michael F. Hilton
Director
128
Date:
February 14, 2017
Date:
February 14, 2017
Date:
February 14, 2017
Date:
February 14, 2017
Date:
February 14, 2017
Date:
February 14, 2017
By: TAMARA L. LUNDGREN*
Tamara L. Lundgren
Director
By: LUIS P. NIETO, JR. *
Luis P. Nieto, Jr.
Director
By: ABBIE J. SMITH *
Abbie J. Smith
Director
By: E. FOLLIN SMITH *
E. Follin Smith
Director
By: HANSEL E. TOOKES, II *
Hansel E. Tookes, II
Director
*By: ALENA BRENNER
Alena Brenner
Attorney-in-Fact
129
EXHIBIT 10.1 (a)
AMENDED AND RESTATED
SEVERANCE AGREEMENT
This AMENDED AND RESTATED SEVERANCE AGREEMENT (the “Agreement”) is executed on _________, 201_ (“Execution Date”) and is
effective as of the date set forth in Section 17 (the “Effective Date”), between Ryder System, Inc., a Florida corporation (the “Company”), and _____________(the
“Executive”).
WHEREAS, the Company and the Executive entered into a Severance Agreement dated ____________, which was amended and restated effective
[DATE], (the “Prior Agreement”);
WHEREAS, the Company and the Executive hereby desire to amend and restate the Prior Agreement, in each case on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual promises contained herein and of other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1.
DEFINITIONS.
Capitalized terms used in the Agreement and not elsewhere defined shall have the meanings set forth in this Section:
(a) “ Accrued Benefits ” means (i) earned but unpaid base salary accrued through the Termination Date and any accrued but unpaid vacation time to the
extent carried to the Termination Date under Company policy; (ii) unreimbursed expenses incurred in accordance with applicable Company policy through the
Termination Date; (iii) unpaid amounts under the terms of any incentive plan in which the Executive participates as of the Termination Date, if and to the extent
that the Executive is entitled under the terms of any such plan to receive a payment as of the Termination Date; and (iv) all other payments, benefits or perquisites
to which the Executive may be entitled through the Termination Date, (including but not limited to rights to indemnification under the Company’s By-laws as in
effect from time to time) subject to and in accordance with the terms of any applicable compensation arrangement or benefit, or any equity or perquisite
arrangement, plan, program or grant.
(b) “ Base Salary ” means the Executive’s annual base salary in effect on the Termination Date, or, on or before the second anniversary of a Change of
Control, and if higher, the highest annual base salary in effect during the six (6) month period immediately preceding the Change of Control. Base Salary for this
purpose shall not include or reflect bonuses, overtime pay, compensatory time-off, commissions, incentive or deferred compensation, employer contributions
towards employee benefits, cost of living adjustment, or any other additional compensation, and shall not be reduced by any contributions made on the Executive’s
behalf to any plan of the Company under Section 125, 132, 401(k), or any other analogous section of the Code.
(c) “ Benefits Continuation Period ” means the period for each applicable benefit beginning on the Termination Date and ending on the earliest of (i) the
day on which the Executive is eligible to receive coverage for such benefit from a new employer; (ii) the date the Executive cancels his COBRA continuation
coverage in accordance with the terms of the relevant plan(s); or (iii) the last day of the Executive’s Severance Period.
(d) “ Cause ” means: (i) fraud, misappropriation or embezzlement by the Executive against the Company or any of its subsidiaries and/or affiliates; (ii)
conviction of or plea of guilty or nolo contendere to a felony; (iii) conviction of or plea of guilty or nolo contendere to a misdemeanor involving moral turpitude or
dishonesty; (iv) willful failure to report to work for more than thirty (30) continuous days not attributable to eligible vacation or supported by a licensed
physician’s statement; (v) material breach by the Executive of the provisions of Section 10 of this Agreement (Restrictive Covenants); (vi) willful failure to
perform the Executive’s key duties or
responsibilities; or (vii) any other activity which would constitute grounds for termination for cause by the Company or its subsidiaries or affiliates, including but
not limited to material violations of the Company’s Principles of Business Conduct or any analogous code of ethics or similar policy. Notwithstanding the
foregoing, if a Change of Control has occurred within the two (2) years preceding a Cause determination, “Cause” shall not include subsection (vii) of the
preceding sentence, provided that subsection (vii) shall continue to apply to any terminations that are deemed to have retroactively occurred pursuant to Section
5(c)(iii). For the purposes of this Section 1(d), any good faith interpretation by the Company’s Board of Directors (the “Board”) of the foregoing definition of
“Cause” shall be conclusive on the Executive. For purposes of this Agreement “Cause” shall be determined by the Board or its designee, provided that following a
Change of Control, “Cause” shall be determined by a majority of the Incumbent Board (as defined in Section 1(e)), or, if there are fewer than three (3) members in
the Incumbent Board (excluding the Executive) at the date of such a determination, by the remaining Incumbent Board members, if any, and two-thirds of the
members of the Board. Any good faith interpretation that satisfies the foregoing sentence shall be conclusive on the Executive. The Executive shall not have the
right to vote or be counted for purposes of the determination of Cause.
(e) “ Change of Control ” Except as provided below, for the purpose of this Agreement, a “Change of Control” shall be deemed to have occurred if:
(i) ANY INDIVIDUAL, ENTITY OR GROUP (WITHIN THE MEANING OF SECTION 13(D)(3) OR 14(D)(2) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE “1934 ACT”)) (A “PERSON”) BECOMES THE BENEFICIAL OWNER, DIRECTLY OR INDIRECTLY,
OF THIRTY PERCENT (30%) OR MORE OF THE COMBINED VOTING POWER OF THE COMPANY’S OUTSTANDING VOTING SECURITIES
ORDINARILY HAVING THE RIGHT TO VOTE FOR THE ELECTION OF DIRECTORS OF THE COMPANY; PROVIDED, HOWEVER, THAT FOR
PURPOSES OF THIS SUBPARAGRAPH (I), THE FOLLOWING ACQUISITIONS SHALL NOT CONSTITUTE A CHANGE OF CONTROL: (A) ANY
ACQUISITION BY ANY EMPLOYEE BENEFIT PLAN OR PLANS (OR RELATED TRUST) OF THE COMPANY AND ITS SUBSIDIARIES AND
AFFILIATES OR (B) ANY ACQUISITION BY ANY CORPORATION PURSUANT TO A TRANSACTION WHICH COMPLIES WITH CLAUSES (A), (B)
AND (C) OF SUBPARAGRAPH (III) OF THIS SECTION 1(E); OR
(ii) THE INDIVIDUALS WHO, AS OF JANUARY 1, 2007, CONSTITUTED THE BOARD (THE “INCUMBENT BOARD”) CEASE FOR
ANY REASON TO CONSTITUTE AT LEAST A MAJORITY OF THE BOARD, PROVIDED THAT ANY PERSON BECOMING A DIRECTOR
SUBSEQUENT TO JANUARY 1, 2007 WHOSE ELECTION, OR NOMINATION FOR ELECTION, WAS APPROVED BY A VOTE OF THE PERSONS
COMPRISING AT LEAST A MAJORITY OF THE INCUMBENT BOARD (OTHER THAN AN ELECTION OR NOMINATION OF AN INDIVIDUAL
WHOSE INITIAL ASSUMPTION OF OFFICE IS IN CONNECTION WITH AN ACTUAL OR THREATENED ELECTION CONTEST, AS SUCH TERMS
ARE USED IN RULE 14A-11 OF REGULATION 14A PROMULGATED UNDER THE 1934 ACT (AS IN EFFECT ON JANUARY 23, 2000)) SHALL BE,
FOR PURPOSES OF THIS AGREEMENT, CONSIDERED AS THOUGH SUCH PERSON WERE A MEMBER OF THE INCUMBENT BOARD; OR
(iii) THERE IS A REORGANIZATION, MERGER OR CONSOLIDATION OF THE COMPANY (A “BUSINESS COMBINATION”), IN
EACH CASE, UNLESS, FOLLOWING SUCH BUSINESS COMBINATION, (A) ALL OR SUBSTANTIALLY ALL OF THE INDIVIDUALS AND ENTITIES
WHO WERE THE BENEFICIAL OWNERS, RESPECTIVELY, OF THE COMPANY’S OUTSTANDING COMMON STOCK AND OUTSTANDING
VOTING SECURITIES ORDINARILY HAVING THE RIGHT TO VOTE FOR THE ELECTION OF DIRECTORS OF THE COMPANY IMMEDIATELY
PRIOR TO SUCH BUSINESS COMBINATION BENEFICIALLY OWN, DIRECTLY OR INDIRECTLY, MORE THAN FIFTY PERCENT (50%) OF,
RESPECTIVELY, THE THEN OUTSTANDING SHARES OF COMMON STOCK AND THE COMBINED VOTING POWER OF THE THEN
OUTSTANDING VOTING SECURITIES ORDINARILY HAVING THE RIGHT TO VOTE FOR THE ELECTION OF DIRECTORS, AS THE CASE MAY
BE, OF THE CORPORATION RESULTING FROM SUCH BUSINESS COMBINATION (INCLUDING, WITHOUT LIMITATION, A CORPORATION
WHICH AS A RESULT OF SUCH TRANSACTION OWNS THE COMPANY OR ALL OR SUBSTANTIALLY ALL OF THE COMPANY’S ASSETS
EITHER DIRECTLY OR THROUGH ONE OR MORE
SUBSIDIARIES) IN SUBSTANTIALLY THE SAME PROPORTIONS AS THEIR OWNERSHIP, IMMEDIATELY PRIOR TO SUCH BUSINESS
COMBINATION, OF THE COMPANY’S OUTSTANDING COMMON STOCK AND OUTSTANDING VOTING SECURITIES ORDINARILY HAVING
THE RIGHT TO VOTE FOR THE ELECTION OF DIRECTORS OF THE COMPANY, AS THE CASE MAY BE, (B) NO PERSON (EXCLUDING ANY
CORPORATION RESULTING FROM SUCH BUSINESS COMBINATION OR ANY EMPLOYEE BENEFIT PLAN OR PLANS (OR RELATED TRUST) OF
THE COMPANY OR SUCH CORPORATION RESULTING FROM SUCH BUSINESS COMBINATION AND THEIR SUBSIDIARIES AND AFFILIATES)
BENEFICIALLY OWNS, DIRECTLY OR INDIRECTLY, 30% OR MORE OF THE COMBINED VOTING POWER OF THE THEN OUTSTANDING
VOTING SECURITIES OF THE CORPORATION RESULTING FROM SUCH BUSINESS COMBINATION AND (C) AT LEAST A MAJORITY OF THE
MEMBERS OF THE BOARD OF DIRECTORS OF THE CORPORATION RESULTING FROM SUCH BUSINESS COMBINATION WERE MEMBERS OF
THE INCUMBENT BOARD AT THE TIME OF THE EXECUTION OF THE INITIAL AGREEMENT, OR OF THE ACTION OF THE BOARD, PROVIDING
FOR SUCH BUSINESS COMBINATION; OR
(iv) THERE IS A LIQUIDATION OR DISSOLUTION OF THE COMPANY APPROVED BY THE SHAREHOLDERS; OR
(v) THERE IS A SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE COMPANY.
Notwithstanding anything in this Section 1(e) to the contrary, for purposes of Section 5(c)(ii), a Change of Control shall only be deemed to occur if such
transactions or events would give rise to a “change in ownership or effective control” or a change in the “ownership of a substantial portion of the assets” under
Section 409A of the Code, and the rulings and regulations issued under that Section.
(f) “ Code ” means the Internal Revenue Code of 1986, as amended, supplemented or substituted from time to time.
(g) “ Company Entity ” has the meaning set forth in Section 15(e).
(h) “ Disability ” means (i) the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; (ii) the Executive
is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period
of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan of the
Company; or (iii) a determination by the Social Security Administration that the Executive is totally disabled.
(i) “ Employment Term ” means the Executive’s term of employment commencing on the date the Executive was originally hired by the Company and
ending on the first to occur of the events specified in Section 4.
(j) “ Equity Compensation Opportunities ” means the Executive’s ability to obtain equity in the Company (or a comparable cash-based incentive
program) through a compensatory arrangement. Equity Compensation Opportunities are measured using the valuation method applied by the Company for
financial accounting purposes and the Board may take into account in determining that no reduction has occurred any exercises, cashing out, or other liquidity in
favor of the Executive that is either triggered by the Executive or occurring in connection with a Change of Control. Changes in the underlying value of the stock
shall not be treated as a reduction in the Equity Compensation Opportunities, and the Company may take into account in replacing the value of pre-Change of
Control equity compensation with post-Change of Control equity compensation (or a comparable cash-based incentive program) that the Executive may have
received value for his equity compensation in the Change of Control.
(k) “ Good Reason ” only applies within two (2) years following a Change of Control, as defined in Section 1(e), except as otherwise provided in
Section 5(c)(iv), and means the occurrence of any of the following without the Executive’s consent: (i) any material reduction in the aggregate value of the
Executive’s compensation (consisting of the Executive’s base salary, target bonus opportunity under the Company’s annual bonus plan or program, cash
perquisites, and Equity Compensation Opportunities); (ii) the Company’s requiring the Executive to be based or to perform services at any site or location more
than fifty (50) miles from the site or location at which the Executive is based at the time of the Change of Control, except for travel reasonably required in the
performance of his responsibilities (which does not materially exceed the level of travel required of the Executive in the six (6) month period immediately
preceding the Change of Control); (iii) any failure by the Company to obtain the assumption and agreement to perform under this Agreement by a successor as
contemplated by Section 8; (iv) any failure by the Company to pay into the Trust(s) the amounts and at the time or times as are required pursuant to the terms of
Section 6; or (v) any material and adverse changes in the Executive’s duties and responsibilities. For the avoidance of doubt, a change in reporting relationship or
title shall not constitute “Good Reason.”
The Executive’s termination of employment shall only constitute a termination for Good Reason if the Executive terminates employment on or prior to
the first anniversary of the date on which the circumstances providing a basis for such termination initially occurred. In addition, the Executive’s continued
employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason, until ninety (90) days have elapsed
since the occurrence of the circumstance he would assert constitutes Good Reason, and the Executive has not provided notice in accordance with Section 1(m)
prior to the end of such ninety (90) day period.
(l) “ Involuntary Termination ” means the termination of the Executive’s employment by the Company for any reason other than death, Disability or
Cause; provided, however, that an Involuntary Termination of his employment shall not occur if:
THE COMPANY AND A COMPANY ENTITY, OR AMONG THE COMPANY AND ONE OR MORE COMPANY ENTITIES; OR
(i) THE TERMINATION OF THE EXECUTIVE’S EMPLOYMENT IS DUE TO THE TRANSFER OF HIS EMPLOYMENT BETWEEN
(ii) THE TERMINATION FOLLOWS A CHANGE OF CONTROL AND EITHER (A) THE EXECUTIVE’S EMPLOYMENT IS
TRANSFERRED TO THE PURCHASER OR TRANSFEREE OF ALL OR ANY PORTION OF THE OPERATIONS OF THE COMPANY OR ANY
SUBSIDIARY OR AFFILIATE (THE “DISPOSED BUSINESS”) AND THE OBLIGATIONS OF THIS AGREEMENT ARE ASSUMED BY THE
PURCHASER OR TRANSFEREE OR (B) THE EXECUTIVE TERMINATES HIS EMPLOYMENT WITH THE COMPANY OR ANY OF ITS
SUBSIDIARIES OR AFFILIATES OR DOES NOT ACCEPT AN OFFER OF EMPLOYMENT FROM A PURCHASER OR TRANSFEREE
NOTWITHSTANDING THAT THE EXECUTIVE RECEIVED AN OFFER OF EMPLOYMENT FROM EITHER THE PURCHASER OR TRANSFEREE OF
THE DISPOSED BUSINESS OR THE COMPANY OR ANY OF ITS SUBSIDIARIES AND AFFILIATES WHICH OFFER INCLUDED A CONTINUATION
OF THE OBLIGATIONS OF THIS AGREEMENT, AS DETERMINED BY THE COMPANY IN ITS SOLE DISCRETION.
In no event shall an “Involuntary Termination” occur if the Executive terminates his employment with the Company or any of its subsidiaries or affiliates
for any reason. In the event of the occurrence of any of the events set forth in subsection (ii) above, the Company’s obligations under this Agreement shall
terminate immediately and the Executive shall not be entitled to any amounts or benefits hereunder but shall still be required to comply with Section 10 hereof.
This Agreement shall, however, continue in effect if the Executive’s employment is transferred between or among the Company and Company Entities, as
contemplated in subsection (i) above.
(m) “ Notice of Termination ” means written notice (i) specifying the effective date of the Executive’s termination (which shall not be less than thirty
(30) days after the date of such notice in the case of a termination on account of Disability or the Executive’s voluntary termination other than for Good Reason);
(ii) solely with respect to the Executive’s terminating for Good Reason, citing the specific provision of this Agreement and the facts and circumstances, in
reasonable detail, providing a basis for such termination, provided that if the basis for such Good
Reason is capable of being cured by the Company, the Executive will provide the Company with an opportunity to cure the Good Reason within thirty (30)
calendar days after receipt of such notice, and (iii) solely with respect to the Company terminating the Executive’s employment on account of Disability, its intent
to terminate his employment on account of Disability. A Notice of Termination will, as applicable, be provided by or to the Board.
(n) “ Release ” means a severance agreement and general release in a comprehensive form used by the Company for such purposes at the time of the
Executive’s separation from employment (a copy of such form as in effect on the date this Agreement is executed is attached to this Agreement by way of example,
but the Executive acknowledges that such form may be updated by the Company from time to time). If the Executive is subject to the Older Workers Benefit
Protection Act (“OWBPA”), the Release shall be revocable until the end of the seventh (7th) calendar day after Executive executes the Release.
(o) “ Release Effective Date ” means, if the Executive is covered by the OWBPA on his Termination Date, the later of: (i) the eighth (8th) calendar day
after the execution of the Release, provided that the Executive has not revoked the Release prior to such date, or (ii) the Termination Date. If the Executive is not
covered by the OWBPA on his Termination Date, the Release Effective Date means the later of: (i) the date on which the Release is executed by the Executive, or
(ii) the Termination Date.
(p) “ Severance Multiple ” means a multiple of two and one-half (2 1/2). On or after a Change of Control, the Severance Multiple shall mean three (3).
(q) “ Severance Period ” means a period of two and one-half (2 1/2) years following the Termination Date. On or after a Change of Control, the
Severance Period shall mean a period of three (3) years following the Termination Date.
(r) “ Specified Employee ” means an individual deemed to be a “specified employee” in accordance with the policies and procedures adopted by the
Company and generally includes any individual who is an officer of the Company.
(s) “ Target Bonus ” means the stated target incentive award which the Executive is eligible to receive under the Company’s annual incentive
compensation plan or awards for the year in which the Termination Date occurs.
(t) “ Termination Date ” means the effective date of the termination of the Executive’s employment with the Company and all subsidiaries or affiliates.
(u) “ Three-Year Average Bonus ” means the average annual cash incentive award paid to the Executive under the Company’s annual incentive
compensation plan for the prior three (3) calendar years immediately preceding the Termination Date. If the Executive has been employed for less than three (3)
full calendar years at the Termination Date, the Three-Year Average Bonus will be based on the average of the actual annual cash incentive award payout
percentages over the prior three (3) calendar years for similarly situated executives multiplied by the Executive’s Target Bonus.
(v) “ Trustee ” shall have the meaning ascribed to such term in Section 6 of this Agreement.
2. POSITION/DUTIES.
(a) The Company agrees to continue to employ the Executive as its Chief Executive Officer or other equivalent title as approved by the Board, subject
to the terms and conditions outlined in this Agreement. The Executive accepts the continuing employment. The Executive will have those responsibilities, duties,
authorities and titles consistent with the Executive’s status as an officer of the Company as assigned from time to time by the Board, shall be subject to all rules,
policies and procedures of the Company, and shall serve in such other executive capacities, without additional compensation, as may be assigned by the Board
from time to time.
(b) During the Employment Term, the Executive shall devote substantially all of his full business time (other than vacation and sick leave), energy and
skill in the performance of his duties with the Company. However, this Agreement does not prevent the Executive from (i) managing his and his family’s personal
passive investments, and (ii) participating in charitable, civic, educational, professional, community or industry affairs or serving on the board of directors of other
companies (subject to the consent of the Board), so long as these activities do not materially interfere with the performance of his duties or create a potential actual
or perceived conflict of interest or violate Section 10 of this Agreement.
3. PRIOR ARRANGEMENTS.
The parties agree that, as of the Effective Date, all prior employment, separation, severance, termination, change of control, or similar agreements,
arrangements, or plans whether oral or written covering the Executive are terminated and superseded and any notice periods with respect to such terminations are
deemed satisfied or explicitly waived.
4. TERMINATION.
The Executive’s employment and the Employment Term shall terminate on the first of the following to occur:
(a) DISABILITY. Upon thirty (30) days’ written notice by the Company to the Executive of termination due to Disability.
(b) DEATH. On the date of death of the Executive.
(c) CAUSE. Immediately upon written notice by the Company to the Executive of a termination for Cause.
(d) INVOLUNTARY TERMINATION WITHOUT CAUSE. Upon written notice by the Company to the Executive of an Involuntary Termination
without Cause.
(e) GOOD REASON ON OR AFTER A CHANGE OF CONTROL. On or after the occurrence of a Change of Control, upon written notice by the
Executive to the Company of a termination for Good Reason, subject to Section 1(m) and as provided in Section 9.
(f) VOLUNTARY TERMINATION. Upon notice by the Executive to the Company of the Executive’s voluntary termination of employment, or on or
after a Change of Control, upon notice by the Executive to the Company of the Executive’s voluntary termination of employment without Good Reason (which the
Company may, in its sole discretion, make effective earlier than the termination date proposed by the Executive), subject to Section 1(m) and as provided in
Section 9.
5. CONSEQUENCES OF TERMINATION.
(a) DISABILITY. In the event the Employment Term ends on account of the Executive’s Disability, the Company shall pay and provide the Executive
any Accrued Benefits.
(b) DEATH. In the event the Employment Term ends due to the Executive’s death, the Company shall pay and provide Executive’s estate (to the extent
that beneficiaries have not been designated under applicable benefit or compensation plans) any Accrued Benefits.
(c) INVOLUNTARY TERMINATION WITHOUT CAUSE NOT DUE TO A CHANGE OF CONTROL. In the event of the Executive’s Involuntary
Termination not due to a Change of Control, the Executive shall be entitled to receive the compensation listed below, subject to his compliance with the terms and
conditions of Section 5(f) (“Additional Terms”).
