UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2019~~March 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 1-4364

RYDER SYSTEM, INC.

(Exact name of registrant as specified in its charter)

Florida

59-0739250

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

11690 N.W. 105th Street

Miami,

Florida

33178

(305)

500-3726

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	R	New York Stock Exchange

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☑

The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at ~~September 30, 2019~~March 31, 2020 was ~~53,292,045.~~53,735,964.

RYDER SYSTEM, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS



		Page No.

PART I FINANCIAL INFORMATION

ITEM 1 Financial Statements (unaudited)

	Condensed Consolidated ~~Condensed~~ Statements of Earnings ~~— Three and nine months ended September 30, 2019 and 2018~~	1

	Condensed Consolidated ~~Condensed~~ Statements of Comprehensive Income ~~— Three and nine months ended September 30, 2019 and 2018~~	2

	Condensed Consolidated ~~Condensed~~ Balance Sheets — ~~September~~ ~~30, 2019 and December 31, 2018~~	3

	Condensed Consolidated ~~Condensed~~ Statements of Cash Flows — ~~Nine~~ ~~months ended~~ ~~September~~ ~~30, 2019 and 2018~~	4

	Condensed Consolidated ~~Condensed~~ Statements of Shareholders' Equity ~~— Three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30, 2019 and 2018~~	5

	Notes to Condensed Consolidated ~~Condensed~~ Financial Statements	76

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			3724

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk			6552

ITEM 4 Controls and Procedures			6552

PART II OTHER INFORMATION

ITEM 1A Risk Factors			6653

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds			6654







ITEM 6 Exhibits			6755

SIGNATURE			6856

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF EARNINGS

(unaudited)


		Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
		2019		2018	2019		2018		2020		2019
		(In thousands, except per share amounts)												(In thousands, except per share amounts)
Lease & related maintenance and rental revenues	Lease & related maintenance and rental revenues	$	959,189	896,788	$	2,792,581	2,580,369	Lease & related maintenance and rental revenues	$	927,756	$	899,559
Services revenue	Services revenue	1,120,900		1,106,107	3,412,048		3,106,575	Services revenue	1,112,188		1,132,048
Fuel services revenue	Fuel services revenue	143,843		156,787	444,623		466,847	Fuel services revenue	121,362		148,720
Total revenues	Total revenues	2,223,932		2,159,682	6,649,252		6,153,791	Total revenues	2,161,306		2,180,327

Cost of lease & related maintenance and rental	Cost of lease & related maintenance and rental	877,767		646,674	2,229,596		1,895,058	Cost of lease & related maintenance and rental	818,292		664,289
Cost of services	Cost of services	948,087		947,925	2,896,182		2,644,775	Cost of services	954,429		971,690
Cost of fuel services	Cost of fuel services	140,247		153,420	431,885		455,874	Cost of fuel services	120,449		143,275
Other operating expenses	Other operating expenses	28,924		30,020	92,213		93,682	Other operating expenses	33,565		33,626
Selling, general and administrative expenses	Selling, general and administrative expenses	216,037		215,599	673,778		636,039	Selling, general and administrative expenses	224,119		231,325
Non-operating pension costs	Non-operating pension costs	6,885		1,161	20,060		3,241	Non-operating pension costs	1,221		6,462
Used vehicle sales, net	Used vehicle sales, net	22,734		3,203	49,091		16,193	Used vehicle sales, net	20,684		8,217
Interest expense	Interest expense	62,475		47,846	178,570		128,757	Interest expense	62,566		55,336
Miscellaneous (income) loss, net	Miscellaneous (income) loss, net	676		(4,483)	(29,457)		(10,633)	Miscellaneous (income) loss, net	8,668		(8,222)
Restructuring and other items, net	Restructuring and other items, net	11,360		(546)	27,374		17,349	Restructuring and other items, net	30,947		6,178
		2,315,192		2,040,819	6,569,292		5,880,335		2,274,940		2,112,176

Earnings (loss) from continuing operations before income taxes	Earnings (loss) from continuing operations before income taxes	(91,260)		118,863	79,960		273,456	Earnings (loss) from continuing operations before income taxes	(113,634)		68,151
Provision for income taxes		278		27,261	50,156		98,372
Provision for (benefit from) income taxes								Provision for (benefit from) income taxes	(4,505)		22,261
Earnings (loss) from continuing operations	Earnings (loss) from continuing operations	(91,538)		91,602	29,804		175,084	Earnings (loss) from continuing operations	(109,129)		45,890
Earnings (loss) from discontinued operations, net of tax	Earnings (loss) from discontinued operations, net of tax	83		(760)	(728)		(2,448)	Earnings (loss) from discontinued operations, net of tax	(484)		(574)
Net earnings (loss)	Net earnings (loss)	$	(91,455)	90,842	$	29,076	172,636	Net earnings (loss)	$	(109,613)	$	45,316

Earnings (loss) per common share — Basic:
Earnings (loss) per common share — Basic								Earnings (loss) per common share — Basic
Continuing operations	Continuing operations	$	(1.75)	1.74	$	0.56	3.33	Continuing operations	$	(2.09)	$	0.87
Discontinued operations	Discontinued operations	—		(0.01)	(0.02)		(0.05)	Discontinued operations	(0.01)		(0.01)
Net earnings (loss)	Net earnings (loss)	$	(1.75)	1.73	$	0.55	3.28	Net earnings (loss)	$	(2.10)	$	0.86

Earnings (loss) per common share — Diluted:
Earnings (loss) per common share — Diluted								Earnings (loss) per common share — Diluted
Continuing operations	Continuing operations	$	(1.75)	1.73	$	0.56	3.31	Continuing operations	$	(2.09)	$	0.87
Discontinued operations	Discontinued operations	—		(0.01)	(0.02)		(0.05)	Discontinued operations	(0.01)		(0.01)
Net earnings (loss)	Net earnings (loss)	$	(1.75)	1.72	$	0.55	3.26	Net earnings (loss)	$	(2.10)	$	0.86

See accompanying notes to condensed consolidated ~~condensed~~ financial statements.

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

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


		Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
		2019		2018	2019		2018		2020		2019
		(In thousands)												(In thousands)

Net earnings (loss)	Net earnings (loss)	$	(91,455)	90,842	$	29,076	172,636	Net earnings (loss)	$	(109,613)	$	45,316

Other comprehensive income (loss):	Other comprehensive income (loss):							Other comprehensive income (loss):

Changes in currency translation adjustment and other	Changes in currency translation adjustment and other	(21,812)		6,367	(13,813)		(21,866)	Changes in currency translation adjustment and other	(84,620)		15,762

Amortization of pension and postretirement items	Amortization of pension and postretirement items	7,735		7,163	22,580		20,793	Amortization of pension and postretirement items	7,779		7,468

Income tax expense related to amortization of pension and postretirement items	Income tax expense related to amortization of pension and postretirement items	(1,689)		(1,897)	(5,084)		(4,771)	Income tax expense related to amortization of pension and postretirement items	(1,613)		(2,014)
Amortization of pension and postretirement items, net of tax	Amortization of pension and postretirement items, net of tax	6,046		5,266	17,496		16,022	Amortization of pension and postretirement items, net of tax	6,166		5,454

Change in net actuarial loss and prior service cost		—		—	(9,440)		(1,211)
Income tax benefit related to change in net actuarial loss and prior service cost		—		—	2,237		308
Change in net actuarial loss and prior service cost, net of taxes		—		—	(7,203)		(903)

Other comprehensive income (loss), net of taxes	Other comprehensive income (loss), net of taxes	(15,766)		11,633	(3,520)		(6,747)	Other comprehensive income (loss), net of taxes	(78,454)		21,216

Comprehensive income	Comprehensive income	$	(107,221)	102,475	$	25,556	165,889	Comprehensive income	$	(188,067)	$	66,532

See accompanying notes to condensed consolidated ~~condensed~~ financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~CONDENSED~~ BALANCE SHEETS

(unaudited)


		September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
		(In thousands, except share amounts)						(In thousands, except share amounts)
Assets:	Assets:				Assets:
Current assets:	Current assets:				Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	75,867	68,111	Cash and cash equivalents	$	397,235	$	73,584
Receivables, net of allowance of $19,843 and $17,182, respectively		1,274,492		1,242,058
Receivables, net					Receivables, net	1,202,819		1,228,490
Inventories	Inventories	83,226		79,228	Inventories	65,422		80,822
Prepaid expenses and other current assets	Prepaid expenses and other current assets	138,553		178,313	Prepaid expenses and other current assets	191,090		179,155
Total current assets	Total current assets	1,572,138		1,567,710	Total current assets	1,856,566		1,562,051
Revenue earning equipment, net	Revenue earning equipment, net	10,428,451		9,415,961	Revenue earning equipment, net	10,033,616		10,427,664
Operating property and equipment, net of accumulated depreciation of $1,236,227 and $1,256,037, respectively		891,689		862,054
Operating property and equipment, net of accumulated depreciation of $1,226,339 and $1,224,216, respectively					Operating property and equipment, net of accumulated depreciation of $1,226,339 and $1,224,216, respectively	906,712		917,799
Goodwill	Goodwill	474,814		475,206	Goodwill	474,179		475,025
Intangible assets, net of accumulated amortization of $71,298 and $65,048, respectively		52,742		59,075
Intangible assets, net					Intangible assets, net	48,673		50,905
Sales-type leases and other assets	Sales-type leases and other assets	1,063,010		967,802	Sales-type leases and other assets	1,044,478		1,041,890
Total assets	Total assets	$	14,482,844	13,347,808	Total assets	$	14,364,224	$	14,475,334

Liabilities and shareholders’ equity:	Liabilities and shareholders’ equity:				Liabilities and shareholders’ equity:
Current liabilities:	Current liabilities:				Current liabilities:
Short-term debt and current portion of long-term debt	Short-term debt and current portion of long-term debt	$	940,691	937,131	Short-term debt and current portion of long-term debt	$	853,527	$	1,154,564
Accounts payable	Accounts payable	742,868		731,876	Accounts payable	522,612		594,712
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	849,293		847,739	Accrued expenses and other current liabilities	820,257		876,077
Total current liabilities	Total current liabilities	2,532,852		2,516,746	Total current liabilities	2,196,396		2,625,353
Long-term debt	Long-term debt	6,805,886		5,712,146	Long-term debt	7,320,843		6,770,224
Other non-current liabilities	Other non-current liabilities	1,451,415		1,402,625	Other non-current liabilities	1,472,284		1,442,003
Deferred income taxes	Deferred income taxes	1,215,704		1,179,723	Deferred income taxes	1,131,965		1,161,444
Total liabilities	Total liabilities	12,005,857		10,811,240	Total liabilities	12,121,488		11,999,024

Commitments and contingencies (Note 17)					Commitments and contingencies (Note 17)
Shareholders’ equity:	Shareholders’ equity:				Shareholders’ equity:
Preferred stock, 0 par value per share — authorized, 3,800,917; NaN outstanding, September 30, 2019 and December 31, 2018		—		—
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, September 30, 2019 — 53,292,045 and December 31, 2018 — 53,116,485		26,665		26,559
Preferred stock, 0 par value per share — authorized, 3,800,917; NaN outstanding, March 31, 2020 and December 31, 2019					Preferred stock, 0 par value per share — authorized, 3,800,917; NaN outstanding, March 31, 2020 and December 31, 2019	—		—
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, March 31, 2020 — 53,735,964 and December 31, 2019 — 53,278,316					Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, March 31, 2020 — 53,735,964 and December 31, 2019 — 53,278,316	26,867		26,639
Additional paid-in capital	Additional paid-in capital	1,103,120		1,084,391	Additional paid-in capital	1,103,928		1,108,649
Retained earnings	Retained earnings	2,262,356		2,337,252	Retained earnings	2,026,886		2,177,513
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(915,154)		(911,634)	Accumulated other comprehensive loss	(914,945)		(836,491)
Total shareholders’ equity	Total shareholders’ equity	2,476,987		2,536,568	Total shareholders’ equity	2,242,736		2,476,310
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	14,482,844	13,347,808	Total liabilities and shareholders’ equity	$	14,364,224	$	14,475,334

See accompanying notes to condensed consolidated ~~condensed~~ financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF CASH FLOWS

(unaudited)


		Nine months ended September 30,						Three months ended March 31,
		2019		2018		2020		2019
		(In thousands)						(In thousands)
Cash flows from operating activities from continuing operations:	Cash flows from operating activities from continuing operations:				Cash flows from operating activities from continuing operations:
Net earnings		$	29,076	172,636
Net earnings (loss)					Net earnings (loss)	$	(109,613)	$	45,316
Less: Loss from discontinued operations, net of tax	Less: Loss from discontinued operations, net of tax	(728)		(2,448)	Less: Loss from discontinued operations, net of tax	(484)		(574)
Earnings from continuing operations		29,804		175,084
Earnings (loss) from continuing operations					Earnings (loss) from continuing operations	(109,129)		45,890
Depreciation expense	Depreciation expense	1,342,746		1,021,984	Depreciation expense	523,223		377,357
Goodwill impairment charge		—		15,513

Used vehicle sales, net	Used vehicle sales, net	49,091		16,193	Used vehicle sales, net	20,684		8,217

Amortization expense and other non-cash charges, net	Amortization expense and other non-cash charges, net	125,289		104,871	Amortization expense and other non-cash charges, net	42,698		27,131
Non-cash lease expense					Non-cash lease expense	22,460		23,218
Non-operating pension costs and share-based compensation expense	Non-operating pension costs and share-based compensation expense	41,737		22,072	Non-operating pension costs and share-based compensation expense	4,312		13,861

Deferred income tax expense		32,157		105,893
Deferred income tax expense (benefit)					Deferred income tax expense (benefit)	(13,598)		19,729
Collections on sales-type leases	Collections on sales-type leases	89,995		63,335	Collections on sales-type leases	26,597		34,017
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of acquisitions:					Changes in operating assets and liabilities, net of acquisitions:
Receivables	Receivables	(17,784)		(126,848)	Receivables	(14,634)		26,181
Inventories	Inventories	(3,869)		(4,389)	Inventories	15,409		(756)
Prepaid expenses and other assets	Prepaid expenses and other assets	(19,439)		(104,473)	Prepaid expenses and other assets	(36,482)		(27,645)
Accounts payable	Accounts payable	(30,241)		3,754	Accounts payable	(25,707)		18,586
Accrued expenses and other non-current liabilities	Accrued expenses and other non-current liabilities	(50,300)		(17,429)	Accrued expenses and other non-current liabilities	(17,247)		(80,456)
Net cash provided by operating activities from continuing operations	Net cash provided by operating activities from continuing operations	1,589,186		1,275,560	Net cash provided by operating activities from continuing operations	438,586		485,330

Cash flows from investing activities from continuing operations:					Cash flows from investing activities from continuing operations:
Purchases of property and revenue earning equipment					Purchases of property and revenue earning equipment	(430,960)		(1,026,711)
Sales of revenue earning equipment					Sales of revenue earning equipment	101,099		101,549
Sales of operating property and equipment					Sales of operating property and equipment	1,883		1,918

Other					Other	(5,000)		—
Net cash used in investing activities from continuing operations					Net cash used in investing activities from continuing operations	(332,978)		(923,244)

Cash flows from financing activities from continuing operations:	Cash flows from financing activities from continuing operations:				Cash flows from financing activities from continuing operations:
Net borrowings (repayments) of commercial paper and revolving credit facilities	Net borrowings (repayments) of commercial paper and revolving credit facilities	182,708		(113,666)	Net borrowings (repayments) of commercial paper and revolving credit facilities	332,682		158,258
Debt proceeds	Debt proceeds	2,238,622		1,467,528	Debt proceeds	556,849		799,300
Debt repaid	Debt repaid	(1,334,044)		(471,700)	Debt repaid	(627,701)		(478,411)
Dividends on common stock	Dividends on common stock	(87,039)		(83,506)	Dividends on common stock	(30,594)		(29,301)
Common stock issued	Common stock issued	5,554		13,023	Common stock issued	2,795		3,108
Common stock repurchased	Common stock repurchased	(24,426)		(27,680)	Common stock repurchased	(11,924)		(14,156)

Tax withholding on shares settled					Tax withholding on shares settled	(4,013)		(3,440)
Debt issuance costs and other items	Debt issuance costs and other items	(4,815)		(4,763)	Debt issuance costs and other items	(474)		(1,070)
Net cash provided by financing activities from continuing operations	Net cash provided by financing activities from continuing operations	976,560		779,236	Net cash provided by financing activities from continuing operations	217,620		434,288

Cash flows from investing activities from continuing operations:
Purchases of property and revenue earning equipment		(2,957,232)		(2,200,006)
Sales of revenue earning equipment		353,743		279,751

Sales of operating property and equipment		49,726		11,869
Acquisitions, net of cash acquired		—		(167,372)

Net cash used in investing activities from continuing operations		(2,553,763)		(2,075,758)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(3,254)		1,464	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	725		(1,551)
Increase (decrease) in cash, cash equivalents, and restricted cash from continuing operations	Increase (decrease) in cash, cash equivalents, and restricted cash from continuing operations	8,729		(19,498)	Increase (decrease) in cash, cash equivalents, and restricted cash from continuing operations	323,953		(5,177)

Decrease in cash, cash equivalents, and restricted cash from discontinued operations		(973)		(272)

Increase (decrease) in cash, cash equivalents, and restricted cash from discontinued operations					Increase (decrease) in cash, cash equivalents, and restricted cash from discontinued operations	(302)		(147)
Increase (decrease) in cash, cash equivalents, and restricted cash	Increase (decrease) in cash, cash equivalents, and restricted cash	7,756		(19,770)	Increase (decrease) in cash, cash equivalents, and restricted cash	323,651		(5,324)
Cash, cash equivalents, and restricted cash at January 1		68,111		83,022
Cash, cash equivalents, and restricted cash at September 30		$	75,867	63,252
Cash, cash equivalents, and restricted cash at beginning of year					Cash, cash equivalents, and restricted cash at beginning of year	73,584		68,111
Cash, cash equivalents, and restricted cash at end of period					Cash, cash equivalents, and restricted cash at end of period	$	397,235	$	62,787

See accompanying notes to condensed consolidated ~~condensed~~ financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)


			Three months ended ~~September 30, 2019~~March 31, 2020


		Preferred Stock		Common Stock				Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Loss				Preferred Stock		Common Stock								Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss
		Amount		Shares	Par								Total		Amount			Shares			Par					Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Loss	Total
		(In thousands, except share amounts)																									(In thousands, except share amounts)
Balance at July 1, 2019		$	—	53,334,512	$	26,667	1,094,807	2,385,620	(899,388)	2,607,706
Balance at January 1, 2020											Balance at January 1, 2020	$	—	53,278,316		$	26,639		$	1,108,649		$	2,177,513	$	(836,491)		$	2,476,310
Adoption of new accounting standard (see Note 2)											Adoption of new accounting standard (see Note 2)	—		—		—			—			(5,077)		—			(5,077)
Comprehensive income	Comprehensive income	—		—	—		—	(91,455)	(15,766)	(107,221)	Comprehensive income	—		—		—			—			(109,613)		(78,454)			(188,067)
Common stock dividends declared and paid—$0.56 per share	Common stock dividends declared and paid—$0.56 per share	—		—	—		—	(29,886)	—	(29,886)	Common stock dividends declared and paid—$0.56 per share	—		—		—			—			(30,379)		—			(30,379)
Common stock issued under employee stock option and stock purchase plans ⁽¹⁾		—		20,238	29		2,811	—	—	2,840
Benefit plan stock sales (purchases), net ⁽²⁾		—		(10)	—		(1)	—	—	(1)
Common stock issued under employee stock award and stock purchase plans ⁽¹⁾											Common stock issued under employee stock award and stock purchase plans ⁽¹⁾	—		760,258		380			(1,637)			—		—			(1,257)
Benefit plan stock sales (purchases) ⁽²⁾											Benefit plan stock sales (purchases) ⁽²⁾	—		488		—			39			—		—			39
Common stock repurchases	Common stock repurchases	—		(62,695)	(31)		(1,252)	(1,923)	—	(3,206)	Common stock repurchases	—		(303,098)		(152)			(6,214)			(5,558)		—			(11,924)
Share-based compensation	Share-based compensation	—		—	—		6,755	—	—	6,755	Share-based compensation	—		—		—			3,091			—		—			3,091
Balance at September 30, 2019		$	—	53,292,045	$	26,665	1,103,120	2,262,356	(915,154)	2,476,987
Balance at March 31, 2020											Balance at March 31, 2020	$	—	53,735,964		$	26,867		$	1,103,928		$	2,026,886	$	(914,945)		$	2,242,736


			Three months ended ~~September 30, 2018~~March 31, 2019


		Preferred Stock		Common Stock				Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Loss				Preferred Stock		Common Stock								Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss
		Amount		Shares	Par								Total		Amount			Shares			Par					Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Loss	Total
		(In thousands, except share amounts)																									(In thousands, except share amounts)
Balance at July 1, 2018		$	—	53,094,736	$	26,547	1,062,561	2,201,534	(829,783)	2,460,859
Balance at January 1, 2019											Balance at January 1, 2019	$	—	53,116,485		$	26,559		$	1,084,391		$	2,337,252	$	(911,634)		$	2,536,568
Comprehensive income	Comprehensive income	—		—	—		—	90,842	11,633	102,475	Comprehensive income	—		—		—			—			45,316		21,216			66,532
Common stock dividends declared and paid—$0.54 per share	Common stock dividends declared and paid—$0.54 per share	—		—	—		—	(28,663)	—	(28,663)	Common stock dividends declared and paid—$0.54 per share	—		—		—			—			(29,207)		—			(29,207)
Common stock issued under employee stock option and stock purchase plans ⁽¹⁾		—		127,911	64		8,298	—	—	8,362
Benefit plan stock sales (purchases), net ⁽²⁾		—		(40)	—		(3)	—	—	(3)
Common stock issued under employee stock award and stock purchase plans ⁽¹⁾											Common stock issued under employee stock award and stock purchase plans ⁽¹⁾	—		409,294		205			(547)			—		—			(342)
Benefit plan stock sales (purchases) ⁽²⁾											Benefit plan stock sales (purchases) ⁽²⁾	—		270		—			10			—		—			10
Common stock repurchases	Common stock repurchases	—		(134,494)	(67)		(2,624)	(7,768)	—	(10,459)	Common stock repurchases	—		(225,844)		(113)			(4,539)			(9,504)		—			(14,156)
Share-based compensation	Share-based compensation	—		—	—		7,179	—	—	7,179	Share-based compensation	—		—		—			7,399			—		—			7,399

Balance at September 30, 2018		$	—	53,088,113	$	26,544	1,075,411	2,255,945	(818,150)	2,539,750
Balance at March 31, 2019											Balance at March 31, 2019	$	—	53,300,205		$	26,651		$	1,086,714		$	2,343,857	$	(890,418)		$	2,566,804

__________________

(1)Net of common shares ~~delivered~~withheld as payment for the exercise price or to satisfy the holders’ withholding tax liability upon exercise of options.

(2)Represents open-market transactions of common shares by the trustee of ~~Ryder’s~~our deferred compensation plans.