(i) THE COMPANY SHALL PAY OR PROVIDE TO THE EXECUTIVE THE FOLLOWING PAYMENTS AND BENEFITS:
(A)
(B)
ANY ACCRUED BENEFITS PAYABLE AS SOON AS PRACTICAL AFTER THE TERMINATION DATE, OR SUCH OTHER
DATE AS THEIR TERMS REQUIRE;
CONTINUED PAYMENT OF THE EXECUTIVE’S BASE SALARY FOR THE APPLICABLE SEVERANCE PERIOD PAYABLE
IN INSTALLMENTS IN ACCORDANCE WITH THE COMPANY’S STANDARD PAYROLL PRACTICES, BUT NO LESS
FREQUENTLY THAN MONTHLY, BEGINNING WITHIN SIXTY (60) DAYS FOLLOWING THE TERMINATION DATE
(WITH THE FIRST PAYMENT TO INCLUDE AMOUNTS ACCRUED BETWEEN THE TERMINATION DATE AND THE FIRST
PAYMENT DATE); PROVIDED THAT, IF THE SIXTIETH (60TH) DAY FOLLOWING THE TERMINATION DATE FALLS IN
THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE TERMINATION DATE OCCURS,
PAYMENTS WILL NOT COMMENCE PRIOR TO THE FIRST DAY OF THE CALENDAR YEAR FOLLOWING THE
CALENDAR YEAR IN WHICH THE TERMINATION DATE OCCURS; PROVIDED FURTHER THAT, IN THE EVENT THE
EXECUTIVE IS A SPECIFIED EMPLOYEE ON THE TERMINATION DATE, PAYMENT SHALL BE MADE IN ACCORDANCE
WITH THE FOLLOWING PROVISIONS:
a.
b.
IF THE AGGREGATE VALUE OF THE PAYMENTS DUE TO THE EXECUTIVE PURSUANT TO THIS SECTION 5(C)
(I)(B) DURING THE SIX (6) MONTH PERIOD FOLLOWING HIS TERMINATION DATE DOES NOT EXCEED TWO
(2) TIMES THE LESSER OF: (X) THE SPECIFIED EMPLOYEE’S BASE SALARY FOR THE YEAR PRIOR TO THE
YEAR IN WHICH THE TERMINATION DATE OCCURS; OR (Y) THE MAXIMUM AMOUNT THAT MAY BE TAKEN
INTO ACCOUNT UNDER A QUALIFIED RETIREMENT PLAN PURSUANT TO SECTION 401(A)(17) OF THE CODE
FOR THE YEAR IN WHICH THE TERMINATION DATE OCCURS (SUCH AMOUNT, THE “SEPARATION PAY
LIMIT”), THE EXECUTIVE SHALL RECEIVE CONTINUATION OF HIS BASE SALARY FOR THE SEVERANCE
PERIOD PAYABLE IN INSTALLMENTS IN ACCORDANCE WITH THE COMPANY’S STANDARD PAYROLL
PRACTICES, BUT NO LESS FREQUENTLY THAN MONTHLY, AS SET FORTH ABOVE.
IF THE AGGREGATE VALUE OF THE PAYMENTS DUE TO THE EXECUTIVE PURSUANT TO THIS SECTION 5(C)
(I)(B) DURING THE SIX (6) MONTH PERIOD FOLLOWING HIS TERMINATION DATE EXCEEDS THE
SEPARATION PAY LIMIT, THE EXECUTIVE SHALL NOT RECEIVE ANY PAYMENTS OF CONTINUED BASE
SALARY IN EXCESS OF THE SEPARATION PAY LIMIT DURING SUCH SIX (6) MONTH PERIOD. ANY AMOUNTS
IN EXCESS OF THE SEPARATION PAY LIMIT WHICH WOULD HAVE OTHERWISE BEEN PAID DURING THE SIX
(6) MONTH PERIOD FOLLOWING THE EXECUTIVE’S TERMINATION DATE SHALL BE PAID IN A LUMP SUM
ON THE FIRST DAY FOLLOWING THE SIX (6) MONTH ANNIVERSARY OF THE EXECUTIVE’S TERMINATION
DATE. BEGINNING WITH THE FIRST PAYROLL CYCLE OCCURRING ON OR AFTER THE FIRST DAY
FOLLOWING THE SIX (6) MONTH ANNIVERSARY OF THE EXECUTIVE’S TERMINATION DATE AND
CONTINUING UNTIL THE END OF THE SEVERANCE PERIOD, THE EXECUTIVE SHALL RECEIVE
CONTINUATION PAYMENTS OF THE
(C)
(D)
(E)
EXECUTIVE’S BASE SALARY IN INSTALLMENTS IN ACCORDANCE WITH THE COMPANY’S STANDARD
PAYROLL PRACTICES, BUT NO LESS FREQUENTLY THAN MONTHLY.
c.
FOR PURPOSES OF SECTION 409A OF THE CODE, EACH INSTALLMENT PAYMENT OF BASE SALARY MADE
PURSUANT TO THIS SECTION 5(C)(I)(B) SHALL BE TREATED AS A SEPARATE PAYMENT OF COMPENSATION.
A LUMP SUM PAYMENT EQUAL TO (X) THE EXECUTIVE’S THREE-YEAR AVERAGE BONUS MULTIPLIED BY (Y) THE
SEVERANCE MULTIPLE, PAYABLE ON THE RELEASE EFFECTIVE DATE OR AS SOON THEREAFTER AS IS
REASONABLY PRACTICABLE, BUT IN NO EVENT SHALL SUCH PAYMENT OCCUR LATER THAN MARCH 15 OF THE
CALENDAR YEAR FOLLOWING THE YEAR IN WHICH THE TERMINATION DATE OCCURS;
A LUMP SUM PAYMENT EQUAL TO THE PRO-RATA CASH BONUS FOR THE YEAR IN WHICH THE TERMINATION
DATE OCCURS WHICH SHALL BE PAID (X) WHEN SUCH ANNUAL BONUSES ARE PAID TO NON-TERMINATED
EMPLOYEES (OR, IF LATER, UPON THE SATISFACTION OF ALL CONDITIONS FOR THE PAYMENT OF BENEFITS
HEREUNDER, BUT IN NO EVENT SHALL SUCH PAYMENT OCCUR LATER THAN MARCH 15 OF THE CALENDAR YEAR
FOLLOWING THE YEAR IN WHICH THE TERMINATION DATE OCCURS) AND (Y) BASED ON THE ACTUAL
ATTAINMENT OF THE PERFORMANCE GOALS UNDER THE ANNUAL BONUS PLAN FOR THE YEAR IN WHICH THE
TERMINATION DATE OCCURS;
IF THE EXECUTIVE CONTINUES TO RECEIVE HEALTH BENEFITS (INCLUDING, MEDICAL, PRESCRIPTION, DENTAL,
VISION AND HEALTH CARE REIMBURSEMENT ACCOUNT BENEFITS) PURSUANT TO THE COMPANY’S HEALTH
PLANS UNDER THE CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985, AS AMENDED,
SUPPLEMENTED OR SUBSTITUTED FROM TIME TO TIME (“COBRA”) AND PAYS THE FULL COBRA PREMIUMS, THE
COMPANY WILL REIMBURSE THE EXECUTIVE FOR THE COBRA PREMIUMS PAID FOR SUCH BENEFITS FOR THE
EXECUTIVE AND HIS FAMILY THROUGH COBRA (WITH THE EXCEPTION OF ANY COBRA PREMIUMS PAID FOR
HEALTH CARE REIMBURSEMENT ACCOUNT BENEFITS), THROUGH THE BENEFITS CONTINUATION PERIOD, IN
ACCORDANCE WITH THE APPLICABLE PLANS, PROGRAMS OR POLICIES OF THE COMPANY, AND ON SUCH TERMS
APPLICABLE TO COMPARABLY SITUATED ACTIVE EMPLOYEES DURING SUCH PERIOD (WHICH SHALL OFFSET THE
COMPANY’S COBRA OBLIGATION, IF ANY); PROVIDED THAT THE EXECUTIVE MAY CONTINUE TO RECEIVE
HEALTH BENEFITS PURSUANT TO THE COMPANY’S HEALTH PLANS DURING A PERIOD OF TIME IN THE BENEFITS
CONTINUATION PERIOD DURING WHICH THE EXECUTIVE WOULD NOT OTHERWISE BE ENTITLED TO COBRA
CONTINUATION COVERAGE UNDER SECTION 4980B OF THE CODE IF THE EXECUTIVE CONTINUES TO PAY
PREMIUMS FOR SUCH HEALTH BENEFITS, AND THE EXECUTIVE SHALL RECEIVE REIMBURSEMENT FOR ALL
PREMIUMS PAID BY THE EXECUTIVE FOR SUCH CONTINUED HEALTH BENEFITS ON THE DATE NO LATER THAN
DECEMBER 31 OF THE CALENDAR YEAR IMMEDIATELY FOLLOWING THE CALENDAR YEAR IN WHICH THE
APPLICABLE EXPENSES HAVE BEEN INCURRED. IF THE EXECUTIVE FAILS TO ACCEPT AVAILABLE COVERAGE
FROM ANOTHER EMPLOYER OR FAILS
TO NOTIFY THE COMPANY (OR FOLLOWING A CHANGE OF CONTROL, THE COMPANY OR THE TRUSTEE) WITHIN
THIRTY (30) DAYS OF THE EXECUTIVE’S ELIGIBILITY TO RECEIVE COVERAGE UNDER ANOTHER EMPLOYER’S
PLAN, THE EXECUTIVE’S REIMBURSEMENTS UNDER THIS SECTION 5(C)(I)(E) SHALL IMMEDIATELY TERMINATE
AND THE EXECUTIVE SHALL CEASE TO BE ENTITLED TO ANY SUCH REIMBURSEMENTS UNDER THIS AGREEMENT
AND SHALL BE REQUIRED WITHIN THREE (3) MONTHS AFTER SUCH FAILURE TO REIMBURSE THE COMPANY FOR
THE REIMBURSEMENTS PAID TO THE EXECUTIVE AFTER SUCH FAILURE. IN ADDITION, THE EXECUTIVE AGREES
THAT THE COMPANY MAY OFFSET AGAINST SUCH REIMBURSEMENT OR DEDUCT SUCH REIMBURSEMENT FROM
ANY PAYMENTS DUE TO THE EXECUTIVE IN FULL OR PARTIAL PAYMENT OF SUCH REIMBURSEMENT; PROVIDED
THAT NO SUCH OFFSET SHALL BE MADE IN VIOLATION OF SECTION 409A OF THE CODE;
(F)
(G)
(H)
THE COMPANY SHALL PROVIDE THE EXECUTIVE WITH PROFESSIONAL OUTPLACEMENT SERVICES AS
DETERMINED IN THE COMPANY’S SOLE DISCRETION UNTIL THE EARLIEST OF: (W) THIRTY-SIX (36) MONTHS
AFTER THE TERMINATION DATE, (X) THE DATE ON WHICH THE EXECUTIVE OBTAINS ANOTHER FULL-TIME JOB,
AND (Y) THE DATE ON WHICH THE EXECUTIVE BECOMES SELF-EMPLOYED. THE AMOUNT OF OUTPLACEMENT
SERVICES PROVIDED TO THE EXECUTIVE DURING ANY CALENDAR YEAR WILL NOT AFFECT THE AMOUNT OF
OUTPLACEMENT SERVICES PROVIDED TO THE EXECUTIVE IN ANY SUBSEQUENT CALENDAR YEAR. THE
COMPANY WILL NOT PAY THE EXECUTIVE CASH OR PROVIDE OTHER BENEFITS IN LIEU OF PROFESSIONAL
OUTPLACEMENT SERVICES;
IF THE EXECUTIVE IS COVERED BY ANY COMPANY-SPONSORED EXECUTIVE LIFE INSURANCE PROGRAM AS OF
THE TERMINATION DATE, THE COMPANY SHALL CONTINUE TO PAY FOR THE EXECUTIVE’S COVERAGE UNTIL
THE END OF THE SEVERANCE PERIOD. AT THE END OF THE SEVERANCE PERIOD, THE EXECUTIVE WILL HAVE
THIRTY-ONE (31) DAYS FROM THE LAST DAY OF THE SEVERANCE PERIOD TO CONVERT HIS LIFE INSURANCE
COVERAGE TO AN INDIVIDUAL POLICY;
IF THE EXECUTIVE IS COVERED BY ANY COMPANY-SPONSORED SUPPLEMENTAL LONG-TERM DISABILITY
INSURANCE PROGRAM AS OF THE TERMINATION DATE, THE COMPANY SHALL CONTINUE TO PAY FOR THE
EXECUTIVE’S COVERAGE UNTIL THE END OF THE SEVERANCE PERIOD. AT THE END OF THE SEVERANCE PERIOD,
THE EXECUTIVE SHALL BE ENTITLED TO KEEP THIS POLICY IF HE CONTINUES TO PAY THE ANNUAL PREMIUMS;
AND
(I)
ANY BENEFITS OR RIGHTS TO WHICH THE EXECUTIVE IS ENTITLED UNDER ANY OF THE COMPANY’S STOCK OR
EQUITY PLANS IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THOSE PLANS.
(ii) IF A CHANGE OF CONTROL OCCURS AND THE EXECUTIVE IS THEN RECEIVING, OR IS ENTITLED TO RECEIVE,
PAYMENTS AND BENEFITS UNDER SECTION 5(C)(I) OF THIS AGREEMENT AS A RESULT OF HIS INVOLUNTARY TERMINATION WITHOUT
CAUSE NOT DUE TO A CHANGE OF CONTROL, THE COMPANY SHALL PAY TO THE EXECUTIVE IN A LUMP SUM, WITHIN SEVEN (7)
CALENDAR DAYS AFTER THE CHANGE OF CONTROL, AN AMOUNT (IN LIEU OF FUTURE INSTALLMENT PAYMENTS) EQUAL TO THE
PRESENT VALUE OF ALL FUTURE CASH PAYMENTS DUE TO THE EXECUTIVE UNDER SECTION 5(C)(I)(B) OF THIS AGREEMENT USING THE
PRIME COMMERCIAL LENDING RATE PUBLISHED BY THE TRUSTEE AT THE TIME THE CHANGE OF CONTROL OCCURS. THE COMPANY
AND THE EXECUTIVE SHALL CONTINUE TO BE LIABLE TO EACH OTHER FOR ALL OF THEIR OTHER RESPECTIVE OBLIGATIONS UNDER
THIS AGREEMENT. IN THE EVENT THAT THE EXECUTIVE WAS A SPECIFIED EMPLOYEE ON HIS TERMINATION DATE, IF THE SUM OF THE
PAYMENTS WHICH THE EXECUTIVE PREVIOUSLY RECEIVED IN ACCORDANCE WITH SECTION 5(C)(I)(B) AND THE PAYMENT SET FORTH IN
THIS SECTION 5(C)(II) EXCEEDS THE SEPARATION PAY LIMIT, ANY AMOUNTS IN EXCESS OF THE SEPARATION PAY LIMIT SHALL BE PAID
ON THE LATER OF (A) THE FIRST DAY FOLLOWING THE SIX (6) MONTH ANNIVERSARY OF THE TERMINATION DATE AND (B) WITHIN
SEVEN (7) CALENDAR DAYS AFTER THE CHANGE OF CONTROL. FOR THE AVOIDANCE OF DOUBT, IN THE EVENT THAT THE PROVISIONS
OF THIS SECTION 5(C)(II) BECOME EFFECTIVE, THEY SHALL SUPERSEDE THE PROVISIONS OF SECTION 5(C)(I)(B).
(iii) IF A CHANGE OF CONTROL OCCURS AND (A) THE EXECUTIVE EXPERIENCED AN INVOLUNTARY TERMINATION
WITHIN TWELVE (12) MONTHS PRIOR TO THE DATE ON WHICH THE CHANGE OF CONTROL OCCURS AND (B) IT IS REASONABLY
DEMONSTRATED BY THE EXECUTIVE THAT SUCH TERMINATION OF EMPLOYMENT EITHER (A) WAS AT THE REQUEST OF A THIRD PARTY
WHO HAS TAKEN STEPS REASONABLY CALCULATED TO EFFECT A CHANGE OF CONTROL OR (B) OTHERWISE AROSE IN CONNECTION
WITH OR IN ANTICIPATION OF A CHANGE OF CONTROL, THEN IN ADDITION TO THE PAYMENTS AND BENEFITS SET FORTH IN SECTION
5(C)(I), THE EXECUTIVE SHALL BE ENTITLED TO THE FOLLOWING: (X) A LUMP SUM PAYMENT EQUAL TO 50% OF THE EXECUTIVE’S BASE
SALARY, PAYABLE AS SOON AS PRACTICABLE BUT NO LATER THAN SIXTY (60) DAYS FOLLOWING THE CHANGE OF CONTROL; PROVIDED
THAT IF THE EXECUTIVE WAS A SPECIFIED EMPLOYEE ON HIS TERMINATION DATE, SUCH PAYMENT SHALL BE PAID ON THE LATER OF
(1) AS SOON AS PRACTICABLE BUT NO LATER THAN SIXTY (60) DAYS FOLLOWING THE CHANGE OF CONTROL AND (2) THE FIRST DAY
FOLLOWING THE SIX (6) MONTH ANNIVERSARY OF THE EXECUTIVE’S TERMINATION DATE; (Y) THE DIFFERENCE BETWEEN THREE (3)
TIMES THE TARGET BONUS AND TWO AND ONE-HALF (2.5) TIMES THE EXECUTIVE’S THREE-YEAR AVERAGE BONUS AMOUNT PAID TO
THE EXECUTIVE PURSUANT TO SECTION 5(C)(I)(C), WHICH SHALL BE PAID AS SOON AS PRACTICABLE FOLLOWING THE CHANGE OF
CONTROL BUT NO LATER THAN MARCH 15 OF THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE CHANGE OF
CONTROL OCCURS; AND (Z) FOR PURPOSES OF DETERMINING THE SEVERANCE PERIOD FOR BENEFITS PROVIDED UNDER SECTIONS 5(C)
(I)(E), (G), AND (H), THE EXECUTIVE’S SEVERANCE PERIOD SHALL BE DEFINED AS THE THIRTY-SIX (36) MONTH PERIOD FOLLOWING THE
TERMINATION DATE. NOTWITHSTANDING THE FOREGOING, IN THE EVENT THAT (A) A CHANGE OF CONTROL OCCURS AND PAYMENTS
AND BENEFITS BECOME PAYABLE TO THE EXECUTIVE PURSUANT TO THIS SECTION 5(C)(III); AND (B) SUCH CHANGE OF CONTROL DOES
NOT CONSTITUTE A “CHANGE IN OWNERSHIP OR EFFECTIVE CONTROL” OR A CHANGE IN THE “OWNERSHIP OF A SUBSTANTIAL PORTION
OF ASSETS” UNDER SECTION 409A OF THE CODE AND THE RULES AND REGULATIONS ISSUED THEREUNDER, THE LUMP SUM PAYMENT
SET FORTH IN (X) ABOVE SHALL BE PAID ON THE FIRST ANNIVERSARY OF THE EXECUTIVE’S TERMINATION DATE.