See accompanying notes to condensed consolidated ~~condensed~~ financial statements.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY~~

~~(unaudited)~~


			~~Nine months ended September 30, 2019~~

Preferred
Stock Common Stock Additional
Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive Loss
Amount Shares Par Total
(In thousands, except share amounts)
Balance at January 1, 2019 $ — 53,116,485 $ 26,559 1,084,391 2,337,252 (911,634) 2,536,568
Comprehensive income — — — — 29,076 (3,520) 25,556
Common stock dividends declared and paid—$1.64 per share — — — — (87,942) — (87,942)
Common stock issued under employee stock option and stock purchase plans ⁽¹⁾
— 583,329 310 5,246 — — 5,556
Benefit plan stock sales (purchases), net ⁽²⁾
— 40 — (2) — — (2)
Common stock repurchases — (407,809) (204) (8,192) (16,030) — (24,426)
Share-based compensation — — — 21,677 — — 21,677
Balance at September 30, 2019 $ — 53,292,045 $ 26,665 1,103,120 2,262,356 (915,154) 2,476,987


			~~Nine months ended September 30, 2018~~

Preferred
Stock Common Stock Additional
Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive Loss
Amount Shares Par Total
(In thousands, except share amounts)
Balance at January 1, 2018 $ — 52,955,314 $ 26,478 1,051,017 2,086,918 (710,836) 2,453,577
Comprehensive income — — — — 172,636 (6,747) 165,889
Common stock dividends declared and paid—$1.58 per share — — — — (83,889) — (83,889)
Common stock issued under employee stock option and stock purchase plans ⁽¹⁾
— 501,183 250 12,720 — — 12,970
Benefit plan stock sales (purchases), net ⁽²⁾
— 505 — 52 — — 52
Common stock repurchases — (368,889) (184) (7,209) (20,287) — (27,680)
Share-based compensation — — — 18,831 — — 18,831
Adoption of new accounting standard ⁽³⁾
— — — — 100,567 (100,567) —
Balance at September 30, 2018 $ — 53,088,113 $ 26,544 1,075,411 2,255,945 (818,150) 2,539,750

~~__________________~~

~~(1)Net of common shares delivered as payment for the exercise price or to satisfy the holders’ withholding tax liability upon exercise of options.~~

~~(2)Represents open-market transactions of common shares by the trustee of Ryder’s deferred compensation plans.~~

~~(3)~~Reflects the impact of adopting ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in 2018, which resulted in a reclassification of stranded tax effects caused by the 2017 Tax Cuts and Jobs Act from accumulated other comprehensive loss to retained earnings.

~~See accompanying notes to consolidated condensed financial statements.~~

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

(unaudited)

1. GENERAL

Interim Financial Statements

The accompanying unaudited Condensed Consolidated ~~Condensed~~ Financial Statements include the accounts of Ryder System, Inc. (Ryder) and all entities in which Ryder has a controlling voting interest (subsidiaries) and variable interest entities ~~(VIEs)~~(VIE) required to be consolidated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited Condensed Consolidated ~~Condensed~~ Financial Statements have been prepared in accordance with the accounting policies described in our ~~2018~~2019 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes ~~thereto except for the update to our significant accounting policies for revenue recognition, leases and goodwill discussed below.~~thereto. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included and the disclosures herein are adequate. The operating results for interim periods are unaudited and are not necessarily indicative of the results that can be expected for a full year.

~~Update~~The coronavirus (COVID-19) pandemic has negatively impacted several areas of our businesses, including lower demand for commercial rental and declines in volumes in our used vehicle sales, which we also expect to impact pricing (refer to Note 5, "Revenue Earning Equipment," for additional information), in our Fleet Management Solutions (FMS) business segment; deterioration in Supply Chain Solutions (SCS) volumes, primarily due to production shut downs in the automotive industry; sales growth opportunities in all of our businesses; and higher bad debt expenses related to increased concerns around customers' ability to pay invoices. With respect to our ChoiceLease product line, our customers have signed long-term lease contracts and, therefore, we do not expect our revenue and cash flows to be materially affected provided our customers remain solvent and continue to make their payments. We have attempted to mitigate the adverse impacts from the pandemic through cost reduction measures and reduction in capital expenditures.

Depending on the extent and duration of the pandemic, it may have a further impact on our significant judgments and estimates, including those related to goodwill and other asset impairments, residual values and other depreciation assumptions, deferred income taxes and annual effective tax rates, variable revenue considerations, the valuation of our pension plans, and allowance for credit losses.

Significant Accounting Policies

Our significant accounting policies are detailed in "Note 1: Summary of Significant Accounting Policies" within Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2018. As discussed in Note 2, "Recent~~2019.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Reference Rate Reform

In March 2020, the Financial Accounting ~~Pronouncements," effective January 1, 2019, we adopted~~Standards Board (FASB) issued Accounting Standards Update (ASU) No. ~~2016-02,~~ ~~Leases~~2020-04, Reference Rate Reform (Topic ~~842)~~848). This update provides optional expedients for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued at the end of 2021 because of reference rate reform. The update is effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact on our consolidated financial position, results of operations, and cash flows.

Income Taxes

~~using~~

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This pronouncement enhances and simplifies various aspects of income tax accounting guidance. Among other things, the amendment removes the year-to-date loss limitations in interim-period tax accounting and requires entities to reflect the effect of an enacted change in tax laws in the interim period that includes the enactment date of the new legislation. The standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. We have early adopted this update in the first quarter of 2020, under the modified retrospective basis and prospective transition ~~comparative method. We~~approaches, and it did not have ~~recast all prior period amounts in this Form 10-Q to conform to the current period presentation based~~a material impact on our ~~adoption~~consolidated financial position, results of ~~this~~operations, and cash flows.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Cloud Computing Arrangements

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. The new standard aligns the accounting ~~standard. Refer~~for costs incurred to ~~Note 2, "Recent Accounting Pronouncements,"~~implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The standard is effective for ~~additional information~~fiscal years beginning after December 15, 2019. We adopted the new standard prospectively on ~~the revised amounts. The significant changes to~~January 1, 2020 and it did not have a material impact on our ~~accounting policies as a result~~consolidated financial position, results of ~~adopting Topic 842 are discussed below.~~operations, and cash flows.

~~Revenue Recognition~~Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard modifies the measurement of expected credit losses of certain financial instruments, including accounts receivable (excluding those related to operating leases) and net investments in sales-type leases. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The standard is effective for fiscal years beginning after December 15, 2019. The standard requires a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. Periods prior to the adoption date that are presented for comparative purposes are not adjusted. We adopted this new standard as of January 1, 2020 and it did not have a material impact on our consolidated financial position, results of operations, and cash flows.

3. REVENUE

Lease & related maintenance and rental revenues includes ChoiceLease and commercial rental revenues from our Fleet Management Solutions (FMS) business segment. We offer a full service lease as well as a lease with more flexible maintenance options under our ChoiceLease product line, which are marketed, priced and managed as bundled products, that include the equipment lease, maintenance and other related services. We do not offer a stand-alone unbundled lease of new vehicles. We offer rental of vehicles under our commercial rental product line, which allows customers to supplement their fleet of vehicles on a short-term basis.

Our ChoiceLease product includes the lease of a vehicle (lease component) and the executory agreement for the maintenance, insurance, taxes and other services (non-lease components) related to the leased vehicles during the lease term. We generally lease new vehicles to our customers. Consideration is allocated between the lease component and non-lease component based on management's best estimate of the relative stand-alone selling price of each component. Our ChoiceLease product provides 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 and variable charges are typically billed a month in arrears. Revenue from the lease component of ChoiceLease agreements is recognized based on the classification of the arrangement, typically as either an operating or a sales-type lease. Our commercial rental product includes the short-term rental of a vehicle (one day up to one year in length). All of our rental arrangements are classified as operating leases and revenue is recognized on a straight-line basis.

The majority of our leases are classified as operating leases and we recognize revenue for the lease component of the product line on a straight-line basis. The non-lease component for maintenance services is accounted for in accordance with revenue guidance in ~~Revenue from Contracts with Customers (Topic 606)~~. Maintenance services are not typically performed evenly over the life of a ChoiceLease contract as the level of maintenance provided generally increases as vehicles age. We recognize maintenance revenue using an input method, consistent with the estimated pattern of the costs to maintain the underlying vehicles. This will generally result in the recognition of a contract liability for some portion of the customer's payments allocated to the maintenance service component of the arrangement. Included in lease & related maintenance and rental revenues isincluded non-lease revenue from maintenance services of ~~$235~~$240 million and ~~$229~~$239 million for the three months ended March 31, 2020 and 2019, respectively.

Disaggregation of Revenue

Primary Geographical Markets


	Three months ended March 31, 2020
	FMS		SCS		DTS		Eliminations		Total
	(In thousands)
United States	$	1,197,521	$	522,525	$	334,888	$	(137,295)	$	1,917,639
Canada	70,765		53,552		—		(4,971)		119,346
Europe	71,951		—		—		—		71,951
Mexico	—		52,370		—		—		52,370

Total Revenues	$	1,340,237	$	628,447	$	334,888	$	(142,266)	$	2,161,306

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~September 30, 2019 and 2018, respectively, and $710 million and $677 million for the nine months ended September 30, 2019 and 2018, respectively.~~


	Three months ended March 31, 2019
	FMS		SCS		DTS		Eliminations		Total
	(In thousands)
United States	$	1,198,943	$	529,393	$	349,621	$	(151,163)	$	1,926,794
Canada	74,014		49,708		—		(5,401)		118,321
Europe	78,642		—		—		—		78,642
Mexico	—		53,277		—		—		53,277
Singapore	—		3,293		—		—		3,293
Total Revenues	$	1,351,599	$	635,671	$	349,621	$	(156,564)	$	2,180,327

Effective with the adoption of Topic 842, we recorded an after-tax cumulative effect adjustment to decrease retained earnings as of January 1, 2017, by approximately $315 million primarily to recognize a contract liability (deferred revenue) related to maintenance services, which was partially offset by costs capitalized related to sales commissions.

We recorded deferred revenue of $573 million and $566 million as of September 30, 2019 and December 31, 2018, respectively, related to the maintenance services component of our ChoiceLease product line. We also recorded capitalized sales commissions of $92 million and $93 million as of September 30, 2019 and December 31, 2018, respectively. Included in capitalized sales commissions are initial direct costs of our leases of $55 million and $53 million as of September 30, 2019 and December 31, 2018 related to incremental sales commissions paid to our sales force as a result of obtaining ChoiceLease contracts. Refer to Note 3, "Revenue," and Note 5, "Accrued Expenses and Other Liabilities" for further information.

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 time charge, the 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 equipment usage or CPI change occurs. This consideration is allocated to the lease and non-lease components of the contract as it is billed to the customer based on the allocation determined at contract inception. Variable consideration allocated to the lease component is recognized in revenue on a straight-line basis for the remainder of the contract term and variable consideration allocated to the non-lease component is recognized in revenue using an input method, consistent with the estimated pattern of maintenance costs for the remainder of the contract term.

Leases not classified as operating leases are generally considered sales-type leases. We recognize revenue for sales-type leases using the effective interest method, which provides a constant periodic rate of return on the outstanding investment in the lease. We generally lease new vehicles under our sales-type lease arrangements. Therefore, there is generally not a difference between the net investment in the lease and the carrying value of the vehicles, and we do not recognize selling profit or loss at lease commencement.

~~Revenue is recognized net of amounts collected from customers for taxes, such as sales tax, that are remitted to the applicable taxing authorities.~~

~~Significant Judgments and Estimates~~

We allocate the contract consideration (excluding insurance) between the lease and maintenance components based on the relative standalone selling prices of each of those services and allocate contract consideration for insurance based on the price of insurance, which is priced separately. If the lessee elects to obtain insurance coverage from us, the consideration for the fixed monthly rate is allocated to the insurance performance obligations.

Allocating consideration between lease and non-lease components in our ChoiceLease product requires significant judgment. We do not sell the components of our ChoiceLease product offering on a stand-alone basis. Judgment is required to determine the stand-alone selling prices of the lease and non-lease components in order to allocate the consideration on a relative stand-alone selling price basis.

We determine the stand-alone price of the lease component using the projected cash flows of the lease assuming a certain targeted return. We consider a number of factors to determine the targeted return, including the net present value of the projected cash flows in a ChoiceLease arrangement discounted at our weighted average cost of capital.Industry

Our ~~ChoiceLease arrangements include maintenance as a non-lease component of~~SCS business segment includes revenue from the contract. We determine the standalone price of the maintenance component using an expected cost plus margin approach. The expected costs are based on our historical costs of providing maintenance services in our ChoiceLease arrangements. The margin is based on historical margin percentages for our full service maintenance contracts in the SelectCare product line, as the maintenance performance obligation in those contracts is similar to maintenance in our ChoiceLease arrangements. Full service maintenance arrangements in SelectCare are priced based on targeted margin percentages for new and used vehicles by type of vehicle (trucks, tractors, and trailers), considering the fixed and variable costs of providing maintenance services. Certain ChoiceLeasebelow industries:

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~


	Three months ended March 31,
	2020		2019
	(In thousands)
Automotive	$	249,925	$	253,679
Technology and healthcare	91,133		113,668
Consumer package goods and retail	229,932		217,098
Industrial and other	57,457		51,226
Total SCS Revenues	$	628,447	$	635,671

products include liability and/or physical damage insurance coverage to our customers. We charge a separate fixed monthly rate for these insurance offerings, which represents the standalone selling price.

Variable consideration, such as billings for mileage and from changes in CPI, is excluded from the allocation of consideration at the inception of the contract. Revenues associated with licensing and operating taxes that are billed as incurred based on the contract arrangement are also excluded from the allocation of consideration at contract inception and allocated as earned. The variable consideration and licensing and operating tax revenues are allocated to the lease and maintenance components based on the same allocation percentages at contract inception (or the most recent contract modification) when earned.

~~Contract Balances~~

We do not have material contract assets as we generally invoice customers as we perform services. Contract receivables are recorded in “Receivables, net” in the Consolidated Condensed Balance Sheets. Payment terms vary by contract type, although terms generally include a requirementMeasurement of payment within 15 to 90 days. As a practical expedient, we do not assess whether a contract has a significant financing component as the period between the receipt of customer payment and the transfer of service to the customer is less than a year.

Our contract liabilities consist of deferred revenue related to maintenance services. We record deferred revenues when cash payments are received or due in advance of our performance, including amounts that are refundable. We classify deferred revenue for performance obligations we expect to perform within 12 months as current liabilities and for performance obligations to be performed later than 12 months as other non-current liabilities. Revenue is recognized upon satisfaction of the performance obligation.

As practical expedients, we do not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less, and we do not disclose information about remaining performance obligations when we have the right to invoice the customer and the revenue recognized corresponds directly with the value to the customer of our performance completed to date.

~~Leases~~

~~Leases as Lessor~~

~~We lease revenue earning equipment to customers for periods generally ranging from~~ ~~three~~ to seven years for trucks and tractors and up to ten years for trailers. We determine if an arrangement is or contains a lease at inception. The standard lease agreement for revenue earning equipment provides both parties the right to terminate; therefore, we evaluate whether the lessee is reasonably certain to exercise the termination option in order to determine the appropriate lease term. If we terminate, the customer has the right (but not obligation) to purchase the vehicle. If the customer terminates, we have the option to require the customer to purchase the vehicle or pay a termination penalty. Our leases generally do not provide either party an option to renew the lease. We also rent revenue earning equipment to customersCredit Losses on a short-term basis, from one day up to one year in length. 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 sales-type leases. Refer to Note 4, "Revenue Earning Equipment, net" for further information on our estimates of residual values and useful lives of revenue earning equipment which impact our sales-type leases.

~~Leases as Lessee~~

We lease facilities, revenue earning equipment, material handling equipment, automated washing machines, vehicles and office equipment. We determine if an arrangement is or contains a lease at inception. Effective with the adoption of Topic 842, we have established right-of-use (ROU) assets, which represent our right to use an underlying asset for the lease term and lease liabilities, which represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate of return, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Operating lease ROU assets also exclude lease incentives received. We pay variable lease charges related to property taxes, insurance and maintenance as well as changes in CPI for leased facilities; usage-based fees for revenue

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

earning equipment, automated washing machines, vehicles and office equipment; and hours of operation for material handling equipment. For leases with a term of 12 months or less, with the exception of our real estate leases, we recognize lease payments in our income statement on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

~~Lease terms for the facilities are generally~~ ~~three~~ ~~to five years with one or more~~ ~~five-year renewal options and the lease terms for revenue earning equipment, material handling equipment, automated washing machines and vehicles typically range from~~ ~~three~~ to seven years typically with no extension options. For purposes of calculating ROU assets and operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Macroeconomic conditions is the primary factor used to estimate whether an option to extend a lease term will be exercised or not. None of our leasing arrangements contain restrictive financial covenants. Certain of our material handling equipment leases have residual value guarantees. We recorded operating lease ROU assets and finance lease assets totaling approximately $251 million and $245 million as of September 30, 2019 and December 31, 2018, respectively, related to leases as lessee. Refer to Note 6, "Leases."

~~Goodwill~~Financial Instruments

In June 2016, the third quarter of 2019, we performed an interim impairment test of our FMS North America reporting unit (“FMS NA”) as a result of the decline in market conditions and our updated outlook primarily in the used vehicle market, which negatively affects our forecasted cash flows from the sale of used vehicles. Our valuation of fair value for FMS NA was determined based on a discounted future cash flow model (income approach) and the application of current market multiples for comparable publicly-traded companies (market approach). There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment.

Based on our analysis, we determined that FMS NA goodwill was not impaired as of September 30, 2019. However, the fair value of FMS NA was not substantially in excess of its carrying amount. The estimated fair value of the FMS NA reporting unit exceeded its carrying value by approximately 5%. Given this level of excess fair value, in the event the financial performance of FMS NA does not meet our expectations in the future; we experience future prolonged market downturns, including in the used vehicle market; or other negative revisions to key assumptions, we may be required to perform additional impairment analyses and could be required to recognize a non-cash goodwill impairment charge. As of September 30, 2019, there was $244 million of goodwill recorded related to FMS NA.

~~2. RECENT ACCOUNTING PRONOUNCEMENTS~~

~~Cloud Computing Arrangements~~

~~In August 2018, the Financial Accounting Standards Board (FASB)~~FASB issued ASU No. ~~2018-15,~~ ~~Intangibles~~2016-13, Financial Instruments - ~~Goodwill~~Credit Losses (Topic 326). The new standard modifies the measurement of expected credit losses of certain financial instruments, including accounts receivable (excluding those related to operating leases) and ~~Other - Internal Use Software (Topic 350-40): Customer’s Accounting~~net investments in sales-type leases. Among other things, these amendments require the measurement of all expected credit losses for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,~~ which amends Accounting Standards Codification (ASC) 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. ASU 2018-15 alignsfinancial assets held at the ~~accounting for costs incurred to implement a CCA that is a service arrangement with the guidance~~reporting date based on ~~capitalizing costs associated with developing or obtaining internal-use software.~~historical experience, current conditions, and reasonable and supportable forecasts. The standard is effective for fiscal years beginning after December 15, ~~2019, with early adoption permitted. Entities are permitted~~2019. The standard requires a cumulative-effect adjustment to ~~apply either a retrospective or prospective approach to adopt~~ the ~~guidance. We are currently evaluating the impact~~statement of financial position as of the beginning of the first reporting period in which the guidance is effective. Periods prior to the adoption date that are presented for comparative purposes are not adjusted. We adopted this new standard as of ~~this update~~January 1, 2020 and it did not have a material impact on our consolidated financial position, results of operations, and cash flows.

~~Derivatives and Hedging~~

3. REVENUE

~~In August 2017,~~Lease & related maintenance and rental revenues included non-lease revenue from maintenance services of $240 million and $239 million for the ~~FASB issued ASU No. 2017-12,~~ ~~Derivatives~~three months ended March 31, 2020 and ~~Hedging (Topic 815)~~2019, respectively.

Disaggregation of Revenue

~~. This pronouncement, along with ASU No. 2019-04,~~
~~Codification Improvements~~

The following tables disaggregate our revenue recognized by primary geographical market by our FMS, SCS and DTS reportable business segments, as well as by industry for SCS. Refer to ~~Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments~~ ~~issued to clarify certain provisions~~Note 19, "Segment Reporting," for the disaggregation of ~~these ASUs, simplifies and clarifies the accounting and disclosure for hedging activities~~our revenue by more closely aligning the results of cash flow and fair value hedge accounting with the risk management activities of an entity. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted.major products/service line.

Primary Geographical Markets


	Three months ended March 31, 2020
	FMS		SCS		DTS		Eliminations		Total
	(In thousands)
United States	$	1,197,521	$	522,525	$	334,888	$	(137,295)	$	1,917,639
Canada	70,765		53,552		—		(4,971)		119,346
Europe	71,951		—		—		—		71,951
Mexico	—		52,370		—		—		52,370

Total Revenues	$	1,340,237	$	628,447	$	334,888	$	(142,266)	$	2,161,306

107

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~We adopted this standard during the first quarter of 2019 and it did not impact our consolidated financial position, results of operations, or cash flows.~~


	Three months ended March 31, 2019
	FMS		SCS		DTS		Eliminations		Total
	(In thousands)
United States	$	1,198,943	$	529,393	$	349,621	$	(151,163)	$	1,926,794
Canada	74,014		49,708		—		(5,401)		118,321
Europe	78,642		—		—		—		78,642
Mexico	—		53,277		—		—		53,277
Singapore	—		3,293		—		—		3,293
Total Revenues	$	1,351,599	$	635,671	$	349,621	$	(156,564)	$	2,180,327

Industry

Our SCS business segment includes revenue from the below industries:


	Three months ended March 31,
	2020		2019
	(In thousands)
Automotive	$	249,925	$	253,679
Technology and healthcare	91,133		113,668
Consumer package goods and retail	229,932		217,098
Industrial and other	57,457		51,226
Total SCS Revenues	$	628,447	$	635,671

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses~~(Topic~~ (Topic 326). ~~This pronouncement, along with subsequent ASUs issued to clarify certain provisions of ASU 2016-13,~~The new standard modifies the measurement of expected credit losses of certain financial instruments, including ~~our~~ accounts receivable (excluding those related to operating leases) and net investments in sales-type leases. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The standard is effective for fiscal years beginning after December 15, ~~2019, with early adoption permitted.~~2019. The standard requires a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. Periods prior to the adoption date that are presented for comparative purposes are not adjusted. We ~~are currently evaluating the~~adopted this new standard as of January 1, 2020 and it did not have a material impact ~~of the adoption of this update~~ on our consolidated financial position, results of operations, and cash flows.

~~Leases~~

In February 2016, the FASB issued Topic 842, which sets out the principles for the identification, measurement, recognition, presentation and disclosure of leases. The FASB issued a number of subsequent updates to the standard. Topic 842 impacts the accounting for both lessors and lessees. We have adopted the standard effective January 1, 2019, using the modified retrospective transition method and initial application date of January 1, 2017. For all our facilities and equipment that we lease, we have elected the practical expedient to combine lease and non-lease components. For our existing operating and finance leases that commenced before the date of initial application where we are the lessee, we have made an accounting policy election to use the incremental borrowing rate for our leases considering the remaining lease term and remaining minimum rental payments. After lease commencement of our operating leases where we are the lessee, unless the ROU assets are impaired, we have made an accounting policy election to subsequently measure operating lease ROU assets by amortizing the ROU assets, calculated as the difference between the straight line cost for the period (including amortization of initial direct costs) and the periodic accretion of the lease liability using the effective interest method. In calculating the change in ROU assets from a lease modification that decreases our rights as lessee to use one or more underlying assets, we have made an accounting policy election of remeasuring the ROU asset based on how much of the original right of use remains after modification.

The new standard requires lessors to identify and evaluate the lease and non-lease components in arrangements containing a lease, provides clarification on the scope of non-lease components and provides more guidance on how to identify and separate the components. From a lessor perspective, the adoption of the new lease standard primarily impacts our ChoiceLease product line, which includes a vehicle lease as well as maintenance and other services.

The standard requires lessees to classify leases as either finance or operating leases. This classification determines whether the related expense is recognized based on asset amortization and interest on the obligation (finance leases) or on a straight-line basis over the term of the lease (operating lease). We recorded a ROU asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. We have elected the practical expedient in Topic 842 to not apply these recognition requirements to leases with a term of 12 months or less with the exception of our real estate leases. Instead we recognize the lease payments on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

~~Adoption of the new lease standard impacted our previously reported Consolidated Condensed Statements of Earnings and Comprehensive Income as follows (in millions, except per share amounts):~~

Three months ended September 30, 2018 Nine months ended September 30, 2018

As Previously Lessor Lessee and Other As Previously Lessor Lessee and Other
Reported
Adjustments ⁽¹⁾
Adjustments ⁽¹⁾
As Revised Reported
Adjustments ⁽¹⁾
Adjustments ⁽¹⁾
As Revised
Lease & related maintenance and rental revenues $ 895.2 1.2 0.4 896.8 $ 2,577.4 2.0 1.0 2,580.4
Total revenues 2,158.1 1.2 0.4 2,159.7 6,150.9 2.0 1.0 6,153.8
Cost of lease & related maintenance and rental 649.4 (2.7) — 646.7 1,905.0 (9.9) — 1,895.1
Cost of services ⁽²⁾
945.9 — 2.1 947.9 2,639.1 — 5.6 2,644.8
Other operating expenses 30.3 — (0.3) 30.0 94.8 — (1.1) 93.7
Selling, general and administrative expenses ⁽²⁾
215.5 0.9 (0.8) 215.6 637.3 1.0 (2.2) 636.0
Used vehicle sales, net 3.0 0.2 — 3.2 16.4 (0.2) — 16.2
Interest expense 47.4 — 0.5 47.8 127.5 — 1.2 128.8
Restructuring and other items, net ⁽²⁾
0.3 — (0.9) (0.5) 19.7 — (2.4) 17.3
Earnings from continuing operations before income taxes 116.1 2.9 (0.2) 118.9 262.5 11.2 (0.2) 273.5
Provision for income taxes 26.6 0.6 — 27.3 95.6 2.8 — 98.4
Earnings from continuing operations 89.5 2.3 (0.2) 91.6 167.0 8.4 (0.2) 175.1
Net earnings 88.8 2.3 (0.2) 90.8 164.5 8.4 (0.2) 172.6
Comprehensive income 100.6 1.9 — 102.5 156.4 9.5 — 165.9
Earnings per common share - Basic
        Continuing operations $ 1.70 0.04 — 1.74 $ 3.18 0.15 — 3.33
        Net earnings $ 1.69 0.04 — 1.73 $ 3.13 0.15 — 3.28
Earnings per common share - Diluted
        Continuing operations $ 1.69 0.04 — 1.73 $ 3.15 0.16 — 3.31
        Net earnings $ 1.68 0.04 — 1.72 $ 3.11 0.16 — 3.26

~~————————————~~

~~(1)~~We determined that in a prior period certain lessor arrangements of revenue earning equipment historically accounted for as operating leases should have been accounted for as direct financing leases. Additionally, we evaluated our leases for classification and determined that certain lessee arrangements, primarily real estate leases, historically accounted for as operating leases should have been accounted for as capital leases. The prior period error was corrected by reducing "Lease & related maintenance and rental revenues" by approximately $5 million and $14 million during the three and nine months ended September 30, 2018, respectively. We also reduced depreciation expense (included in "Cost of lease & related maintenance and rental") by approximately $5 million and $14 million during the three and nine months ended September 30, 2018, respectively. We concluded these errors were not material to any of our previously issued consolidated financial statements.

~~(2)Adjustments primarily reflect the reclassification of our Singapore operations into "Restructuring and other items, net," that were shut down during 2019.~~

~~Note: Amounts may not be additive due to rounding.~~

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

~~Adoption of the new lease standard impacted our previously reported Consolidated Condensed Balance Sheet as follows (in millions):~~

December 31, 2018

As Previously Lessor Lessee
Reported
Adjustments ⁽¹⁾
Adjustments ⁽¹⁾
As Revised
Receivables, net $ 1,219.4 22.6 — 1,242.1
Prepaid expenses and other current assets 201.6 (23.3) — 178.3
Total current assets 1,568.4 (0.7) — 1,567.7
Revenue earning equipment, net 9,498.0 (84.2) 2.2 9,416.0
Operating property and equipment, net 843.8 — 18.2 862.1
Sales-type leases and other assets 606.6 156.8 204.3 967.8
Total assets 13,051.1 72.0 224.7 13,347.8
Short-term debt and current portion of long term-debt 930.0 — 7.2 937.1
Accrued expenses and other current liabilities 630.5 145.1 72.2 847.7
Total current liabilities 2,292.3 145.1 79.3 2,516.7
Long-term debt 5,693.6 — 18.5 5,712.1
Other non-current liabilities 849.9 421.2 131.5 1,402.6
Deferred income taxes 1,304.8 (124.6) (0.5) 1,179.7
Total liabilities 10,140.8 441.7 228.8 10,811.2
Retained earnings 2,710.7 (369.6) (3.8) 2,337.3
Accumulated other comprehensive loss (911.3) (0.1) (0.2) (911.6)
Total shareholders' equity 2,910.3 (369.7) (4.1) 2,536.6
Total liabilities and shareholders' equity 13,051.1 72.0 224.7 13,347.8

~~————————————~~

~~(1)~~We determined that in a prior period certain lessor arrangements of revenue earning equipment historically accounted for as operating leases should have been accounted for as direct financing leases. Additionally, we evaluated our leases for classification and determined that certain lessee arrangements, primarily real estate leases, historically accounted for as operating leases should have been accounted for as capital leases. The prior period error was corrected by increasing "Receivables, net" by approximately $24 million and also increasing sales-type leases and other assets by approximately $65 million and reducing "Revenue earning equipment, net" by approximately $83 million. We concluded these errors were not material to any of our previously issued consolidated financial statements.

~~Note: Amounts may not be additive due to rounding.~~

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

~~Adoption of the new lease standard impacted our previously reported Consolidated Condensed Statements of Cash Flows as follows (in millions):~~

Nine months ended September 30, 2018
As Previously Reported New Lease Standard Adjustments As Revised
Net earnings $ 164.5 8.1 172.6
Earnings from continuing operations 167.0 8.1 175.1
Depreciation expense 1,028.5 (6.5) 1,022.0
Used vehicle sales, net 16.4 (0.2) 16.2
Amortization expense and other non-cash charges, net 21.2 83.7 104.9
Deferred income tax expense 103.1 2.8 105.9
Collections on sales-type leases and other items — 63.3 63.3
Changes in operating assets and liabilities:
Prepaid expenses and other assets (27.2) (77.3) (104.5)
Accrued expenses and other non-current liabilities (6.7) (10.7) (17.4)
Net cash provided by operating activities from continuing operations 1,212.4 63.2 1,275.6
Debt repaid (466.1) (5.6) (471.7)
Net cash provided by financing activities from continuing operations 784.9 (5.6) 779.2
Collections on direct finance leases and other items 57.6 (57.6) —
Net cash used in investing activities from continuing operations (2,018.2) (57.6) (2,075.8)

~~Note: Amounts may not be additive due to rounding.~~

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

3. REVENUE

Lease & related maintenance and rental revenues included non-lease revenue from maintenance services of $240 million and $239 million for the three months ended March 31, 2020 and 2019, respectively.

Disaggregation of Revenue

The following tables disaggregate our revenue recognized by primary geographical market ~~major product/service lines,~~by our FMS, SCS and ~~industry. During 2019, we adopted Topic 842 and have retrospectively adjusted 2018~~DTS reportable business segments, as well as by industry for SCS. Refer to Note 19, "Segment Reporting," for the ~~impact~~disaggregation of ~~this new standard.~~our revenue by major products/service line.

Primary Geographical Markets

Three months ended September 30, 2019
FMS DTS SCS Eliminations Total
(In thousands)
United States $ 1,250,147 359,211 508,091 (144,941) 1,972,508
Canada 75,836 — 53,550 (5,284) 124,102
Europe 71,363 — — — 71,363
Mexico — — 55,959 — 55,959
Singapore — — — — —
Total revenue $ 1,397,346 359,211 617,600 (150,225) 2,223,932

Three months ended September 30, 2018
FMS DTS SCS Eliminations Total
(In thousands)
United States ⁽¹⁾
1,185,548 340,604 524,974 (141,874) 1,909,252
Canada 75,859 — 45,587 (5,363) 116,083
Europe 76,364 — — — 76,364
Mexico ⁽¹⁾
— — 51,927 — 51,927
Singapore — — 6,056 — 6,056
Total revenue 1,337,771 340,604 628,544 (147,237) 2,159,682

~~————————————~~

~~(1) 2018 SCS total revenue amounts for the United States and Mexico include reclassifications to conform to the current period presentation.~~

Nine months ended September 30, 2019
FMS DTS SCS Eliminations Total
(In thousands)
United States $ 3,687,721 1,071,076 1,577,106 (448,114) 5,887,789
Canada 226,240 — 156,803 (16,147) 366,896
Europe 225,894 — — — 225,894
Mexico — — 165,380 — 165,380
Singapore — — 3,293 — 3,293
Total revenue $ 4,139,855 1,071,076 1,902,582 (464,261) 6,649,252


	Three months ended March 31, 2020
	FMS		SCS		DTS		Eliminations		Total
	(In thousands)
United States	$	1,197,521	$	522,525	$	334,888	$	(137,295)	$	1,917,639
Canada	70,765		53,552		—		(4,971)		119,346
Europe	71,951		—		—		—		71,951
Mexico	—		52,370		—		—		52,370

Total Revenues	$	1,340,237	$	628,447	$	334,888	$	(142,266)	$	2,161,306

157

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

Nine months ended September 30, 2018
FMS DTS SCS Eliminations Total
(In thousands)
United States ⁽¹⁾
3,410,737 970,196 1,427,196 (405,158) 5,402,971
Canada 226,161 — 136,428 (15,572) 347,017
Europe 239,652 — — — 239,652
Mexico ⁽¹⁾
— — 146,029 — 146,029
Singapore — — 18,122 — 18,122
Total revenue 3,876,550 970,196 1,727,775 (420,730) 6,153,791

~~————————————~~

~~(1) 2018 SCS total revenue amounts for the United States and Mexico include reclassifications to conform to the current period presentation.~~

~~Major Products/Service Lines~~

Three months ended September 30, 2019
FMS DTS SCS Eliminations Total
(In thousands)
ChoiceLease $ 779,811 — — (70,563) 709,248
SelectCare 133,434 — — (11,801) 121,633
Commercial rental 262,976 — — (13,035) 249,941
Fuel 198,669 — — (54,826) 143,843
Other 22,456 — — — 22,456
DTS — 359,211 — — 359,211
SCS — — 617,600 — 617,600
Total revenue $ 1,397,346 359,211 617,600 (150,225) 2,223,932

Three months ended September 30, 2018
FMS DTS SCS Eliminations Total
(In thousands)
ChoiceLease 717,951 — — (63,882) 654,069
SelectCare 125,850 — — (10,418) 115,432
Commercial rental 257,909 — — (15,190) 242,719
Fuel 214,534 — — (57,747) 156,787
Other 21,527 — — — 21,527
DTS — 340,604 — — 340,604
SCS — — 628,544 — 628,544
Total revenue 1,337,771 340,604 628,544 (147,237) 2,159,682

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

Nine months ended September 30, 2019
FMS DTS SCS Eliminations Total
(In thousands)
ChoiceLease $ 2,293,701 — — (209,301) 2,084,400
SelectCare 405,572 — — (35,863) 369,709
Commercial rental 752,995 — — (44,814) 708,181
Fuel 618,906 — — (174,283) 444,623
Other 68,681 — — — 68,681
DTS — 1,071,076 — — 1,071,076
SCS — — 1,902,582 — 1,902,582
Total revenue $ 4,139,855 1,071,076 1,902,582 (464,261) 6,649,252

Nine months ended September 30, 2018
FMS DTS SCS Eliminations Total
(In thousands)
ChoiceLease 2,109,908 — — (186,867) 1,923,041
SelectCare 372,989 — — (29,603) 343,386
Commercial rental 694,864 — — (37,536) 657,328
Fuel 633,571 — — (166,724) 466,847
Other 65,218 — — — 65,218
DTS — 970,196 — — 970,196
SCS — — 1,727,775 — 1,727,775
Total revenue 3,876,550 970,196 1,727,775 (420,730) 6,153,791


	Three months ended March 31, 2019
	FMS		SCS		DTS		Eliminations		Total
	(In thousands)
United States	$	1,198,943	$	529,393	$	349,621	$	(151,163)	$	1,926,794
Canada	74,014		49,708		—		(5,401)		118,321
Europe	78,642		—		—		—		78,642
Mexico	—		53,277		—		—		53,277
Singapore	—		3,293		—		—		3,293
Total Revenues	$	1,351,599	$	635,671	$	349,621	$	(156,564)	$	2,180,327

Industry

Our SCS business segment includes revenue from the below industries:


		Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
		2019		2018	2019		2018		2020		2019
		(In thousands)												(In thousands)
Automotive	Automotive	$	246,627	250,461	$	761,593	690,138	Automotive	$	249,925	$	253,679
Technology and healthcare	Technology and healthcare	100,286		123,043	324,009		340,528	Technology and healthcare	91,133		113,668
CPG and retail		217,901		210,966	660,581		544,019
Consumer package goods and retail								Consumer package goods and retail	229,932		217,098
Industrial and other	Industrial and other	52,786		44,074	156,399		153,090	Industrial and other	57,457		51,226
Total revenue		$	617,600	628,544	$	1,902,582	1,727,775
Total SCS Revenues								Total SCS Revenues	$	628,447	$	635,671

Contract Balances

We record a receivable related to revenue recognized when we have an unconditional right to invoice. ~~There were 0 material contract assets as of September 30, 2019 or December 31, 2018. Trade receivables were $1.09 billion at both September 30, 2019 and December 31, 2018.~~Refer to Note 4 for further information regarding our receivables.

Contract liabilities primarily relate to payments received in advance of performance under the contract. Changes in contract liabilities are due to our performance under the contract. ~~The amount~~Deferred revenue related to the maintenance services component of ~~deferred revenue~~our ChoiceLease product line was $590 million and $587 million as of ~~January 1,~~March 31, 2020 and December 31, 2019, respectively. Revenue recognized during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019 was ~~$41~~ $59 million and ~~$142~~$58 million, ~~respectively.~~respectively, for the amounts recorded as deferred revenue at the beginning of each year. In addition, we deferred consideration of ~~$50~~$67 million and ~~$152~~$57 million during the three months ended March 31, 2020 and March 31, 2019, respectively, which was received in advance of performance ~~during the three and nine months~~

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

~~ended September 30, 2019, respectively,~~ resulting in an increase in deferred revenue. ~~Refer to Note 5, "Accrued Expenses and Other Liabilities," for additional information on deferred revenue.~~

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not recognized revenue”). Contracted not recognized revenue includes deferred revenue and amounts for full service ChoiceLease maintenance revenue that will be recognized as revenue in future periods as we provide maintenance services to our customers. Contracted not recognized revenue excludes variable consideration as it is not included in the transaction price consideration allocated at contract inception. Contracted not recognized revenue was ~~$2.8~~$2.9 billion as of ~~September 30, 2019.~~March 31, 2020. As practical expedients, we do not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less, and we do not disclose information about remaining performance obligations when we have the right to invoice the customer and the revenue recognized corresponds directly with the value to the customer of our performance completed to date.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Costs to Obtain and Fulfill a Contract

We capitalize incremental sales commissions paid as a result of obtaining ChoiceLease, ~~DTS~~SCS and ~~SCS~~DTS service contracts as contract costs. Capitalized sales commissions ~~totaled $106~~were $101 million and ~~$107~~$105 million ~~at September 30, 2019~~as of March 31, 2020 and December 31, ~~2018,~~2019, respectively. Capitalized sales commissions include initial direct costs of our leases of $53 million and $55 million ~~at September 30, 2019~~as of March 31, 2020 and ~~$53 million at~~ December 31, ~~2018.~~2019, respectively, related to incremental sales commissions paid to our sales force as a result of obtaining ChoiceLease contracts. Capitalized sales commissions are presented in “Sales-type leases and other assets” in our Condensed Consolidated ~~Condensed~~ Balance Sheets.

Capitalized sales commissions related to our ChoiceLease product are amortized based on the same pattern that the revenue is recognized for the underlying lease or non-lease components of the contract; generally on a straight-line basis for the lease component and consistent with the estimated pattern of maintenance costs for the non-lease component. We allocate the ChoiceLease commissions to the lease and non-lease components based on the same allocation of the contract consideration. The amortization period aligns with the term of our contract, which typically ranges from ~~three~~ ~~to seven years, and amortization expense is included in “Selling, general and administrative expenses” in our Consolidated Condensed Statements of Earnings.~~

Capitalized sales commissions related to our DTS and SCS service contracts are amortized based on the same pattern that the revenue is recognized for the underlying contracts. This generally results in a straight-line amortization as the amount of revenue billed to the customer under DTS and SCS contracts corresponds directly with the value to the customer of our performance completed to date. The amortization period aligns with the expected term of the contract, which typically ranges from ~~three~~ ~~to five years, and amortization expense is included in “Selling, general and administrative expenses” in our Consolidated Condensed Statement of Earnings.~~

For both the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, the amount of amortization~~sales commission expense was $11 million. ~~For the nine months ended September 30, 2019 and 2018, the amount of amortization was $32 million and $28 million, respectively.~~

4. RECEIVABLES, NET



	March 31, 2020		December 31, 2019
	(In thousands)
Trade	$	1,039,932	$	1,060,298
Sales-type leases	140,440		135,353
Other, primarily warranty and insurance	63,009		55,600
	1,243,381		1,251,251
Allowance for credit losses and other	(40,562)		(22,761)
Total	$	1,202,819	$	1,228,490

On January 1, 2020, we adopted the new accounting guidance related to the allowance for credit losses on our trade receivables and sales-type leases. As a result of the adoption, we increased our allowance for credit allowances and reduced retained earnings by an immaterial amount as of January 1, 2020. We maintain an allowance for credit losses and an allowance for billing adjustments related to certain discounts and other customer concessions. Estimates are updated regularly based on our review of historical loss rates, as well as current and expected events of our business segments, current collection trends and billing adjustments processed. Accounts are charged against the allowance when determined to be uncollectible.

When a business relationship with a customer is initiated, we evaluate collectibility from the customer and it 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 is probable at the on-set of the relationship and subsequently as we offer services. Factors considered during this process include historical payment trends, industry risks, liquidity of the customer, years in business, and judgments, liens or bankruptcies. Payment terms vary by contract type, although terms generally include a requirement of payment within 30 to 90 days. When collectibility is not considered probable (typically when a customer is 120 days past due), revenue is not recognized until it is determined that the customer has the ability and intent to pay. Bad debt expense, which is recorded in selling, general and administrative expenses, was $19 million for the three months ended March 31, 2020, including impacts related to COVID-19. We continue to actively monitor the impact of the recent COVID-19 pandemic on expected credit losses.

189

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

4.5. REVENUE EARNING EQUIPMENT, NET


		September 30, 2019						December 31, 2018										March 31, 2020					December 31, 2019
		Cost		Accumulated Depreciation	Net Book Value ⁽¹⁾	Cost	Accumulated Depreciation	Net Book Value ⁽¹⁾		Cost		Accumulated Depreciation		Net Book Value ⁽¹⁾		Cost		Accumulated Depreciation			Net Book Value ⁽¹⁾
		(In thousands)																			(In thousands)
Held for use:	Held for use:																			Held for use:
ChoiceLease	ChoiceLease	$	12,041,619	(4,049,919)	7,991,700	10,824,989	(3,645,655)	7,179,334	ChoiceLease	$	12,031,414	$	(4,173,629)	$	7,857,785	$	12,223,179	$	(4,125,342)		$	8,097,837
Commercial rental	Commercial rental	3,403,483		(1,093,663)	2,309,820	3,152,908	(1,047,346)	2,105,562	Commercial rental	2,986,622		(1,000,206)		1,986,416		3,200,403		(1,049,850)			2,150,553
Held for sale	Held for sale	533,855		(406,924)	126,931	467,093	(336,028)	131,065	Held for sale	927,277		(737,862)		189,415		748,435		(569,161)			179,274
Total	Total	$	15,978,957	(5,550,506)	10,428,451	14,444,990	(5,029,029)	9,415,961	Total	$	15,945,313	$	(5,911,697)	$	10,033,616	$	16,172,017	$	(5,744,353)		$	10,427,664

————————————

(1)Revenue earning equipment, net includes vehicles under finance leases of $12 million, less accumulated depreciation of $7$8 million, ~~at September 30, 2019,~~as of March 31, 2020, and ~~$23~~$12 million, less accumulated depreciation of ~~$13~~$8 million, atas of December 31, ~~2018.~~2019.

We periodically review and adjust, as appropriate, the residual values and useful lives of revenue earning equipment for purposes of recording depreciation expense. Our review of the residual values and useful lives of revenue earning equipment is established with a long-term view based on vehicle class, generally subcategories of trucks, tractors and trailers by weight and usage, as well as other factors, which we refer to as "policy depreciation." These other factors include, but are not limited to, historical market prices, current and expected future market price trends, expected lives of vehicles, and expected sales in the wholesale and retail markets. Factors that could cause actual results to materially differ from estimates include, but are not limited to, unforeseen changes in technology; changes in supply and demand; competitor pricing; regulatory requirements; driver shortages, requirements and preferences; as well as changes in underlying assumption factors. We have disciplines related to the management and maintenance of our vehicles designed to manage the risk associated with the residual values of our revenue earning equipment. In addition, we monitor market trends throughout the year and assess estimates of residual values of vehicles expected to be made available for sale in the near-term (generally 12 to 24 months) and may adjust estimates of residual values for these vehicles to reflect current market rates, which we refer to as "accelerated depreciation."

At the end of the second quarter of 2019, we began to experience softening in used vehicle market conditions, which intensified through the third quarter of 2019 and we now expect to continue through 2020. In addition, our inventory of used vehicles that is expected to be made available for sale was higher than expected, which has and will impact the volume of used vehicle sales expected to be transacted through our wholesale channels. Due to these dynamics and our updated outlook, management concluded that our residual value estimates likely exceeded the expected future values that would be realized upon the sale of power vehicles in our fleet. As a result, we changed the estimates of residual values for our revenue earning equipment in the third quarter of 2019 to reflect more recent multi-year trends and our outlook for the expected used vehicle market. The increase in depreciation expense resulting from the change in estimate reduced income from continuing operations before income taxes and net income by approximately $177 million and $158 million, respectively, for both the three and nine months ended September 30, 2019. This amount included accelerated depreciation of approximately $117 million related to lower residual value estimates of vehicles expected to be sold in the near-term and additional policy depreciation of $52 million, as well as valuation adjustments of $8 million related to assets currently held for sale. The effect of the change in estimate decreased our diluted earnings per share by $3.01 for both the three and nine months ended September 30, 2019.