(iv) IF A CHANGE OF CONTROL OCCURS AND (A) THE EXECUTIVE’S EMPLOYMENT WAS VOLUNTARILY TERMINATED
WITHIN TWELVE (12) MONTHS PRIOR TO THE DATE ON WHICH THE CHANGE OF CONTROL OCCURS; (B) SUCH TERMINATION WOULD
HAVE CONSTITUTED A TERMINATION FOR GOOD REASON IF IT HAD OCCURRED WITHIN TWO (2) YEARS FOLLOWING THE CHANGE OF
CONTROL; AND (C) IT IS REASONABLY DEMONSTRATED BY THE EXECUTIVE THAT THE CIRCUMSTANCES WHICH WOULD HAVE CAUSED
THE OCCURRENCE OF GOOD REASON EITHER (A) WERE AT THE REQUEST OF A THIRD PARTY WHO HAD TAKEN STEPS REASONABLY
CALCULATED TO EFFECT A CHANGE OF CONTROL OR (B) OTHERWISE AROSE IN CONNECTION WITH OR IN ANTICIPATION OF A CHANGE
OF CONTROL, THEN THE EXECUTIVE SHALL BE ENTITLED TO THE FOLLOWING (BASED ON A SEVERANCE MULTIPLE OF THREE (3) AND A
SEVERANCE PERIOD OF THIRTY-SIX (36) MONTHS FROM THE TERMINATION DATE):
(A)
(B)
(C)
(D)
A LUMP SUM PAYMENT EQUAL TO THE EXECUTIVE’S BASE SALARY MULTIPLIED BY THE SEVERANCE MULTIPLE
PAYABLE WITHIN SIXTY (60) DAYS FOLLOWING THE CHANGE OF CONTROL; PROVIDED THAT, IF THE SIXTIETH
(60TH) DAY FOLLOWING THE CHANGE OF CONTROL FALLS IN THE CALENDAR YEAR FOLLOWING THE CALENDAR
YEAR IN WHICH THE CHANGE OF CONTROL OCCURS, PAYMENT WILL NOT BE MADE PRIOR TO THE FIRST DAY OF
THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE CHANGE OF CONTROL OCCURS;
PROVIDED FURTHER THAT, IF THE EXECUTIVE IS A SPECIFIED EMPLOYEE ON THE TERMINATION DATE, ANY
AMOUNTS IN EXCESS OF THE SEPARATION PAY LIMIT SHALL BE PAID TO THE EXECUTIVE IN A LUMP SUM ON THE
LATER OF (X) THE FIRST DAY FOLLOWING THE SIX (6) MONTH ANNIVERSARY OF THE TERMINATION DATE AND
(Y) WITHIN SIXTY (60) DAYS FOLLOWING THE CHANGE OF CONTROL. IN THE EVENT THAT (I) A CHANGE OF
CONTROL OCCURS AND PAYMENTS AND BENEFITS BECOME PAYABLE TO THE EXECUTIVE PURSUANT TO THIS
SECTION 5(C)(IV); AND (II) SUCH CHANGE OF CONTROL DOES NOT CONSTITUTE A “CHANGE IN OWNERSHIP OR
EFFECTIVE CONTROL” OR A CHANGE IN THE “OWNERSHIP OF A SUBSTANTIAL PORTION OF ASSETS” UNDER
SECTION 409A OF THE CODE AND THE RULES AND REGULATIONS THEREUNDER, THE LUMP SUM PAYMENT SET
FORTH HEREIN SHALL BE PAID ON THE FIRST ANNIVERSARY OF THE EXECUTIVE’S TERMINATION DATE;
A LUMP SUM PAYMENT EQUAL TO THE TARGET BONUS MULTIPLIED BY THE SEVERANCE MULTIPLE, PAYABLE
ON THE RELEASE EFFECTIVE DATE OR AS SOON THEREAFTER AS IS PRACTICABLE, BUT NO LATER THAN MARCH
15 OF THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE CHANGE OF CONTROL OCCURS;
A LUMP SUM PAYMENT EQUAL TO THE PRO-RATA CASH BONUS FOR THE YEAR IN WHICH THE TERMINATION
DATE OCCURS WHICH SHALL BE PAID (I) WHEN SUCH ANNUAL BONUSES ARE PAID TO NON-TERMINATED
EMPLOYEES (OR, IF LATER, UPON THE SATISFACTION OF ALL CONDITIONS FOR THE PAYMENT OF BENEFITS
HEREUNDER, BUT IN NO EVENT SHALL SUCH PAYMENT OCCUR LATER THAN MARCH 15 OF THE CALENDAR YEAR
FOLLOWING THE YEAR IN WHICH THE CHANGE OF CONTROL OCCURS) AND (II) BASED ON THE ACTUAL
ATTAINMENT OF THE PERFORMANCE GOALS UNDER THE ANNUAL BONUS PLAN FOR THE YEAR IN WHICH THE
TERMINATION DATE OCCURS;
IF THE EXECUTIVE CONTINUES TO RECEIVE HEALTH BENEFITS (INCLUDING, MEDICAL, PRESCRIPTION, DENTAL,
VISION AND HEALTH CARE REIMBURSEMENT ACCOUNT BENEFITS) PURSUANT TO THE COMPANY’S HEALTH
PLANS UNDER COBRA AND PAYS THE FULL COBRA PREMIUMS, THE COMPANY WILL REIMBURSE THE EXECUTIVE
FOR THE COBRA PREMIUMS PAID FOR SUCH BENEFITS FOR THE EXECUTIVE AND HIS FAMILY THROUGH COBRA
(WITH THE EXCEPTION OF ANY COBRA PREMIUMS PAID FOR HEALTH CARE REIMBURSEMENT ACCOUNT
BENEFITS), FOR THE REMAINDER OF THE BENEFITS CONTINUATION PERIOD, IN ACCORDANCE WITH THE
APPLICABLE PLANS, PROGRAMS OR POLICIES, IF ANY, OF THE COMPANY OR ITS SUCCESSOR, AND ON SUCH
TERMS APPLICABLE TO COMPARABLY SITUATED ACTIVE EMPLOYEES DURING SUCH PERIOD (WHICH SHALL
OFFSET THE COMPANY’S COBRA OBLIGATION, IF ANY); PROVIDED THAT THE EXECUTIVE MAY CONTINUE TO
RECEIVE HEALTH BENEFITS PURSUANT TO THE COMPANY’S HEALTH PLANS DURING A PERIOD OF TIME IN THE
BENEFITS CONTINUATION PERIOD DURING WHICH THE EXECUTIVE WOULD NOT OTHERWISE BE ENTITLED TO
COBRA CONTINUATION COVERAGE UNDER SECTION 4980B OF THE CODE IF THE EXECUTIVE CONTINUES TO PAY
PREMIUMS FOR SUCH HEALTH BENEFITS, AND THE EXECUTIVE SHALL RECEIVE REIMBURSEMENT FOR ALL
PREMIUMS PAID BY THE EXECUTIVE FOR SUCH CONTINUED HEALTH BENEFITS ON THE DATE NO LATER THAN
DECEMBER 31 OF THE CALENDAR YEAR IMMEDIATELY FOLLOWING THE CALENDAR YEAR IN WHICH THE
APPLICABLE EXPENSES HAVE BEEN INCURRED. IF THE EXECUTIVE FAILS TO ACCEPT AVAILABLE COVERAGE
FROM ANOTHER EMPLOYER OR FAILS TO NOTIFY THE COMPANY (OR THE TRUSTEE) WITHIN THIRTY (30) DAYS OF
THE EXECUTIVE’S ELIGIBILITY TO RECEIVE COVERAGE UNDER ANOTHER EMPLOYER’S PLAN, THE EXECUTIVE’S
REIMBURSEMENTS UNDER THIS SECTION 5(C)(IV)(D) SHALL IMMEDIATELY TERMINATE AND THE EXECUTIVE
SHALL CEASE TO BE ENTITLED TO ANY SUCH REIMBURSEMENTS UNDER THIS AGREEMENT AND SHALL BE
REQUIRED WITHIN THREE (3) MONTHS AFTER SUCH FAILURE TO REIMBURSE THE COMPANY FOR THE
REIMBURSEMENTS PAID TO THE EXECUTIVE AFTER SUCH FAILURE. IN ADDITION, THE EXECUTIVE AGREES THAT
THE COMPANY MAY OFFSET AGAINST SUCH REIMBURSEMENT OR DEDUCT SUCH REIMBURSEMENT FROM ANY
PAYMENTS DUE TO THE EXECUTIVE IN FULL OR PARTIAL PAYMENT OF SUCH REIMBURSEMENT; PROVIDED THAT,
NO SUCH OFFSET SHALL BE MADE IN VIOLATION OF SECTION 409A OF THE CODE;
(E)
A LUMP SUM PAYMENT EQUAL TO THE VALUE OF THE COMPANY-SPONSORED OUTPLACEMENT PROGRAM
MAINTAINED BY THE COMPANY IMMEDIATELY PRIOR TO THE CHANGE OF CONTROL, BASED ON THE
EXECUTIVE’S MANAGEMENT LEVEL AS OF THE TERMINATION DATE, WHICH SHALL BE PAID WITHIN SIXTY (60)
DAYS FOLLOWING THE CHANGE OF CONTROL; PROVIDED THAT, IF THE SIXTIETH (60TH) DAY FOLLOWING THE
CHANGE OF CONTROL FALLS IN THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE
CHANGE OF CONTROL OCCURS, PAYMENT WILL NOT BE MADE PRIOR TO THE FIRST DAY OF THE CALENDAR
YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE CHANGE OF CONTROL OCCURS; PROVIDED FURTHER
THAT, IF THE EXECUTIVE IS A SPECIFIED EMPLOYEE ON THE TERMINATION DATE, SUCH AMOUNT SHALL BE PAID
ON THE LATER OF (X) WITHIN SIXTY (60) DAYS FOLLOWING THE CHANGE OF CONTROL AND (Y) THE FIRST DAY
FOLLOWING THE SIX (6) MONTH ANNIVERSARY OF THE TERMINATION DATE. IN THE EVENT THAT (I) A CHANGE
OF CONTROL OCCURS AND PAYMENTS AND BENEFITS BECOME PAYABLE TO THE EXECUTIVE PURSUANT TO THIS
SECTION 5(C)(IV); AND (II) SUCH CHANGE OF CONTROL DOES NOT CONSTITUTE A “CHANGE IN OWNERSHIP OR
EFFECTIVE CONTROL” OR A CHANGE IN THE “OWNERSHIP OF A SUBSTANTIAL PORTION OF ASSETS” UNDER
SECTION 409A OF THE CODE AND THE RULES AND REGULATIONS THEREUNDER, THE LUMP SUM PAYMENT SET
FORTH HEREIN SHALL BE PAID ON THE FIRST ANNIVERSARY OF THE EXECUTIVE’S TERMINATION DATE;
(F)
IF THE EXECUTIVE IS COVERED BY ANY COMPANY-SPONSORED EXECUTIVE LIFE INSURANCE PROGRAM AS OF
THE TERMINATION DATE, THE COMPANY (OR THE TRUSTEE) SHALL CONTINUE TO PAY FOR THE EXECUTIVE’S
COVERAGE UNTIL THE END OF THE SEVERANCE PERIOD. AT
(G)
(H)
(I)
(J)
THE END OF THE SEVERANCE PERIOD, THE EXECUTIVE WILL HAVE THIRTY-ONE DAYS (31) FROM THE LAST DAY
OF THE SEVERANCE PERIOD TO CONVERT HIS LIFE INSURANCE COVERAGE TO AN INDIVIDUAL POLICY;
IF THE EXECUTIVE IS COVERED BY ANY COMPANY-SPONSORED SUPPLEMENTAL LONG TERM DISABILITY
INSURANCE PROGRAM AS OF THE TERMINATION DATE, THE COMPANY (OR THE TRUSTEE) SHALL CONTINUE TO
PAY FOR THE EXECUTIVE’S COVERAGE UNTIL THE END OF THE SEVERANCE PERIOD. AT THE END OF THE
SEVERANCE PERIOD, THE EXECUTIVE SHALL BE ENTITLED TO KEEP THIS POLICY IF HE CONTINUES TO PAY THE
ANNUAL PREMIUMS; AND
ANY BENEFITS OR RIGHTS TO WHICH THE EXECUTIVE IS ENTITLED UNDER ANY OF THE COMPANY’S STOCK OR
EQUITY PLANS IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF ANY SUCH PLANS.
FOR THE AVOIDANCE OF DOUBT, NO PAYMENTS OR BENEFITS PAYABLE TO THE EXECUTIVE PURSUANT TO THIS
SECTION 5(C)(IV) SHALL CONTINUE BEYOND THE DATE WHICH IS THIRTY-SIX (36) MONTHS FOLLOWING THE
TERMINATION DATE.
THE EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS PURSUANT TO THIS SECTION 5(C)(IV),
UNLESS PRIOR TO THE EXECUTIVE’S TERMINATION DATE, THE EXECUTIVE HAD GIVEN THE COMPANY NOTICE OF
THE CIRCUMSTANCES FORMING THE BASIS OF TERMINATION FOR GOOD REASON AND AN OPPORTUNITY TO
CURE SUCH CIRCUMSTANCES IN ACCORDANCE WITH SECTIONS 1(K) AND (M).
On the Termination Date, the Executive shall no longer be eligible to participate in any Company plan, program or policy, other than those described in
Section 5(c) including, but not limited to, the Company’s long-term incentive plan, short-term disability plan, long-term disability plan, employee stock purchase
plan, and business travel accident plan.
(d) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. If the Executive’s employment is terminated (i) by the Company for Cause,
or (ii) voluntarily by the Executive (other than for Good Reason on or after a Change of Control), the Company shall pay or provide to the Executive the Accrued
Benefits.
(e) TERMINATION DUE TO A CHANGE OF CONTROL. If, within the two (2) year period commencing on a Change of Control of the Company,
(A) the Executive experiences an Involuntary Termination, or (B) the Executive terminates his employment with the Company or a Company Entity for Good
Reason, the Executive shall be entitled to receive the compensation and benefits listed below, subject to his compliance with the terms of Section 5(f):
(i) THE COMPANY SHALL PAY OR PROVIDE TO THE EXECUTIVE THE FOLLOWING PAYMENTS AND BENEFITS:
(A)
(B)
ANY ACCRUED BENEFITS PAYABLE AS SOON AS PRACTICAL AFTER THE TERMINATION DATE;
A LUMP SUM PAYMENT EQUAL TO THE EXECUTIVE’S BASE SALARY MULTIPLIED BY THE SEVERANCE MULTIPLE
PAYABLE WITHIN SIXTY (60) DAYS FOLLOWING THE TERMINATION DATE; PROVIDED THAT, IF THE SIXTIETH
(60TH) DAY FOLLOWING THE TERMINATION DATE FALLS IN THE CALENDAR YEAR FOLLOWING THE CALENDAR
YEAR IN WHICH THE
(C)
(D)
(E)
TERMINATION DATE OCCURS, PAYMENT WILL NOT BE MADE PRIOR TO THE FIRST DAY OF THE CALENDAR YEAR
FOLLOWING THE CALENDAR YEAR IN WHICH THE TERMINATION DATE OCCURS; PROVIDED FURTHER THAT, IF
THE EXECUTIVE IS A SPECIFIED EMPLOYEE ON THE TERMINATION DATE, ANY AMOUNTS PAYABLE UNDER THIS
SECTION 5(E)(I)(B) IN EXCESS OF THE SEPARATION PAY LIMIT SHALL BE PAID TO THE EXECUTIVE IN A LUMP SUM
ON THE FIRST DAY FOLLOWING THE SIX (6) MONTH ANNIVERSARY OF THE TERMINATION DATE;
A LUMP SUM PAYMENT EQUAL TO THE TARGET BONUS MULTIPLIED BY THE SEVERANCE MULTIPLE, PAYABLE
ON THE RELEASE EFFECTIVE DATE OR AS SOON THEREAFTER AS IS PRACTICABLE, BUT NO LATER THAN MARCH
15 OF THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE TERMINATION DATE OCCURS;
A LUMP SUM PAYMENT EQUAL TO THE PRO-RATA CASH BONUS FOR THE YEAR IN WHICH THE TERMINATION
DATE OCCURS WHICH SHALL BE PAID (I) WHEN SUCH ANNUAL BONUSES ARE PAID TO NON-TERMINATED
EMPLOYEES (OR, IF LATER, UPON THE SATISFACTION OF ALL CONDITIONS FOR THE PAYMENT OF BENEFITS
HEREUNDER, BUT IN NO EVENT SHALL SUCH PAYMENT OCCUR LATER THAN MARCH 15 OF THE CALENDAR YEAR
FOLLOWING THE YEAR IN WHICH THE TERMINATION DATE OCCURS) AND (II) BASED ON THE ACTUAL
ATTAINMENT OF THE PERFORMANCE GOALS UNDER THE ANNUAL BONUS PLAN FOR THE YEAR IN WHICH THE
TERMINATION DATE OCCURS;
IF THE EXECUTIVE CONTINUES TO RECEIVE HEALTH BENEFITS (INCLUDING, MEDICAL, PRESCRIPTION, DENTAL,
VISION AND HEALTH CARE REIMBURSEMENT ACCOUNT BENEFITS) PURSUANT TO THE COMPANY’S HEALTH
PLANS UNDER COBRA AND PAYS THE FULL COBRA PREMIUMS, THE COMPANY WILL REIMBURSE THE EXECUTIVE
FOR THE COBRA PREMIUMS PAID FOR SUCH BENEFITS FOR THE EXECUTIVE AND HIS FAMILY THROUGH COBRA
(WITH THE EXCEPTION OF ANY COBRA PREMIUMS PAID FOR HEALTH CARE REIMBURSEMENT ACCOUNT
BENEFITS), FOR THE BENEFITS CONTINUATION PERIOD, IN ACCORDANCE WITH THE APPLICABLE PLANS,
PROGRAMS OR POLICIES, IF ANY, OF THE COMPANY OR ITS SUCCESSOR, AND ON SUCH TERMS APPLICABLE TO
COMPARABLY SITUATED ACTIVE EMPLOYEES DURING SUCH PERIOD (WHICH SHALL OFFSET THE COMPANY’S
COBRA OBLIGATION, IF ANY); PROVIDED THAT THE EXECUTIVE MAY CONTINUE TO RECEIVE HEALTH BENEFITS
PURSUANT TO THE COMPANY’S HEALTH PLANS DURING A PERIOD OF TIME IN THE BENEFITS CONTINUATION
PERIOD DURING WHICH THE EXECUTIVE WOULD NOT OTHERWISE BE ENTITLED TO COBRA CONTINUATION
COVERAGE UNDER SECTION 4980B OF THE CODE IF THE EXECUTIVE CONTINUES TO PAY PREMIUMS FOR SUCH
HEALTH BENEFITS, AND THE EXECUTIVE SHALL RECEIVE REIMBURSEMENT FOR ALL PREMIUMS PAID BY THE
EXECUTIVE FOR SUCH CONTINUED HEALTH BENEFITS ON THE DATE NO LATER THAN DECEMBER 31 OF THE
CALENDAR YEAR IMMEDIATELY FOLLOWING THE CALENDAR YEAR IN WHICH THE APPLICABLE EXPENSES HAVE
BEEN INCURRED. IF THE EXECUTIVE FAILS TO ACCEPT AVAILABLE COVERAGE FROM ANOTHER EMPLOYER OR
FAILS TO NOTIFY THE COMPANY (OR THE TRUSTEE) WITHIN THIRTY (30) DAYS OF EXECUTIVE’S ELIGIBILITY TO
RECEIVE COVERAGE UNDER ANOTHER EMPLOYER’S PLAN, THE EXECUTIVE’S REIMBURSEMENTS UNDER THIS
SECTION 5(E)(I)(E) SHALL IMMEDIATELY TERMINATE AND THE EXECUTIVE SHALL CEASE TO BE ENTITLED TO
ANY SUCH REIMBURSEMENTS UNDER THIS AGREEMENT AND SHALL BE REQUIRED WITHIN THREE (3) MONTHS
AFTER SUCH FAILURE TO REIMBURSE THE COMPANY FOR THE REIMBURSEMENTS PAID TO THE EXECUTIVE
AFTER SUCH FAILURE. IN ADDITION, THE EXECUTIVE AGREES THAT THE COMPANY MAY OFFSET AGAINST SUCH
REIMBURSEMENT OR DEDUCT SUCH REIMBURSEMENT FROM ANY PAYMENTS DUE TO THE EXECUTIVE IN FULL
OR PARTIAL PAYMENT OF SUCH REIMBURSEMENT; PROVIDED THAT, NO SUCH OFFSET SHALL BE MADE IN
VIOLATION OF SECTION 409A OF THE CODE;
THE COMPANY (OR THE TRUSTEE) SHALL PAY TO THE EXECUTIVE IN A LUMP SUM AN AMOUNT EQUAL TO THE
VALUE OF THE COMPANY-SPONSORED OUTPLACEMENT PROGRAM MAINTAINED BY THE COMPANY
IMMEDIATELY PRIOR TO THE CHANGE OF CONTROL, BASED ON THE EXECUTIVE’S MANAGEMENT LEVEL AS OF
THE TERMINATION DATE, WHICH SHALL BE PAID WITHIN SIXTY (60) DAYS FOLLOWING THE TERMINATION DATE;
PROVIDED THAT, IF THE SIXTIETH (60TH) DAY FOLLOWING THE TERMINATION DATE FALLS IN THE CALENDAR
YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE TERMINATION DATE OCCURS, PAYMENT WILL NOT BE
MADE PRIOR TO THE FIRST DAY OF THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH THE
TERMINATION DATE OCCURS; PROVIDED FURTHER THAT, IF THE EXECUTIVE IS A SPECIFIED EMPLOYEE ON THE
TERMINATION DATE, SUCH AMOUNT SHALL BE PAID ON THE FIRST DAY FOLLOWING THE SIX (6) MONTH
ANNIVERSARY OF THE TERMINATION DATE;
IF THE EXECUTIVE IS COVERED BY ANY COMPANY-SPONSORED EXECUTIVE LIFE INSURANCE PROGRAM AS OF
THE TERMINATION DATE, THE COMPANY (OR THE TRUSTEE) SHALL CONTINUE TO PAY FOR THE EXECUTIVE’S
COVERAGE UNTIL THE END OF THE SEVERANCE PERIOD. AT THE END OF THE SEVERANCE PERIOD, THE
EXECUTIVE WILL HAVE THIRTY-ONE (31) DAYS FROM THE LAST DAY OF THE SEVERANCE PERIOD TO CONVERT
HIS LIFE INSURANCE COVERAGE TO AN INDIVIDUAL POLICY;
IF THE EXECUTIVE IS COVERED BY ANY COMPANY-SPONSORED SUPPLEMENTAL LONG TERM DISABILITY
INSURANCE PROGRAM AS OF THE TERMINATION DATE, THE COMPANY (OR THE TRUSTEE) SHALL CONTINUE TO
PAY FOR THE EXECUTIVE’S COVERAGE UNTIL THE END OF THE SEVERANCE PERIOD. AT THE END OF THE
SEVERANCE PERIOD, THE EXECUTIVE SHALL BE ENTITLED TO KEEP THIS POLICY IF HE CONTINUES TO PAY THE
ANNUAL PREMIUMS; AND
(F)
(G)
(H)
(I)
ANY BENEFITS OR RIGHTS TO WHICH THE EXECUTIVE IS ENTITLED UNDER ANY OF THE COMPANY’S STOCK OR
EQUITY PLANS IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF ANY SUCH PLANS.
(ii) IN THE EVENT THAT THE EXECUTIVE BECOMES ENTITLED TO PAYMENTS AND BENEFITS PURSUANT TO SECTION 5(E)
(I) IN CONNECTION WITH A CHANGE OF CONTROL THAT DOES NOT CONSTITUTE A “CHANGE IN OWNERSHIP OR EFFECTIVE CONTROL”
OR A CHANGE IN THE “OWNERSHIP OF A SUBSTANTIAL PORTION OF THE ASSETS” UNDER SECTION 409A OF THE CODE, AND THE
RULINGS AND REGULATIONS ISSUED THEREUNDER, THE PAYMENTS AND BENEFITS SET FORTH IN SECTIONS 5(E)(I)(B), (C), (D), (E), (G)
AND (H) HEREIN (IN EACH CASE, BASED ON A SEVERANCE PERIOD OF THREE (3) YEARS FROM THE TERMINATION DATE AND A
SEVERANCE MULTIPLE OF THREE (3)), SHALL BE PAID IN ACCORDANCE WITH THE SCHEDULE SET FORTH IN SECTION 5(C)(I), EXCEPT AS
OTHERWISE PROVIDED IN THIS SECTION 5(E)(II). IN ADDITION, THE SERVICES SET FORTH IN SECTION 5(C)(I)(F) (BASED ON A SEVERANCE
PERIOD OF TWO AND ONE-HALF YEARS) SHALL BE PROVIDED IN LIEU OF THE PAYMENT SET FORTH IN SECTION 5(E)(I)(F).
NOTWITHSTANDING THE FOREGOING, WITH RESPECT TO THE PAYMENT SET FORTH IN SECTION 5(E)(I)(B), AN AMOUNT EQUAL TO THE
LESSER OF (X) THE SEPARATION PAY LIMIT OR (Y) THE AMOUNT SET FORTH IN SECTION 5(E)(I)(B) SHALL BE PAID TO THE EXECUTIVE ON
THE RELEASE EFFECTIVE DATE OR AS SOON THEREAFTER AS IS PRACTICABLE, BUT NO LATER THAN SIXTY (60) DAYS FOLLOWING THE
TERMINATION DATE. IN THE EVENT THAT THE AMOUNT SET FORTH IN SECTION 5(E)(I)(B) EXCEEDS THE SEPARATION PAY LIMIT, ANY
EXCESS AMOUNTS SHALL BE PAID AT THE TIME THEY WOULD HAVE OTHERWISE BEEN PAID PURSUANT TO SECTION 5(C)(I)(B).
On the Termination Date, the Executive shall no longer be eligible to participate in any Company plan, program or policy, other than those described in
this Section 5(e)(i) including, but not limited to, the Company’s long-term incentive plan, short-term disability plan, long-term disability plan, employee stock
purchase plan, and business travel accident plan.
(iii) EFFECT OF SECTION 280G ON PAYMENTS.
(A)
(B)
REDUCTION IN PAYMENTS. IN THE EVENT ANY PAYMENT (AS DEFINED BELOW) WOULD CONSTITUTE AN “EXCESS
PARACHUTE PAYMENT” WITHIN THE MEANING OF SECTION 280G OF THE CODE, THE COMPANY SHALL REDUCE
(BUT NOT BELOW ZERO) THE AGGREGATE PRESENT VALUE OF THE PAYMENTS UNDER THIS AGREEMENT TO THE
REDUCED AMOUNT (AS DEFINED BELOW), IF REDUCING THE PAYMENTS UNDER THIS AGREEMENT WILL PROVIDE
THE EXECUTIVE WITH A GREATER NET AFTER-TAX AMOUNT THAN WOULD BE THE CASE IF NO REDUCTION WAS
MADE.
DETERMINING NET AFTER-TAX AMOUNTS. IN DETERMINING WHETHER A REDUCTION IN PAYMENTS UNDER THIS
AGREEMENT WILL PROVIDE THE EXECUTIVE WITH A GREATER NET AFTER-TAX AMOUNT, THE FOLLOWING
COMPUTATIONS SHALL BE MADE:
a.
b.
THE NET AFTER-TAX BENEFIT TO THE EXECUTIVE WITHOUT ANY REDUCTION IN PAYMENTS SHALL BE
DETERMINED BY REDUCING THE PAYMENTS BY THE AMOUNT OF FEDERAL, STATE, LOCAL AND OTHER
APPLICABLE TAXES (INCLUDING THE EXCISE TAX (AS DEFINED BELOW)) APPLICABLE TO THE PAYMENTS.
FOR THESE PURPOSES, THE TAX RATES SHALL BE DETERMINED USING THE MAXIMUM MARGINAL RATE
APPLICABLE TO SUCH EXECUTIVE FOR EACH YEAR IN WHICH THE PAYMENTS SHALL BE PAID.
THE NET AFTER-TAX BENEFIT TO THE EXECUTIVE WITH A REDUCTION IN THE PAYMENTS TO THE
REDUCED AMOUNT SHALL BE DETERMINED BY APPLYING THE TAX RATES UNDER SECTION 5(E)(III)(B)(A),
WITH THE EXCEPTION OF THE EXCISE TAX.
(C)
REDUCTION METHODOLOGY. IN THE EVENT A REDUCTION IN THE PAYMENTS TO THE REDUCED AMOUNT WILL
PROVIDE THE EXECUTIVE WITH A GREATER NET AFTER-TAX AMOUNT, THE FOLLOWING SHALL APPLY:
a.
b.
REDUCTION OF PAYMENTS. THE REDUCTION IN THE PAYMENTS SHALL BE MADE FIRST BY REDUCING AS
APPLICABLE, BUT NOT BELOW ZERO, THE CASH PAYMENTS UNDER SECTIONS 5(C)(I)(B), 5(C)(IV)(A), AND
5(E)(I)(B). IN THE EVENT THAT SUCH PAYMENTS ARE INSTALLMENT PAYMENTS, EACH SUCH
INSTALLMENT PAYMENT SHALL BE REDUCED PRO-RATA. THE CASH PAYMENTS UNDER SECTIONS 5(C)(I)
(C), 5(C)(I)(D), 5(C)(IV)(B), 5(C)(IV)(C), 5(E)(I)(C) AND 5(E)(I)(D) SHALL BE REDUCED NEXT, AS APPLICABLE,
BUT NOT BELOW ZERO. IN THE EVENT THAT FOLLOWING REDUCTION OF THE AMOUNTS SET FORTH IN
THE PRECEDING SENTENCE, ADDITIONAL AMOUNTS PAYABLE TO THE EXECUTIVE MUST BE REDUCED,
ANY PAYMENTS DUE TO THE EXECUTIVE PURSUANT TO THE COMPANY’S EQUITY PLANS SHALL BE
REDUCED ON A PRO-RATA BASIS, BUT NOT BELOW ZERO.
RESTRICTIONS. ONLY AMOUNTS PAYABLE UNDER THIS AGREEMENT SHALL BE REDUCED PURSUANT TO
THIS SECTION 5(E)(III). ANY REDUCTION SHALL BE MADE IN A MANNER CONSISTENT WITH THE
REQUIREMENTS OF SECTION 409A OF THE CODE.
(D)
DEFINITIONS. FOR PURPOSES OF SECTION 5(E)(III), THE FOLLOWING DEFINITIONS SHALL APPLY.
a.
b.
c.
“PAYMENT” SHALL MEAN AN AMOUNT THAT IS RECEIVED BY THE EXECUTIVE OR PAID BY THE
COMPANY ON HIS BEHALF, OR REPRESENTS ANY PROPERTY, OR ANY OTHER BENEFIT PROVIDED TO THE
EXECUTIVE UNDER THIS AGREEMENT OR UNDER ANY OTHER PLAN, ARRANGEMENT OR AGREEMENT
WITH THE COMPANY OR ANY OTHER PERSON, AND SUCH AMOUNT IS TREATED AS CONTINGENT ON A
CHANGE IN CONTROL, AS PROVIDED UNDER SECTION 280G OF THE CODE.
“REDUCED AMOUNT” SHALL MEAN AN AMOUNT, AS DETERMINED UNDER SECTION 280G OF THE CODE,
WHICH DOES NOT CAUSE ANY PAYMENT TO BE SUBJECT TO THE EXCISE TAX.
“EXCISE TAX” SHALL MEAN THE EXCISE TAX IMPOSED UNDER SECTION 4999 OF THE CODE.
(E)
DETERMINATION OF REDUCTION. ALL DETERMINATIONS REQUIRED TO BE MADE UNDER THIS SECTION 5(E)(III)
SHALL BE MADE BY A NATIONALLY RECOGNIZED ACCOUNTING (OR COMPENSATION AND BENEFITS
CONSULTING ) FIRM SELECTED BY THE COMPANY (THE “ACCOUNTING FIRM”) WHICH SHALL PROVIDE DETAILED
SUPPORTING CALCULATIONS BOTH TO THE COMPANY AND THE EXECUTIVE WITHIN TEN (10) BUSINESS DAYS OF
THE CHANGE OF CONTROL. ANY SUCH DETERMINATION BY THE ACCOUNTING FIRM SHALL BE BINDING UPON
THE COMPANY AND THE EXECUTIVE. ALL FEES AND EXPENSES OF THE ACCOUNTING FIRM SHALL BE BORNE
SOLELY BY THE COMPANY.
(f) ADDITIONAL TERMS
BOUND BY A RELEASE OF THE COMPANY IN A
(i) WITHIN FIFTY (50) DAYS FOLLOWING THE TERMINATION DATE, THE EXECUTIVE SHALL EXECUTE AND AGREE TO BE
FORM PREPARED BY THE COMPANY, WHICH WILL INCLUDE, INTER ALIA, THE EXECUTIVE’S GENERAL RELEASE OF KNOWN AND
UNKNOWN CLAIMS, PRIOR TO AND AS A CONDITION OF RECEIVING ANY PAYMENTS OR BENEFITS (OTHER THAN THE ACCRUED
BENEFITS) PURSUANT TO THIS AGREEMENT. IF APPLICABLE, THE RELEASE SHALL CONTAIN PROVISIONS REQUIRED BY FEDERAL, STATE
OR LOCAL LAW (E.G., THE OLDER WORKER’S BENEFIT PROTECTION ACT) TO EFFECTUATE A GENERAL RELEASE OF ALL CLAIMS.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NO PAYMENTS OR CONTINUED BENEFITS ON ACCOUNT OF TERMINATION
OF EMPLOYMENT HEREUNDER (OTHER THAN ANY ACCRUED BENEFITS PAYABLE IN ACCORDANCE WITH THEIR TERMS) SHALL BE MADE
TO THE EXECUTIVE PRIOR TO THE RELEASE EFFECTIVE DATE. IN THE EVENT THAT THE EXECUTIVE DOES NOT EXECUTE THE RELEASE
WITHIN FIFTY (50) DAYS FOLLOWING THE TERMINATION DATE OR THE RELEASE EFFECTIVE DATE DOES NOT OCCUR WITHIN SIXTY (60)
DAYS FOLLOWING THE TERMINATION DATE, THE EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS HEREUNDER
(OTHER THAN THE ACCRUED BENEFITS PAYABLE PURSUANT TO THEIR TERMS); PROVIDED THAT, IF THE EXECUTIVE BECOMES
ENTITLED TO PAYMENTS AND BENEFITS PURSUANT TO SECTION 5(C)(IV), THE EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS
OR BENEFITS HEREUNDER IN THE EVENT THE EXECUTIVE DOES NOT EXECUTE THE RELEASE WITHIN FIFTY (50) DAYS FOLLOWING THE
CHANGE OF CONTROL OR THE RELEASE EFFECTIVE DATE DOES NOT OCCUR WITHIN SIXTY (60) DAYS FOLLOWING THE DATE OF THE
CHANGE OF CONTROL.
(ii) AS CONSIDERATION FOR THE COMPANY’S OFFER OF THIS AGREEMENT TO THE EXECUTIVE AND FOR OTHER GOOD
AND VALUABLE CONSIDERATION, DURING HIS EMPLOYMENT AND UPON TERMINATION OF EMPLOYMENT FOR ANY REASON, THE
EXECUTIVE AGREES TO COMPLY WITH THE RESTRICTIVE COVENANTS CONTAINED IN SECTION 10 OF THIS AGREEMENT. IN ADDITION,
RECEIPT OF THE SEVERANCE PAYMENTS AND BENEFITS SET FORTH IN SECTION 5 IS EXPRESSLY CONDITIONED UPON THE EXECUTIVE’S
CONTINUED COMPLIANCE WITH SECTION 10. IF THE EXECUTIVE IS RECEIVING SEVERANCE PAYMENTS AND/OR BENEFITS UNDER
SECTION 5, AND (A) IF THE EXECUTIVE IS REEMPLOYED BY THE COMPANY (OR ANY SUBSIDIARY, AFFILIATE OR SUCCESSOR) OR
BREACHES THIS AGREEMENT OR THE RELEASE, OR (B) IF THE COMPANY (OR ANY SUBSIDIARY, AFFILIATE OR SUCCESSOR) DISCOVERS
INFORMATION THAT WOULD HAVE PERMITTED THE COMPANY TO TERMINATE THE EXECUTIVE FOR CAUSE OR IF THE COMPANY OR
ANY SUBSIDIARY, AFFILIATE OR SUCCESSOR DISCOVERS A BREACH OF SECTION 10, SEVERANCE PAYMENTS AND BENEFITS SHALL
IMMEDIATELY CEASE WITH RESPECT TO SUCH TERMINATION. IF THE SEVERANCE PAYMENTS AND BENEFITS CEASE BECAUSE OF RE-
EMPLOYMENT AND THE COMPANY HAS PAID SEVERANCE IN A LUMP SUM, THE COMPANY (OR ANY SUBSIDIARY OR SUCCESSOR) SHALL
HAVE THE RIGHT TO REQUIRE THAT THE EXECUTIVE REPAY TO THE APPLICABLE ENTITY THE VALUE OF THE SEVERANCE BENEFITS
THAT WOULD NOT YET HAVE BEEN PAID BEFORE RE-EMPLOYMENT IF HE HAD BEEN RECEIVING THE SEVERANCE IN SEMI-MONTHLY
INSTALLMENTS, AND THE EXECUTIVE SHALL NO LONGER BE ENTITLED TO ANY SEVERANCE PAYMENTS AND BENEFITS WITH RESPECT
TO SUCH TERMINATION. IF SEVERANCE PAYMENTS AND BENEFITS CEASE BECAUSE OF A CAUSE DETERMINATION OR A BREACH OF
SECTION 10, THE COMPANY (OR ANY SUBSIDIARY OR SUCCESSOR) SHALL HAVE THE RIGHT TO REQUIRE THAT THE EXECUTIVE REPAY
TO THE APPLICABLE ENTITY THE FULL VALUE OF ANY PREVIOUSLY RECEIVED SEVERANCE. THE REMEDIES DESCRIBED IN THIS
PARAGRAPH ARE IN ADDITION TO ANY OTHER REMEDIES THAT MAY BE AVAILABLE TO THE COMPANY IN THE EVENT OF THE
OCCURRENCE OF ANY OF THE CIRCUMSTANCES DESCRIBED IN THIS PARAGRAPH.
(iii) UPON TERMINATION OF EMPLOYMENT FOR ANY REASON, THE EXECUTIVE AGREES TO PROMPTLY RETURN ALL
COMPANY PROPERTY THAT HAS COME INTO HIS POSSESSION OR CONTROL, INCLUDING, WITHOUT LIMITATION, COMPUTER EQUIPMENT
(INCLUDING, WITHOUT LIMITATION, COMPUTER HARDWARE, LAPTOP AND OTHER COMPUTERS, SOFTWARE AND PRINTERS, WIRELESS
HANDHELD DEVICES, CELLULAR TELEPHONES, PAGERS, ETC.), CLIENT AND CUSTOMER INFORMATION, CLIENT AND CUSTOMER LISTS,
EMPLOYEE LISTS, COMPANY FILES, NOTES, CONTRACTS, RECORDS, BUSINESS PLANS, FINANCIAL INFORMATION, SPECIFICATIONS,
COMPUTER-RECORDED INFORMATION, TANGIBLE PROPERTY, CREDIT CARDS, ENTRY CARDS, IDENTIFICATION BADGES, KEYS, AND ANY
OTHER MATERIALS OF ANY KIND WHICH CONTAIN OR EMBODY, IN WHOLE OR IN PART, ANY PROPRIETARY OR CONFIDENTIAL
MATERIAL OF THE COMPANY (AND ALL REPRODUCTIONS THEREOF), EXCEPT THAT COMPANY PROPERTY SHALL NOT INCLUDE ITEMS, IF
ANY, LISTED IN A WRITTEN DOCUMENT SIGNED BY THE EXECUTIVE AND THE COMPANY AT OR BEFORE THE TIME OF THE EXECUTIVE’S
TERMINATION FROM EMPLOYMENT AS ITEMS TO BE RETAINED BY THE EXECUTIVE. THE EXECUTIVE FURTHER AGREES THAT HE WILL
LEAVE INTACT ALL ELECTRONIC COMPANY DOCUMENTS, INCLUDING THOSE WHICH THE EXECUTIVE DEVELOPED OR HELPED DEVELOP
DURING HIS EMPLOYMENT, AND THAT HE WILL PROMPTLY CANCEL ALL ACCOUNTS FOR HIS BENEFIT, IF ANY, IN THE COMPANY’S
NAME INCLUDING, WITHOUT LIMITATION, CREDIT CARDS, TELEPHONE CHARGE CARDS, CELLULAR TELEPHONE ACCOUNTS, PAGER
ACCOUNTS, AND COMPUTER ACCOUNTS.
(iv) UPON ANY TERMINATION OF EMPLOYMENT, UPON THE REQUEST OF THE COMPANY, THE EXECUTIVE SHALL RESIGN
IN WRITING, FROM ALL OFFICES, DIRECTORSHIPS AND FIDUCIARY POSITIONS OF THE EXECUTIVE IN WHICH THE EXECUTIVE IS
SERVING.
(v) THE EXECUTIVE AGREES THAT, FOLLOWING HIS TERMINATION DATE, EXCEPT AS SET FORTH HEREIN, HE SHALL
NOT BE ELIGIBLE FOR OR ENTITLED TO ANY OTHER INCENTIVE COMPENSATION AWARD, INCLUDING ANY PRO RATA INCENTIVE
COMPENSATION AWARD, PURSUANT TO THE COMPANY’S AND/OR ITS SUBSIDIARIES’ OR AFFILIATES’ INCENTIVE COMPENSATION
PLANS. THE EXECUTIVE’S AGREEMENT TO THIS PROVISION IS A MATERIAL CONSIDERATION FOR THE COMPANY’S EXECUTING THIS
AGREEMENT.
(g) In the event of the Executive’s termination for death or Disability, the Executive and, to the extent applicable, his legal representatives, executors,
heirs, legatees and beneficiaries shall have no rights under this Agreement, other than the right to Accrued Benefits, and their sole recourse, if any, shall be under
the death or disability provisions of the plans, programs, policies and practices of the Company and/or its subsidiaries and affiliates, as applicable to the Executive.
If the Executive dies prior to payment of all severance benefits to which he is entitled, all Company obligations under the Agreement shall cease except for the
Accrued Benefits (if unpaid at the time of death).
6. TRUSTS
(a) In order to ensure in the event of a Change of Control that timely payment will be made of certain obligations of the Company to the Executive
provided for under this Agreement, the Company shall, immediately prior to or in connection with the consummation of a Change of Control, irrespective of
whether the Change of Control constitutes a “change in ownership or effective control” or a change in the “ownership of a substantial portion of the assets” under
Section 409A of the Code, and the rulings and regulations issued thereunder, pay into one or more trust(s) (the “Trust(s)”) established between the Company and
any financial institution with assets in excess of $100 million selected by the Company prior to the Change of Control, as trustee (the “Trustee”), such amounts and
at such time or times as are required in order to fully pay all cash amounts due the Executive hereunder that are payable or as are otherwise required pursuant to the
terms of the Trust(s), with payment to be made in cash or cash equivalents. Thereafter, all such payments required to be paid hereunder shall be made out of the
Trust(s); provided, however, that the Company shall retain liability for and pay the Executive any amounts or provide for such other benefits due the Executive
under this Agreement for which there are insufficient funds in the Trust(s), for which no funding of the Trust(s) is required or in the event that the Trustee fails to
make such payment to the Executive within the time frames set forth in this Agreement. Prior to the Change of Control, and to the extent necessary because of a
change in the Trustee, after the Change of Control, the Company shall provide the Executive with the name and address of the Trustee. Nothing in this Agreement
shall require the Company to maintain the funding required in this section beyond the second anniversary of a Change of Control unless, before such second
anniversary, the Executive’s employment has terminated in a manner qualifying him for benefits hereunder. The Executive expressly waives any requirement
under this Section 6 or otherwise for the Company to fund the Trust(s) if funding would cause him to be taxed under Section 409A(b) of the Code or any successor
law.
(b) For purposes of this Agreement, the term “the Company and/or the Trustee” means the Trustee to the extent the Company has put funds in the
Trust(s) and the Company to the extent the Company has not funded or fully funded the Trust(s). However, in accordance with subsection (a) above, the Company
shall retain liability for and pay the Executive any amounts or provide for such other benefits due the Executive under this Agreement for which the Trustee fails to
make adequate payment to the Executive within the time frames set forth in this Agreement.
7. INVENTIONS AND IMPROVEMENTS.
The Executive acknowledges that all ideas, discoveries, inventions and improvements which are made, conceived or reduced to practice by the Executive
and every item of knowledge relating to the Company’s business interests (including potential business interests) gained by the Executive during the Employment
Term are the sole and absolute property of the Company, and the Executive shall promptly disclose and hereby irrevocably assigns all his right, title and interest in
and to all such ideas, discoveries, inventions, improvements and knowledge to the Company for its sole use and benefit, without additional compensation, and shall
communicate to the Company, without cost or delay, and without publishing the same, all available information relating thereto. The Executive also hereby waives
all claims to moral rights in any such ideas, discoveries, inventions, improvements and knowledge. The provisions of this Section 7 shall apply whether such ideas,
discoveries, inventions or knowledge are conceived, made, gained or reduced to practice by the Executive alone or with others, whether during or after usual
working hours, whether on or off the job, whether applicable to matters directly or indirectly related to the Company’s business interests (including potential
business interests), and whether or not within the specific realm of the Executive’s duties. Any of the Executive’s ideas, discoveries, inventions and improvements
relating to the Company’s business interests or potential business interests and conceived, made or reduced to practice during the Severance Period shall for the
purpose of this Agreement, be deemed to have been conceived, made or reduced to practice before the end of the Employment Term. The Executive shall, upon
request of the Company, and without further compensation by the Company but at the expense of the Company, at any time during or after his employment with
the Company, sign all instruments and documents requested by the Company and otherwise cooperate with the Company and take any actions which are or may be
necessary to protect the Company’s right to such ideas, discoveries, inventions, improvements and knowledge, including applying for, obtaining and enforcing
patents, copyrights and trademark registrations thereon in any and all countries. To the extent this section shall be construed in accordance with the laws of any
state which precludes a requirement to assign certain classes of inventions made by an employee, this Section shall be interpreted not to apply to any invention
which a court rules and/or the Company agrees falls within such classes.
8. NO ASSIGNMENTS.
This Agreement shall not be assignable by the Executive. This Agreement shall be assignable by the Company only by merger or in connection with the
sale or other disposition of a substantial portion of the assets of the Company. This Agreement shall inure to the benefit and be binding upon the personal or legal
representatives, executors, administrators, successors, heirs, distributees, devisees, legatees and permitted assignees of the parties hereto. The Company shall
require any successor to all or substantially all of the business and/or assets of the Company, whether directly or indirectly, by purchase, merger, consolidation,
acquisition of stock, or otherwise, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place, by a written agreement in form and substance reasonably satisfactory to the Executive, delivered to the
Executive within five (5) business days after such succession. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
9. NOTICE.
All notices and other communications hereunder, shall be in writing and shall be given to the other party by hand delivery, by overnight express mail or
other guaranteed delivery service, or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: at the Executive’s last address appearing in the payroll/personnel records of the Company.
If to the Company:
Ryder System, Inc.
11690 N.W. 105th Street
Miami, Florida 33178-1103
Attention: General Counsel
or to such other address as either party shall have furnished to the other in writing. Notice and communications shall be effective on the earliest of (i)
when actually received by the addressee, (ii) as indicated by an overnight or other receipt, and (iii) the third business day after the notice is dispatched.
10. RESTRICTIVE COVENANTS.
(a) COVENANT OF CONFIDENTIALITY. All documents, records, techniques, business secrets and other information of the Company, its
subsidiaries and affiliates which have or will come into the Executive’s possession from time to time during the Executive’s affiliation with the Company and/or
any of its subsidiaries or affiliates and which the Company treats as confidential and proprietary to the Company and/or any of its subsidiaries or affiliates shall be
deemed as such by the Executive and shall be the sole and exclusive property of the Company, its subsidiaries and affiliates. The Executive agrees that he will keep
confidential and not use or divulge to any other individual or entity any of the Company’s or its subsidiaries’ or affiliates’ confidential information and business
secrets, including, but not limited to, such matters as costs, profits, markets, sales, products, product lines, key personnel, pricing policies, operational methods,
customers, customer requirements, suppliers, plans for future developments, and other business affairs and methods and other information not readily available to
the public. Additionally, the Executive agrees that upon his termination of employment, irrespective of the reason for such termination, he shall promptly return to
the Company all confidential and proprietary information of the Company and/or its subsidiaries or affiliates that is in his possession.
The Executive agrees that the terms and provisions of this Agreement, as well as any and all incidents leading to or resulting from this Agreement, are
confidential and may not be discussed with anyone other than his spouse, domestic partner, attorney or tax advisor without the prior written consent of the Board,
except as required by law. In the event that the Executive is subpoenaed, or asked to provide confidential information or to testify as a witness or to produce
documents in any existing or potential legal or administrative or other proceeding or investigation formal or informal related to the Company, to the extent
permitted by applicable law, the Executive will promptly notify the Company of such subpoena or request and will, if requested, meet with the Company for a
reasonable period of time prior to any such appearance or production.
(b) COVENANT AGAINST COMPETITION. During the Executive’s employment with the Company or any subsidiary or affiliate, and thereafter
during the longer of: (i) the Severance Period, if any, or (ii) twelve (12) months following the Executive’s Termination Date (irrespective of the reason for the
Executive’s termination and without any reduction or modification), the Executive shall not, without the prior written consent of the Board directly or indirectly
engage or become a partner, director, officer, principal, employee, consultant, investor, creditor or stockholder in/for any business, proprietorship, association, firm
or corporation not owned or controlled by the Company or its subsidiaries or affiliates which is engaged or proposes to engage or hereafter engages in a business
competitive directly or indirectly with the business conducted by the Company or any of its subsidiaries or affiliates in any geographic area in which the Company
is or was engaged in or actively planning to engage in business as of the Executive’s Termination Date or during the previous twelve (12) month period; provided,
however, that the Executive is not prohibited from owning one percent (1%) or less of the outstanding capital stock of any corporation whose stock is listed on a
national securities exchange.
(c) COVENANT OF NON-SOLICITATION. During the Executive’s employment with the Company or any subsidiary or affiliate, and thereafter
during the longer of (i) the Severance Period, if any, or (ii) twelve (12) months following the Executive’s Termination Date (irrespective of the reason for the
Executive’s termination and without any reduction or modification), the Executive shall not, directly or indirectly, in any manner or capacity whatsoever, either on
the Executive’s own account or for any person, firm or company:
(i) TAKE AWAY, INTERFERE WITH RELATIONS WITH, DIVERT OR ATTEMPT TO DIVERT FROM THE COMPANY ANY
BUSINESS WITH ANY CUSTOMER OR ACCOUNT: (X) THAT WAS A CUSTOMER OR ACCOUNT ON THE LAST DAY OF THE EMPLOYMENT
TERM AND/OR HAS BEEN SOLICITED OR SERVICED BY THE COMPANY WITHIN ONE (1) YEAR PRIOR TO THE LAST DAY OF THE
EMPLOYMENT TERM; AND (Y) WITH WHICH THE EXECUTIVE HAD ANY CONTACT OR ASSOCIATION, OR THAT WAS UNDER THE
SUPERVISION OF THE EXECUTIVE, OR THE IDENTITY OF WHICH WAS LEARNED BY THE EXECUTIVE, AS A RESULT OF THE EXECUTIVE’S
EMPLOYMENT WITH THE COMPANY, OR
(ii) SOLICIT, INTERFERE WITH OR INDUCE, OR ATTEMPT TO INDUCE, ANY EMPLOYEE OR INDEPENDENT CONTRACTOR
OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR AFFILIATES TO LEAVE HIS EMPLOYMENT OR SERVICE WITH THE COMPANY OR TO
BREACH HIS EMPLOYMENT AGREEMENT OR OTHER AGREEMENT, IF ANY.