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, which we refer to as "valuation adjustments," are recognized at the time they arrive at our used truck sales centers and are presented within “Used vehicle sales, net” in the Condensed Consolidated ~~Condensed~~ Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. For a certain population of our 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~~

In the first quarter of 2020, we revised our residual value estimates for vehicles that are expected to be sold in the near-term (mid-2021) and recorded valuation adjustments on our vehicles held for sale ~~were classified within Level 3~~due to the expected negative impacts of the ~~fair value hierarchy.~~COVID-19 pandemic on pricing and volume of used vehicle sales. We now expect lower used vehicle pricing in the second half of 2020 due to lower demand rather than our previous expectations of a modest increase during that time. As a result of these changes in estimated residual values, we recorded additional accelerated depreciation of $27 million and valuation adjustments of $21 million, which negatively impacted our FMS business segment results.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

The following table presents our assets held for sale that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:


							Total Losses ⁽²⁾															Total Losses ⁽²⁾
							Three months ended September 30,						Nine months ended September 30,								Three months ended March 31,
		September 30, 2019		December 31, 2018	2019		2018	2019		2018		March 31, 2020		December 31, 2019		2020		2019
		(In thousands)																		(In thousands)
Assets held for sale:	Assets held for sale:										Assets held for sale:
Revenue earning equipment ⁽¹⁾:	Revenue earning equipment ⁽¹⁾:										Revenue earning equipment ⁽¹⁾:
Trucks	Trucks	$	39,183	44,325	$	10,269	9,713	$	30,556	28,609	Trucks	$	46,129	$	39,009	$	11,062	$	11,546
Tractors	Tractors	44,285		35,397	14,430		1,317	34,451		6,795	Tractors	85,302		73,359		8,453		4,968
Trailers	Trailers	1,186		1,507	1,195		502	2,859		3,700	Trailers	3,251		2,206		1,993		180
Total assets at fair value	Total assets at fair value	$	84,654	81,229	$	25,894	11,532	$	67,866	39,104	Total assets at fair value	$	134,682	$	114,574	$	21,508	$	16,694

————————————

(1)Assets held for sale in the table above only include the portion of revenue earning equipment held for sale where net book values exceeded fair values and fair value valuation adjustments were recorded. The net book value of assets held for sale that were less than fair value was ~~$42~~$55 million and ~~$50~~$65 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

(2)Total losses represent fair value valuation adjustments for all vehicles reclassified to held for sale throughout the period for which fair value was less than net book value.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

The components of used vehicle sales, net were as follows:

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands)
Gains on vehicle sales, net $ (3,160) (8,329) $ (18,775) (22,911)
Losses from fair value adjustments 25,894 11,532 67,866 39,104
Used vehicle sales, net $ 22,734 3,203 $ 49,091 16,193


	Three months ended March 31,
	2020		2019
	(In thousands)
Losses (gains) on vehicle sales, net	$	(824)	$	(8,477)
Losses from valuation adjustments	21,508		16,694
Used vehicle sales, net	$	20,684	$	8,217

6. GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill attributable to each reportable business segment with changes therein was as follows:


	FMS		SCS		DTS		Total
	(In thousands)

Balance at December 31, 2019	$	243,702	$	190,515	$	40,808	$	475,025
Foreign currency translation adjustments	(398)		(448)		—		(846)
Balance at March 31, 2020	$	243,304	$	190,067	$	40,808	$	474,179

We ~~own~~assess goodwill for impairment on October 1st of each year or more often if deemed necessary. In the ~~majority~~first quarter of 2020, we performed an interim impairment test of our ~~revenue earning equipment. Revenue earning equipment that we lease~~FMS North America reporting unit (“FMS NA”) as a ~~lessee~~result of the decline in market conditions and our updated outlook as a result of the impact of COVID-19. Our valuation of fair value for FMS NA was determined based on a discounted future cash flow model (income approach) and the application of current market multiples for comparable publicly-traded companies (market approach). Based on our analysis, we determined that FMS NA goodwill was not impaired as of March 31, 2020. The estimated fair value of the FMS NA reporting unit exceeded its carrying value by approximately 5% as of March 31, 2020.

Given this level of fair value, in the event the financial performance of FMS NA does not meet our expectations in the future; we experience future prolonged market downturns, including in the used vehicle market or continued declines in our stock price; negative trends from the COVID-19 pandemic continue; or there are ~~immaterial~~other negative revisions to key assumptions, we may be required to perform additional impairment analyses and ~~are therefore not separately disclosed from owned revenue earning equipment.~~could be required to recognize a non-cash goodwill impairment charge. As of March 31, 2020, there was $243 million of goodwill recorded related to FMS NA.

2011

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

5.The following table includes the carrying value of our intangible assets attributable to each reportable business segment (in thousands):


	March 31, 2020
	FMS		SCS		DTS		CSS		Total
Indefinite lived intangible assets - Trade name	$	—	$	—	$	—	$	8,731	$	8,731
Finite lived intangible assets:
Customer relationship intangibles	56,050		49,518		7,582		—		113,150
Other intangibles, primarily trade name	1,636		731		—		—		2,367
	57,686		50,249		7,582		8,731		124,248
Accumulated amortization	(49,970)		(21,222)		(4,383)		—		(75,575)
Total	$	7,716	$	29,027	$	3,199	$	8,731	$	48,673

	December 31, 2019
	FMS		SCS		DTS		CSS		Total
Indefinite lived intangible assets - Trade name	$	—	$	—	$	—	$	8,731	$	8,731
Finite lived intangible assets:
Customer relationship intangibles	56,050		49,518		7,582		—		113,150
Other intangibles, primarily trade name	1,636		731		—		—		2,367
	57,686		50,249		7,582		8,731		124,248
Accumulated amortization	(49,031)		(20,047)		(4,265)		—		(73,343)
Total	$	8,655	$	30,202	$	3,317	$	8,731	$	50,905

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

7. ACCRUED EXPENSES AND OTHER LIABILITIES


		September 30, 2019						December 31, 2018										March 31, 2020				December 31, 2019
		Accrued Expenses		Non-Current Liabilities	Total	Accrued Expenses	Non-Current Liabilities	Total		Accrued Expenses		Non-Current Liabilities		Total		Accrued Expenses		Non-Current Liabilities		Total
		(In thousands)																		(In thousands)
Salaries and wages	Salaries and wages	$	124,163	—	124,163	149,629	—	149,629	Salaries and wages	$	95,604	$	—	$	95,604	$	126,119	$	—	$	126,119
Deferred compensation	Deferred compensation	5,988		60,479	66,467	4,524	55,279	59,803	Deferred compensation	3,791		57,654		61,445		6,436		65,006		71,442
Pension benefits	Pension benefits	3,767		457,697	461,464	3,754	456,979	460,733	Pension benefits	3,829		411,684		415,513		3,863		413,829		417,692
Other postretirement benefits	Other postretirement benefits	1,393		18,565	19,958	1,387	18,097	19,484	Other postretirement benefits	1,464		19,624		21,088		1,478		20,187		21,665
Other employee benefits	Other employee benefits	17,220		—	17,220	28,370	—	28,370	Other employee benefits	6,629		—		6,629		21,577		—		21,577
Insurance obligations ⁽¹⁾	Insurance obligations ⁽¹⁾	161,004		275,841	436,845	139,314	247,552	386,866	Insurance obligations ⁽¹⁾	165,245		308,631		473,876		163,763		285,838		449,601

Operating taxes	Operating taxes	110,044		—	110,044	100,399	—	100,399	Operating taxes	116,514		—		116,514		116,003		—		116,003
Income taxes	Income taxes	7,290		18,368	25,658	3,491	18,477	21,968	Income taxes	7,590		17,972		25,562		2,873		17,484		20,357
Interest	Interest	43,304		—	43,304	39,522	—	39,522	Interest	45,224		—		45,224		46,032		—		46,032
Deposits, mainly from customers	Deposits, mainly from customers	80,722		3,116	83,838	80,401	3,390	83,791	Deposits, mainly from customers	78,033		3,250		81,283		82,573		3,065		85,638
Operating lease liabilities	Operating lease liabilities	72,888		144,834	217,722	73,422	137,384	210,806	Operating lease liabilities	70,314		157,581		227,895		72,285		151,361		223,646
Deferred revenue ⁽²⁾	Deferred revenue ⁽²⁾	164,963		425,270	590,233	160,902	421,176	582,078	Deferred revenue ⁽²⁾	162,946		443,590		606,536		165,205		438,482		603,687

Restructuring liabilities ⁽³⁾	Restructuring liabilities ⁽³⁾	2,157		—	2,157	7,595	—	7,595	Restructuring liabilities ⁽³⁾	5,012		—		5,012		6,765		—		6,765
Other	Other	54,390		47,245	101,635	55,029	44,291	99,320	Other	58,062		52,298		110,360		61,105		46,751		107,856
Total	Total	$	849,293	1,451,415	2,300,708	847,739	1,402,625	2,250,364	Total	$	820,257	$	1,472,284	$	2,292,541	$	876,077	$	1,442,003	$	2,318,080

————————————

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

(2)Deferred revenue is primarily related to the non-lease maintenance services component of our ChoiceLease product line.

(3)The reduction in restructuring liabilities from December 31, ~~2018~~2019 principally represents cash payments for employee termination costs. The majority of the balance remaining in restructuring liabilities is expected to be paid by the end of ~~2019.~~2020.

8. INCOME TAXES

Effective Tax Rate

Our effective income tax rate from continuing operations for the first quarter of 2020 was a benefit of 4.0% as compared to an expense of 32.7% in the first quarter of 2019. In the first quarter of 2020, the tax rate was impacted by the reduction in earnings due to accelerated depreciation charges and the COVID-19 economic effects. Additionally, we recorded a valuation allowance of $13 million on the net deferred tax assets of our U.K. operations on a discrete basis.

2113

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

69. . LEASES

Leases as Lessor

The components of lease income were as follows:


		Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
		2019		2018	2019		2018		2020		2019
		(In thousands)												(In thousands)
Operating leases	Operating leases							Operating leases
Lease income related to lease payments		$	381,170	344,031	$	1,116,029	1,013,728
Lease income related to ChoiceLease								Lease income related to ChoiceLease	$	399,588	$	360,309
Lease income related to commercial rental ⁽¹⁾	Lease income related to commercial rental ⁽¹⁾	249,941		242,719	708,181		657,328	Lease income related to commercial rental ⁽¹⁾	195,695		219,171

Sales type leases	Sales type leases							Sales type leases

Interest income related to net investment in leases	Interest income related to net investment in leases	11,169		9,555	33,057		29,075	Interest income related to net investment in leases	$	11,644	$	11,456

Variable lease income excluding commercial rental ⁽¹⁾	Variable lease income excluding commercial rental ⁽¹⁾	69,641		60,845	183,489		169,478	Variable lease income excluding commercial rental ⁽¹⁾	$	65,507	$	55,439

————————————

(1)Lease income related to commercial rental includes both fixed and variable lease income. Variable lease income is approximately 15% to 25% of total commercial rental income based on management's internal estimates.

The components of net investment in sales-type leases were as follows:


		September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
		(In thousands)						(In thousands)
Net investment in the lease — lease payment receivable	Net investment in the lease — lease payment receivable	$	580,047	505,057	Net investment in the lease — lease payment receivable	$	568,911	$	553,076
Net investment in the lease — unguaranteed residual value in assets	Net investment in the lease — unguaranteed residual value in assets	55,528		46,209	Net investment in the lease — unguaranteed residual value in assets	42,920		44,952

		$	635,575	551,266		611,831		598,028
Estimated loss allowance ⁽¹⁾					Estimated loss allowance ⁽¹⁾	(3,591)		(673)
Total ⁽²⁾					Total ⁽²⁾	$	608,240	$	597,355

————————————

~~Note: The net~~(1)Amount as of March 31, 2020 reflects an immaterial cumulative-effect adjustment in connection with the adoption of the new credit loss standard (refer to Note 2 for further information).

(2)Net investment in the sales-type lease ~~shown above~~ are included in "Receivables, net" and "Sales-type leases and other assets" in the Condensed Consolidated ~~Condensed~~ Balance Sheets.

~~Maturities of sales-type lease receivables were as follows:~~

September 30, 2019 December 31, 2018
(In thousands)
2019 (remaining three months ending December 31, 2019) $ 39,210 133,557
2020 168,652 136,924
2021 145,008 114,983
2022 115,490 85,146
2023 82,193 52,161
Thereafter 139,651 78,935
Total undiscounted cash flows 690,204 601,706
Present value of lease payments (recognized as lease receivables) (580,047) (505,057)
Difference between undiscounted cash flows and discounted cash flows $ 110,157 96,649

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~Maturities of operating lease payments were as follows:~~

September 30, 2019 December 31, 2018
(In thousands)
2019 (remaining three months ending December 31, 2019) $ 347,696 1,159,851
2020 1,211,789 892,721
2021 952,610 646,008
2022 673,422 421,050
2023 447,920 249,255
Thereafter 491,477 203,632
Total undiscounted cash flows $ 4,124,914 3,572,517

~~Leases as Lessee~~

~~The components of lease expense were as follows:~~

Three months ended September 30, Nine months ended September 30,
Classification 2019 2018 2019 2018
(In thousands)
Finance lease cost
Amortization of right-of-use assets Other operating expenses, SG&A $ 3,735 3,805 $ 10,257 10,787
Interest on lease liabilities Interest expense 638 689 1,916 1,886
Operating lease cost Other operating expenses, SG&A 23,722 23,063 70,578 64,506
Short-term lease and other Other operating expenses, SG&A 2,480 835 6,569 2,648
Variable lease cost Other operating expenses, SG&A 4,320 3,647 9,920 8,092
Sublease income Cost of lease & related maintenance and rental, cost of services (5,691) (6,490) (17,201) (19,050)
Total lease cost $ 29,204 25,549 $ 82,039 68,869

~~Supplemental cash flow information related to leases was as follows:~~

Nine months ended September 30,
2019 2018
(In thousands)
Cash paid for amounts included in measurement of liabilities
    Operating cash flows from finance leases $ 1,916 1,886
    Operating cash flows from operating leases 69,848 63,286
    Financing cash flows from finance leases 14,650 13,420
Right-of-use assets obtained in exchange for lease obligations:
Finance leases 15,336 12,889
Operating leases 70,365 96,295

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

~~Supplemental balance sheet information relates to leases was as follows:~~

Classification September 30, 2019 December 31, 2018
(In thousands)
Assets
Operating lease right-of-use assets Sales-type leases and other assets $ 209,556 203,834
Finance lease assets Operating property and equipment, net and revenue earning equipment, net 41,346 41,647
Total leased assets $ 250,902 245,481
Liabilities
Current
     Operating Accrued expenses and other current liabilities $ 72,888 73,422
     Finance Short-term debt and current portion of long-term debt 12,209 14,543
Noncurrent
     Operating Other non-current liabilities 144,834 137,384
     Finance Long-term debt 36,351 32,909
Total lease liabilities $ 266,282 258,258

September 30, 2019 December 31, 2018
(In thousands)
Weighted-average remaining lease term
     Operating 4 years 4 years
     Finance 6 years 7 years
Weighted-average discount rate
     Operating 3.9 % 3.7 %
     Finance 7.2 % 8.0 %

~~Maturities of operating and finance lease liabilities were as follows:~~

Operating
Leases Finance Leases Total
(In thousands)
2019 (remaining three months ending December 31, 2019) $ 22,200 3,962 26,162
2020 72,840 13,709 86,549
2021 51,964 12,048 64,012
2022 37,869 8,130 45,999
2023 26,558 5,532 32,090
Thereafter 23,570 14,178 37,748
Total lease payments 235,001 57,559 292,560
Less: Imputed Interest (17,279) (8,999) (26,278)
Present value of lease liabilities $ 217,722 48,560 266,282

As of September 30, 2019, we have entered into additional facility operating leases that have not yet commenced of $7 million. The operating leases will commence in 2019 with lease terms of generally 2 to 5 years.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

7.10. DEBT


		Weighted-Average Interest Rate
		September 30, 2019	December 31, 2018	Maturities	September 30, 2019			December 31, 2018		Weighted Average Interest Rate
					(In thousands)						March 31, 2020		Maturities		March 31, 2020		December 31, 2019
Short-term debt and current portion of long-term debt:
Short-term debt		1.57%	2.69%		$	217,738		81,522
													(In thousands)
Current portion of long-term debt, including finance leases							722,953		855,609
Total short-term debt and current portion of long-term debt							940,691		937,131
Long-term debt:

Debt:									Debt:
U.S. commercial paper ⁽¹⁾	U.S. commercial paper ⁽¹⁾	2.30%	2.78%	2023	698,594			454,397	U.S. commercial paper ⁽¹⁾	2.05%		2023	$	713,464	$	511,486
Canadian commercial paper ⁽¹⁾	Canadian commercial paper ⁽¹⁾	2.00%	2.28%	2023	111,420			123,491	Canadian commercial paper ⁽¹⁾	1.72%		2023	33,409		136,199
Trade receivables program	Trade receivables program	—%	3.15%	2020	—			200,000	Trade receivables program	1.46%		2021	300,000		—
Global revolving credit facility	Global revolving credit facility	3.07%	2.25%	2023	3,000			12,581	Global revolving credit facility	2.70%		2023	234,565		8,104
Unsecured U.S. notes — Medium-term notes⁽¹⁾⁽²⁾	Unsecured U.S. notes — Medium-term notes⁽¹⁾⁽²⁾	3.21%	3.22%	2020-2025	5,564,895			4,853,496	Unsecured U.S. notes — Medium-term notes⁽¹⁾⁽²⁾	3.19%		2020-2026	5,570,822		5,965,064
Unsecured U.S. obligations	Unsecured U.S. obligations	3.05%	3.50%	2024	200,000			50,000	Unsecured U.S. obligations	3.41%		2024	200,000		200,000
Unsecured foreign obligations	Unsecured foreign obligations	2.80%	1.61%	2020-2024	83,984			216,719	Unsecured foreign obligations	2.36%		2020-2024	310,634		270,719
Asset-backed U.S. obligations ⁽³⁾	Asset-backed U.S. obligations ⁽³⁾	2.49%	2.37%	2019-2026	842,899			627,707	Asset-backed U.S. obligations ⁽³⁾	2.50%		2020-2026	784,632		807,374
Finance lease obligations		7.19%	7.97%	2019-2073	48,560			47,452
Total long-term debt					7,553,352			6,585,843
Finance lease obligations and other									Finance lease obligations and other			2020-2073	50,584		51,717
													8,198,110		7,950,663
Debt issuance costs	Debt issuance costs				(24,513)			(18,088)	Debt issuance costs				(23,740)		(25,875)
Total debt									Total debt				8,174,370		7,924,788
Short-term debt and current portion of long-term debt									Short-term debt and current portion of long-term debt				(853,527)		(1,154,564)
Long-term debt									Long-term debt				$	7,320,843	$	6,770,224
					7,528,839			6,567,755
Current portion of long-term debt, including finance leases							(722,953)		(855,609)
Long-term debt					6,805,886			5,712,146
Total debt					$	7,746,577		6,649,277

————————————

(1)Amounts are net of unamortized original issue discounts of $7$5 million ~~at September 30, 2019~~and $6 million as of March 31, 2020 and December 31, ~~2018,~~2019, respectively.

(2)Amounts are inclusive of the fair market ~~value adjustments~~values of our hedging instruments on our notes ~~subject to~~of assets of $6 million as of March 31, 2020. The fair market values of our hedging instruments were not material as of ~~$1 million and $10 million at September 30, 2019 and~~ December 31, ~~2018, respectively.~~2019. The notional amount of the executed interest rate swaps designated as fair value hedges was $375 million and $525 million ~~and $725 million at September 30, 2019~~as of March 31, 2020 and December 31, ~~2018,~~2019, respectively. ~~Refer to Note 8, "Derivatives," for additional information.~~

(3)Asset-backed U.S. obligations are related to financing transactions backed by a portion of our revenue earning equipment.

The following table includes our proceeds from borrowings and repayment of debt for the three months ended March 31, 2020.




Debt Proceeds				Debt Repayments
	(in thousands)			(in thousands)
Trade receivables program	$	300,000	2.65% Medium-term notes (due March 2020)	$	400,000
Unsecured foreign term loans (1.71% due February 2021 and 1.89% due February 2023)	177,926		Unsecured foreign term loans (1.71% due March 2020 and 1.89% due March 2020)	177,926
Canada term loans (2.94% due February 2021 and 2.99% due February 2022)	60,132		Asset-backed U.S. obligations	27,252
Canada term loan (3.44% due February 2023)	18,791		Canada term loan, finance lease obligations, and other repayments	22,523
Total debt proceeds	$	556,849	Total debt repaid	$	627,701

We maintain a $1.4 billion global revolving credit facility with a syndicate of 12 lending institutions, which matures in September ~~2023.~~2023. The agreement provides for annual facility fees that range from 7.5 basis points to 20 basis points based on ~~Ryder's~~our long-term credit ratings. The annual facility fee is ~~currently~~ 10 basis points as of March 31, 2020, which applies to the total facility size of $1.4 billion. The credit facility is primarily used to finance working capital, but can also be used to issue up to $75 million in letters of credit (there were 0 letters of credit outstanding against the facility at ~~September 30, 2019)~~March 31, 2020). At ~~September 30, 2019, $546~~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 our business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions and certain affirmative and negative covenants. As of March 31, 2020, there was $419 million ~~was~~ available under the credit facility.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

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~~As of March 31, 2020, the ratio ~~at September 30, 2019~~ was ~~219%~~242%.

Our global revolving credit facility enables us to refinance short-term obligations on a long-term basis. Short-term commercial paper obligations ~~not required for working capital needs~~ are classified as long-term as we have both the intent and ability to refinance on a long-term basis. ~~In addition,~~As of March 31, 2020, we have reflected all maturities within the ~~intent and ability to refinance~~next twelve months in the current portion of ~~certain~~ long-term debt even though we may refinance these obligations on a long-term ~~basis. At September 30,~~basis and have the ability to do so under our revolving credit facility. As of December 31, 2019, we classified ~~$810~~$227 million of short-term commercial paper, $400 million of the current portion of long-term debt and ~~$19~~$201 million of short-term debt as long-term ~~debt. At December 31, 2018,~~debt as we ~~classified $578 million of short-term commercial paper, $200 million of trade receivables borrowings, $250 million of~~had the intent and ability to refinance the current portion of these long-term debt ~~and $50 million of short-term debt as~~on a long-term ~~debt.~~

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~basis.

In ~~August 2019,~~April 2020, we issued ~~$550~~$400 million of unsecured ~~medium-term notes maturing in September 2024. In May 2019, we issued $550 million of unsecured~~4.625% medium-term notes maturing in June ~~2022. In February 2019, we issued $600~~2025 and executed a $400 million ofsenior floating-rate unsecured ~~medium-term notes maturing in March 2024.~~364-day term loan. The proceeds ~~from~~of these notes were used to ~~pay off maturing debt~~enhance our liquidity position and for ~~general corporate purposes. If these notes are downgraded below investment grade following,~~working capital 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.~~

In the second quarter of 2019, we executed a $50 million bank term loan maturing in April 2024 in one of our Canadian subsidiaries. In the first quarter of 2019, we executed 2 $100 million bank term loans maturing in February and March of 2024. The proceeds from these loans were used to pay off maturing debt and forother general corporate purposes.

In May 2019, we received $298 million from financing transactions backed by a portion of our revenue earning equipment. The proceeds from these transactions were used for general corporate purposes. 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.

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 ~~available proceeds that may be received~~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 ~~are limited~~may vary based on changes in interest rates. In February 2020, we increased the amount of available proceeds from our trade receivables purchase and sale program to $300 million expiring in June 2020. In April, we extended the maturity of the trade receivables program to ~~$225 million. NaN amounts were outstanding under the program at September 30, 2019. At December 31, 2018, $200 million was outstanding under the program.~~April 2021.

~~At September 30, 2019 and December 31, 2018, we~~We had letters of credit and surety bonds outstanding ~~totaling $461~~of $453 million as of both March 31, 2020 and ~~$375 million, respectively,~~December 31, 2019, which primarily guarantee the payment of insurance claims.

The fair value of total debt (excluding capital lease and asset-backed U.S. obligations) ~~at September 30, 2019~~was approximately $7 billion as of both March 31, 2020 and December 31, ~~2018, was approximately $7.0 billion and $6.0 billion, respectively.~~2019. For publicly-traded debt, estimates of fair value were based on market prices. For other debt, fair value was estimated based on a model-driven approach using rates currently available to us for debt with similar terms and remaining maturities. The fair value measurements of our publicly-traded debt and other debt were classified within Level 2 of the fair value hierarchy. The carrying amounts reported in the Condensed Consolidated ~~Condensed~~ Balance Sheets for “Cash and cash equivalents,” “Receivables, net” and “Accounts payable” approximate fair value because of the immediate or short-term maturities of these financial instruments.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

~~8. DERIVATIVES~~

From time to time, we enter into interest rate derivative contracts 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 any offsetting hedge positions. This risk management process involves the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows. Our derivative instruments are measured at fair value on a recurring basis using Level 2 inputs.

~~As of September 30, 2019, we had interest rate swaps outstanding that are designated as fair value hedges for certain debt obligations, with a total notional value of $525 million and maturities through 2022.~~ The fair value of these interest rate swaps was not material as of September 30, 2019. The fair value of these interest rate swaps was a liability of $10 million as of December 31, 2018 (presented in "Other non-current liabilities" in our Consolidated Condensed Balance Sheets). Changes in the fair value of our interest rate swaps were offset by changes in the fair value of the hedged debt instruments. Accordingly, there was no ineffectiveness related to the interest rate swaps.

~~As of September 30, 2019, we had interest rate swaps outstanding that are designated as cash flow hedges for certain debt obligations, with a total notional value of~~ ~~$215 million~~ ~~and maturities through~~ ~~2024.~~ ~~The fair value of these interest rate swaps was a liability of~~ ~~$9 million~~ as of September 30, 2019 (presented in "Other non-current liabilities" in our Consolidated Condensed Balance Sheets). The fair value of these interest rate swaps was not material as of December 31, 2018. There was no ineffectiveness related to the interest rate swaps.

During the second quarter of 2019, we entered into a cross-currency interest rate swap to manage the interest rate risk and foreign currency exchange risk associated with a floating-rate foreign currency-denominated borrowing by a Canadian subsidiary, with a total notional value of $50 million and a maturity date in April 2024. The cross-currency interest rate swap has been designated as a cash flow hedge. The fair value was not material as of September 30, 2019.

9.11. SHARE REPURCHASE PROGRAMS

~~In December 2017, our Board of Directors authorized~~We maintain a share repurchase program intended to mitigate the dilutive impact of shares issued under our employee stock ~~plans (the program). Under~~plans. In December 2019, our Board of Directors authorized management to have the ~~program, management is authorized~~ability to repurchase 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~~our employee stock plans from December ~~31, 2017~~1, 2019 to December ~~13, 2019.~~11, 2021. 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~~our quarterly blackout periods as set forth in the trading plan.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and March 31, 2019, ~~and 2018,~~ we repurchased approximately ~~408,000~~303,000 shares for ~~$24~~$12 million and ~~369,000~~226,000 shares for ~~$28~~$14 million, respectively.

The 2019 share repurchase program has been put on hold temporarily due to the impact of COVID-19.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~10.~~12. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following summary sets forth the components of accumulated other comprehensive loss, net of tax:


		Currency Translation Adjustments and Other		Net Actuarial Loss ⁽¹⁾	Prior Service Cost ⁽¹⁾	Accumulated Other Comprehensive Loss		Currency Translation Adjustments and Other		Net Actuarial Loss ⁽¹⁾		Prior Service Cost ⁽¹⁾			Accumulated Other Comprehensive Loss
		(In thousands)												(In thousands)
December 31, 2018		$	(199,713)	(700,384)	(11,537)	(911,634)
December 31, 2019							December 31, 2019	$	(169,032)	$	(656,313)	$	(11,146)		$	(836,491)
Amortization	Amortization	—		17,081	415	17,496	Amortization	—		6,013		153			6,166

Other current period change	Other current period change	(13,813)		(7,203)	—	(21,016)	Other current period change	(84,620)		—		—			(84,620)

September 30, 2019		$	(213,526)	(690,506)	(11,122)	(915,154)
March 31, 2020							March 31, 2020	$	(253,652)	$	(650,300)	$	(10,993)		$	(914,945)

Currency
Translation
Adjustments and Other
Net Actuarial
Loss ⁽¹⁾
Prior Service Cost ⁽¹⁾
Accumulated
Other
Comprehensive
Loss
(In thousands)
December 31, 2017 (143,773) (560,153) (6,910) (710,836)
Amortization — 15,784 238 16,022
Other current period change (21,866) (903) — (22,769)
Adoption of new accounting standard ⁽²⁾
— (98,987) (1,580) (100,567)
September 30, 2018 (165,639) (644,259) (8,252) (818,150)


	Currency Translation Adjustments and Other		Net Actuarial Loss ⁽¹⁾		Prior Service Cost ⁽¹⁾		Accumulated Other Comprehensive Loss
	(In thousands)
December 31, 2018	$	(199,713)	$	(700,384)	$	(11,537)	$	(911,634)
Amortization	—		5,307		147		5,454

Other current period change	15,762		—		—		15,762

March 31, 2019	$	(183,951)	$	(695,077)	$	(11,390)	$	(890,418)

_______________________

(1)These amounts are included in the computation of net pension expense. See Note ~~13,~~15, "Employee Benefit Plans," for additional information.

~~(2)~~Reflects the impact of adopting ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in 2018, which resulted in a reclassification of stranded tax effects caused by the 2017 Tax Cuts and Jobs Act from accumulated other comprehensive loss to retained earnings in the Consolidated Condensed Balance Sheet.

The loss from currency translation adjustments and other in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 of approximately ~~$14~~$85 million ~~was~~ primarily consists of currency translation adjustments of $75 million due to the weakening of the British Pound ~~against the U.S. Dollar offset by the strengthening~~and Canadian Dollar against the U.S. Dollar. The ~~loss~~gain from currency translation adjustments in the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 of ~~$22~~$16 million was primarily due to the ~~weakening~~strengthening of the British Pound and Canadian Dollar against the U.S. Dollar.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~11.~~13. EARNINGS PER SHARE

The following table presents the calculation of basic and diluted earnings (loss) per common share from continuing operations:


		Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
		2019		2018	2019		2018		2020		2019
		(In thousands, except per share amounts)												(In thousands, except per share amounts)
Earnings (loss) per share — Basic:	Earnings (loss) per share — Basic:							Earnings (loss) per share — Basic:
Earnings (loss) from continuing operations	Earnings (loss) from continuing operations	$	(91,538)	91,602	$	29,804	175,084	Earnings (loss) from continuing operations	$	(109,129)	$	45,890
Less: Distributed and undistributed earnings allocated to unvested stock	Less: Distributed and undistributed earnings allocated to unvested stock	(114)		(333)	(336)		(630)	Less: Distributed and undistributed earnings allocated to unvested stock	(118)		(177)
Earnings (loss) from continuing operations available to common shareholders — Basic	Earnings (loss) from continuing operations available to common shareholders — Basic	$	(91,652)	91,269	$	29,468	174,454	Earnings (loss) from continuing operations available to common shareholders — Basic	$	(109,247)	$	45,713

Weighted average common shares outstanding — Basic	Weighted average common shares outstanding — Basic	52,319		52,397	52,358		52,391	Weighted average common shares outstanding — Basic	52,284		52,418

Earnings (loss) from continuing operations per common share — Basic	Earnings (loss) from continuing operations per common share — Basic	$	(1.75)	1.74	$	0.56	3.33	Earnings (loss) from continuing operations per common share — Basic	$	(2.09)	$	0.87

Earnings (loss) per share — Diluted:	Earnings (loss) per share — Diluted:							Earnings (loss) per share — Diluted:
Earnings (loss) from continuing operations	Earnings (loss) from continuing operations	$	(91,538)	91,602	$	29,804	175,084	Earnings (loss) from continuing operations	$	(109,129)	$	45,890
Less: Distributed and undistributed earnings allocated to unvested stock	Less: Distributed and undistributed earnings allocated to unvested stock	(114)		(333)	(336)		(630)	Less: Distributed and undistributed earnings allocated to unvested stock	(118)		(177)
Earnings (loss) from continuing operations available to common shareholders — Diluted	Earnings (loss) from continuing operations available to common shareholders — Diluted	$	(91,652)	91,269	$	29,468	174,454	Earnings (loss) from continuing operations available to common shareholders — Diluted	$	(109,247)	$	45,713

Weighted average common shares outstanding — Basic	Weighted average common shares outstanding — Basic	52,319		52,397	52,358		52,391	Weighted average common shares outstanding — Basic	52,284		52,418
Effect of dilutive equity awards	Effect of dilutive equity awards	—		373	199		349	Effect of dilutive equity awards	—		223
Weighted average common shares outstanding — Diluted	Weighted average common shares outstanding — Diluted	52,319		52,770	52,557		52,740	Weighted average common shares outstanding — Diluted	52,284		52,641

Earnings (loss) from continuing operations per common share — Diluted	Earnings (loss) from continuing operations per common share — Diluted	$	(1.75)	1.73	$	0.56	3.31	Earnings (loss) from continuing operations per common share — Diluted	$	(2.09)	$	0.87

Anti-dilutive equity awards not included above	Anti-dilutive equity awards not included above	3,170		1,197	1,945		1,230	Anti-dilutive equity awards not included above	3,134		1,682

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

~~12.~~14. SHARE-BASED COMPENSATION PLANS

Share-based incentive awards are provided to employees under the terms of various share-based compensation plans (collectively, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors. Awards under the Plans principally include at-the-money stock options and unvested stock. 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 stock award vests. Upon vesting, the amount of the dividends paid is equal to the aggregate dividends declared on common shares during the period from the grant date of the award until the date the shares underlying the award are delivered.

The following table provides information on share-based compensation expense and income tax benefits recognized during the periods:


		Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
		2019		2018	2019		2018		2020		2019
		(In thousands)												(In thousands)
Stock option and stock purchase plans	Stock option and stock purchase plans	$	1,511	1,917	$	4,986	5,688	Stock option and stock purchase plans	$	1,357	$	1,819
Unvested stock		5,244		5,262	16,691		13,143
Unvested stock awards								Unvested stock awards	1,734		5,580
Share-based compensation expense	Share-based compensation expense	6,755		7,179	21,677		18,831	Share-based compensation expense	3,091		7,399
Income tax benefit	Income tax benefit	(1,327)		(1,388)	(3,861)		(3,617)	Income tax benefit	(178)		(1,160)
Share-based compensation expense, net of tax	Share-based compensation expense, net of tax	$	5,428	5,791	$	17,816	15,214	Share-based compensation expense, net of tax	$	2,913	$	6,239

Total unrecognized pre-tax compensation ~~expense~~expense related to all share-based compensation arrangements at ~~September 30, 2019~~March 31, 2020 was ~~$44~~$66 million and is expected to be recognized over a weighted-average period of ~~1.9 years.~~2.4 years.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

The following table is a summary of the awards granted under the Plans during the periods presented:


		Nine months ended September 30,				Three months ended March 31,
		2019	2018		2020
		(Shares in thousands)				Shares Granted			Weighted-Average Fair Market Value
Stock options		220	347
					(Shares in thousands)

Performance-based restricted stock rights	Performance-based restricted stock rights	228	200	Performance-based restricted stock rights	292		$	37.47

Time-vested restricted stock rights	Time-vested restricted stock rights	408	167	Time-vested restricted stock rights	557		38.45
Total	Total	856	714	Total	849		$	38.11

Performance-based restricted stock awards (PBRSRs) include a performance-based vesting condition. PBRSRs are awarded based on various revenue, return-based and cash flow performance targets and a majority of PBRSRs include a total shareholder return (TSR) modifier. The fair values of the PBRSRs that include a TSR modifier are estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. The fair value of PBRSRs that do not include a TSR modifier is determined and fixed on the grant date based on our 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.

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 ratably over three years regardless of company performance. The fair value of the time-vested awards is determined and fixed based on our stock price on the date of grant.

3019

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~13.~~15. EMPLOYEE BENEFIT PLANS

Components of net pension expense were as follows:


		Three months ended September 30,					Nine months ended September 30,
		2019		2018	2019		2018		Three months ended March 31,
		(In thousands)											2020	2019
									(In thousands)
Pension Benefits	Pension Benefits							Pension Benefits
Company-administered plans:	Company-administered plans:							Company-administered plans:
Service cost	Service cost	$	2,449	3,074	$	8,264	9,370	Service cost	$	3,213	$	3,032
Interest cost	Interest cost	21,301		19,425	64,165		58,275	Interest cost	17,532		21,469

Expected return on plan assets	Expected return on plan assets	(22,350)		(25,187)	(67,615)		(76,086)	Expected return on plan assets	(24,263)		(22,676)
Amortization of:	Amortization of:							Amortization of:

Net actuarial loss	Net actuarial loss	8,170		7,130	23,212		21,416	Net actuarial loss	7,715		7,610
Prior service cost	Prior service cost	167		145	533		434	Prior service cost	187		179
		9,737		4,587	28,559		13,409		4,384		9,614
Union-administered plans	Union-administered plans	2,718		2,469	7,876		7,339	Union-administered plans	2,779		2,457
Net pension expense	Net pension expense	$	12,455	7,056	$	36,435	20,748	Net pension expense	$	7,163	$	12,071

Company-administered plans:	Company-administered plans:							Company-administered plans:
U.S.	U.S.	$	11,067	7,011	$	33,199	21,033	U.S.	$	6,778	$	11,473
Non-U.S.	Non-U.S.	(1,330)		(2,424)	(4,640)		(7,624)	Non-U.S.	(2,394)		(1,859)
		9,737		4,587	28,559		13,409		4,384		9,614
Union-administered plans	Union-administered plans	2,718		2,469	7,876		7,339	Union-administered plans	2,779		2,457
Net pension expense	Net pension expense	$	12,455	7,056	$	36,435	20,748	Net pension expense	$	7,163	$	12,071

Non-operating pension costs include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or curtailments if recognized. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we contributed ~~$26~~$1 million to our pension plans. In ~~2019,~~2020, the expected total contributions to our pension plans are approximately ~~$34~~$37 million. We also maintain other postretirement benefit plans that are not reflected in the ~~above table.~~table above. The amount of postretirement benefit expense was not material for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~14.~~16. OTHER ITEMS IMPACTING COMPARABILITY

Our primary measure of segment performance as shown in Note ~~17,~~19, "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:

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands)
Restructuring and other, net $ 5,234 (546) $ 13,757 1,836
ERP implementation costs 6,126 — 13,617 —
Goodwill impairment — — — 15,513
Restructuring and other items, net 11,360 (546) 27,374 17,349
Gain on sale of property — — (18,614) —
Total $ 11,360 (546) $ 8,760 17,349


	Three months ended March 31,
	2020		2019
	(In thousands)
Restructuring and other, net	$	11,263	$	2,588
ERP implementation costs	10,326		3,590



Total other items impacting comparability	$	21,589	$	6,178

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, the below~~other items ~~were recorded in "Restructuring and other, net" in our Consolidated Condensed Statements of Earnings:~~impacting comparability included:

•Restructuring and other, net — For the three months ended ~~September 30, 2019,~~March 31, 2020, this primarily included ~~charges~~expenses related to ~~cost savings initiatives~~restructuring activities undertaken in late 2019 and professional fees related to the pursuit of a commercial ~~claim. For the nine months ended September 30, 2019,~~claim, as well as net losses related to our ChoiceLease insurance liability program which was discontinued in January 2020. The exit of this ~~also included income from our Singapore operations that were shut down during~~program is estimated to be completed in the second quarter of ~~2019.~~2021. For the three months ended ~~September 30, 2018,~~March 31, 2019, this primarily related to consulting fees related to cost ~~savings~~saving initiatives, ~~transaction costs~~professional fees related to the ~~acquisitions~~pursuit of ~~MXD and Metro and restructuring charges offset by restructuring credits related to gains on the sale of certain U.K. facilities that were closed as part of our December 2017 restructuring activities~~a commercial claim, and income from our Singapore operations that ~~were~~ shut down ~~during the second quarter of~~in 2019. ~~For the nine months ended September 30, 2018, this also included a net benefit for an adjustment to the one-time 2017 Tax Cuts and Jobs Act-related employee bonus accrued as of December 31, 2017.~~

•ERP implementation costs — Related to charges with the implementation of an Enterprise Resource Planning (ERP) system.

•~~Goodwill impairment~~ ~~— Related to an impairment charge of goodwill associated with our FMS Europe reporting unit.~~

In addition, we recorded a gain on the sale of certain SCS properties during the nine months ended September 30, 2019. The gain is reflected within "Miscellaneous (income) loss, net" in our Consolidated Condensed Statements of Earnings.

~~Income Taxes~~

We recorded an expense of $0.3 million for income taxes in the third quarter as compared to $27 million in the prior year. For the nine months ended September 30, 2019, we recorded an expense of $50 million as compared to $98 million in the prior year. Tax rates in the third quarter and the nine months ended September 30, 2019 were impacted by the residual value estimate changes. The nine months ended September 30, 2018 included a one-time unfavorable adjustment associated with the 2017 Tax Cuts and Jobs Act ("Tax Reform") recorded in the second quarter of 2018.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

~~15.~~17. 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. We believe that the resolution of these claims, complaints and legal proceedings will not have a material effect on our condensed consolidated ~~condensed~~ 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.

~~16. SUPPLEMENTAL CASH FLOW INFORMATION~~

~~Supplemental cash flow information was as follows:~~

Nine months ended September 30,
2019 2018
(In thousands)
Interest paid $ 166,720 116,506
Income taxes paid 15,528 20,181
Changes in accounts payable related to purchases of revenue earning equipment 41,772 96,161

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~17.~~18. SUPPLEMENTAL CASH FLOW INFORMATION


	Three months ended March 31,
	2020		2019
	(In thousands)
Interest paid	$	60,566	$	52,490
Income taxes paid	5,096		3,611
Right-of-use assets obtained in exchange for lease obligations:
Finance leases	3,744		2,026
Operating leases	23,877		16,605

	March 31, 2020		December 31, 2019
	(In thousands)
Capital expenditures acquired but not yet paid	$	144,538	$	185,264

19. SEGMENT REPORTING

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~~3 business segments: (1) FMS, which provides full service leasing and leasing with flexible maintenance options, commercial rental, and contract or transactional maintenance services of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) SCS, which provides integrated logistics solutions, including distribution, management, dedicated transportation and professional services in North America; and (3) DTS, which provides turnkey transportation solutions in the U.S. that includes dedicated vehicles, drivers and engineering, and administrative ~~support; and (3) SCS, which provides integrated logistics solutions, including distribution, management, dedicated transportation and professional services primarily in North America.~~support. Dedicated transportation services provided as part of an operationally integrated, multi-service, supply chain solution to SCS customers are primarily reported in the SCS business segment.

Our primary measurement of segment financial performance, defined as segment “Earnings ~~Before Tax” (EBT)~~ from continuing operations before taxes” (EBT), includes an allocation of Central Support Services (CSS) and excludes non-operating pension costs and certain other items as discussed in Note ~~14,~~16, "Other Items Impacting Comparability." CSS represents those costs incurred to support all business segments, including finance and procurement, corporate services, human resources, information technology, public affairs, legal, marketing and corporate communications. The objective of the EBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each segment accountable for their allocated share of CSS costs. Certain costs are not attributable to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation. CSS costs attributable to the business segments are predominantly allocated to FMS, ~~DTS~~SCS and ~~SCS~~DTS as follows:

•Finance, corporate services, and health and safety — allocated based upon estimated and planned resource utilization;

•Human resources — allocated under various methods, including 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.

Our FMS segment leases revenue earning equipment ~~and~~as well as provides rental vehicles, fuel, maintenance and other ancillary services to the ~~DTS~~SCS and ~~SCS~~DTS segments. EBT related to inter-segment equipment and services billed to ~~DTS~~SCS and ~~SCS~~DTS customers (equipment contribution) are included in both FMS and the segment that served the customer and then eliminated upon consolidation (presented as “Eliminations”). Inter-segment EBT allocated to ~~DTS~~SCS and ~~SCS~~DTS includes earnings related to equipment used in providing services to ~~DTS~~SCS and ~~SCS~~DTS customers.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(unaudited)

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. We do not record right-of-use assets or liabilities for our intercompany operating leases between FMS and SCS and DTS business segments.

The following ~~tables set~~table sets forth financial information for each of our segments and provide a reconciliation between segment EBT and earnings from continuing operations before income ~~taxes for the three and nine months ended September 30, 2019 and 2018. Prior period segment amounts have been revised to reflect the adoption of ASC 842.~~taxes.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~


	Three months ended March 31,
	2020		2019
	(In thousands)
Revenue:
Fleet Management Solutions:
ChoiceLease	$	792,206	$	740,059
SelectCare	136,146		135,779
Commercial rental	205,766		236,148
Other	23,426		23,227
Fuel services revenue	173,335		207,866
ChoiceLease liability insurance revenue ⁽¹⁾	9,358		8,520
Fleet Management Solutions	1,340,237		1,351,599
Supply Chain Solutions	628,447		635,671
Dedicated Transportation Solutions	334,888		349,621
Eliminations	(142,266)		(156,564)
Total revenue	$	2,161,306	$	2,180,327

Earnings (Loss) Before Taxes:
Fleet Management Solutions	$	(114,574)	$	60,911
Supply Chain Solutions	31,025		32,317
Dedicated Transportation Solutions	12,180		17,412
Eliminations	(10,069)		(17,302)
	(81,438)		93,338
Unallocated Central Support Services	(9,386)		(12,547)
Non-operating pension costs ⁽²⁾	(1,221)		(6,462)
Other items impacting comparability, net ⁽³⁾	(21,589)		(6,178)
Earnings (loss) from continuing operations before income taxes	$	(113,634)	$	68,151

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

FMS DTS SCS Eliminations Total
(In thousands)
For the three months ended September 30, 2019
Revenue from external customers $ 1,247,121 359,211 617,600 — 2,223,932
Inter-segment revenue 150,225 — — (150,225) —
Total revenue $ 1,397,346 359,211 617,600 (150,225) 2,223,932
Segment EBT ⁽¹⁾
$ (108,550) 18,490 34,595 (6,118) (61,583)
Unallocated CSS (11,432)
     Non-operating pension costs⁽²⁾
(6,885)
Restructuring and other items, net ⁽³⁾
(11,360)
Earnings from continuing operations before income taxes $ (91,260)
   Segment capital expenditures paid⁽⁴⁾
$ 723,555 727 9,965 — 734,247
Unallocated CSS capital expenditures paid 12,224
Capital expenditures paid $ 746,471
For the three months ended September 30, 2018
Revenue from external customers 1,190,534 340,604 628,544 — 2,159,682
Inter-segment revenue 147,237 — — (147,237) —
Total revenue 1,337,771 340,604 628,544 (147,237) 2,159,682
Segment EBT 97,782 13,929 36,516 (16,063) 132,164
Unallocated CSS (12,686)
Non-operating pension costs⁽²⁾
(1,161)
Restructuring and other items, net ⁽³⁾
546
Earnings from continuing operations before income taxes 118,863
   Segment capital expenditures paid ⁽⁴⁾
769,426 473 2,652 — 772,551
Unallocated CSS capital expenditures paid 6,154
Capital expenditures paid 778,705

~~————————————~~_______________

(1)~~FMS EBT includes higher depreciation expense~~In the first quarter of 2020, we announced our plan to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program is estimated to be completed in the second quarter of 2021. We have reclassed the revenues associated with this program from our ChoiceLease revenues for better comparability of our on-going operations as ~~a result of the change in vehicle residual value estimates. See Note 4, "Revenue Earning Equipment, net," for additional information.~~this is now consistent with management reporting.

(2)Non-operating pension costs include the amortization of net actuarial loss and prior service costs, interest ~~costs~~cost and expected return on plan ~~assets.~~assets

components of pension and postretirement benefit costs and pension settlement charges if one has occurred.

(3)~~See~~Refer to Note ~~14, "Other~~16, “Other Items Impacting Comparability,"” for ~~additional information.~~

~~(4)Excludes revenue earning equipment acquired under finance leases.~~a discussion of items excluded from our primary measure of segment performance.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

The following table sets forth the capital expenditures paid for each of our segments.

FMS DTS SCS Eliminations Total
(In thousands)
For the nine months ended September 30, 2019
Revenue from external customers $ 3,675,594 1,071,076 1,902,582 — 6,649,252
Inter-segment revenue 464,261 — — (464,261) —
Total revenue $ 4,139,855 1,071,076 1,902,582 (464,261) 6,649,252
Segment EBT ⁽¹⁾
$ 10,107 63,034 112,686 (42,586) 143,241
Unallocated CSS (34,461)
     Non-operating pension costs⁽²⁾
(20,060)
Restructuring and other items, net ⁽³⁾
(27,374)
Gain on sale of property ⁽³⁾
18,614
Earnings from continuing operations before income taxes $ 79,960
   Segment capital expenditures paid⁽⁴⁾
$ 2,890,773 1,587 35,459 — 2,927,819
Unallocated CSS capital expenditures paid 29,413
Capital expenditures paid $ 2,957,232
For the nine months ended September 30, 2018
Revenue from external customers 3,455,820 970,196 1,727,775 — 6,153,791
Inter-segment revenue 420,730 — — (420,730) —
Total revenue 3,876,550 970,196 1,727,775 (420,730) 6,153,791
Segment EBT 228,681 45,433 98,912 (44,644) 328,382
Unallocated CSS (34,336)
Non-operating pension costs⁽²⁾
(3,241)
Restructuring and other items, net ⁽³⁾
(17,349)
Earnings from continuing operations before income taxes 273,456
  Segment capital expenditures paid ⁽⁴⁾
2,150,490 1,115 31,268 — 2,182,873
Unallocated CSS capital expenditures paid 17,133
Capital expenditures paid 2,200,006

~~————————————~~

~~(1)FMS EBT includes higher depreciation expense as a result of the change in vehicle residual value estimates. See Note 4, "Revenue Earning Equipment, net," for additional information.~~

~~(2)Non-operating pension costs include the amortization of net actuarial loss and prior service costs, interest costs and expected return on plan assets.~~

~~(3)See Note 14, "Other Items Impacting Comparability," for additional information.~~

~~(4)Excludes revenue earning equipment acquired under capital leases.~~


	FMS		SCS	DTS	CSS	Total
	(In thousands)
Three months ended March 31, 2020
Capital expenditures paid	$	423,116	6,006	424	1,414	$	430,960

Three months ended March 31, 2019
Capital expenditures paid	$	1,006,129	12,756	343	7,483	$	1,026,711

ITEM 2. 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 the unaudited Condensed Consolidated ~~Condensed~~ Financial Statements and notes thereto included under Item 1. ~~As discussed in Note 2, effective January 1, 2019, we adopted ASU No. 2016-02,~~ ~~Leases (Topic 842)~~ using the modified retrospective transition comparative method. We have recast all prior period amounts in this MD&A to conform to the current period presentation based on our adoption of this new accounting standard. Refer to Note 2, "Recent Accounting Pronouncements," for additional information on the revised amounts. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the ~~2018~~2019 Annual Report on Form 10-K.