(d) COVENANT OF NON-DISPARAGEMENT AND COOPERATION. The Executive agrees not to make any remarks disparaging the conduct or
character of the Company or any of its subsidiaries or affiliates, their current or former agents, employees, officers, directors, successors or assigns (“Ryder
Parties”), except as may be necessary in the performance of his duties or as is otherwise required by law. The Executive agrees to cooperate with the Company in
the investigation, defense or prosecution of any claims or actions now in existence or that may be brought in the future against or on behalf of the Company. Such
cooperation shall include meeting with representatives of the Company upon reasonable notice at reasonable times and locations to prepare for discovery or any
mediation, arbitration, trial, administrative hearing or other proceeding or to act as a witness. The Company shall reimburse the Executive for travel expenses
approved by the Company or its subsidiaries or affiliates incurred in providing such assistance. The Executive shall notify the Company if the Executive is asked to
assist, testify or provide information by or to any person, entity or agency in any such proceeding or investigation. Nothing in this provision is intended to or
should be construed to prevent the Executive from providing truthful information to any person or entity as required by law or his fiduciary obligations.
(e) REPORTS TO GOVERNMENT ENTITIES. Nothing in this Agreement or any other agreement with, or plan or policy of, the Company restricts the
Executive from providing truthful information to a self-regulatory authority or a government agency or entity, including the U.S. Equal Employment Opportunity
Commission, the Department of Labor, the National Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, Congress and
any agency Inspector General (collectively, the "Regulators"), including in connection with initiating communications directly with, responding to any inquiries
from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting
with an investigation directly with a Regulator or making other disclosures that are protected under the whistleblower provisions of state or federal law or
regulation. The Executive does not need the prior authorization of the Company to engage in such communications with the Regulators, respond to such inquiries
from the Regulators, provide such confidential information or documents to the Regulators, or make any such reports or disclosures to the Regulators and is not
required to notify the Company that Employee has engaged in such communications with the Regulators.
(f) SPECIFIC REMEDY. The Executive acknowledges and agrees that if the Executive commits a material breach of the Covenant of Confidentiality
or, if applicable, the Covenant Against Competition, the Covenant of Non-Solicitation, or the Covenant of Non-Disparagement and Cooperation, the Company
shall have the right to have the covenant specifically enforced through an injunction or otherwise, without any obligation that the Company post a bond or prove
actual damages, by any court having appropriate jurisdiction on the grounds that any such breach will cause irreparable injury to the Company, without prejudice to
any other rights and remedies that
Company may have for a breach of this Agreement, and that money damages will not provide an adequate remedy to the Company. The Executive further
acknowledges and agrees that the Covenant of Confidentiality, the Covenant Against Competition, the Covenant of Non-Solicitation, and the Covenant of Non-
Disparagement and Cooperation contained in this Agreement are intended to protect the Company’s business interests and goodwill, are fair, do not unreasonably
restrict his future employment and business opportunities, and are commensurate with the arrangements set out in this Agreement and with the other terms and
conditions of the Executive’s employment. In addition, in executing this Agreement, the Executive makes an election to receive severance pay and benefits
pursuant to Section 5 and is subject to the covenants above, therefore, the Executive shall have no right to return any amounts or benefits that are already paid or to
refuse to accept any amounts or benefits that are payable in the future in lieu of his specific performance of his obligations under the covenants above.
(g) SURVIVAL OF PROVISIONS. The obligations contained in this Section 10 shall survive the termination or expiration of the Executive’s
employment with the Company for any reason (including Section 5(d) hereof) and shall be fully enforceable thereafter. If it is determined by a court of competent
jurisdiction that any restriction in this Section 10 is excessive in duration or scope or extends for too long a period of time or over too great a range of activities or
in too broad a geographic area or is unreasonable or unenforceable under the laws of the State of Florida, it is the intention of the parties that such restriction may
be modified or amended by the court to render it enforceable to the maximum extent permitted by the laws of the State of Florida.
11. NO MITIGATION/NO OFFSET.
In the event of any termination of employment under this Agreement, the Executive shall be under no obligation to seek other employment and there shall
be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the
Executive may obtain. The amounts payable hereunder shall not be subject to setoff, counterclaim, recoupment, defense or other rights which the Company may
have against the Executive or others, except as specifically set forth in Sections 5(c)(i)(E), 5(c)(iv)(D), 5(e)(i)(E), 5(f), 10, and 15, or upon obtaining by the
Company of a final unappealable judgment against the Executive, in each case to the extent permitted by Section 409A of the Code.
12. ATTORNEY’S FEES.
To the fullest extent permitted by law, the Company shall promptly pay, upon submission of statements, one-half of all legal and other professional fees,
costs of litigation, prejudgment interest, and other expenses in excess of $10,000 in the aggregate incurred in connection with any dispute concerning payments,
benefits and other entitlements which the Executive may have under Section 5(c) or 5(e), up to an amount not exceeding $15,000 in the aggregate from the
Company; provided, however, the Company shall be reimbursed by the Executive (i) for the fees and expenses advanced in the event the Executive’s claim is, in a
material manner, in bad faith or frivolous and the court determines that the reimbursement of such fees and expenses is appropriate, or (ii) to the extent that the
court determines that such legal and other professional fees are clearly and demonstrably unreasonable. Any payments made pursuant to this Section 12 shall be
limited to expenses incurred on or prior to December 31 of the second calendar year following the calendar year in which the Termination Date occurs, and any
payments by the Company made pursuant to this Section 12 shall be made on or prior to December 31 of the third calendar year following the calendar year in
which the Termination Date occurs.
13. LIABILITY INSURANCE.
The Company shall cover the Executive under directors and officers liability insurance in the same amount and to the same extent, if any, as the Company
covers its other officers and directors.
14. WITHHOLDING.
The Company shall withhold from any and all amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld
pursuant to any applicable law or regulation.
15. SECTION 409A OF THE CODE
(a) CONSTRUCTION AND INTERPRETATION. This Agreement shall be construed and interpreted in a manner so as not to trigger adverse tax
consequences under Section 409A of the Code and the rulings and regulations issued thereunder. The Company may amend this Agreement in any manner
necessary to comply with Section 409A of the Code or any successor law, without the consent of the Executive. Furthermore, to the extent necessary to comply
with Section 409A of the Code, the payment terms for any of the payments or benefits payable hereunder may be delayed without the Executive’s consent to
comply with Section 409A of the Code.
(b) SEPARATION FROM SERVICE REQUIREMENTS. Notwithstanding anything herein to the contrary, the Executive shall not be entitled to any
payments or benefits pursuant to this Agreement in the event that his termination of employment does not constitute a “separation from service” as defined by
Section 409A of the Code and the regulations issued thereunder. For purposes of determining whether a “separation from service”, as defined by Section 409A of
the Code, has occurred, pursuant to Treas. Reg. §1.409A-1(h)(3), the Company has elected to use “at least 80 percent” each place it appears in Sections 1563(a)(1),
(2), and (3) of the Code and in Treas. Reg. §1.414(c)-2.
(c) DELAYED COMMENCEMENT OF BENEFITS. If the Executive is a Specified Employee at the time of his Termination Date, and the deferral of
the commencement of any payments or benefits otherwise payable hereunder is necessary in order to prevent any accelerated or additional tax under Section 409A
of the Code, then, to the extent permitted by Section 409A of the Code, the Company will defer the commencement of the payment of any such payments or
benefits hereunder until the first day following the six (6) month anniversary of the Termination Date (or the earliest date as is permitted under Section 409A of the
Code). If any payments or benefits are deferred due to such requirements, (whether they would have otherwise been payable in a single sum or in installments in
the absence of such deferral) they shall be paid or reimbursed to the Executive in a lump sum on the first day following the six (6) month anniversary of the
Termination Date, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates
specified for them herein.
(d) PAYMENTS AND REIMBURSEMENTS. Except as otherwise provided herein, any reimbursements or in-kind benefits provided under this
Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (i) any
reimbursement is for expenses incurred during the period of time specified in this Agreement (or, if no such period is specified, the Executive’s lifetime), (ii) the
amount of expenses eligible for reimbursement, or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in
kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year
following the year in which the expense is incurred, and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another
benefit. In addition, for purposes of the limitations on nonqualified deferred compensation under Section 409A, each payment of compensation under this
Agreement shall be treated as a separate payment of compensation for purposes of applying the Section 409A deferral election rules and the exclusion from Section
409A for certain short-term deferral amounts and separation pay. Notwithstanding any other provision set forth herein, any payments which are intended to
constitute separation pay due to an involuntary separation from service in accordance with Treas. Reg. §1.409A-1(b)(9)(iii) shall be paid no later than the last day
of the second calendar year following the calendar year in which the Termination Date occurs.
(e) COMPANY ENTITY. For purposes of this Agreement, Company Entity means any member of a controlled group of corporations or a group of
trades or businesses under common control of which the Company is a member; for purposes of this Section 15(e), a “controlled group of corporations” means a
controlled group of corporations as defined in Section 414(b) of the Code and a “group of trades or businesses under common control” means a group of trades or
businesses under common control as defined in Section 414(c) of the Code, without any modifications.
16. SECTION HEADINGS.
The Section headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of
this Agreement.
17. EFFECTIVE DATE; ENTIRE AGREEMENT; TERM.
(a) If, as the of the Execution Date, the Executive has been continuously employed with the Company or any of its subsidiaries or affiliates for a period
of at least one (1) year, the Effective Date of this Agreement shall be the Execution Date. If, as of the Execution Date, the Executive has not been continuously
employed with the Company or any of its subsidiaries or affiliates, for a period of at least one (1) year, the Effective Date of this Agreement shall be the one year
anniversary of the Executive's continuous employment with the company and/or its subsidiaries or affiliates.
(b) Except as the parties may evidence on a Schedule A to be attached to this Agreement and signed by the Executive and the Company after the date
this Agreement is executed, from and after the Effective Date, this Agreement contains the entire understanding and agreement between the parties concerning the
subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, with respect thereto
including, without limitation, any offer letters or employment agreements, or severance or change in control agreements, policies, plans or practices, and any
nondisclosure, nonsolicitation, inventions and/or noncompetition agreements between the parties; provided, however, that any rights to indemnification, all stock
options or other equity granted to the Executive prior to the Effective Date, and all agreements relating thereto shall remain in full force and effect in accordance
with their terms except as otherwise modified herein.
(c) This Agreement shall continue in full force and effect for the duration of the Executive’s employment with the Company; provided, however, that
the Company may amend this Agreement (A) upon ninety (90) days notice to Executive solely to: (i) comply with any law, rule, statute, regulation, order, consent
decree or other legal restriction or requirement enacted or imposed by any governmental entity (including any relevant court or tribunal); or (ii) avoid any tax or
legal consequences negatively impacting the company resulting from the provisions of the Agreement; or (B) upon one (1) years notice to Executive to conform to
governance practice(s) that may become prevalent and widely accepted in the future by public companies similar in profile to the Company. Notwithstanding the
foregoing, the Company may not amend this Agreement (i) before the date that is two (2) years beyond the month in which a Change of Control occurs; or (ii)
anytime after a Termination Date has occurred. The Company’s amendment of this Agreement in accordance with the above provisions shall not be considered a
termination of Executive’s employment under this Agreement and shall not give Executive grounds to terminate employment for Good Reason under this
Agreement
18. CHOICE OF LAW; JURISDICTION; JURY TRIAL WAIVER.
The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Florida without regard to its
conflicts of law principles. The parties agree that any suit, action or other legal proceeding that is commenced to resolve any matter arising under or relating to any
provision of this Agreement shall be commenced only in a court of the State of Florida (or, if appropriate, a federal court located within the State of Florida), in
either case located in Miami, Florida, and the parties consent to the jurisdiction of such court. The parties hereto accept the exclusive jurisdiction and venue of
those courts for the purpose of any such suit, action or proceeding. The Company and the Executive each hereby irrevocably waive any right to a trial by jury in
any action, suit or other legal proceeding arising under or relating to any provision of this Agreement.
19. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
20. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and
the same instruments.
21. MISCELLANEOUS.
From and after the execution of this Agreement, no provision of this Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the Executive and the Chair of the Compensation Committee of the Board, except as provided in Section 15
above regarding Section 409A of the Code. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.
22. GENDER.
All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural as the identity of the person or persons may require.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company has caused these presents to be executed in its name on its behalf,
and its corporate seal to be hereunto affixed and attested by its assistant secretary, all as of the day and year first above written.
________________________________ ________________________
Executive Witness
______________________
SAP Number
ATTEST: RYDER SYSTEM, INC.
(the “Company”)
________________________
Asst. Secretary
(Seal) By: _______________________
EXHIBIT 10.1 (b)
EXECUTIVE SEVERANCE PLAN
Effective as of January 1, 2007
Amended and Restated Effective as of January 1, 2013
Amended and Restated Effective as of January 1, 2017
PREAMBLE
Ryder System, Inc. (the “ Company ”) adopted the Ryder System, Inc. Executive Severance Plan (the “ Plan ”) to set forth its severance pay
policy as it applies to Eligible Employees (as defined below) of the Company and all of its subsidiaries and affiliates effective as of January 1, 2007 for employees
elected and promoted to or employed as an officer on or after January 1, 2007, and January 31, 2008 for employees who were already serving as officers on or
before December 31, 2006 (each shall be considered an “ Effective Date ”), unless otherwise prohibited by law. The Plan was amended and restated effective
January 1, 2009 to ensure compliance with Section 409A of the Code (as defined below) and the regulations and guidance promulgated thereunder. The Company
hereby amends and restates the Plan effective January 1, 2013 to ensure that certain payments to “Covered Employees” as that term is defined in Section 162(m) of
the Code, qualify as “performance-based compensation” for purposes of Section 162(m) of the Code. The Company hereby amends and restates the Plan effective
January 1, 2017 to ensure compliance with Section 21F of the Code. As used herein, the masculine pronoun shall include the feminine, and the singular shall
include the plural, unless a contrary meaning is clearly intended.
The Plan is intended to fall within the definition of a top hat “employee welfare benefit plan” under Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended (“ ERISA ”). This document is intended to serve as the Plan document and the summary plan description of the Plan.
This document supersedes and replaces any prior plan, summary plan descriptions, agreements (whether oral or written), summaries, policies, publications, memos
or notices regarding the Plan and any other severance, termination, or separation benefits (including such benefits payable after a Change of Control (as defined
below)) for Eligible Employees.
All rights of Participants (as defined below) to benefits relating to this Plan shall be governed by the Plan and the executed agreement and
general release executed by the Company and the Participant in connection with a Participant’s termination of employment. Any employee who participates in this
Plan shall not be entitled to any severance, separation, notice, or termination benefits under any other severance or change of control policy, plan, agreement or
practice of (i) the Company (including any previously executed severance, employment or change of control severance agreements); (ii) any predecessor
agreement; or (iii) any respective subsidiary or affiliate thereof, or pursuant to which the Company is bound or obligated to provide such benefits. Except as set
forth in this Plan, all such other severance (whether voluntary or involuntary) or change of control policies, plans, agreements and practices of the Company or any
of its subsidiaries or affiliates in effect for Eligible Employees prior to the applicable Effective Date of this Plan shall be deemed amended and superseded in their
entirety by this Plan to the extent that they would provide benefits to Participants upon their termination of employment.
In the event that the terms of the Plan are inconsistent with other documents or other written or verbal communications provided by the
Company or its representatives with respect to this severance program, the terms of the Plan shall govern. The Plan may not be amended or changed except in
accordance with the provisions set forth below.
Section 1
Definitions
Capitalized terms used in the Plan and not elsewhere defined herein shall have the meanings set forth in this Section:
1.1 “ Accrued Benefits ” means (i) earned but unpaid base salary accrued through the Termination Date and any accrued but unpaid vacation
time to the extent carried to the Termination Date under Company policy; (ii) unreimbursed expenses incurred in accordance with applicable Company policy
through the Termination Date; (iii) unpaid amounts under the terms of any incentive plan in which the Participant participates as of the Termination Date, if and to
the extent that the Participant is entitled under the terms of any such plan to receive a payment as of the Termination Date; and (iv) all other payments, benefits or
perquisites to which the Participant may be entitled through the Termination Date, subject to and in accordance with, the terms of any applicable compensation
arrangement or benefit, or any equity or perquisite arrangement, plan, program or grant.
1.2 “ Base Salary ” means the Participant’s annual base salary in effect on the Termination Date, or, on or before the second anniversary of a Change of
Control, and if higher, the highest annual base salary in effect during the six (6) month period immediately preceding the Change of Control. Base Salary for this
purpose shall not include or reflect bonuses, overtime pay, compensatory time-off, commissions, incentive or deferred compensation, employer contributions
towards employee benefits, cost of living adjustment, or any other additional compensation, and shall not be reduced by any contributions made on the
Participant’s behalf to any plan of the Company under Section 125, 132, 401(k), or any other analogous section of the Code.
1.3 “ Benefits Continuation Period ” means the period for each applicable benefit beginning on the Termination Date and ending on the earliest
of (i) the day on which the Participant is eligible to receive coverage for such benefit from a new employer; (ii) the date the Participant cancels his COBRA
continuation coverage in accordance with the terms of the relevant plan(s); or (iii) the last day of the Participant’s Severance Period.
1.4 “ Cause ” means: (i) fraud, misappropriation, or embezzlement by the Participant against the Company or any of its subsidiaries and/or
affiliates, (ii) conviction of or plea of guilty or nolo contendere to a felony, (iii) conviction of or plea of guilty or nolo contendere to a misdemeanor involving
moral turpitude or dishonesty, (iv) willful failure to report to work for more than thirty (30) continuous days not attributable to eligible vacation or supported by a
licensed physician’s statement, (v) a material breach by the Participant of Section 9 of this Plan (Restrictive Covenants), (vi) willful failure to perform the
Participant’s key job duties or responsibilities, or (vii) any other activity which would constitute grounds for termination for cause by the Company or its
subsidiaries or affiliates, including but not limited to material violations of the Company’s Principles of Business Conduct or any analogous code of ethics or
similar policy. Notwithstanding the foregoing, if a Change of Control has occurred within one year preceding a Cause determination, “Cause” shall not include
subsections (vi) or (vii) of the preceding sentence, provided that subsections (vi) and (vii) shall continue to apply to any terminations that are deemed to have
retroactively occurred pursuant to Section 5.3(b). For the purposes of this Section 1.4, any good faith interpretation by the Company of the foregoing definition of
“Cause” shall be conclusive on the Participant. For purposes of the Plan “Cause” shall be determined by such Participant’s direct supervisor and the Chief Human
Resources Officer (“ CHRO ”). In the event that a Participant is a direct report to the CHRO, then the decision shall be made by the CHRO and the Chief Financial
Officer.
1.5 “ Change of Control ” Except as provided below, for the purpose of this Plan, a “Change of Control” shall be deemed to have occurred if:
(a) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the “ 1934 Act ”)) (a “ Person ”) becomes the beneficial owner, directly or indirectly, of thirty percent (30%) or more of the combined voting
power of the Company’s outstanding voting securities ordinarily having the right to vote for the election of directors of the Company; provided, however,
that for purposes of this subparagraph (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit
plan or plans (or related trust) of the Company and its subsidiaries and affiliates or (ii) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subparagraph (c) of this Section 1.5; or
(b) the individuals who, as of January 1, 2007 , constituted the Board of Directors of the Company (the “ Board ” generally
and as of January 1, 2007, the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming
a director subsequent to January 1, 2007 whose election, or nomination for election, was approved by a vote of the persons comprising at least a majority
of the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or
threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the 1934 Act (as in effect on January 23, 2000)),
shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board; or
(c) there is a reorganization, merger or consolidation of the Company (a “ Business Combination ”), in each case, unless,
following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the
Company’s outstanding common stock and outstanding voting securities ordinarily having the right to vote for the election of directors of the Company
immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then
outstanding shares of common stock and the combined voting power of the then outstanding voting securities ordinarily having the right to vote for the
election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Company’s outstanding common stock and
outstanding voting securities ordinarily having the right to vote for the election of directors of the Company, as the case
may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan or plans (or related trust) of
the Company or such corporation resulting from such Business Combination and their subsidiaries and affiliates) beneficially owns, directly or indirectly,
30% or more of the combined voting power of the then outstanding voting securities of the corporation resulting from such Business Combination and
(iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(d) there is a liquidation or dissolution of the Company approved by the shareholders; or
(e) there is a sale of all or substantially all of the assets of the Company.
Notwithstanding anything in this Section 1.5 to the contrary, for purposes of Sections 5.3(a), a Change of Control shall only be deemed to occur
if such transactions or events would give rise to a “change in ownership or effective control” or a change in the “ownership of a substantial portion of the assets”
under Section 409A of the Code, and the rulings and regulations issued thereunder.
Participant for Good Reason, either of which occurs within twelve (12) months after a Change of Control.
1.6 “ Change of Control Termination ” means (i) an Involuntary Termination or (ii) a termination of the Participant’s employment by the
1.7 “ Code ” means the Internal Revenue Code of 1986, as amended, supplemented or substituted from time to time.
1.8 “ Committee ” means the Compensation Committee of the Company’s Board of Directors.
1.9 “ Company Entity ” has the meaning set forth in Section 13.7(e).
1.10 “ Disability ” means (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; (ii) the
Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and
health plan of the Company; or (iii) a determination by the Social Security Administration that a Participant is totally disabled.
1.11 “ Eligible Employees ” means (i) all active officers of the Company employed or residing in the United States in a management level 14
or above (or other classification designating officer status, as those classifications may change from time to time), and (ii) who have not entered into any
agreements or arrangements providing severance or change of control benefits with the Company.
1.12 “ Equity Compensation Opportunities ” means the Participant’s ability to obtain equity in the Company (or a comparable cash-based
incentive program) through a compensatory arrangement. Equity Compensation Opportunities are measured using the valuation method applied by the Company
for financial accounting purposes and the Board may take into account in determining that no reduction has occurred any exercises, cashing out, or other liquidity
in favor of the Participant that is either triggered by the Participant or occurring in connection with a Change of Control. Changes in the underlying value of the
stock shall not be treated as a reduction in the Equity Compensation Opportunities, and the Company may take into account in replacing the value of pre-Change of
Control equity compensation with post-Change of Control equity compensation (or a comparable cash-based incentive program) that the Participant may have
received value for his equity compensation in the Change of Control.
1.13 “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, supplemented or substituted from time to time.
1.14 “ Good Reason ” only applies within one (1) year following a Change of Control, except as otherwise provided in Section 5.3(c), and only
occurs when, without the Participant’s consent, the Company: (i) requires the Participant to be based or to perform services at any site or location more than fifty
(50) miles from the site or location at which the Participant is based at the time of the Change of Control, except for travel reasonably required in the performance
of the Participant’s responsibilities (which does not materially exceed the level of travel required of the Participant in the six (6) month period
immediately preceding the Change of Control), or (ii) materially reduces the aggregate value of the compensation (which includes the Participant’s base salary,
target bonus opportunity under the Company’s annual bonus plan or program, Equity Compensation Opportunities and cash perquisites), payable to the Participant,
or (iii) materially and adversely changes the Participant’s duties and responsibilities. For the avoidance of doubt, a change in reporting relationship or title shall not
constitute “Good Reason.” A Participant’s termination of employment shall only constitute a termination for Good Reason if the Participant terminates
employment on or prior to the first anniversary of the date on which the circumstances providing a basis for such termination initially occurred. In addition, the
Participant’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance surrounding Good Reason until ninety
(90) days have elapsed since the occurrence of the circumstance he would assert constitutes Good Reason and the Participant has not provided notice in accordance
with Section 1.16 prior to the end of such ninety (90) day period.
Disability or Cause; provided, however, that an Involuntary Termination of a Participant’s employment shall not occur if:
1.15 “ Involuntary Termination ” means the termination of a Participant’s employment by the Company for any reason other than death,
(a) the termination of the Participant’s employment is due to the transfer of the Participant’s employment between the Company and a
Company Entity, or among the Company and one or more Company Entities;
(b) the termination results from the sale or transfer of all or any portion of the operations of the Company or any of its subsidiaries and
affiliates (the “ Disposed Business ”) (by means of a stock or asset disposition, or other similar transaction) which sale or transfer does not constitute a
Change of Control, and either (i) the Participant’s employment is transferred to the purchaser or transferee of the Disposed Business or (ii) the Participant
terminates his employment with the Company or any of its subsidiaries or affiliates notwithstanding that the Participant received an offer of employment
from either the purchaser or transferee of the Disposed Business or the Company or any of its subsidiaries and affiliates, as determined by the Company in
its sole discretion; or
(c) the termination follows a Change of Control and either (i) the Participant’s employment is transferred to the purchaser or transferee of the
Disposed Business and the obligations of this Plan are assumed by the purchaser or transferee or (ii) the Participant terminates his employment with the
Company or any of its subsidiaries or affiliates or does not accept an offer of employment from a purchaser or transferee notwithstanding that the
Participant received an offer of employment from either the purchaser or transferee of the Disposed Business or the Company or any of its subsidiaries
and affiliates which offer included a continuation of the obligations of this Plan, as determined by the Company in its sole discretion.
In no event shall an “Involuntary Termination” occur if the Participant terminates his employment with the Company or any of its subsidiaries or affiliates for any
reason. In the event of the occurrence of any of the events set forth in subsection (b) and (c) above, the Company’s obligations under this Plan shall terminate
immediately and the Participant shall not be entitled to any amounts or benefits hereunder but shall still be required to comply with Section 9 hereof. This Plan
shall, however, continue in effect if the Participant’s employment is transferred between or among the Company and Company Entities, as contemplated in
subsection (a) above.
1.16 “ Notice of Termination ” means written notice (i) specifying the effective date of the Participant’s termination (which shall not be less
than thirty (30) days after the date of such notice in the case of a termination on account of Disability or the Participant’s voluntary termination other than for Good
Reason); (ii) solely with respect to the Participant terminating for Good Reason, citing the specific provisions of this Plan and the facts and circumstances, in
reasonable detail, providing a basis for such termination, provided that if the basis for such Good Reason is capable of being cured by the Company, the Participant
will provide the Company with an opportunity to cure the Good Reason within thirty (30) calendar days after receipt of such notice, and (iii) solely with respect to
the Company terminating the Participant’s employment on account of Disability, its intent to terminate his employment on account of Disability.
1.17 “ Participant ” means an Eligible Employee who has satisfied the conditions for participation set forth in Section 2.
1.18 “ Plan ” means this Ryder System, Inc. Executive Severance Plan.
1.19 “ Plan Administrator ” shall mean the Company’s Chief Human Resources Officer or his designate.
that is executed by the Participant and the Company in connection with the termination of the
1.20 “ Release ” means a severance agreement and general release in such form as the Company, in its sole discretion, determines appropriate
Participant’s employment with the Company or any of its subsidiaries and affiliates. If the Participant is subject to the Older Workers Benefit Protection Act (“
OWBPA ”), the Release shall be revocable until the end of the seventh (7 th ) calendar day after Participant executes the Release
1.21 “ Release Effective Date ” means, if the Participant is covered by the OWBPA on his Termination Date, the later of: (i) the eighth (8th)
calendar day after the execution of the Release, provided that the Participant has not revoked the Release prior to such date, or (ii) the Termination Date. If the
Participant is not covered by the OWBPA on his Termination Date, the Release Effective Date means the later of: (i) the date on which the Release is executed by
the Participant, or (ii) the Termination Date.
or (ii) eighteen (18) months following the Termination Date if in connection with a Change of Control Termination.
1.22 “ Severance Period ” means: (i) one (1) year following the Termination Date if not in connection with a Change of Control Termination,
adopted by the Company and shall generally include any Participant who is an officer of the Company.
1.23 “ Specified Employee ” means a Participant who is deemed to be a “specified employee” in accordance with the policies and procedures
under the Company’s annual incentive compensation plan or awards for the year in which the Termination Date occurs.
1.24 “ Target Bonus ” means the Participant’s stated target annual incentive award opportunity which the Participant is eligible to receive
1.25 “ Termination Date ” means the effective date of the termination of the Participant’s employment with the Company.
1.26 “ Trustee ” has the meaning set forth in Section 8.
Section 2
Participation
Company provided, however, that any:
An Eligible Employee shall participate in the Plan after the completion of twelve (12) consecutive months of continuous employment with the
(a) employee of the Company who is not an Eligible Employee as of the Effective Date of the Plan shall become a Participant only if,
upon becoming an Eligible Employee, he executes an acknowledgement form (the “ Form ”) agreeing to abide by the terms of this Plan within sixty (60)
days after being presented with such Form by the Company; and
(b) Eligible Employee who as of the Effective Date of the Plan is subject to an agreement with the Company providing for severance,
separation, notice or termination benefits, whether oral or written, (including such benefits payable after a Change of Control) shall become a Participant
only if he executes the Form within sixty (60) days after being presented with such Form by the Company.
Section 3
Notice of Termination
required in Section 1.16.
Any termination of employment shall be communicated by a Notice of Termination to the other party. No notice period is required other than as
Section 4
Conditions and Eligibility for Severance Benefits
entitled to the severance benefits described herein only upon satisfaction of all the following conditions (and all other applicable conditions contained herein):
4.1 Conditions for Eligibility . Subject to the conditions and limitations of this Section 4 and elsewhere in the Plan, a Participant shall be
(a) he suffers an Involuntary Termination, a Change of Control Termination, or a termination pursuant to Section 5.3(c) herein;
Release becomes effective so that the Participant no longer has any right to revoke such Release within sixty (60) days of the Termination Date;
(b) he timely executes without modification and in its entirety a Release within fifty (50) days of the Termination Date, and such
offices, directorships and fiduciary positions in which the Participant was serving;
(c) if requested by the Company or any subsidiary or affiliate, he delivers a resignation letter, acceptable to the Company, from all
control; and
(d) he returns to the Company any property of the Company or its subsidiaries or affiliates which has come into his possession or
(e) he remains actively at work through the date of termination designated in the Notice of Termination, unless the Company agrees
in writing to release the Participant from employment earlier than such date of termination, or in the case of a resignation as of a future date, the Company
chooses unilaterally to shorten the period before the resignation’s effective date.
4.2 Exclusions . Each Participant shall cease to be entitled to severance benefits, upon the earliest to occur of the following:
(a) the end of the Severance Period;
not limited to, the Form referenced in Section 2 or the refusal to execute the Form;
(b) his breach of any provision of the Release, the Plan or any other Company agreement executed by the Participant including, but
(c) the revocation, invalidity, unenforceability, or untimely execution of the Release;
(d) his reemployment by the Company, or any of its subsidiaries or affiliates;
of the Benefits Continuation Period; and/or
(e) solely with respect to the reimbursement for the continuation of benefits described in Section 5.1(d), 5.3(c)(iv) or 6.1(e), the end
(f) termination pursuant to the last sentence in Sections 5.1(d), 5.3(c)(iv) or 6.1(e).
4.3 Early Termination of Payments .
(a) If a Participant dies prior to payment of all severance benefits to which he is entitled, all Company obligations under the Plan shall
cease except that the Accrued Benefits (if unpaid at the time of death) shall be paid to the Participant’s surviving spouse or, if no spouse survives, to the
Participant’s estate.
(b) If the Participant is receiving severance benefits under Sections 5 or 6, and (A) if the Participant is reemployed by the Company
(or any subsidiary, affiliate or successor) or breaches the Plan’s terms or the Release, or (B) if the Company (or any subsidiary, affiliate or successor)
discovers information that would have permitted the Company to terminate the Participant for Cause or if the Company or any subsidiary, affiliate or
successor discovers a breach of Section 9, payment of severance benefits shall immediately cease, and the Participant shall no longer be entitled to any
severance benefits with respect to such t
ermination. If severance benefits cease because of re-employment and the Company has paid severance in a lump
sum, the Company (or any subsidiary or successor) shall have the right to require that the Participant repay to the applicable entity the value of the
severance benefits that would not yet have been paid before re-employment if he had been receiving the severance in semi-monthly installments, and the
Participant shall no longer be entitled to any severance benefits with respect to such termination. If the severance ceases because of a Cause determination
or a breach of Section 9, the Company (or any subsidiary or successor) shall have the right to require that the Participant repay to the applicable entity the
full value of any previously received severance. The remedies described in this paragraph are in addition to any other remedies that may be available to
the Company in the event of the occurrence of any of the circumstances described in this paragraph.
Section 5
Severance Benefits Other than as a Result of a Change of Control
the other terms and conditions of the Plan, he shall be eligible to receive:
5.1 Benefits . If a Participant experiences an Involuntary Termination other than as a result of a Change of Control and complies with all of
other date as their terms require;
(a) the Accrued Benefits, payable in a lump sum as soon as administratively feasible following the Release Effective Date, or such
(b) continuation of the Participant’s Base Salary for the Severance Period payable in installments in accordance with the Company’s
standard payroll practices, but no less frequently than monthly, beginning within sixty (60) days following the Termination Date (with the first payment to
include amounts accrued between the Termination Date and the first payment date); provided that, if the sixtieth (60th) day following the Termination
Date falls in the calendar year following the calendar year in which the Termination Date occurs, payments will not commence prior to the first day of the
calendar year following the calendar year in which the Termination Date occurs; provided further that, in the event the Participant is a Specified
Employee on the Termination Date, payment shall be made in accordance with the following provisions:
(i) If the aggregate value of the payments due to the Participant pursuant to this Section 5.1(b) during the six (6) month period
following his Termination Date, does not exceed two (2) times the lesser of: (x) the Specified Employee’s base salary for the year prior to the
year in which the Termination Date occurs; or (y) the maximum amount that may be taken into account under a qualified retirement plan
pursuant to Section 401(a)(17) of the Code for the year in which the Termination Date occurs (such amount, the “ Separation Pay Limit ”), the
Participant shall receive continuation of his Base Salary for the Severance Period payable in installments in accordance with the Company’s
standard payroll practices, but no less frequently than monthly, as set forth above.
(ii) If the aggregate value of the payments due to the Participant pursuant to this Section 5.1(b) during the six (6) month period
following his Termination Date exceeds the Separation Pay Limit, the Participant shall not receive any payments of continued Base Salary in
excess of the Separation Pay Limit during such six (6) month period. Any amounts in excess of the Separation Pay Limit which would have
otherwise been paid during the six (6) month period following the Participant’s Termination Date shall be paid in a lump sum on the first day
following the six-month anniversary of the Participant’s Termination Date. Beginning with the first payroll cycle occurring on or after the first
day following the six-month anniversary of the Participant’s Termination Date and continuing until the end of the Severance Period, the
Participant shall receive continuation payments of the Participant’s Base Salary in installments in accordance with the Company’s standard
payroll practices, but no less frequently than monthly.
5.1(b) shall be treated as a separate payment of compensation.
(iii) For purposes of Section 409A of the Code, each installment payment of Base Salary made pursuant to this Section
(c) a lump sum payment equal to the pro-rata cash bonus for the year in which the Termination Date occurs, which shall be paid (i)
when such annual bonuses are paid to non-terminated employees (or, if later, upon the satisfaction of all conditions for the payment of benefits hereunder,
but in no event shall such payment occur later than March 15 of the calendar year following the year in which the Termination Date occurs) and (ii) based
on the actual attainment of the performance goals under the annual bonus plan for the year in which the Termination Date occurs;
(d) if the Participant continues to receive health benefits (including, medical, prescription, dental, vision and health care
reimbursement account benefits) pursuant to the Company’s health plans under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, supplemented or substituted from time to time (“ COBRA ”) and pays the full COBRA premiums, the Company will reimburse the Participant
for the COBRA premiums paid for such benefits for the Participant and his family through COBRA (with the exception of any COBRA premiums paid
for health care reimbursement account benefits) for the Benefits Continuation Period, in accordance with the applicable plans, programs or policies of the
Company, and on such terms applicable to comparably situated active employees during such period (which shall offset the Company’s COBRA
obligation); provided that the Executive may continue to receive health benefits pursuant to the Company’s health plans during a period of time in the
Benefits Continuation Period during which the Executive would not otherwise be entitled to COBRA continuation coverage under Section 4980B of the
Code if the Executive continues to pay premiums for such health benefits, and the Executive shall receive reimbursement for
all premiums paid by the Executive for such continued health benefits on the date no later than December 31 of the calendar year immediately following
the calendar year in which the applicable expenses have been incurred. If the Participant fails to accept available coverage from another employer or fails
to notify the Company (or, following a Change of Control, the Company or the Trustee) within thirty (30) days of the Participant’s eligibility to receive
coverage under another employer’s plan, the Participant’s reimbursements under this Section 5.1(d) shall immediately terminate and the Participant shall
cease to be entitled to any such reimbursements under this Plan and shall be required within three (3) months after such failure to reimburse the Company
for the reimbursements paid to the Participant after such failure, and the Participant agrees that the Company may offset against such reimbursement or
deduct such reimbursement from any payments due to the Participant by the Company, in full or partial payment of such reimbursement; provided that no
such offset shall be made in violation of Section 409A of the Code;
(e) if the Participant is covered by any Company-sponsored supplemental long-term disability insurance program as of the
Termination Date, the Company shall continue to pay for the Participant’s coverage until the end of the Severance Period. At the end of the Severance
Period, the Participant shall be entitled to keep this policy if he continues to pay the annual premiums;
(f) if the Participant is covered by any Company-sponsored executive life insurance program as of the Termination Date, the
Company shall continue to pay for the Participant’s coverage until the end of the Severance Period. At the end of the Severance Period, the Participant
will have thirty-one (31) days from the last day of the Severance Period to convert his life insurance coverage to an individual policy;
(g) professional outplacement services as determined in the Company’s sole discretion until the earliest of (i) twenty-four (24)
months after the Termination Date, (ii) the date on which the Participant obtains another full-time job, (iii) the date on which the Participant becomes self-
employed, and (iv) the date on which the Participant has received all services or benefits due under the applicable Company-sponsored outplacement
program. The Company will not pay the Participant cash in lieu of professional outplacement services; and
terms and conditions of any such plans.
(h) any benefits or rights to which the Participant is entitled under any of the Company’s stock or equity plans in accordance with the
5.2 Payment of Severance Benefits . Notwithstanding anything herein to the contrary, no payments hereunder (other than Accrued Benefits
payable pursuant to their terms) shall be made to a Participant prior to the Release Effective Date. In the event that (a) a Participant does not execute a release
within fifty (50) days following the Termination Date or (b) the Release Effective Date does not occur within sixty (60) days following the Termination Date, a
Participant shall not be entitled to any payments or benefits hereunder (other than the Accrued Benefits payable pursuant to their terms); provided that, if the
Participant becomes entitled to payments and benefits pursuant to Section 5.3(c), the Participant shall not be entitled to any payments or benefits hereunder in the
event that (a) the Participant does not execute a release within fifty (50) days following the date of the Change of Control or (b) the Release Effective Date does not
occur within sixty (60) days following the date of the Change of Control.
5.3 Terminations Prior to a Change of Control .
(a) If a Change of Control occurs and the Participant is then receiving, or is entitled to receive, payments and benefits pursuant
Section 5.1 of the Plan on account of his prior termination of employment, the Company shall pay to the Participant, in a lump sum, within seven (7)
calendar days after the Change of Control, an amount (in lieu of future payments) equal to the present value of all future cash payments due under Section
5.1(b) of the Plan using the prime commercial lending rate published by the Trustee at the time the Change of Control occurs, but the Company and the
Participant shall continue to be liable to each other for all other obligations under this Plan. In the event that the Participant was a Specified Employee on
his Termination Date, if the sum of the payments which the Participant previously received in accordance with Section 5.1(b) and the payment set forth in
this Section 5.3(a) exceeds the Separation Pay Limit, any amounts in excess of the Separation Pay Limit shall be paid on the later of (i) the first day
following the six-month anniversary of the Termination Date and (ii) within seven (7) calendar days after the Change of Control. For the avoidance of
doubt, in the event that the provisions of this Section 5.3(a) become effective, they shall supersede the provisions of Section 5.1(b).
(b) If a Change of Control occurs and (i) the Participant experienced an Involuntary Termination within twelve (12) months prior to
the date on which the Change of Control occurs and (ii) it is reasonably demonstrated by the Participant that such Involuntary Termination either (A) was
at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (B) otherwise arose in connection with or in
anticipation of a
Change of Control, then, in addition to the payments and benefits set forth in Section 5.1, the Participant shall be entitled to the following: (x) a lump sum
payment equal to 50% of the Participant’s Base Salary payable as soon as practicable but no later than sixty (60) days following the Change of Control;
provided that if the Participant was a Specified Employee on his Termination Date, such payment shall be paid on the later of (1) as soon as practicable
but no later than sixty (60) days following the Change of Control and (2) the first day following the six-month anniversary of the Participant’s
Termination Date; (y) the Target Bonus, which shall be paid as soon as practicable following the Change of Control but no later than March 15 of the
calendar year following the calendar year in which the Change of Control occurs; and (z) for purposes of determining the Severance Period for benefits
provided under Sections 5.1(d), (e), and (f), the Participant’s Severance Period shall be defined as the eighteen (18) month period following the
Participant’s Termination Date. Notwithstanding the foregoing, in the event that (i) a Change of Control occurs and payments and benefits become
payable to a Participant pursuant to this Section 5.3(b); and (ii) such Change of Control does not constitute a “change in ownership or effective control” or
a change in the “ownership of a substantial portion of assets” under Section 409A of the Code and the rules and regulations issued thereunder, the lump
sum payment set forth in (x) above shall be paid on the first anniversary of the Participant’s Termination Date.
(c) If a Change of Control occurs and (i) the Participant’s employment was voluntarily terminated within twelve (12) months prior to
the date on which the Change of Control occurs; (ii) such termination would have constituted a termination for Good Reason if it had occurred within one
(1) year following the Change of Control; and (iii) it is reasonably demonstrated by the Participant that the circumstances which would have caused the
occurrence of Good Reason either (a) were at the request of a third party who had taken steps reasonably calculated to effect a Change of Control or (b)
otherwise arose in connection with or in anticipation of a Change of Control, then the Participant shall be entitled to the following (determined based on a
Severance Period of eighteen (18) months from the Termination Date):
(i) A lump sum payment equal to the Participant’s Base Salary for the Severance Period payable within sixty (60) days
following the Change of Control; provided that, if the sixtieth (60th) day following the Change of Control falls in the calendar year following the
calendar year in which the Change of Control occurs, payment will not be made prior to the first day of the calendar year following the calendar
year in which the Change of Control occurs; provided further that, if the Participant is a Specified Employee on the Termination Date, any
amounts in excess of the Separation Pay Limit shall be paid to the Participant in a lump sum on the later of (x) the first day following the six-
month anniversary of the Termination Date and (y) within sixty (60) days following the Change of Control. In the event that (i) a Change of
Control occurs and payments and benefits become payable to a Participant pursuant to this Section 5.3(c); and (ii) such Change of Control does
not constitute a “change in ownership or effective control” or a change in the “ownership of a substantial portion of assets” under Section 409A
of the Code and the rules and regulations issued thereunder, the lump sum payment set forth herein shall be paid on the first anniversary of the
Participant’s Termination Date.
(ii) a lump sum payment equal to the pro-rata cash bonus for the year in which the Termination Date occurs, which shall be
paid (i) when such annual bonuses are paid to non-terminated employees (or, if later, upon the satisfaction of all conditions for the payment of
benefits hereunder, but in no event shall such payment occur later than March 15 of the calendar year following the year in which the Change of
Control occurs) and (ii) based on the actual attainment of the performance goals under the annual bonus plan for the year in which the
Termination Date occurs;
thereafter as is practicable, but no later than March 15 of the calendar year following the calendar year in which the Change of Control occurs;
(iii) A lump sum payment equal to the Participant’s Target Bonus, payable on the Release Effective Date or as soon
(iv) if the Participant continues to receive health benefits (including, medical, prescription, dental, vision and health care
reimbursement account benefits) pursuant to the Company’s health plans under COBRA and pays the full COBRA premiums, the Company will
reimburse the Participant for the COBRA premiums paid for such benefits for the Participant and his family through COBRA (with the
exception of any COBRA premiums paid for health care reimbursement account benefits) for the remainder of the Benefits Continuation Period,
in accordance with the applicable plans, programs or policies, if any, of the Company or its successor, and on such terms applicable to
comparably situated active employees during such period (which shall offset the Company’s COBRA obligation, if any); provided that the
Executive may continue to receive health benefits pursuant to the Company’s health plans during a period of time in the Benefits Continuation
Period during which the Executive would not otherwise be entitled to COBRA continuation coverage under Section 4980B of the Code if the
Executive continues to pay premiums for such health benefits, and the Executive shall receive reimbursement for all premiums paid by the
Executive for such continued health benefits on the
date no later than December 31 of the calendar year immediately following the calendar year in which the applicable expenses have been
incurred.. If the Participant fails to accept available coverage from another employer or fails to notify the Company (or the Trustee) within thirty
(30) days of the Participant’s eligibility to receive coverage under another employer’s plan, the Participant’s reimbursements under this Section
5.3(c)(iv) shall immediately terminate and the Participant shall cease to be entitled to any such reimbursements under this Plan and shall be
required within three (3) months after such failure to reimburse the Company for the reimbursements paid to the Participant after such failure,
and the Participant agrees that the Company may offset against such reimbursement or deduct such reimbursement from any payments due to the
Participant by the Company, in full or partial payment of such reimbursement; provided that, no such offset shall be made in violation of Section
409A of the Code; and
(v) A lump sum payment equal to the value of the Company-sponsored outplacement program maintained by the Company
immediately prior to the Change of Control, based on the Participant’s management level as of the Termination Date, which shall be paid within
sixty (60) days following the Change of Control; provided that, if the sixtieth (60th) day following the Change of Control falls in the calendar
year following the calendar year in which the Change of Control occurs, payment will not be made prior to the first day of the calendar year
following the calendar year in which the Change of Control occurs; provided further that, if the Participant is a Specified Employee on the
Termination Date, such amount shall be paid on the later of (x) within sixty (60) days following the Change of Control and (y) the first day
following the six-month anniversary of the Termination Date. In the event that (i) a Change of Control occurs and payments and benefits become
payable to a Participant pursuant to this Section 5.3(c); and (ii) such Change of Control does not constitute a “change in ownership or effective
control” or a change in the “ownership of a substantial portion of assets” under Section 409A of the Code and the rules and regulations issued
thereunder, the lump sum payment set forth herein shall be paid on the first anniversary of the Participant’s Termination Date; and
(vi) If the Participant is covered by any Company-sponsored executive life insurance program as of the Termination Date,
the Company (or the Trustee) shall continue to pay for the Participant’s coverage until the end of the Severance Period. At the end of the
Severance Period, the Participant will have thirty-one days (31) from the last day of the Severance Period to convert his life insurance coverage
to an individual policy; and
(vii) If the Participant is covered by any Company-sponsored supplemental long term disability insurance program as of the
Termination Date, the Company (or the Trustee) shall continue to pay for the Participant’s coverage until the end of the Severance Period. At the
end of the Severance Period, the Participant shall be entitled to keep this policy if he continues to pay the annual premiums; and
accordance with the terms and conditions of any such plans.