OVERVIEW

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,~~Fleet Management Solutions (FMS), which provides full service leasing and leasing with flexible maintenance options, commercial rental, and contract or transactional maintenance services of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) ~~DTS,~~Supply Chain Solutions (SCS), which provides integrated logistics solutions, including distribution, management, dedicated transportation and professional services in North America; and (3) Dedicated Transportation Solutions (DTS), which provides turnkey transportation solutions in the U.S. that includes dedicated vehicles, drivers and engineering, and administrative ~~support; and (3) SCS, which provides integrated logistics solutions, including distribution, management, dedicated transportation and professional services primarily in North America.~~support. Dedicated transportation services provided as part of an operationally integrated, multi-service, supply chain solution to SCS customers are primarily reported in the SCS business segment.

We operate in highly competitive markets. Our customers select us based on numerous factors including service quality, price, technology and service offerings. As an alternative to using our services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative services from other third-party vendors. Our customer base includes enterprises operating in a variety of industries including food and beverage service, transportation and logistics, automotive, retail and consumer goods, industrial, housing, technology, and business and personal services.

~~In addition, our~~Our results of operations and financial condition are influenced by a number of factors including, but not limited to: used vehicle ~~sales,~~sales; macroeconomic and other market conditions, including pricing and ~~demand which may impact residual value estimates,~~demand; customer contracting activity and ~~retention,~~retention; rental ~~demand,~~demand; maintenance ~~costs,~~costs; residual value estimates and other depreciation ~~policy changes,~~changes; currency exchange rate ~~fluctuations,~~fluctuations; customer ~~preferences, inflation,~~preferences; inflation; fuel and energy ~~prices,~~prices; general economic ~~conditions,~~conditions; insurance ~~costs,~~costs; interest ~~rates,~~rates; labor ~~costs, unemployment,~~costs; unemployment; tax ~~rates,~~rates; changes in accounting or regulatory ~~requirements,~~requirements; and cybersecurity attacks. In 2020, our business has, and will continue, to be impacted by the coronavirus (COVID-19) pandemic. For a detailed discussion of its impact on our results and future considerations, refer to our "Consolidated Results" and "Operating Results by Business Segment" discussions below. In addition, for a detailed description of certain risk factors that impact our business, including those related to COVID-19, refer to “Item 1A-Risk Factors” and "Special Note Regarding Forward-Looking Statements" sections included in this Quarterly Report on Form 10-Q and in our 2019 Annual Report on Form 10-K.

This MD&A includes certain non-GAAP financial measures. ~~Please refer~~Refer to the “Non-GAAP Financial Measures” section of this MD&A for information on the non-GAAP measures included in the MD&A, reconciliations to the most comparable GAAP financial measure and the reasons why we believe each measure is useful to investors.

3724

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

Operating results were as follows:


		Three months ended September 30,					Nine months ended September 30,							Change 2019/2018			Three months ended March 31,			2020/2019
		2019		2018	2019		2018	Three Months		Nine Months			2020		2019			Three Months
		(In thousands, except per share amounts)																	(In thousands, except per share amounts)
Total revenue	Total revenue	$	2,223,932	2,159,682	$	6,649,252	6,153,791	3	%	8	%	Total revenue	$	2,161,306	$	2,180,327		(1)%
Operating revenue ⁽¹⁾	Operating revenue ⁽¹⁾	1,804,733		1,718,788	5,375,913		4,902,145	5	%	10	%	Operating revenue ⁽¹⁾	1,771,247		1,750,487			1%


EBT ⁽²⁾		$	(91,260)	118,863	$	79,960	273,456	NM		(71)	%
Earnings (loss) from continuing operations before income taxes (EBT)												Earnings (loss) from continuing operations before income taxes (EBT)	$	(113,634)	$	68,151		NM
Comparable EBT⁽²⁾⁽³⁾	Comparable EBT⁽²⁾⁽³⁾	(73,015)		119,478	108,780		294,046	NM		(63)	%	Comparable EBT⁽²⁾⁽³⁾	(90,824)		80,791			NM
Earnings (loss) from continuing operations ⁽²⁾	Earnings (loss) from continuing operations ⁽²⁾	(91,538)		91,602	29,804		175,084	NM		(83)	%	Earnings (loss) from continuing operations ⁽²⁾	(109,129)		45,890			NM
Comparable earnings (loss) from continuing operations ⁽²⁾⁽³⁾	Comparable earnings (loss) from continuing operations ⁽²⁾⁽³⁾	(78,098)		88,192	54,218		216,134	NM		(75)	%	Comparable earnings (loss) from continuing operations ⁽²⁾⁽³⁾	(72,104)		58,462			NM
Net earnings (loss) ⁽²⁾	Net earnings (loss) ⁽²⁾	(91,455)		90,842	29,076		172,636	NM		(83)	%	Net earnings (loss) ⁽²⁾	(109,613)		45,316			NM


Earnings (loss) per common share (EPS) — Diluted ⁽²⁾	Earnings (loss) per common share (EPS) — Diluted ⁽²⁾											Earnings (loss) per common share (EPS) — Diluted ⁽²⁾
Continuing operations	Continuing operations	$	(1.75)	1.73	$	0.56	3.31	NM		(83)	%	Continuing operations	$	(2.09)	$	0.87		NM
Comparable ⁽³⁾	Comparable ⁽³⁾	(1.49)		1.67	1.03		4.08	NM		(75)	%	Comparable ⁽³⁾	(1.38)		1.11			NM
Net earnings (loss)	Net earnings (loss)	(1.75)		1.72	0.55		3.26	NM		(83)	%	Net earnings (loss)	(2.10)		0.86			NM

————————————

(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)Includes higher depreciation expense of $80 million related to the change in estimated vehicle residual ~~values. Refer to "Critical Accounting Estimates" below and Note 4, "Revenue Earning Equipment, net"~~values in the ~~Notes~~third quarter of 2019, which impacted diluted EPS from continuing operations by $1.13, and approximately $70 million related to ~~Consolidated Condensed Financial Statements for additional information.~~estimated impacts from the COVID-19 pandemic.

(3)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.

NM - Not meaningful

Total revenue decreased 1% and operating revenue (a non-GAAP measure excluding fuel, subcontracted transportation and ~~subcontracted transportation)~~ChoiceLease liability insurance revenues) increased ~~3% and 5%, respectively,~~1% in the ~~third~~first quarter of ~~2019.~~2020. For ~~the nine~~three months ended ~~September 30, 2019, total revenue and~~March 31, 2020, operating revenue increased ~~8% and 10%, respectively. Revenue for both periods grew~~ in the FMS and DTS business segments, ~~as well as~~which was partially offset by a decrease in the SCS business segment ~~for~~compared to the ~~nine months ended September 30, 2019.~~ prior year period.

EBT decreased to a loss of ~~$91~~($114) million in the ~~third~~first quarter as compared to earnings of ~~$119 million in the prior year period. Earnings for the nine months ended September 30, 2019 decreased to $80 million as compared to $273~~$68 million in the prior year period. The decrease was primarily due to higher depreciation expense related to the change in residual value ~~estimates.~~estimates in the third quarter of 2019, estimated impacts from the COVID-19 pandemic of approximately $70 million, and a decline in the FMS commercial rental business. For more information on the higher depreciation expense related to the change in residual value estimates in the third quarter of 2019, refer to “Critical Accounting Estimates — Depreciation and Residual Value Estimates” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K.

The coronavirus (COVID-19) pandemic has negatively impacted several areas of our businesses, including lower demand for commercial rental and declines in volumes in our used vehicle sales, which we also expect to impact pricing (refer to Note 5, "Revenue Earning Equipment," in our Condensed Consolidated Financial Statements for additional information), in our Fleet Management Solutions (FMS) business segment; deterioration in Supply Chain Solutions (SCS) volumes, primarily due to production shut downs in the automotive industry; sales growth opportunities in all of our businesses; and higher bad debt expenses related to increased concerns around customers' ability to pay invoices. With respect to our ChoiceLease product line, our customers have signed long-term lease contracts and, therefore, we do not expect our revenue and cash flows to be materially affected provided our customers remain solvent and continue to make their payments. We have attempted to mitigate the adverse impacts from the pandemic through cost reduction measures and reduction in capital expenditures.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, provides for an acceleration of alternative minimum tax credit refunds, the deferral of certain employer payroll taxes and expands the availability of net operating loss usage. In addition, other governments in state, local and foreign jurisdictions in which we operate have also enacted certain relief measures. We are currently evaluating the impact of the CARES Act and these other measures but do not currently expect the provisions to have a material impact on our financial statements or liquidity position.

3825

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

CONSOLIDATED RESULTS

Lease & Related Maintenance and Rental


		Three months ended September 30,								Nine months ended September 30,								Change 2019/2018					Three months ended March 31,		Change 2020/2019
		2019			2018		2019			2018		Three Months		Nine Months			2020			2019				Three Months
		(In thousands)																					(In thousands)
Lease & related maintenance and rental revenues	Lease & related maintenance and rental revenues	$	959,189		896,788		$	2,792,581		2,580,369		7	%	8	%	Lease & related maintenance and rental revenues	$	927,756		$	899,559			3%
Cost of lease & related maintenance and rental	Cost of lease & related maintenance and rental	877,767			646,674		2,229,596			1,895,058		36	%	18	%	Cost of lease & related maintenance and rental	818,292			664,289				23%
Gross margin	Gross margin	81,422			250,114		562,985			685,311		(67)	%	(18)	%	Gross margin	$	109,464		$	235,270			(53)%
Gross margin %	Gross margin %	8		%	28	%	20		%	27	%					Gross margin %	12		%	26		%

Lease & related maintenance and rental revenues represent revenues from our ChoiceLease and commercial rental product offerings within our FMS business segment. Revenues increased 7%3% to ~~$1.0 billion~~$928 million in the ~~third~~first quarter ~~and 8% to $2.8 billion in the nine months ended September 30, 2019~~of 2020 driven by ChoiceLease fleet growth, ~~as well as higher~~partially offset by lower commercial rental revenue.

Cost of lease & related maintenance and rental represents the direct costs related to lease & related maintenance and rental revenues. These costs consist of depreciation of revenue earning equipment, maintenance costs (primarily repair parts and labor), and other costs such as licenses, insurance and operating taxes. Cost of lease & related maintenance and rental excludes interest costs from vehicle ~~financing.~~financing, which are reported within "Interest Expense" in our Condensed Consolidated Statements of Earnings. Cost of lease & related maintenance and rental increased ~~36%~~23% in the ~~third~~first quarter ~~and 18% in the nine months ended September 30, 2019~~of 2020 due to higher depreciation expense of ~~$166~~$80 million ~~(of the total of $177 million)~~ related to ~~the change~~changes in ~~estimate~~our vehicle residual value estimates for ~~residual values of~~ our lease and commercial rental ~~fleet. In~~fleet in the third quarter of ~~2019, we changed our estimated vehicle residual values to reflect a decline~~2019. The increase in the ~~current and expected used vehicle market. The nine~~three months ended ~~September 30, 2019~~March 31, 2020 also reflected higher depreciation expense from the COVID-19 pandemic and a prior year benefit from a significant maintenance cost recovery ~~item, as well as approximately $23 million of higher depreciation as a result of changes in estimated vehicle residual values effective January 1, 2019.~~item. Refer to our FMS business segment operating results section below for further discussion on COVID-19 impacts.

~~Lease~~During the first quarter of 2020, lease & related maintenance and rental gross margin decreased ~~67% in the third quarter~~53% and ~~18% in the nine months ended September 30, 2019. Lease and rental~~ gross margin as a percentage of revenue decreased to ~~8% in the third quarter and 20% in the nine months ended September 30, 2019.~~12%. The decrease in gross margin dollars in ~~both the three and nine months ended September 30, 2019~~first quarter was primarily due to higher depreciation as a result of changes in our vehicle residual value ~~estimates.~~

~~Refer to "Critical Accounting Estimates" below and Note 4, "Revenue Earning Equipment, net"~~estimates in the ~~Notes to Consolidated Condensed Financial Statements for additional information on~~third quarter of 2019 and COVID-19, as well as the ~~changes in our vehicle residual value estimates.~~impact from lower commercial rental revenue.

Services


		Three months ended September 30,								Nine months ended September 30,								Change 2019/2018					Three months ended March 31,		Change 2020/2019
		2019			2018		2019			2018		Three Months		Nine Months			2020			2019				Three Months
		(In thousands)																					(In thousands)
Services revenue	Services revenue	$	1,120,900		1,106,107		$	3,412,048		3,106,575		1	%	10	%	Services revenue	$	1,112,188		$	1,132,048			(2)%
Cost of services	Cost of services	948,087			947,925		2,896,182			2,644,775		—	%	10	%	Cost of services	954,429			971,690				(2)%
Gross margin	Gross margin	172,813			158,182		515,866			461,800		9	%	12	%	Gross margin	$	157,759		$	160,358			(2)%
Gross margin %	Gross margin %	15		%	14	%	15		%	15	%					Gross margin %	14		%	14		%

Services revenue represents all the revenues associated with our SCS and DTS business segments, as well as SelectCare and fleet support services associated with our FMS business segment. Services revenue ~~increased 1%~~decreased 2% in the ~~third~~first quarter primarily driven ~~by new business in DTS, as well as increased volumes in SelectCare, partially offset~~ by a decrease in revenue in SCS due to lost ~~business. Services revenue increased 10% in the nine months ended September 30, 2019 primarily driven by new~~ business and ~~increased volumes in~~COVID-19 impacts. Refer to our SCS and ~~DTS. The increase in the nine months ended September 30, 2019 also reflects the second quarter 2018 acquisition of MXD in SCS and higher pricing in SCS.~~DTS business segment operating results sections below for further discussion on COVID-19 impacts.

Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, subcontracted transportation (purchased transportation from third parties), fuel, vehicle liability costs and maintenance costs. Cost of services decreased 2% in the first quarter primarily due to lower costs in SCS due to lost business, partially offset by higher overhead costs in DTS.

During the first quarter of 2020, services gross margin decreased 2% and gross margin as a percentage of revenue remained unchanged at 14%. Gross margin dollars reflects lower revenues in both DTS and SCS for the three months ended March 31, 2020.

3927

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

maintenance costs. Cost of services remained flat in the third quarter as higher costs in DTS were offset by lower costs in SCS due to lost business. Cost of services increased 10% in the nine months ended September 30, 2019 due to the growth of SCS and DTS.

Services gross margin increased 9% in the third quarter and 12% in the nine months ended September 30, 2019. Service gross margin as a percentage of revenue increased to 15% in the third quarter and remained at 15% in the nine months ended September 30, 2019. The increase in gross margin dollars reflects improved operating performance in DTS for both periods and SCS for the nine months ended September 30, 2019.

Fuel


		Three months ended September 30,								Nine months ended September 30,								Change 2019/2018					Three months ended March 31,		Change 2020/2019
		2019			2018		2019			2018		Three Months		Nine Months			2020			2019				Three Months
		(In thousands)																					(In thousands)
Fuel services revenue	Fuel services revenue	$	143,843		156,787		$	444,623		466,847		(8)	%	(5)	%	Fuel services revenue	$	121,362		$	148,720			(18)%
Cost of fuel services	Cost of fuel services	140,247			153,420		431,885			455,874		(9)	%	(5)	%	Cost of fuel services	120,449			143,275				(16)%
Gross margin	Gross margin	3,596			3,367		12,738			10,973		7	%	16	%	Gross margin	$	913		$	5,445			(83)%
Gross margin %	Gross margin %	2		%	2	%	3		%	2	%					Gross margin %	1		%	4		%

Fuel services revenue represents fuel services provided to our FMS customers. Fuel services revenue decreased 8%18% in the ~~third~~first quarter ~~and 5% in the nine months ended September 30, 2019~~ primarily reflecting lower fuel costs passed through to customers ~~partially offset by higher~~and lower gallons sold.

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 9%16% in the ~~third~~first quarter ~~and 5% in the nine months ended September 30, 2019~~ as a result of lower ~~revenue.~~revenue and fuel inventory adjustments.

Fuel services gross margin ~~increased 7%~~decreased in the ~~third quarter and 16% in the nine months ended September 30, 2019.~~first quarter. Fuel services gross margin as a percentage of revenue ~~remained at 2%~~also decreased to 1% in the ~~third quarter and increased to 3% in the nine months ended September 30, 2019.~~first quarter. Fuel is largely a pass-through to customers for which we realize minimal changes in margin during periods of steady market fuel prices. However, fuel services margin is impacted by sudden increases or decreases in market fuel prices during a short period of time, as customer pricing for fuel is established based on trailing market fuel costs. Fuel services gross margin in the ~~third~~first quarter ~~and nine months ended September 30, 2019~~ was impacted by these price change dynamics as fuel prices fluctuated during the ~~period.~~period, as well as timing of certain fuel inventory adjustments.

Three months ended September 30, Nine months ended September 30, Change 2019/2018
2019 2018 2019 2018 Three Months Nine Months
(In thousands)
Other operating expenses $ 28,924 30,020 $ 92,213 93,682 (4) % (2) %

Other Operating Expenses


	Three months ended March 31,					Change 2020/2019
	2020		2019		Three Months
	(In thousands)
Other operating expenses	$	33,565	$	33,626	—%

Other operating expenses include costs related to our owned and leased facilities within the FMS segment, such as facility depreciation, rent, purchased insurance, utilities and taxes. These facilities are utilized to provide maintenance to our ChoiceLease, commercial rental, and SelectCare customers. Other operating expenses ~~decreased slightly to $29~~remained flat at $34 million in the ~~third quarter and $92 million in the nine months ended September 30, 2019.~~first quarter.

Three months ended September 30, Nine months ended September 30, Change 2019/2018
2019 2018 2019 2018 Three Months Nine Months
(In thousands)
Selling, general and administrative
expenses (SG&A) $ 216,037 215,599 $ 673,778 636,039 — % 6 %
Percentage of total revenue 10 % 10 % 10 % 10 %
Selling, General and Administrative Expenses


	Three months ended March 31,							Change 2020/2019
	2020			2019			Three Months
	(In thousands)
Selling, general and administrative expenses (SG&A)	$	224,119		$	231,325		(3)%
Percentage of total revenue	10		%	11		%

SG&A expenses decreased 3% in the first quarter. The decrease in SG&A expenses primarily reflects lower compensation related charges and professional services fees partially offset by higher bad debt expense. SG&A expenses as a percentage of total revenue decreased to 10% the first quarter.

4028

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

SG&A expenses remained flat in the third quarter and increased 6% in the nine months ended September 30, 2019. The increase in SG&A expenses primarily reflects higher compensation-related expenses, as well as growth-related investments in sales, marketing and technology. SG&A expenses as a percentage of total revenue remained flat at 10% in both the third quarter and nine months ended September 30, 2019.Non-Operating Pension Costs

Three months ended September 30, Nine months ended September 30, Change 2019/2018
2019 2018 2019 2018 Three Months Nine Months
(In thousands)
Non-operating pension costs $ 6,885 1,161 $ 20,060 3,241 NM NM


	Three months ended March 31,					Change 2020/2019
	2020		2019		Three Months
	(In thousands)
Non-operating pension costs	$	1,221	$	6,462	NM

Non-operating pension costs includes the components of our net periodic benefit cost other than service cost. These components include interest cost, expected return on plan assets, amortization of actuarial loss and prior service ~~cost.~~cost, as well as settlement or curtailment charges. Non-operating pension costs ~~increased $6~~decreased $5 million in the ~~third~~first quarter ~~and $17 million in the nine months ended September 30, 2019~~ due to ~~unfavorable~~favorable asset returns in ~~2018, partially offset by higher~~2019 and a decrease in interest rates.

Three months ended September 30, Nine months ended September 30, Change 2019/2018
2019 2018 2019 2018 Three Months Nine Months
(In thousands)
Losses on used vehicle sales, net $ 22,734 3,203 $ 49,091 16,193 NM NM
Losses on Used Vehicle Sales, Net

~~The following table presents the used vehicle pricing changes for the third quarter of 2019 and in the nine months ended September 30, 2019 compared with the prior year:~~

Proceeds per unit change 2019/2018
Three Months Nine Months
Tractors (8) % 7 %
Trucks (10) % (5) %


	Three months ended March 31,					Change 2020/2019
	2020		2019		Three Months
	(In thousands)
Losses on used vehicle sales, net	$	20,684	$	8,217	NM

Losses on used vehicle sales, net includes gains from sales of used vehicles, selling costs associated with used vehicles and write-downs of vehicles held for sale to fair market ~~values.~~values (referred to as "valuation adjustments"). Losses on used vehicle sales, net increased to ~~$23~~$21 million in the ~~third~~first quarter ~~and $49 million in the nine months ended September 30, 2019~~ primarily due to higher valuation adjustments ~~on a larger inventory, as well as~~from lower expected sales ~~prices.~~prices as a result of a decrease in demand driven by the COVID-19 pandemic. Average proceeds per unit in the ~~third~~first quarter decreased from the prior year reflecting higher sales volumes in the wholesale markets which generally has lower proceeds per ~~unit. The increase in tractor pricing for the nine months ended September 30, 2019 was primarily due to improved~~unit and lower market ~~pricing in the first half of 2019.~~pricing.

Three months ended September 30, Nine months ended September 30, Change 2019/2018
2019 2018 2019 2018 Three Months Nine Months
(In thousands)
Interest expense $ 62,475 47,846 $ 178,570 128,757 31 % 39 %
Effective interest rate 3.2 % 3.1 % 3.3 % 2.9 %
The following table presents the used vehicle pricing changes for the first quarter of 2020 compared with the prior year:


			Proceeds per unit change 2020/2019
			Three Months

Tractors			(26)%
Trucks			(6)%

Interest expense


	Three months ended March 31,							Change 2020/2019
	2020			2019			Three Months
	(In thousands)
Interest expense	$	62,566		$	55,336		13%
Effective interest rate	3.1		%	3.2		%

Interest expense increased ~~31%~~13% in the ~~third~~first quarter ~~and 39% in the nine months ended September 30, 2019~~ reflecting higher average outstanding debt ~~and~~partially offset by a ~~higher~~lower effective interest rate. The increase in average outstanding debt reflects higher ~~planned~~ vehicle capital ~~spending.~~spending in 2019 and additional borrowings under our trade receivable program and global revolving credit facility in 2020. The ~~higher~~lower effective interest rate in ~~2019~~2020 reflects ~~the replacement of lower fixed interest rate debt with debt issuances at higher fixed rates as well as~~ the impact on variable rate debt during a ~~higher~~lower interest rate environment.