(viii) Any benefits or rights to which the Participant is entitled under any of the Company’s stock or equity plans in
For the avoidance of doubt, no payments or benefits payable to the Participant pursuant to this Section 5.3(c) shall continue beyond the end of
the second calendar year following the calendar year in which the Termination Date occurs. The Participant shall not be entitled to any payments or
benefits pursuant to this Section 5.3(c), unless prior to the Participant’s Termination Date, the Participant had given the Company notice of the
circumstances forming the basis of termination for Good Reason and an opportunity to cure such circumstances in accordance with Sections 1.14 and
1.16.
Section 6
Severance Benefits As a Result of a Change of Control
Plan, he shall be eligible to receive:
6.1 Benefits . If a Participant experiences a Change of Control Termination, and complies with all of the other terms and conditions of the
other date as their terms require;
(a) the Accrued Benefits, payable in a lump sum as soon as administratively feasible following the Release Effective Date, or such
(b) a lump sum payment equal to the Participant’s Base Salary for the Severance Period payable within sixty (60) days following the
Termination Date; provided that, if the sixtieth (60th) day following the Termination Date falls in the calendar year following the calendar year in which
the Termination Date occurs, payment will not be
made prior to the first day of the calendar year following the calendar year in which the Termination Date occurs; provided further that, if a Participant is
Specified Employee on the Termination Date, any amounts payable under this Section 6.1(b) in excess of the Separation Pay Limit shall be paid to the
Participant in a lump sum on the first day following the six-month anniversary of the Termination Date;
(c) a lump sum payment equal to the pro-rata cash bonus for the year in which the Termination Date occurs which shall be paid (i)
when such annual bonuses are paid to non-terminated employees (or, if later, upon the satisfaction of all conditions for the payment of benefits hereunder,
but in no event shall such payment occur later than March 15 of the calendar year following the year in which the Termination Date occurs) and (ii) based
on the actual attainment of the performance goals under the annual bonus plan for the year in which the Termination Date occurs;
no later than March 15 of the calendar year following the calendar year in which the Termination Date occurs;
(d) an amount equal to the Participant’s Target Bonus payable on the Release Effective Date or as soon thereafter as is practicable but
(e) if the Participant continues to receive health benefits (including, medical, prescription, dental, vision and health care
reimbursement account benefits) pursuant to the Company’s health plans under COBRA and pays the full COBRA premiums, the Company will
reimburse the Participant for the COBRA premiums paid for such benefits for the Participant and his family through COBRA (with the exception of any
COBRA premiums paid for health care reimbursement account benefits) for the Benefits Continuation Period, in accordance with the applicable plans,
programs or policies of the Company, and on such terms applicable to comparably situated active employees during such period (which shall offset the
Company’s COBRA obligation, if any); provided that the Executive may continue to receive health benefits pursuant to the Company’s health plans
during a period of time in the Benefits Continuation Period during which the Executive would not otherwise be entitled to COBRA continuation coverage
under Section 4980B of the Code if the Executive continues to pay premiums for such health benefits, and the Executive shall receive reimbursement for
all premiums paid by the Executive for such continued health benefits on the date no later than December 31 of the calendar year immediately following
the calendar year in which the applicable expenses have been incurred. If the Participant fails to accept available coverage from another employer or fails
to notify the Company or the Trustee within thirty (30) days of the Participant’s eligibility to receive coverage under another employer’s plan, the
Participant’s reimbursements under this Section 6.1(e) shall immediately terminate and the Participant shall cease to be entitled to any such
reimbursements under this Plan and shall be required within three (3) months after such failure to reimburse the Company or the Trustee for the
reimbursements paid to the Participant after such failure, and the Participant agrees that the Company may offset against such reimbursement or deduct
such reimbursement from any payments due to the Participant by the Company, in full or partial payment of such reimbursement; provided that no such
offset shall be made in violation of Section 409A of the Code;
(f) if the Participant is covered by any Company-sponsored supplemental long-term disability insurance program as of the
Termination Date, the Company (or the Trustee) shall continue to pay for the Participant’s coverage until the end of the Severance Period. At the end of
the Severance Period, the Participant shall be entitled to keep this policy if he continues to pay the annual premiums;
(g) if the Participant is covered by any Company-sponsored executive life insurance program as of the Termination Date, the
Company (or the Trustee) shall continue to pay for the Participant’s coverage until the end of the Severance Period. At the end of the Severance Period,
the Participant will have thirty-one (31) days from the last day of the Severance Period to convert his life insurance coverage to an individual policy;
(h) a lump sum payment equal to the value of the Company-sponsored outplacement program maintained by the Company
immediately prior to the Change of Control, based on the Participant’s management level as of the Termination Date, payable within sixty (60) days
following the Termination Date; provided that, if the sixtieth (60th) day following the Termination Date falls in the calendar year following the calendar
year in which the Termination Date occurs, payment will not be made prior to the first day of the calendar year following the calendar year in which the
Termination Date occurs; provided further that, if the Participant is a Specified Employee on the Termination Date, such amount shall be paid on the first
day following the six-month anniversary of the Termination Date; and
terms and conditions of any such plans.
(i) any benefits or rights to which the Participant is entitled under any of the Company’s stock or equity plans in accordance with the
that does not constitute a “change in ownership or effective control” or a change in
6.2 In the event that a Participant becomes entitled to payments and benefits pursuant to Section 6.1 in connection with a Change of Control
the “ownership of a substantial portion of the assets” under Section 409A of the Code, and the rulings and regulations issued thereunder, the payments and benefits
set forth in Sections 6.1 (a), (b), (c), (d), (e), (f) and (g) herein (in each case, based on a Severance Period of eighteen (18) months from the Termination Date),
shall be provided in accordance with the schedule set forth in Section 5.1, except as otherwise provided in this Section 6.2. In addition, the services set forth in
Section 5.1(g) (based on a Severance Period of twelve (12) months) shall be provided in lieu of the payment set forth in Section 6.1(h). Notwithstanding the
foregoing, with respect to the payment set forth in Section 6.1(b), an amount equal to the lesser of (i) the Separation Pay Limit or (ii) the amount set forth in
Section 6.1(b) shall be paid to the Participant on the Release Effective Date or as soon thereafter as is practicable, but no later than sixty (60) days following the
Termination Date. In the event that the amount set forth in Section 6.1(b) exceeds the Separation Pay Limit, any excess amounts shall be paid at the time they
would have otherwise been paid pursuant to Section 5.1(b).
6.3 Notwithstanding anything herein to the contrary, no payments hereunder (other than Accrued Benefits payable pursuant to their terms)
shall be made to a Participant prior to the Release Effective Date. In the event that (a) a Participant does not execute a release within fifty (50) days following the
Termination Date or (b) the Release Effective Date does not occur within sixty (60) days following the Termination Date, a Participant shall not be entitled to any
payments or benefits hereunder (other than the Accrued Benefits payable pursuant to their terms).
Section 7
Effect of 280G on Payments
7.1 Reduction in Payments . In the event any Payment (as defined below) would constitute an “excess parachute payment” within the meaning
of Section 280G of the Code, the Company shall reduce (but not below zero) the aggregate present value of the Payments payable to the Participant pursuant to the
terms of this Plan to the Reduced Amount (as defined below), if reducing the Payments payable to the Participant pursuant to the terms of this Plan will provide the
Participant with a greater net after-tax amount than would be the case if no reduction was made.
this Plan will provide the Participant with a greater net after-tax amount, the following computations shall be made:
7.2 Determining Net After-Tax Amounts . In determining whether a reduction in Payments payable to the Participant pursuant to the terms of
(a) The net after-tax benefit to the Participant without any reduction in Payments shall be determined by reducing the Payments by
the amount of federal, state, local and other applicable taxes (including the Excise Tax (as defined below)) applicable to the Payments. For these purposes,
the tax rates shall be determined using the maximum marginal rate applicable to such Participant for each year in which the Payments shall be paid.
applying the tax rates under Section 7.2(a), with the exception of the Excise Tax.
(b) The net after-tax benefit to the Participant with a reduction in the Payments to the Reduced Amount shall be determined by
after-tax amount, the following shall apply:
7.3 Reduction Methodology . In the event a reduction in the Payments to the Reduced Amount will provide the Participant with a greater net
(a) Reduction of payments. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing, but not
below zero, the cash payments under Sections 5.1(b), 5.3(c)(i), or 6.1(b), as applicable (and in the event that such payments are installment payments,
each such installment payment shall be reduced pro-rata, but not below zero), and by next reducing, but not below zero, the cash payments under Sections
5.1(c), 5.3(c)(ii), 5.3(c)(iii), 6.1(c) or 6.1(d), as applicable. In the event that following the reduction of the amounts set forth in the preceding sentence,
additional amounts payable to the Participant must be reduced, any payments due to the Participant pursuant to the Company’s equity plans shall be
reduced on a pro-rata basis, but not below zero.
manner consistent with the requirements of Section 409A of the Code.
(b) Restrictions. Only amounts payable under this Plan shall be reduced pursuant to this Section 7.3. Any reduction shall be made in a
7.4 Definitions . For purposes of this Section 7, the following definitions shall apply.
(a) “ Payment ” shall mean an amount that is received by the Participant or paid by the Company on his behalf, or represents any
property, or any other benefit provided to the Participant under this Plan or under any other plan, arrangement or agreement with the Company or any
other person, and such amount is treated as contingent on a change in control, as provided under Section 280G of the Code.
be subject to the Excise Tax.
(b) “ Reduced Amount ” shall mean an amount, as determined under Section 280G of the Code, which does not cause any Payment to
(c) “ Excise Tax ” shall mean the excise tax imposed under Section 4999 of the Code.
7.5 Determination of Reduction . All determinations required to be made under this Section 7 shall be made by a nationally recognized
accounting (or compensation and benefits consulting) firm selected by the Company (the “ Accounting Firm ”) which shall provide detailed supporting calculations
both to the Company and the Participant within ten (10) business days of the Change of Control. Any such determination by the Accounting Firm shall be binding
upon the Company and the Participant. All fees and expenses of the Accounting Firm shall be borne solely by the Company.
Section 8
Trusts
In order to ensure in the event of a Change of Control that timely payment will be made of certain obligations of the Company to the Participant
provided for under this Plan, the Company shall, immediately prior to or in connection with the consummation of a Change of Control, irrespective of whether the
Change of Control constitutes a “change in ownership or effective control” or a change in the “ownership of a substantial portion of the assets” under Section 409A
of the Code, and the rulings and regulations issued thereunder, pay into one or more trust(s) (the “ Trust(s) ”) established between the Company and any financial
institution with assets in excess of $100 million selected by the Company prior to the Change of Control, as trustee (the “ Trustee ”), such amounts and at such time
or times as are required in order to fully pay all cash amounts due the Participant hereunder that are payable or as are otherwise required pursuant to the terms of
the Trust(s), with payment to be made in cash or cash equivalents. Thereafter, all such payments required to be paid hereunder shall be made out of the Trust(s);
provided, however, that the Company shall retain liability for and pay the Participant any amounts or provide for such other benefits due the Participant under this
Plan for which there are insufficient funds in the Trust(s), for which no funding of the Trust(s) is required or in the event that the Trustee fails to make such
payment to the Participant within the time frames set forth in this Plan. Prior to the Change of Control, and to the extent necessary because of a change in the
Trustee, after the Change of Control, the Company shall provide the Participant with the name and address of the Trustee. Nothing in this Plan shall require the
Company to maintain the funding required in this section beyond the first anniversary of a Change of Control unless, before such first anniversary, the Participant’s
employment has terminated in a manner qualifying him for benefits hereunder. The Participant expressly waives any requirement under this Section 8 or otherwise
for the Company to fund the Trust(s) if funding would cause him to be taxed under Section 409A(b) of the Code or any successor law.
For purposes of this Plan, the term “ the Company and/or the Trustee ” means the Trustee to the extent the Company has put funds in the Trust(s)
and the Company to the extent the Company has not funded or fully funded the Trust(s); provided, however, that in accordance with the paragraph above, the
Company shall retain liability for and pay the Participant any amounts or provide for such other benefits due the Participant under this Plan for which the Trustee
fails to make adequate payment to the Participant within the time frames set forth in this Plan .
Section 9
Restrictive Covenants
As consideration for the Company’s offer of coverage under this Plan to the Participant and for other good and valuable consideration, during his
employment and upon termination of employment for any reason, the Participant agrees to comply with the restrictive covenants contained in Section 9 of this
Plan. In addition, receipt of the severance payments and benefits set forth in Sections 5 and 6 is expressly conditioned upon the Participant’s continued compliance
with Section 9.
9.1 Confidentiality . All documents, records, techniques, business secrets and other information of the Company, its subsidiaries and affiliates
which have or will come into the Participant’s possession from time to time during the Participant’s affiliation with the Company and/or any of its subsidiaries or
affiliates and which the Company treats as confidential and proprietary to the Company and/or any of its subsidiaries or affiliates shall be deemed as such by the
Participant and shall be the sole and exclusive property of the Company, its subsidiaries and affiliates. The Participant agrees that the Participant will keep
confidential and not use or divulge to any other individual or entity any of the Company’s or its subsidiaries’ or affiliates’ confidential information and business
secrets, including, but not limited to, such matters as costs, profits, markets, sales, products, product lines, key personnel, pricing policies, operational methods,
customers, customer requirements, suppliers, plans for future
developments, and other business affairs and methods and other information not readily available to the public. Additionally, the Participant agrees that upon his
termination of employment, irrespective of the reason for such termination, the Participant shall promptly return to the Company any and all confidential and
proprietary information of the Company and/or its subsidiaries or affiliates that is in his possession or control.
The Participant agrees that the terms and provisions of this Plan, as well as any and all incidents leading to or resulting from this Plan, are
confidential and may not be discussed with anyone other than his spouse, domestic partner, attorney or tax advisor without the prior written consent of the
Company’s Chief Human Resources Officer, except as required by law. In the event that the Participant is subpoenaed, or asked to provide confidential
information or to testify as a witness or to produce documents in any existing or potential legal or administrative or other proceeding or investigation formal or
informal related to the Company, to the extent permitted by applicable law, the Participant will promptly notify the Company of such subpoena or request and will,
if requested, meet with the Company for a reasonable period of time prior to any such appearance or production.
9.2 Non-Competition . During the Participant’s employment with the Company, and thereafter during the Participant’s Severance Period, if
any, the Participant shall not, without the prior written consent of the Board, directly or indirectly engage or become a partner, director, officer, principal, employee
in the same or similar capacity as the Participant worked for the Company, consultant, investor, creditor or stockholder in/for any business, proprietorship,
association, firm or corporation not owned or controlled by the Company or its subsidiaries or affiliates which is engaged or proposes to engage or hereafter
engages in a business competitive directly or indirectly with the business conducted by the Company or any of its subsidiaries or affiliates in any geographic area
the Participant worked in or had responsibility over the previous twelve (12) month period; provided, however, that the Participant is not prohibited from owning
one percent (1%) or less of the outstanding capital stock of any corporation whose stock is listed on a national securities exchange.
The Participant and the Company have attempted to limit the Participant’s right to compete only to the extent necessary to protect the
Company’s legitimate business interests. The Participant and the Company recognize however, that reasonable people may differ in making such a determination.
Consequently, the Participant and the Company agree that if the scope or enforceability of this Plan is in any way disputed at any time, a court may modify and
enforce this Plan to the extent it believes to be reasonable under the circumstances.
9.3 Non-Solicitation . During the Participant’s employment with the Company or any subsidiary or affiliate, and thereafter during the longer of (i) the
Severance Period, if any, or (ii) twelve (12) months following the Participant’s Termination Date (irrespective of the reason for the Participant’s termination and
without any reduction or modification), the Participant shall not, directly or indirectly, in any manner or capacity whatsoever, either on the Participant’s own
account or for any person, firm or company:
(a) take away, interfere with relations with, divert or attempt to divert from the Company any business with any customer or
account: (x) which was a customer on the last day of the Participant’s employment and/or has been solicited or serviced by the Company within one (1) year prior
to the last day of the Participant’s employment; and (y) with which the Participant had any contact or association, or which was under the supervision of the
Participant, or the identity of which was learned by the Participant, as a result of the Participant’s employment with the Company, or
subsidiaries or affiliates to leave his employment or service with the Company or to breach his employment agreement or other agreement, if any.
(b) solicit, interfere with or induce, or attempt to induce, any employee or independent contractor of the Company or any of its
9.4 Inventions and Discoveries . The Participant acknowledges that all ideas, discoveries, inventions and improvements which are made,
conceived or reduced to practice by the Participant and every item of knowledge relating to the Company’s business interests (including potential business
interests) gained by the Participant during the Participant’s employment are the sole and absolute property of the Company, and the Participant shall promptly
disclose and hereby irrevocably assigns all his right, title and interest in and to all such ideas, discoveries, inventions, improvements and knowledge to the
Company for its sole use and benefit, without additional compensation, and shall communicate to the Company, without cost or delay, and without publishing the
same, all available information relating thereto. The Participant also hereby waives all claims to moral rights in any such ideas, discoveries, inventions,
improvements and knowledge. The provisions of this Section 9 shall apply whether such ideas, discoveries, inventions or knowledge are conceived, made, gained
or reduced to practice by the Participant alone or with others, whether during or after usual working hours, whether on or off the job, whether applicable to matters
directly or indirectly related to the Company’s business interests (including potential business interests), and whether or not within the specific realm of the
Participant’s duties. Any of the Participant’s ideas, discoveries, inventions and improvements relating to the Company’s business interests or potential business
interests and conceived, made or reduced to practice during the Severance Period shall for the purpose of this Plan, be deemed to have been conceived, made or
reduced to practice before the end of the Participant’s
employment. The Participant shall, upon request of the Company, and without further compensation by the Company but at the expense of the Company, at any
time during or after his employment with the Company, sign all instruments and documents requested by the Company and otherwise cooperate with the Company
and take any actions which are or may be necessary to protect the Company’s right to such ideas, discoveries, inventions, improvements and knowledge, including
applying for, obtaining and enforcing patents, copyrights and trademark registrations thereon in any and all countries. To the extent this Section shall be construed
in accordance with the laws of any state which precludes a requirement to assign certain classes of inventions made by an employee, this Section shall be
interpreted not to apply to any invention which a court rules and/or the Company agrees falls within such classes.
9.5 Non-Disparagement and Cooperation . The Participant agrees not to make any remarks disparaging the conduct or character of the Company or any
of its subsidiaries or affiliates, their current or former agents, employees, officers, directors, successors or assigns (“ Ryder Parties ”), except as may be necessary
in the performance of his duties or as is otherwise required by law. The Participant agrees to cooperate with the Company in the investigation, defense or
prosecution of any claims or actions now in existence or that may be brought in the future against or on behalf of the Company. Such cooperation shall include
meeting with representatives of the Company upon reasonable notice at reasonable times and locations to prepare for discovery or any mediation, arbitration, trial,
administrative hearing or other proceeding or to act as a witness. The Company shall reimburse the Participant for travel expenses approved by the Company or its
subsidiaries or affiliates incurred in providing such assistance. The Participant shall notify the Company if the Participant is asked to assist, testify or provide
information by or to any person, entity or agency in any such proceeding or investigation. Nothing in this provision is intended to or should be construed to prevent
the Participant from providing truthful information to any person or entity as required by law or his fiduciary obligations.
9.6 Reports to Government Entities . Nothing in this Plan or any other agreement with, or plan or policy of, the Company restricts the Participant from
providing truthful information to a self-regulatory authority or a government agency or entity, including the U.S. Equal Employment Opportunity Commission, the
Department of Labor, the National Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, Congress and any agency
Inspector General (collectively, the "Regulators"), including in connection with initiating communications directly with, responding to any inquiries from,
providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an
investigation directly with a Regulator or making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation. The
Participant does not need the prior authorization of the Company to engage in such communications with the Regulators, respond to such inquiries from the
Regulators, provide such confidential information or documents to the Regulators, or make any such reports or disclosures to the Regulators and is not required to
notify the Company that Employee has engaged in such communications with the Regulators.
9.7 Specific Remedy . The Participant acknowledges and agrees that if he commits a material breach of the Covenant of Confidentiality or, if
applicable, the Covenant Against Competition, the Covenant of Non-Solicitation, or the Covenant of Non-Disparagement and Cooperation, the Company shall
have the right to have the covenant specifically enforced through an injunction or otherwise, without any obligation that the Company post a bond or prove actual
damages, by any court having appropriate jurisdiction on the grounds that any such breach will cause irreparable injury to the Company, without prejudice to any
other rights and remedies that Company may have for a breach of this Plan, and that money damages will not provide an adequate remedy to the Company. The
Participant further acknowledges and agrees that the Covenant of Confidentiality, the Covenant Against Competition, the Covenant of Non-Solicitation, and the
Covenant of Non-Disparagement and Cooperation contained in this Plan are intended to protect the Company’s business interests and goodwill, are fair, do not
unreasonably restrict his future employment and business opportunities, and are commensurate with the arrangements set out in this Plan and with the other terms
and conditions of the Participant’s employment. In addition, in executing this Plan, the Participant makes an election to receive severance pay and benefits pursuant
to Sections 5 and 6 and is subject to the covenants above, therefore, the Participant shall have no right to return any amounts or benefits that are already paid or to
refuse to accept any amounts or benefits that are payable in the future in lieu of his specific performance of his obligations under the covenants above.
Section 10
Offset
Participants in the Plan shall not be entitled to receive any other severance, notice, change of control or termination payments or benefits (or
notice in lieu of severance) from the Company. In addition, to the extent permitted by Section 409A of the Code, the Participant’s benefits under the Plan will be
reduced by the amount of any other severance or termination payments, or pay in lieu of notice, payable by the Company to the Participant on account of his
employment, or termination of employment, with the Company, including, but not limited to, (i) any payments required to be paid by the Company to the
Participant under
any other program, policy, practice, or plan, or (ii) any federal, state, national, municipal, provincial, commonwealth or local law (including any payment pursuant
to the Worker Adjustment Retraining and Notification Act or any national, State, local, provincial, municipal, or commonwealth equivalent). A Participant must
notify the Plan Administrator if he receives any such payments. Notwithstanding anything to the contrary in this Section 10, no severance payment paid or payable
to a Participant, after giving effect to the provisions of this Section 10, shall be less than one week of Participant’s Base Salary.
Section 11
Cessation of Participation in Employer Plans
Except as otherwise provided herein, a Participant, as of his Termination Date, shall cease to participate in and shall cease to be treated as an
employee of the Company for all purposes under the employee benefit plans of the Company, including, without limitation, all retirement, welfare, incentive,
bonus and other similar plans, policies, programs and arrangements maintained for employees of the Company. Each such Participant’s rights under any such plan,
policy, program or arrangement shall be governed by the terms and conditions of each thereof, as in effect on such Termination Date.
Section 12
Administration
12.1 Plan Interpretation and Benefit Determinations . The Plan is administered and operated by the Plan Administrator who has complete
authority, with respect to matters within its jurisdiction, in its sole and absolute discretion, to construe the terms of the Plan (and any related or underlying
documents or policies), and to determine the eligibility for, and amount of, severance benefits due under this Plan to Participants and their beneficiaries. All such
interpretations and determinations (including factual determinations) of the Plan Administrator shall be final and binding upon all parties and persons affected
thereby. The Plan Administrator may appoint one or more individuals and delegate such of its powers and duties as it deems desirable to any such individual(s), in
which case every reference herein made to the Plan Administrator shall be deemed to mean or include the appointed individual(s) as to matters within their
jurisdiction.
12.2 Benefit Claims . A Participant or his beneficiary (if applicable) may file a written claim with the Plan Administrator with respect to his
rights to receive a benefit from the Plan. The Participant will be informed of the decision of the Plan Administrator with respect to the claim within ninety (90)
days after it is filed. Under special circumstances, the Plan Administrator may require an additional period of not more than ninety (90) days to review a claim. If
this occurs, the Participant will be notified in writing as to the length of the extension, the reason for the extension, and any other information needed in order to
process the claim. If the Participant is not notified within the ninety-day (or one hundred and eighty-day, if so extended) period, he may consider the claim to be
denied.
If a claim is denied, in whole or in part, the Participant will be notified in writing of the specific reason(s) for the denial, the exact plan
provision(s) on which the decision was based, what additional material or information is relevant to his case, and what procedure the Participant should follow to
get the claim reviewed again. The Participant then has sixty (60) days to appeal the decision to the Plan Administrator.
The appeal must be submitted in writing to the Plan Administrator. A Participant may request to review pertinent documents, and may submit a
written statement of issues and comments. A decision as to a Participant’s appeal will be made within sixty (60) days after the appeal is received. Under special
circumstances, the Plan Administrator may require an additional period of not more than sixty (60) days to review an appeal. If this occurs, the Participant will be
notified in writing as to the length of the extension, not to exceed one hundred and twenty (120) days from the day on which the appeal was received.
If a Participant’s appeal is denied, in whole or in part, he will be notified in writing of the specific reason(s) for the denial and the exact plan
provision(s) on which the decision was based. The decision on an appeal of the Plan Administrator will be final and binding on all parties and persons affected
thereby. If a Participant is not notified within the sixty-day (or one hundred and twenty-day, if so extended) period, he may consider the appeal as denied.
may be required to be withheld pursuant to any applicable law or regulation.
13.1 Tax Withholding . The Company may withhold from any and all amounts payable under this Plan such federal, state and local taxes as
Section 13
Miscellaneous
by the Trust.
13.2 Unfunded Plan . The Plan is unfunded. The Company shall pay the full cost of the Plan out of its general assets, to the extent not satisfied
13.3 Not a Contract of Employment . The Plan shall not be deemed to constitute a contract of employment, or to impose on the Company any
obligation to retain any Participant as an employee, to continue any Participant’s current employment status or to change any employment policies of the
Company; nor shall any provision hereof restrict the right of the Company to discharge any of its employees or restrict the right of any such employee to terminate
his employment with the Company.
13.4 Successors .
(a) This Plan is personal to the Participant and the Participant does not have the right to assign this Plan or any interest herein.
(b) This Plan shall inure to the benefit of and be binding upon the Company and its successors. As used in this Plan, “ the Company ” shall
mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Plan by operation
of law, or otherwise.
13.5 Full Settlement . Except as specifically provided otherwise in this Plan, the Company’s obligation to make the payments provided for
herein and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim,
recoupment, defense or other right which the Company may have against the Participant or others. The Participant shall not be obligated to seek other employment
by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan nor, except as specifically provided otherwise in this Plan,
shall the amount of any payment provided for under this Plan be reduced by any compensation or benefits earned by the Participant as the result of employment by
another employer after the Termination Date.
13.6 Attorney’s Fees . To the fullest extent permitted by law, the Company shall promptly pay upon submission of statements all legal and
other professional fees, costs of litigation, prejudgment interest, and other expenses incurred in connection with any dispute concerning payments, benefits and
other entitlements which the Participant may have under Sections 5.1, 5.3(b), 5.3(c), 6.1, or 6.2 subject to a cap of $15,000; provided, however, the Company shall
be reimbursed by the Participant (i) for the fees and expenses advanced in the event the Participant’s claim is, in a material manner, in bad faith or frivolous and the
arbitrator or court, as applicable, determines that the reimbursement of such fees and expenses is appropriate, or (ii) to the extent that the arbitrator or court, as
appropriate, determines that such legal and other professional fees are clearly and demonstrably unreasonable. Any payments made pursuant to this Section 13.6
shall be limited to expenses incurred on or prior to December 31 of the second calendar year following the calendar year in which the Termination Date occurs, and
any payments made pursuant to this Section 13.6 shall be made on or prior to December 31 of the third calendar year following the calendar year in which the
Termination Date occurs.
13.7 Section 409A of the Code .
(a) Notwithstanding anything herein to the contrary, this Plan shall be construed and interpreted in a manner so as not to trigger adverse tax
consequences under Section 409A of the Code and the rulings and regulations issued thereunder. The Company may amend this Plan in any manner necessary to
comply with Section 409A of the Code or any other applicable laws, with or without the consent of the Participant. Furthermore, to the extent necessary to comply
with Section 409A of the Code, the payment terms for any of the payments or benefits payable hereunder shall be amended without the Participant’s consent to
comply with Section 409A of the Code.
(b) Notwithstanding anything herein to the contrary, A Participant shall not be entitled to any payments or benefits pursuant to the Plan in the
event that the occurrence of his termination of employment does not constitute a “separation from service” as defined by Section 409A of the Code and the
regulations issued thereunder. For purposes of determining whether a “separation from service”, as defined by Section 409A of the Code, has occurred, pursuant to
Treas. Reg. §1.409A-1(h)(3), the Company has elected to use “at least 80 percent” each place it appears in Sections 1563(a)(1), (2), and (3) of the Code and in
Treas. Reg. §1.414(c)-2.
(c) Notwithstanding anything herein to the contrary, if a Participant is a Specified Employee at the time of his Termination Date, and the deferral
of the commencement of any payments or benefits otherwise payable hereunder is necessary in order to prevent any accelerated or additional tax under Section
409A of the Code, then, to the extent permitted by Section 409A of the Code, the Company will defer the commencement of the payment of any such payments or
benefits hereunder until the first day following the six-month anniversary of the Termination Date (or the earliest date as is permitted under Section 409A of the
Code). If any payments or benefits are deferred due to such requirements, (whether they would have otherwise been payable in a single sum or in installments in
the absence of such deferral) they shall be paid or reimbursed to the Participant in a lump sum on the first day following the six-month anniversary of the
Termination Date, and any remaining payments and benefits due under this Plan shall be paid or provided in accordance with the normal payment dates specified
for them herein.
(d) Except as otherwise provided herein, any reimbursements or in-kind benefits provided under the Plan shall be made or provided in
accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred
during the period of time specified in the Plan (or, if no such period is specified, the Participant’s lifetime), (ii) the amount of expenses eligible for reimbursement,
or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind benefits to be provided, in any other calendar
year, (iii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred,
and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit. In addition, for purposes of the limitations on
nonqualified deferred compensation under Section 409A, each payment of compensation under the Plan shall be treated as a separate payment of compensation for
purposes of applying the Section 409A deferral election rules and the exclusion from Section 409A for certain short-term deferral amounts and separation pay.
Notwithstanding any other provision set forth herein, any payments which are intended to constitute separation pay due to an involuntary separation from service in
accordance with Treas. Reg. §1.409A-1(b)(9)(iii) shall be paid no later than the last day of the second calendar year following the calendar year in which the
Termination Date occurs.
(e) For purposes of this Plan, a Company Entity means any member of a controlled group of corporations or a group of trades or businesses
under common control of which the Company is a member. A “controlled group of corporations” means a controlled group of corporations as defined in Section
414(b) of the Code and a “group of trades or businesses under common control” means a group of trades or businesses under common control as defined in Section
414(c) of the Code, without any modifications.
13.8 Choice of Law and Jury Trial Waiver . The validity, interpretation, construction, and performance of this Plan shall be governed by the
laws of the State of Florida without regard to its conflicts of law principles. The Parties agree that any suit, action or other legal proceeding that is commenced to
resolve any matter arising under or relating to any provision of this Plan shall be commenced only in a court of the State of Florida (or, if appropriate, a federal
court located within the State of Florida), in either case located in Miami, Florida, and the parties consent to the jurisdiction of such court. The parties hereto
accept the exclusive jurisdiction and venue of those courts for the purpose of any such suit, action or proceeding. The Company and the Participant each
irrevocably waive any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any provision of this Plan.
13.9 Effect of Invalidity of Provision . If any provision of the Plan is held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof, and such provision shall, to the extent possible, be modified in such manner as to be valid and enforceable but so as to most
nearly retain the intent of the Company. If such modification is not possible, the Plan shall be construed and enforced as if such provision had not been included in
the Plan.
13.10 Effect of Plan . The Plan supersedes any and all prior severance arrangements, policies, plans or practices of the Company and its predecessors
(whether written or unwritten) and further supersedes any nondisclosure, nonsolicitation, inventions and/or noncompetition agreements covering the Participants;
provided, however, that any rights to indemnification, all stock options or other equity granted to the Participant prior to the Effective Date, and all agreements
relating thereto shall remain in full force and effect in accordance with their terms except as otherwise modified herein.
be conclusive for all purposes of this Plan.
13.11 Records . The records of the Company with respect to employment history, Base Salary, absences, and all other relevant matters shall
13.12 Non-transferability . In no event shall the Company make any payment under this Plan to any assignee or creditor of a Participant,
except as otherwise required by law. Prior to the time of a payment hereunder, a Participant shall have no rights by way of anticipation or otherwise to assign or
otherwise dispose of any interest under this Plan, nor shall rights be assigned or transferred by operation of law.
13.13 Other Benefits . No amount accrued or paid under this Plan shall be deemed compensation for purposes of computing a Participant’s
benefits under any retirement plan of the Company or its subsidiaries, nor affect any benefits under any other benefit plan now or subsequently in effect under
which the availability or amount of benefits is related to the Participant’s level of compensation.
Section 14
Amendment or Termination of the Plan
The Plan may be amended or terminated, in whole or in part, (i) at any time, with or without prior notice to Participants, by action of the
Committee or its designees in order to comply with applicable laws, rules and regulations and (ii) at any time with notice to Participants by action of the
Committee.
Section 15
Required Information
Income Security Act of 1974 (ERISA). ERISA provides that all Plan participants shall be entitled to:
15.1 Participants’ Rights Under ERISA . A Participant in the Plan is entitled to certain rights and protections under the Employee Retirement
the U.S. Department of Labor, such as detailed annual reports and Plan descriptions.
- Examine, without charge, at the Plan Administrator’s office, all Plan documents, and copies of all documents filed by the Plan with
may make a reasonable charge for the copies.
- Obtain copies of Plan documents and other Plan information upon written request to the Plan Administrator. The Plan Administrator
law to furnish each Participant with a copy of this summary annual report.
- Receive a summary of the Plan’s annual financial report if the Plan covers 100 or more people. The Plan Administrator is required by
In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The
people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of Plan participants and beneficiaries. No one,
including the Company or any other person, may fire a Participant or otherwise discriminate against him in any way to prevent him from obtaining a welfare
benefit or exercising his rights under ERISA. If a Participant’s claim for a benefit is denied in whole or in part, he must receive a written explanation of the reason
for the denial. The Participant has the right to have the Plan review and reconsider his claim. Under ERISA, there are steps a Participant can take to enforce the
above rights.
For instance, if a Participant requests materials from the Plan and does not receive them within 30 days, he may file suit in a federal court. In
such a case, the court may require the Plan Administrator to provide the materials and pay the Participant up to $110 a day until the he receives the materials,
unless the materials were not sent because of reasons beyond the control of the Plan Administrator.
If the Participant’s claim for benefits is denied or ignored, in whole or in part, he may file suit in a state or federal court. If a Participant is
discriminated against for asserting his rights, he may seek assistance from the U.S. Department of Labor, or may file suit in a federal court. The court will decide
who should pay court costs and legal fees. If the Participant is successful, the court may order the person the Participant sued to pay these costs and fees. If the
Participant loses, the court may order him to pay these costs and fees, for example, if it finds the Participant’s claim is frivolous. If a Participant has any questions
about the Plan, he should contact the Plan Administrator. If the Participant has any questions about this statement or about his rights under ERISA, he should
contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in the telephone directory or the Division of
Technical Assistance and Inquires, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C.
20210.
15.2 Other Important Facts .
OFFICIAL NAME OF THE PLAN: Ryder System, Inc. Executive Severance Plan
SPONSOR: Ryder System, Inc.
11690 NW 105 th Street
Miami, Florida 33178-1103
(305) 500-3726
EMPLOYER IDENTIFICATION
NUMBER (EIN): 59-0739250
PLAN NUMBER: [___]
TYPE OF PLAN: Employee Welfare Severance Benefit Plan
END OF PLAN YEAR: December 31
TYPE OF ADMINISTRATION: Employer Administered
PLAN ADMINISTRATOR: Ryder’s Chief Human Resources Officer
Miami, Florida 33178-1103
11690 NW 105 th Street
RESTATEMENT EFFECTIVE DATE: January 1, 2013
any questions you may have about the Plan.
The Plan Administrator keeps records of the Plan and is responsible for the administration of the Plan. The Plan Administrator will also answer
Service of legal process may be made upon the Plan Administrator.
circumstances, will any benefit under this Plan ever vest or become nonforfeitable.
No individual may, in any case, become entitled to additional benefits or other rights under this Plan after the Plan is terminated. Under no
EXHIBIT 12
Ryder System, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
Continuing Operations
(Dollars in thousands)
EARNINGS:
Earnings before income taxes
Fixed charges
Add: Amortization of capitalized interest
Less: Interest capitalized
2012
2013
2014
2015
2016
Years Ended
302,768
183,902
713
—
369,014
181,460
589
—
338,267
187,291
535
—
469,215
194,573
571
—
406,381
190,083
599
—
Earnings available for fixed charges (A)
487,383
551,063
526,093
664,359
597,063
FIXED CHARGES:
Interest and other financial charges
Portion of rents representing interest expense
Total fixed charges (B)
143,590
40,312
183,902
140,729
40,731
188,144
144,960
42,331
187,291
150,721
43,852
194,573
147,843
42,240
190,083
RATIO OF EARNINGS TO FIXED CHARGES (A) / (B)
2.65x
3.04x
2.81x
3.41x
3.14x
The following list sets forth (i) all subsidiaries of Ryder System, Inc. at December 31, 2016 , (ii) the state or country of incorporation
or organization of each subsidiary, and (iii) the names under which certain subsidiaries do business.
EXHIBIT 21.1
Name of Subsidiary
State or Country of Incorporation or
Organization
Nova Scotia
3241290 Nova Scotia Company
Associated Ryder Capital Services, Inc.
Bullwell Trailer Solutions Limited
CRTS Logistica Automotiva S.A.
Euroway Vehicle Rental Limited
Euroway Group Holdings Limited
Euroway Group Limited
Euroway Vehicle Management Limited
Euroway Vehicle Engineering Limited
Euroway Vehicle Contracts Limited
Far East Freight, Inc.
Hill Hire Limited
Network Vehicle Central, Inc.
Network Vehicle Central, LLC
Road Master, Limited
RSI Holding B.V.
RSI Purchase Corp.
RTI Argentina S.A.
RTRC Finance LP
RTR Holdings (B.V.I.) Limited
RTR Leasing I, Inc.
RTR Leasing II, Inc.
Ryder Argentina S.A.
Ryder Ascent Logistics Pte Ltd.
Ryder Asia Pacific Holdings B.V.
Ryder Capital (Barbados) SRL
Ryder Canadian Financing US LLC
Ryder Capital Ireland Holdings II LLC
Ryder Capital Luxembourg Limited, S.A.R.L.
Ryder Capital Luxembourg Limited, Corp.
Ryder Capital S. de R.L. de C.V.
Ryder Capital Services Corporation
Ryder Capital UK Holdings LLP
Ryder Chile Sistemas Intergrados de Logistica Limitada (1)
Ryder Container Terminals
Ryder CRSA Logistics (2)
Ryder CRSA Logistics (HK) Limited
Ryder de Mexico S. de R.L. de C.V.
Florida
England
Brazil
England
England
England
England
England
England
Florida
England
Florida
Florida
Bermuda
Netherlands
Delaware
Argentina
Canada
British Virgin Islands
Delaware
Delaware
Argentina
Singapore
Netherlands
Barbados
Delaware
Delaware
England
Florida
Mexico
Delaware
England
Chile
Canada
Canada
Hong Kong
Mexico
Ryder Dedicated Logistics, Inc.
Ryder Deutschland GmbH
Ryder Distribution Services Limited
Ryder do Brasil Ltda.
Ryder Energy Distribution Corporation
Ryder European B.V.
Ryder Europe Operations B.V.
Ryder Fleet Products, Inc.
Ryder Fuel Services, LLC
Ryder Funding LP
Ryder Funding II LP
Ryder Global Services, LLC
Ryder Hungary Logistics LLC
Ryder Integrated Logistics, Inc. (3)
Ryder Integrated Logistics of California Contractors, LLC
Ryder Integrated Logistics of Texas, LLC
Ryder International Acquisition Corp.
Ryder International, Inc.
Ryder Limited
Ryder Logistica Ltda.
Ryder Logistics (Shanghai) Co., Ltd.
Ryder Mauritius Holdings, Ltd.
Ryder Mexican Holding B.V.
Ryder Mexican Investments I LP
Ryder Mexican Investments II LP
Ryder Mexicana, S. de R.L. de C.V.
Ryder Offshore Holdings III LLC
Ryder Pension Fund Limited
Ryder Puerto Rico, Inc.
Ryder Purchasing LLC
Ryder Receivable Funding III, L.L.C.
Ryder Risk Solutions, LLC
Ryder Services Corporation (4)
Ryder Servicios do Brasil Ltda.
Ryder Servicios S. de R.L. de C.V.
Ryder Singapore Pte Ltd.
Ryder System B.V.
Ryder System Holdings (UK) Limited
Ryder Thailand I, LLC
Ryder Thailand II, LLC
Ryder Truck Rental Holdings Canada Ltd.
Ryder Truck Rental, Inc. (5)
Ryder Truck Rental I LLC
Ryder Truck Rental II LLC
Ryder Truck Rental III LLC
Ryder Truck Rental IV LLC
Delaware
Germany
England
Brazil
Florida
Netherlands
Netherlands
Tennessee
Florida
Delaware
Delaware
Florida
Hungary
Delaware
Delaware
Texas
Florida
Florida
England
Brazil
China
Mauritius
Netherlands
Delaware
Delaware
Mexico
Delaware
England
Delaware
Delaware
Delaware
Florida
Florida
Brazil
Mexico
Singapore
Netherlands
England
Florida
Florida
Canada
Florida
Delaware
Delaware
Delaware
Delaware
Ryder Truck Rental I LP
Ryder Truck Rental II LP
Ryder Truck Rental Canada Ltd. (6)
Ryder Truck Rental LT
Ryder Vehicle Purchasing, LLC
Ryder Vehicle Sales, LLC
Sistemas Logisticos Sigma S.A.
Tandem Transport, L.P.
Translados Americano S. de R.L. de C.V.
Truck Transerv, Inc.
____________________
(1) Chile: d/b/a Ryder Chile Limitada
(2) British Columbia, Ontario, Quebec: d/b/a CRSA Logistics
(3) Florida: d/b/a UniRyder
(4) Ohio and Texas: d/b/a Ryder Claims Services Corporation
Delaware
Delaware
Canada
Delaware
Delaware
Florida
Argentina
Georgia
Mexico
Delaware
(5)
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey,
New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah,
Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming: d/b/a Ryder Transportation Services
Maryland and Virginia: d/b/a Ryder/Jacobs
Michigan: d/b/a Atlas Trucking, Inc.
Michigan: d/b/a Ryder Atlas of Western Michigan
(6) French Name: Location de Camions Ryder du Canada Ltee
Canadian Provinces: d/b/a Ryder Integrated Logistics,
Ryder Dedicated Logistics,
Ryder Canada,
Ryder Carrier Management Services
CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-19515, No. 333-26653, No. 333-69628, No. 333-
108364, No. 333-124828, No. 333-134113, No. 333-153123, No. 333-177285, No. 333-181396, No. 333-211206 and No. 333-212138) and on Form S-3 (No. 333-
209536) of Ryder System, Inc. of our report dated February 14, 2017 relating to the financial statements, financial statement schedule and the effectiveness of
internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
February 14, 2017
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being directors of Ryder System, Inc., a Florida corporation, hereby constitutes and
appoints Robert D. Fatovic, Alena S. Brenner and Julie A. Azuaje, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for the undersigned and in his or her name, place and stead, in any and all capacities, to sign the Ryder System, Inc. Form 10-K
(Annual Report pursuant to the Securities Exchange Act of 1934) for the fiscal year ended December 31, 2016 (the “Form 10-K”), and any and all amendments
thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission and with the
New York Stock Exchange and any other stock exchange on which the Company's common stock is listed, granting unto each said attorney-in-fact and agent full
power and authority to perform every act requisite and necessary to be done in connection with the execution and filing of the Form 10-K and any and all
amendments thereto, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying all that each said attorney-in-fact and agent, or
his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
This Power of Attorney may be signed in any number of counterparts, each of which shall constitute an original and all of which, taken together, shall
constitute one Power of Attorney.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand effective the 14th day of February , 2017 .
/s/ Robert J. Eck
Robert J. Eck
/s/ L. Patrick Hassey
L. Patrick Hassey
/s/ Tamara L. Lundgren
Tamara L. Lundgren
/s/ E. Follin Smith
E. Follin Smith
/s/ John M. Berra
John M. Berra
/s/ Robert A. Hagemann
Robert A Hagemann
/s/ Michael F. Hilton
Michael F. Hilton
/s/ Luis P. Nieto, Jr.
Luis P. Nieto, Jr.
/s/ Abbie J. Smith
Abbie J. Smith
/s/ Hansel E. Tookes II
Hansel E. Tookes, II
EXHIBIT 31.1
CERTIFICATION
I, Robert E. Sanchez, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Ryder System, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date:
February 14, 2017
/s/ Robert E. Sanchez
Robert E. Sanchez
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Art A. Garcia, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Ryder System, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date:
February 14, 2017
/s/ Art A. Garcia
Art A. Garcia
Executive Vice President and Chief Financial Officer
EXHIBIT 32
CERTIFICATION
In connection with the Annual Report of Ryder System, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2016 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), Robert E. Sanchez, President and Chief Executive Officer of the Company, and Art A. Garcia, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Robert E. Sanchez
Robert E. Sanchez
President and Chief Executive Officer
February 14, 2017
/s/ Art A. Garcia
Art A. Garcia
Executive Vice President and Chief Financial Officer
February 14, 2017