4129

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

Three months ended September 30, Nine months ended September 30, Change 2019/2018
2019 2018 2019 2018 Three Months Nine Months
(In thousands)
Miscellaneous (income) loss, net $ 676 (4,483) $ (29,457) (10,633) NM NM
Miscellaneous income, net


	Three months ended March 31,					Change 2020/2019
	2020		2019		Three Months
	(In thousands)
Miscellaneous (income) loss, net	$	8,668	$	(8,222)	NM

Miscellaneous (income) loss, net consists of investment income on securities used to fund certain benefit plans, interest income, gains from sales of operating property, foreign currency transaction remeasurement and other non-operating items. Miscellaneous (income) loss, net ~~increased to~~was a loss of $1$9 million in the ~~third quarter. The nine months ended September 30, 2019 decreased~~first quarter as compared to ~~$29~~income of $8 million in the prior year primarily ~~driven by gains recognized on the sale of SCS properties.~~reflecting a foreign currency transaction remeasurement losses in 2020 and higher rabbi trust investment income in 2019.

Three months ended September 30, Nine months ended September 30, Change 2019/2018
2019 2018 2019 2018 Three Months Nine Months
(In thousands)
Restructuring and other items, net $ 11,360 (546) $ 27,374 17,349 NM NM
Restructuring and other items, net


	Three months ended March 31,					Change 2020/2019
	2020		2019		Three Months
	(In thousands)
Restructuring and other items, net	$	30,947	$	6,178	NM

~~Refer~~Restructuring and other items, net in 2020 included expenses related to ~~Note 14, "Other Items Impacting Comparability,"~~our ChoiceLease insurance liability program which was discontinued in January 2020, the ~~Notes~~implementation of an Enterprise Resource Planning system, restructuring activities that began in late 2019. In 2019, the amount primarily included consulting fees related to cost saving initiatives, professional fees related to the ~~Consolidated Condensed Financial Statements for~~pursuit of a ~~discussion~~commercial claim, and income from our Singapore operations that shut down in 2019. Both years include professional fees related to the pursuit of ~~restructuring charges and fees.~~a commercial claim.

Three months ended September 30, Nine months ended September 30, Change 2019/2018
2019 2018 2019 2018 Three Months Nine Months
(In thousands)
Provision for income taxes $ 278 27,261 $ 50,156 98,372 (99) % (49) %
Effective tax rate from continuing
operations
(0.3) % 22.9 % 62.7 % 36.0 %
Provision for income taxes


	Three months ended March 31,							Change 2020/2019
	2020			2019			Three Months
	(In thousands)
Provision for (benefit from) income taxes	$	(4,505)		$	22,261		NM
Effective tax rate from continuing operations	4.0		%	32.7		%

We recorded ~~an expense~~a benefit of ~~$0.3~~$5 million for income taxes in the ~~third~~first quarter as compared to ~~$27~~an expense of $22 million in the prior period. For the nine months ended September 30, 2019, we recorded an expense of $50 million as compared to $98 million in the prior period. Tax rates for both the three and nine months ended September 30, 2019 wereThe tax rate was impacted by the ~~residual value estimate changes. The nine months ended September 30, 2018 included~~reduction of earnings due to accelerated depreciation charges and the COVID-19 economic effects. Additionally, a ~~one-time unfavorable adjustment associated with the 2017 Tax Cuts and Jobs Act ("Tax Reform")~~$13 million valuation allowance was recorded ~~in the second quarter of 2018.~~against our U.K. deferred tax assets on a discrete basis.

4230

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

OPERATING RESULTS BY BUSINESS SEGMENT


		Three months ended September 30,					Nine months ended September 30,							Change 2019/2018			Three months ended March 31,		Change 2020/2019
		2019		2018	2019		2018	Three Months		Nine Months			2020		2019			Three Months
		(In thousands)															(In thousands)
Total Revenue:	Total Revenue:											Total Revenue:
Fleet Management Solutions	Fleet Management Solutions	$	1,397,346	1,337,771	$	4,139,855	3,876,550	4	%	7	%	Fleet Management Solutions	$	1,340,237	$	1,351,599		(1)%
Supply Chain Solutions												Supply Chain Solutions	628,447		635,671			(1)%
Dedicated Transportation Solutions	Dedicated Transportation Solutions	359,211		340,604	1,071,076		970,196	5		10		Dedicated Transportation Solutions	334,888		349,621			(4)%
Supply Chain Solutions		617,600		628,544	1,902,582		1,727,775	(2)		10
Eliminations	Eliminations	(150,225)		(147,237)	(464,261)		(420,730)	(2)		(10)		Eliminations	(142,266)		(156,564)			9%
Total	Total	$	2,223,932	2,159,682	$	6,649,252	6,153,791	3	%	8	%	Total	$	2,161,306	$	2,180,327		(1)%
Operating Revenue: ⁽¹⁾	Operating Revenue: ⁽¹⁾											Operating Revenue: ⁽¹⁾
Fleet Management Solutions	Fleet Management Solutions	$	1,198,677	1,123,237	$	3,520,949	3,242,979	7	%	9	%	Fleet Management Solutions	$	1,157,544	$	1,135,213		2%
Supply Chain Solutions												Supply Chain Solutions	467,311		477,089			(2)%
Dedicated Transportation Solutions	Dedicated Transportation Solutions	247,715		222,245	731,399		637,483	11		15		Dedicated Transportation Solutions	236,685		235,620			—%
Supply Chain Solutions		453,711		462,796	1,413,556		1,275,690	(2)		11
Eliminations	Eliminations	(95,370)		(89,490)	(289,991)		(254,007)	(7)		(14)		Eliminations	(90,293)		(97,435)			7%
Total	Total	$	1,804,733	1,718,788	$	5,375,913	4,902,145	5	%	10	%	Total	$	1,771,247	$	1,750,487		1%
EBT:

Earnings (Loss) Before Taxes:												Earnings (Loss) Before Taxes:
Fleet Management Solutions	Fleet Management Solutions	$	(108,550)	97,782	$	10,107	228,681	NM		(96)	%	Fleet Management Solutions	$	(114,574)	$	60,911		NM
Supply Chain Solutions												Supply Chain Solutions	31,025		32,317			(4)%
Dedicated Transportation Solutions	Dedicated Transportation Solutions	18,490		13,929	63,034		45,433	33		39		Dedicated Transportation Solutions	12,180		17,412			(30)%
Supply Chain Solutions		34,595		36,516	112,686		98,912	(5)		14
Eliminations	Eliminations	(6,118)		(16,063)	(42,586)		(44,644)	62		5		Eliminations	(10,069)		(17,302)			42%
		(61,583)		132,164	143,241		328,382	NM		(56)			(81,438)		93,338			NM
Unallocated Central Support Services	Unallocated Central Support Services	(11,432)		(12,686)	(34,461)		(34,336)	10		—		Unallocated Central Support Services	(9,386)		(12,547)			25%
Non-operating pension costs	Non-operating pension costs	(6,885)		(1,161)	(20,060)		(3,241)	NM		NM		Non-operating pension costs	(1,221)		(6,462)			81%
Restructuring and other items, net		(11,360)		546	(8,760)		(17,349)	NM		50
Other items impacting comparability, net ⁽²⁾												Other items impacting comparability, net ⁽²⁾	(21,589)		(6,178)			NM
Earnings (loss) from continuing operations before income taxes	Earnings (loss) from continuing operations before income taxes	$	(91,260)	118,863	$	79,960	273,456	NM		(71)	%	Earnings (loss) from continuing operations before income taxes	$	(113,634)	$	68,151		NM

————————————

NM - Not meaningful

(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 for FMS, ~~DTS~~SCS and ~~SCS,~~DTS, as well as the reasons why management believes these measures are important to investors.

~~NM - Not meaningful~~(2)Refer to Note 16, "Other Items Impacting Comparability," and below for a discussion of items excluded from our primary measure of segment performance.

As part of management’s evaluation of segment operating performance, we define the primary measurement of our segment financial performance as segment “Earnings ~~Before Taxes” (EBT)~~ from continuing operations before taxes” (EBT), which includes an allocation of Central Support Services (CSS), and excludes non-operating pension costs and certain other items as discussed in Note ~~14,~~16, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements. CSS represents those costs incurred to support all business segments, including finance and procurement, corporate services, human resources, information technology, public affairs, legal, marketing, and corporate communications.

The objective of the EBT measurement is to provide clarity on the profitability of each segment and, ultimately, to hold leadership of each business segment accountable for their allocated share of CSS costs. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Certain costs are not attributable to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation. See Note ~~17,~~19, "Segment Reporting," in the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements for a description of the methodology for allocating the remainder of CSS costs to the business segments.

Our FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to the DTS and SCS segments. EBT related to inter-segment equipment and services billed to DTS and SCS customers (equipment contribution) are included in both FMS and the segment that served the customer and then eliminated (presented as

4331

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

~~“Eliminations”~~Our FMS segment leases revenue earning equipment, as well as provides rental vehicles, fuel, maintenance and other ancillary services to the SCS and DTS segments. EBT related to inter-segment equipment and services billed to SCS and DTS customers (equipment contribution) are included in both FMS and the ~~table above)~~segment that served the customer and then eliminated upon consolidation (presented as “Eliminations”).Inter-segment EBT allocated to ~~DTS~~SCS and ~~SCS~~DTS includes earnings related to equipment used in providing services to SCS and DTS ~~and SCS~~ customers. ~~Prior year amounts have been revised to conform to the current period presentation, which excludes EBT from our Singapore operations that were shut down during the second quarter of 2019.~~

The following table sets forth the benefits from equipment contribution included in EBT for our ~~DTS~~SCS and ~~SCS~~DTS business segments:


		Three months ended September 30,					Nine months ended September 30,							Change 2019/2018			Three months ended March 31,		Change 2020/2019
		2019		2018	2019		2018	Three Months		Nine Months			2020		2019			Three Months
		(In thousands)															(In thousands)
Equipment Contribution:	Equipment Contribution:											Equipment Contribution:
Supply Chain Solutions												Supply Chain Solutions	$	4,560	$	7,642		(40)%
Dedicated Transportation Solutions	Dedicated Transportation Solutions	$	3,058	8,940	$	23,868	25,349	(66)	%	(6)	%	Dedicated Transportation Solutions	5,509		9,660			(43)%
Supply Chain Solutions		3,060		7,123	18,718		19,295	(57)	%	(3)	%
Total ⁽¹⁾	Total ⁽¹⁾	$	6,118	16,063	$	42,586	44,644	(62)	%	(5)	%	Total ⁽¹⁾	$	10,069	$	17,302		(42)%

———————————

(1)Total ~~amount~~amount is included in FMS EBT.

The decrease in ~~DTS~~SCS and ~~SCS~~DTS equipment contribution for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 is primarily related to the impact of higher depreciation expense due to the change in estimate for residual values in the third quarter of 2019 on vehicles used to provide services to SCS and DTS ~~and SCS~~ customers. Refer to "Critical Accounting Estimates" below and Note 4, "Revenue Earning Equipment, net" in the Notes to Consolidated Condensed Financial Statements for additional information on the changes in our vehicle residual value estimates.

Items excluded from our segment EBT measure and their classification within our Condensed Consolidated ~~Condensed~~ Statements of Earnings follow:

Three months ended September 30, Nine months ended September 30,
Description Classification 2019 2018 2019 2018
(In thousands)
Non-operating pension costs ⁽¹⁾
Non-operating pension costs $ (6,885) (1,161) $ (20,060) (3,241)
Restructuring and other, net ⁽²⁾
Restructuring and other items, net (5,234) 546 (13,757) (1,836)
ERP implementation costs ⁽²⁾
Restructuring and other items, net (6,126) — (13,617) —
Gain on sale of property ⁽²⁾
Miscellaneous income (loss), net — — 18,614 —
Goodwill impairment ⁽²⁾
Restructuring and other items, net — — — (15,513)
$ (18,245) (615) $ (28,820) (20,590)


		Three months ended March 31,
Description	Classification	2020		2019
		(In thousands)
Restructuring and other, net ⁽¹⁾	Revenue and Restructuring and other items, net	$	(11,263)	$	(2,588)

ERP implementation costs ⁽¹⁾	Restructuring and other items, net	(10,326)		(3,590)





Other items impacting comparability, net				(21,589)		(6,178)
Non-operating pension costs	Non-operating pension costs	(1,221)		(6,462)
		$	(22,810)	$	(12,640)

———————————

(1)See Note ~~17, "Segment Reporting," in the Notes to Consolidated Condensed Financial Statements for additional information.~~

~~(2)See Note 14,~~16, “Other Items Impacting Comparability,” in the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements for ~~a discussion of adjustments.~~additional information.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

Fleet Management Solutions


		Three months ended September 30,								Nine months ended September 30,								Change 2019/2018			Three months ended March 31,		Change 2020/2019
		2019			2018		2019			2018		Three Months		Nine Months			2020		2019			Three Months
		(In thousands)																			(In thousands)
ChoiceLease	ChoiceLease	$	779,811		717,951		$	2,293,701		2,109,908		9	%	9	%	ChoiceLease	$	792,206	$	740,059		7%
SelectCare	SelectCare	133,434			125,850		405,572			372,989		6		9		SelectCare	136,146		135,779			—%
Commercial rental	Commercial rental	262,976			257,909		752,995			694,864		2		8		Commercial rental	205,766		236,148			(13)%
Other	Other	22,456			21,527		68,681			65,218		4		5		Other	23,426		23,227			1%
Fuel services revenue	Fuel services revenue	198,669			214,534		618,906			633,571		(7)		(2)		Fuel services revenue	173,335		207,866			(17)%
FMS total revenue ⁽¹⁾		$	1,397,346		1,337,771		$	4,139,855		3,876,550		4	%	7	%
ChoiceLease liability insurance revenue ⁽¹⁾																ChoiceLease liability insurance revenue ⁽¹⁾	9,358		8,520			10%
FMS total revenue ⁽²⁾																FMS total revenue ⁽²⁾	$	1,340,237	$	1,351,599		(1)%

FMS operating revenue ⁽²⁾		$	1,198,677		1,123,237		$	3,520,949		3,242,979		7	%	9	%
FMS operating revenue ⁽³⁾																FMS operating revenue ⁽³⁾	$	1,157,544	$	1,135,213		2%

FMS EBT	FMS EBT	$	(108,550)		97,782		$	10,107		228,681		NM		(96)	%	FMS EBT	$	(114,574)	$	60,911		NM

FMS EBT as a % of FMS total revenue	FMS EBT as a % of FMS total revenue	(7.8)		%	7.3	%	0.2		%	5.9	%	NM		(570) bps		FMS EBT as a % of FMS total revenue	(8.5)%		4.5%			(1,300) bps
FMS EBT as a % of FMS operating revenue ⁽²⁾		(9.1)		%	8.7	%	0.3		%	7.1	%	NM		(680) bps

FMS EBT as a % of FMS operating revenue ⁽³⁾																FMS EBT as a % of FMS operating revenue ⁽³⁾	(9.9)%		5.4%			(1,530) bps

————————————

(1)In the first quarter of 2020, we announced our plan to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program is estimated to be completed in the second quarter of 2021. We have revised our definition of operating revenues to exclude the revenues associated with this program for better comparability of our on-going operations.

(2)Includes intercompany fuel sales from FMS to ~~DTS~~SCS and ~~SCS.~~DTS.

~~(2)~~(3)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 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.

The following table summarizes the components of the change in FMS revenue on a percentage basis versus the prior year:


		Three months ended September 30, 2019						Nine months ended September 30, 2019					Three months ended March 31, 2020
		Total		Operating ⁽¹⁾		Total		Operating ⁽¹⁾			Total	Operating ⁽¹⁾
Organic, including price and volume	Organic, including price and volume	5	%	8	%	9	%	10	%	Organic, including price and volume	2%	2%
Fuel										Fuel	(3)%	—%

Fuel		(1)		—		(1)		—
Foreign exchange		—		(1)		(1)		(1)
Net increase (decrease)	Net increase (decrease)	4	%	7	%	7	%	9	%	Net increase (decrease)	(1)%	2%

————————————

(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.

FMS total revenue ~~increased~~decreased to ~~$1.4~~$1.3 billion in the ~~third~~first quarter ~~and $4.1 billion in the nine months ended September 30, 2019~~ primarily due to lower fuel revenue partially offset by higher operating revenue. FMS operating revenue in the ~~third~~first quarter increased to $1.2 billion ~~and $3.5 billion in the nine months ended September 30, 2019~~ primarily from growth in ChoiceLease ~~SelectCare and~~partially offset by a decline in our commercial rental product ~~lines.~~line.

ChoiceLease revenue increased 9%7% in ~~both~~ the ~~third~~first quarter ~~and the nine months ended September 30, 2019~~ primarily due to a larger average fleet size as well as higher prices on new vehicles. ~~We expect favorable ChoiceLease revenue comparisons to continue through the end of the year based on sales activity.~~ SelectCare revenue ~~increased 6%~~remained unchanged in the ~~third quarter and 9% in the nine months ended September 30, 2019 due to increased volumes.~~first quarter. Commercial rental revenue ~~increased 2%~~decreased 13% in the ~~third~~first quarter ~~and 8% in the nine months ended September 30, 2019~~ primarily due to lower demand, partially offset by higher pricing. ~~We do not expect favorable commercial rental revenue comparisons to continue in the fourth quarter due to a slowing demand environment.~~ Fuel services revenue decreased 17% in the ~~third~~first quarter ~~and the nine months ended September 30, 2019~~ primarily reflecting lower fuel costs passed through to customers ~~partially offset by higher~~and lower gallons sold.

4533

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

The following table provides commercial rental statistics on our global fleet:


		Three months ended September 30,								Nine months ended September 30,								Change 2019/2018			Three months ended March 31,		Change 2020/2019
		2019			2018		2019			2018		Three Months		Nine Months			2020		2019			Three Months
		(In thousands)																			(In thousands)
Rental revenue from non-lease customers	Rental revenue from non-lease customers	$	163,401		149,746		$	445,150		413,579		9	%	8	%	Rental revenue from non-lease customers	$	125,285	$	129,548		(3)%
Rental revenue from lease customers ⁽¹⁾	Rental revenue from lease customers ⁽¹⁾	$	99,575		108,163		$	307,845		281,285		(8)	%	9	%	Rental revenue from lease customers ⁽¹⁾	$	80,481	$	106,600		(25)%
Average commercial rental power fleet size — in service ^{(2) (3)}	Average commercial rental power fleet size — in service ^{(2) (3)}	37,500			34,200		36,100			32,100		10	%	12	%	Average commercial rental power fleet size — in service ^{(2) (3)}	33,400		34,700			(4)%
Commercial rental utilization — power fleet ⁽²⁾	Commercial rental utilization — power fleet ⁽²⁾	74.0		%	80.4	%	74.7		%	78.3	%	(640) bps		(360) bps		Commercial rental utilization — power fleet ⁽²⁾	64.4%		74.9%			(1,050) bps

————————————

(1)Represents revenue from rental vehicles provided to our existing ChoiceLease 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.

FMS EBT decreased to a loss of ~~$109~~($115) million in the ~~third~~first quarter from earnings before taxes of ~~$98 million in the prior year period. For the nine months ended September 30, 2019, FMS EBT decreased to $10 million from $229~~$61 million in the prior year period. The decrease ~~in both periods~~ reflects higher depreciation expense of ~~$169~~$80 million resulting from the changes in vehicle residual value estimates in the third quarter of 2019. ~~Refer to "Critical Accounting Estimates"~~Earnings were also negatively impacted by an estimated impact of approximately $60 million from the COVID-19 impacts described below and ~~Note 4, "Revenue Earning Equipment, net"~~lower commercial rental performance, partially offset by an increase in the Consolidated Condensed Financial Statements for additional information. Used vehicle sales results reflected higher losses as a result of higher valuation adjustments of $14 million in the third quarter and $29 million in the nine months ended September 30, 2019 on a larger inventory (which includes an additional $8 million related to the change in residual value estimates), as well as lower expected sales prices. In addition, there was higher depreciation of $23 million in the nine months ended September 30, 2019 due to the previous change in estimated vehicle residual values effective January 1, 2019.lease results. Lease results benefited from fleet growth ~~reflecting strong outsourcing trends~~ and ~~our sales and marketing initiatives, as well as our maintenance cost-savings initiative~~higher pricing for the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020. Commercial rental performance ~~was lower~~declined reflecting lower utilization ~~on a larger fleet and higher insurance costs~~ in the ~~third~~first quarter of ~~2019~~2020, partially offset by higher pricing. Rental power fleet utilization decreased ~~640 bps~~ to ~~74.0%~~64.4% for the ~~third~~first quarter ~~and 360 bps to 74.7%~~from 74.9% in the ~~nine months ended September 30, 2019, particularly with respect to tractors. In addition, both~~prior year. The COVID-19 impacts included additional accelerated depreciation of $27 million and higher valuation adjustments of $21 million reflecting lower used vehicle pricing expected in the second half of 2020, incremental lower rental demand and higher bad debt reserves reflecting slower customer payment activity. Both lease and rental performance ~~benefited~~ in the first quarter of 2019 benefited from a significant maintenance cost recovery item.

As a result of the COVID-19 pandemic, demand for commercial rental vehicles has decreased significantly due to a substantial reduction in business activity. We expect lower demand conditions to continue through the balance of the year and are taking actions to redeploy rental vehicles to fulfill new lease contracts and support the SCS and DTS segments. In addition, as discussed above, we expect lower used vehicle pricing in the second half of 2020 due to lower demand. ChoiceLease operations have not been materially impacted to date by the pandemic, however due to slower payment activity with certain customers, we established additional reserves for bad debts. In addition, we expect lower lease sales activity in 2020.

4634

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

Our global fleet of owned and leased revenue earning equipment and SelectCare vehicles, including vehicles under on-demand maintenance, is summarized as follows (number of units rounded to the nearest hundred):


					Change												Change
		September 30, 2019	December 31, 2018	September 30, 2018	Sept. 2019/Dec. 2018		Sept. 2019/Sept. 2018			March 31, 2020		December 31, 2019		March 31, 2019		2020/Dec. 2019	2020/ 2019
End of period vehicle count	End of period vehicle count								End of period vehicle count
By type:	By type:								By type:
Trucks ⁽¹⁾	Trucks ⁽¹⁾	86,000	81,700	81,200	5	%	6	%	Trucks ⁽¹⁾	84,800		85,200		83,000		—%	2%
Tractors ⁽²⁾	Tractors ⁽²⁾	82,300	74,000	71,000	11		16		Tractors ⁽²⁾	81,600		82,400		78,400		(1)%	4%
Trailers ⁽³⁾	Trailers ⁽³⁾	45,600	44,700	43,900	2		4		Trailers ⁽³⁾	45,500		45,400		45,000		—%	1%
Other	Other	1,000	1,200	1,200	(17)		(17)		Other	800		800		1,200		—%	(33)%
Total	Total	214,900	201,600	197,300	7	%	9	%	Total	212,700		213,800		207,600		(1)%	2%

By ownership:
Owned		213,700	200,200	195,900	7	%	9	%
Leased		1,200	1,400	1,400	(14)		(14)
Total		214,900	201,600	197,300	7	%	9	%

By product line:	By product line:								By product line:
ChoiceLease	ChoiceLease	160,200	149,300	145,400	7	%	10	%	ChoiceLease	158,800		159,800		153,500		(1)%	3%
Commercial rental	Commercial rental	44,800	42,600	42,600	5		5		Commercial rental	39,600		41,900		43,800		(5)%	(10)%
Service vehicles and other	Service vehicles and other	2,600	2,800	3,100	(7)		(16)		Service vehicles and other	2,700		2,700		2,700		—%	—%
Active units		207,600	194,700	191,100	7		9
										201,100		204,400		200,000		(2)%	1%
Held for sale	Held for sale	7,300	6,900	6,200	6		18		Held for sale	11,600		9,400		7,600		23%	53%
Total	Total	214,900	201,600	197,300	7	%	9	%	Total	212,700		213,800		207,600		(1)%	2%

Customer vehicles under SelectCare contracts ⁽⁴⁾		56,800	56,300	56,500	1	%	1	%
Total vehicles serviced		271,700	257,900	253,800	5	%	7	%
Active ChoiceLease vehicles ⁽⁴⁾									Active ChoiceLease vehicles ⁽⁴⁾	148,400		147,400		142,800		1%	4%

Customer vehicles under SelectCare contracts⁽⁶⁾									Customer vehicles under SelectCare contracts⁽⁶⁾	56,900		55,800		55,900		2%	2%


Quarterly average vehicle count	Quarterly average vehicle count								Quarterly average vehicle count
By product line:	By product line:								By product line:
ChoiceLease	ChoiceLease	159,000	147,000	144,000	8	%	10	%	ChoiceLease	159,600		160,200		151,400		—%	5%
Commercial rental	Commercial rental	45,200	42,600	42,300	6		7	%	Commercial rental	40,500		43,300		43,000		(6)%	(6)%
Service vehicles and other	Service vehicles and other	2,700	2,900	3,100	(7)		(13)		Service vehicles and other	2,700		2,700		2,800		—%	(4)%
Active units		206,900	192,500	189,400	7		9
										202,800		206,200		197,200		(2)%	3%
Held for sale	Held for sale	7,700	6,600	5,800	17		33		Held for sale	10,300		8,200		7,300		26%	41%
Total	Total	214,600	199,100	195,200	8	%	10	%	Total	213,100		214,400		204,500		(1)%	4%

Customer vehicles under SelectCare contracts ⁽⁴⁾		56,400	56,100	56,100	1	%	1	%
Active ChoiceLease vehicles ⁽⁴⁾									Active ChoiceLease vehicles ⁽⁴⁾	148,200		146,900		141,100		1%	5%
Revenue per active ChoiceLease vehicle ⁽⁵⁾									Revenue per active ChoiceLease vehicle ⁽⁵⁾	$	5,350	$	5,500	$	5,240	NM	2%

Customer vehicles under SelectCare on-demand ⁽⁵⁾		8,300	8,600	9,000	(3)	%	(8)	%
Customer vehicles under SelectCare contracts⁽⁶⁾									Customer vehicles under SelectCare contracts⁽⁶⁾	56,400		56,900		56,200		(1)%	—%

Customer vehicles under SelectCare on-demand ⁽⁷⁾									Customer vehicles under SelectCare on-demand ⁽⁷⁾	8,100		8,500		9,000		(5)%	(10)%

Total vehicles serviced	Total vehicles serviced	279,300	263,800	260,300	6	%	7	%	Total vehicles serviced	277,600		279,800		269,700		(1)%	3%

Year-to-date average vehicle count
By product line:
ChoiceLease		154,900	143,100	141,900	8	%	9	%
Commercial rental		44,100	41,000	40,500	8		9
Service vehicles and other		2,700	3,100	3,200	(13)		(16)
Active units		201,700	187,200	185,600	8		9
Held for sale		7,600	6,100	5,900	25		29
Total		209,300	193,300	191,500	8	%	9	%

Customer vehicles under SelectCare contracts⁽⁴⁾		55,500	55,600	54,600	—	%	2	%
Customer vehicles under SelectCare on-demand ⁽⁵⁾		15,100	23,200	18,900	(35)	%	(20)	%
Total vehicle serviced		279,900	272,100	265,000	3	%	6	%

———————————

(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)Active ChoiceLease vehicles are calculated as those units currently earning revenue and not classified as not yet earning or no longer earning units.

(5)Calculated based on the reported quarterly ChoiceLease revenue.

(6)Excludes customer vehicles under SelectCare on-demand contracts.

~~(5)~~(7)Comprised of the number of unique vehicles serviced under on-demand maintenance agreements for the quarterly periods. This does not represent averages for the periods. Vehicles included in the count may have been serviced more than one time during the respective period.

Note: Quarterly and year-to-date amounts were computed using a 6-point ~~and 12-point~~ average ~~respectively,~~ based on monthly information.

4735

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

The following table provides a breakdown of our non-revenue earning equipment included in our end of period global fleet count (number of units rounded to nearest hundred):


					Change									Change
		September 30, 2019	December 31, 2018	September 30, 2018	Sept. 2019/Dec. 2018		Sept. 2019/Sept. 2018			March 31, 2020	December 31, 2019	March 31, 2019	2020/Dec. 2019	2020/ 2019
Not yet earning revenue (NYE)	Not yet earning revenue (NYE)	4,400	4,500	4,000	(2)	%	10	%	Not yet earning revenue (NYE)	2,600	3,500	5,200	(26)%	(50)%

No longer earning revenue (NLE):	No longer earning revenue (NLE):								No longer earning revenue (NLE):
Units held for sale	Units held for sale	7,300	6,900	6,200	6		18		Units held for sale	11,600	9,400	7,600	23%	53%
Other NLE units	Other NLE units	10,100	4,300	4,500	135		124		Other NLE units	9,000	8,400	6,200	7%	45%
Total NLE	Total NLE	17,400	11,200	10,700	55	%	63	%	Total NLE	20,600	17,800	13,800	16%	49%
Total									Total	23,200	21,300	19,000	9%	22%

NYE units represent new vehicles on hand that are being prepared for deployment to a lease customer or into the rental fleet. Preparations include activities such as adding lift gates, paint, decals, cargo area and refrigeration equipment. NYE units ~~increased 10%~~decreased 50% compared to ~~September 30, 2018,~~March 31, 2019 reflecting lower lease ~~fleet growth.~~ sales and faster customer fulfillment activities.

NLE units represent vehicles held for sale and vehicles for which no revenue has been earned in the previous 30 days. Accordingly, these vehicles may be temporarily out of service, being prepared for sale or awaiting redeployment. NLE units increased ~~63%~~49% compared to ~~September 30, 2018,~~March 31, 2019, reflecting a higher number of vehicles being prepared for sale or redeployment ~~a higher number of contract terminations,~~and held for sale, as well as slowing demand in our used vehicle market. ~~We expect NLE levels to increase through the end of the year driven by higher number of units held for sale.~~

Supply Chain Solutions


	Three months ended March 31,					Change 2020/2019
	2020		2019		Three Months
	(In thousands)
Automotive	$	171,741	$	176,525	(3)%
Technology and healthcare	57,666		78,751		(27)%
Consumer product goods and retail	188,036		178,472		5%
Industrial and other	49,868		43,341		15%
Subcontracted transportation	135,728		127,995		6%
Fuel	25,408		30,587		(17)%
SCS total revenue	$	628,447	$	635,671	(1)%

SCS operating revenue ⁽¹⁾	$	467,311	$	477,089	(2)%

SCS EBT	$	31,025	$	32,317	(4)%
SCS EBT as a % of SCS total revenue	4.9%		5.1%		(20) bps

SCS EBT as a % of SCS operating revenue ⁽¹⁾	6.6%		6.8%		(20) bps

Memo:
Average fleet	9,600		9,700		(1)%

————————————

(1)Non-GAAP financial measures. Reconciliations of SCS total revenue to SCS operating revenue and SCS EBT as a % of SCS total revenue to SCS EBT as a % of SCS 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

The following table summarizes the components of the change in SCS revenue on a percentage basis versus the prior year:


	Three months ended March 31, 2020
	Total	Operating ⁽¹⁾
Organic, including price and volume	(1)%	(2)%
Subcontracted transportation	1%	—%


Fuel	(1)%	—%
Net increase (decrease)	(1)%	(2)%

————————————

(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 revenue and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) decreased 1% and 2%, respectively, in the first quarter reflecting lost business and lower volume in our automotive vertical due to production shutdowns related to the COVID-19 pandemic, partially offset by increased pricing and higher volumes in several verticals.

SCS EBT decreased 4% in the first quarter primarily due to the impacts of COVID-19, particularly in the automotive vertical, lost business and higher overhead costs, partially offset by higher pricing and increased volumes in non-automotive verticals. Higher overhead costs related to foreign currency remeasurement losses, favorable developments of insurance reserves recognized in the prior year and higher medical expenses.

SCS customer volumes in the automotive vertical have declined significantly due to production shutdowns beginning late in the first quarter related to the COVID-19 pandemic. Although our automotive customers generally expect to resume production in May, this is subject to change and could have a material effect on SCS revenue and earnings. Lower expected economic activity is anticipated to reduce customer volumes through at least the second quarter.

~~Dedicated Transportation~~Supply Chain Solutions

Three months ended September 30, Nine months ended September 30, Change 2019/2018
2019 2018 2019 2018 Three Months Nine Months
(In thousands)
DTS total revenue $ 359,211 340,604 $ 1,071,076 970,196 5 % 10 %
DTS operating revenue ⁽¹⁾
$ 247,715 222,245 $ 731,399 637,483 11 % 15 %
DTS EBT $ 18,490 13,929 $ 63,034 45,433 33 % 39 %
DTS EBT as a % of DTS total revenue 5.1 % 4.1 % 5.9 % 4.7 % 100 bps 120 bps
DTS EBT as a % of DTS operating revenue ⁽¹⁾
7.5 % 6.3 % 8.6 % 7.1 % 120 bps 150 bps
Memo:
Average fleet 9,600 9,000 9,600 8,800 7 % 9 %


	Three months ended March 31,					Change 2020/2019
	2020		2019		Three Months
	(In thousands)
Automotive	$	171,741	$	176,525	(3)%
Technology and healthcare	57,666		78,751		(27)%
Consumer product goods and retail	188,036		178,472		5%
Industrial and other	49,868		43,341		15%
Subcontracted transportation	135,728		127,995		6%
Fuel	25,408		30,587		(17)%
SCS total revenue	$	628,447	$	635,671	(1)%

SCS operating revenue ⁽¹⁾	$	467,311	$	477,089	(2)%

SCS EBT	$	31,025	$	32,317	(4)%
SCS EBT as a % of SCS total revenue	4.9%		5.1%		(20) bps

SCS EBT as a % of SCS operating revenue ⁽¹⁾	6.6%		6.8%		(20) bps

Memo:
Average fleet	9,600		9,700		(1)%

————————————

(1)Non-GAAP financial measures. Reconciliations of ~~DTS~~SCS total revenue to ~~DTS~~SCS operating revenue and ~~DTS~~SCS EBT as a % of ~~DTS~~SCS total revenue to ~~DTS~~SCS EBT as a % of ~~DTS~~SCS 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

The following table summarizes the components of the change in ~~DTS~~SCS revenue on a percentage basis versus the prior year:


		Three months ended September 30, 2019						Nine months ended September 30, 2019					Three months ended March 31, 2020
		Total		Operating ⁽¹⁾		Total		Operating ⁽¹⁾			Total	Operating ⁽¹⁾
Organic, including price and volume	Organic, including price and volume	6	%	11	%	10	%	15	%	Organic, including price and volume	(1)%	(2)%
Subcontracted transportation										Subcontracted transportation	1%	—%

Fuel	Fuel	(1)		—		—		—		Fuel	(1)%	—%

Net increase (decrease)	Net increase (decrease)	5	%	11	%	10	%	15	%	Net increase (decrease)	(1)%	(2)%

——————————————

(1)Non-GAAP financial measure. A reconciliation of ~~DTS~~SCS total revenue to ~~DTS~~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.

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS — (Continued)~~

~~DTS~~SCS total revenue ~~increased 5% in the third quarter~~ and ~~10% in the nine months ended September 30, 2019 due to higher~~ operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation)~~. DTS operating revenue increased 11%~~ decreased 1% and 2%, respectively, in the ~~third~~first quarter reflecting lost business and ~~15%~~lower volume in our automotive vertical due to production shutdowns related to the ~~nine months ended September 30, 2019 primarily reflecting new business. We expect revenue comparisons to remain favorable through the end of the year.~~COVID-19 pandemic, partially offset by increased pricing and higher volumes in several verticals.

~~DTS~~SCS EBT ~~increased 33%~~decreased 4% in the ~~third~~first quarter ~~and 39%~~primarily due to the impacts of COVID-19, particularly in the ~~nine months ended September 30, 2019 due to revenue growth~~automotive vertical, lost business and ~~improved operating performance~~higher overhead costs, partially offset by ~~a decrease~~higher pricing and increased volumes in ~~equipment contribution of $7 million (see further discussions on equipment contribution above). In addition, the nine months ended September 30, 2019 was impacted by favorable insurance results~~non-automotive verticals. Higher overhead costs related to ~~development~~foreign currency remeasurement losses, favorable developments of insurance reserves recognized in the prior ~~years' claims.~~year and higher medical expenses.

Supply Chain Solutions


		Three months ended September 30,								Nine months ended September 30,								Change 2019/2018
		2019			2018		2019			2018		Three Months		Nine Months			Three months ended March 31,						Change 2020/2019
		(In thousands)																			2020	2019		Three Months
																	(In thousands)
Automotive	Automotive	$	170,352		165,027		$	528,859		458,761		3	%	15	%	Automotive	$	171,741	$	176,525		(3)%
Technology and healthcare	Technology and healthcare	58,858			83,553		208,961			230,320		(30)		(9)		Technology and healthcare	57,666		78,751			(27)%
CPG and retail		179,698			170,045		543,664			459,955		6		18

Consumer product goods and retail																Consumer product goods and retail	188,036		178,472			5%
Industrial and other	Industrial and other	44,803			44,171		132,072			126,654		1		4		Industrial and other	49,868		43,341			15%
Subcontracted transportation	Subcontracted transportation	136,914			137,758		400,424			371,597		(1)		8		Subcontracted transportation	135,728		127,995			6%
Fuel	Fuel	26,975			27,990		88,602			80,488		(4)		10		Fuel	25,408		30,587			(17)%
SCS total revenue	SCS total revenue	$	617,600		628,544		$	1,902,582		1,727,775		(2)	%	10	%	SCS total revenue	$	628,447	$	635,671		(1)%

SCS operating revenue ⁽¹⁾	SCS operating revenue ⁽¹⁾	$	453,711		462,796		$	1,413,556		1,275,690		(2)	%	11	%	SCS operating revenue ⁽¹⁾	$	467,311	$	477,089		(2)%

SCS EBT	SCS EBT	$	34,595		36,516		$	112,686		98,912		(5)	%	14	%	SCS EBT	$	31,025	$	32,317		(4)%
SCS EBT as a % of SCS total revenue	SCS EBT as a % of SCS total revenue	5.6		%	5.8	%	5.9		%	5.7	%	(20) bps		20 bps		SCS EBT as a % of SCS total revenue	4.9%		5.1%			(20) bps

SCS EBT as a % of SCS operating revenue ⁽¹⁾	SCS EBT as a % of SCS operating revenue ⁽¹⁾	7.6		%	7.9	%	8.0		%	7.8	%	(30) bps		20 bps		SCS EBT as a % of SCS operating revenue ⁽¹⁾	6.6%		6.8%			(20) bps

Memo:	Memo:															Memo:
Average fleet	Average fleet	9,700			8,900		9,700			8,600		9	%	13	%	Average fleet	9,600		9,700			(1)%

————————————

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

The following table summarizes the components of the change in SCS revenue on a percentage basis versus the prior year:


		Three months ended September 30, 2019						Nine months ended September 30, 2019					Three months ended March 31, 2020
		Total		Operating ⁽¹⁾		Total		Operating ⁽¹⁾			Total	Operating ⁽¹⁾
Organic, including price and volume	Organic, including price and volume	(2)	%	(2)	%	7	%	9	%	Organic, including price and volume	(1)%	(2)%
Subcontracted transportation										Subcontracted transportation	1%	—%

Acquisitions		—		—		3		2

Fuel										Fuel	(1)%	—%
Net increase (decrease)	Net increase (decrease)	(2)	%	(2)	%	10	%	11	%	Net increase (decrease)	(1)%	(2)%

————————————

SCS total revenue and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) decreased ~~2% in the third quarter reflecting lost business. SCS total revenue~~1% and ~~operating revenue increased 10% and 11%~~2%, respectively, in the ~~nine months ended September 30, 2019 largely~~first quarter reflecting ~~new~~lost business and lower volume in our automotive vertical due to production shutdowns related to the COVID-19 pandemic, partially offset by increased pricing and higher volumes in several verticals.

SCS EBT decreased 4% in the first quarter primarily due to the impacts of COVID-19, particularly in the automotive vertical, lost business and higher ~~pricing. In addition,~~overhead costs, partially offset by higher pricing and increased volumes in non-automotive verticals. Higher overhead costs related to foreign currency remeasurement losses, favorable developments of insurance reserves recognized in the ~~nine months ended September 30, 2019 reflects an increase from~~prior year and higher medical expenses.

SCS customer volumes in the ~~MXD acquisition during~~automotive vertical have declined significantly due to production shutdowns beginning late in the first quarter related to the COVID-19 pandemic. Although our automotive customers generally expect to resume production in May, this is subject to change and could have a material effect on SCS revenue and earnings. Lower expected economic activity is anticipated to reduce customer volumes through at least the second ~~quarter of 2018. We expect negative revenue growth in the last quarter of the year due to the timing of lost business.~~quarter.

Dedicated Transportation Solutions


	Three months ended March 31,					Change 2020/2019
	2020		2019		Three Months
	(In thousands)
DTS total revenue	$	334,888	$	349,621	(4)%

DTS operating revenue ⁽¹⁾	$	236,685	$	235,620	—%




DTS EBT	$	12,180	$	17,412	(30)%
DTS EBT as a % of DTS total revenue	3.6%		5.0%		(140) bps

DTS EBT as a % of DTS operating revenue ⁽¹⁾	5.1%		7.4%		(230) bps

Memo:
Average fleet	9,400		9,500		(1)%

————————————

(1)Non-GAAP financial measures. Reconciliations of DTS total revenue to DTS operating revenue and DTS EBT as a % of DTS total revenue to DTS EBT as a % of DTS 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

~~SCS~~The following table summarizes the components of the change in DTS revenue on a percentage basis versus the prior year:


	Three months ended March 31, 2020
	Total	Operating ⁽¹⁾
Organic including price and volume	—%	—%
Subcontracted transportation	(3)%	—%
Fuel	(1)%	—%
Net increase (decrease)	(4)%	—%

————————————

(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.

DTS total revenue decreased 4% in the first quarter due to lower subcontracted transportation and fuel revenue. DTS operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) slightly increased in the first quarter primarily reflecting higher pricing and volumes offset by lost business.

DTS EBT decreased 5%30% in the ~~third~~first quarter ~~primarily~~ due to higher overhead costs and a decrease in equipment contribution of $4 million (see further discussions on equipment contribution above), partially offset by ~~improved operating performance. SCS EBT increased 14%~~higher pricing and volume. Higher overhead costs were attributable to favorable developments of insurance reserves recognized in the ~~nine months ended September 30, 2019 driven by improved operating performance.~~prior year, higher medical expenses and higher bad debt expense.

Lower expected economic activity from COVID-19 is anticipated to reduce customer volumes through at least the second quarter, which will negatively impact DTS revenue and EBT.

Central Support Services


		Three months ended September 30,					Nine months ended September 30,							Change 2019/2018			Three months ended March 31,		Change 2020/2019
		2019		2018	2019		2018	Three Months		Nine Months			2020		2019			Three Months
		(In thousands)															(In thousands)
Human resources	Human resources	$	5,124	4,601	$	15,747	14,596	11	%	8	%	Human resources	$	5,853	$	5,280		11%
Finance and procurement	Finance and procurement	18,538		17,765	54,857		52,640	4		4		Finance and procurement	19,239		18,007			7%
Corporate services and public affairs	Corporate services and public affairs	1,596		2,103	6,264		6,811	(24)		(8)		Corporate services and public affairs	1,984		2,320			(14)%
Information technology	Information technology	24,102		23,332	73,593		65,381	3		13		Information technology	20,213		21,277			(5)%
Legal and safety	Legal and safety	6,365		6,169	20,143		18,521	3		9		Legal and safety	7,963		6,947			15%
Marketing	Marketing	6,014		4,929	16,218		13,581	22		19		Marketing	5,275		4,732			11%
Other	Other	9,461		11,107	27,531		27,535	(15)		—		Other	8,202		9,210			(11)%
Total CSS	Total CSS	71,200		70,006	214,353		199,065	2	%	8	%	Total CSS	68,729		67,773			1%
Allocation of CSS to business segments	Allocation of CSS to business segments	(59,768)		(57,320)	(179,892)		(164,729)	4	%	9	%	Allocation of CSS to business segments	(59,343)		(55,226)			7%
Unallocated CSS	Unallocated CSS	$	11,432	12,686	$	34,461	34,336	(10)	%	—	%	Unallocated CSS	$	9,386	$	12,547		(25)%

Total CSS costs slightly increased 2%1% in the ~~third quarter and 8% in the nine months ended September 30, 2019 primarily reflecting investments in technology, increased marketing efforts and higher compensation-related costs.~~first quarter. Unallocated CSS was ~~$11~~$9 million in the ~~third~~first quarter, a decrease of ~~$1 million~~25% from the prior year period, ~~and remained flat~~primarily related to lower compensation-related expenses in ~~the nine months ended September 30, 2019.~~

2020.

5038

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

FINANCIAL RESOURCES AND LIQUIDITY

Cash Flows

The following is a summary of our cash flows from continuing operations:


	Three months ended March 31,
	2020		2019
	(In thousands)
Net cash provided by (used in):
Operating activities	$	438,586	$	485,330
Investing activities	(332,978)		(923,244)
Financing activities	217,620		434,288
Effect of exchange rate changes on cash	725		(1,551)
Net change in cash and cash equivalents	$	323,953	$	(5,177)

	Three months ended March 31,
	2020		2019
	(In thousands)
Net cash provided by operating activities
Earnings (loss) from continuing operations	$	(109,129)	$	45,890
Non-cash and other, net	599,779		469,513
Collections on sales-type leases	26,597		34,017
Changes in operating assets and liabilities:
Receivables	(14,634)		26,181
Accounts payable	(25,707)		18,586
Changes in other assets and liabilities	(38,320)		(108,857)
Cash flows from operating activities from continuing operations	$	438,586	$	485,330

Nine months ended September 30,
2019 2018
(In thousands)
Net cash provided by (used in):
Operating activities $ 1,589,186 1,275,560
Financing activities 976,560 779,236
Investing activities (2,553,763) (2,075,758)
Effect of exchange rates on cash, cash equivalents, and restricted cash (3,254) 1,464
Net change in cash, cash equivalents, and restricted cash $ 8,729 (19,498)

Cash provided by operating activities ~~increased~~decreased to ~~$1.6 billion~~$439 million in the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020 compared with ~~$1.3 billion~~$485 million in ~~2018,~~2019, reflecting ~~higher~~lower cash earnings along with ~~lower~~higher working capital needs. Our working capital needs are primarily driven by the timing of collections of our receivables and payments of our trade payables, as well as other changes in operating assets and liabilities. The unfavorable impact in receivables was primarily due to longer collection periods in our segments, which was impacted by COVID-19. The unfavorable impact from trade payables was due to timing of payments. In addition, the favorable impact from changes in other assets and liabilities was driven by lower payments related to our pension and compensation plans and a decrease in inventories in 2020. Cash used in investing activities decreased to $333 million in the three months ended March 31, 2020 compared with $923 million in 2019, primarily due to a planned decrease in capital expenditures. Cash provided by financing activities ~~increased~~decreased to ~~$977~~$218 million in the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020 compared with ~~$779~~$434 million in 2018, due to higher borrowing needs associated with our increased capital expenditures and increased debt repayments. Cash used in investing activities increased to $2.6 billion in the nine months ended September 30, 2019 ~~compared with $2.1 billion in 2018, primarily~~ due to increased ~~capital expenditures.~~debt repayments.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

The following table shows our free cash flow computation:


		Nine months ended September 30,						Three months ended March 31,
		2019		2018		2020		2019
		(In thousands)						(In thousands)
Net cash provided by operating activities from continuing operations		$	1,589,186	1,275,560
Net cash provided by operating activities					Net cash provided by operating activities	$	438,586	$	485,330
Sales of revenue earning equipment ⁽¹⁾	Sales of revenue earning equipment ⁽¹⁾	353,743		279,751	Sales of revenue earning equipment ⁽¹⁾	101,099		101,549

Sales of operating property and equipment ⁽¹⁾	Sales of operating property and equipment ⁽¹⁾	49,726		11,869	Sales of operating property and equipment ⁽¹⁾	1,883		1,918

Total cash generated ⁽²⁾	Total cash generated ⁽²⁾	1,992,655		1,567,180	Total cash generated ⁽²⁾	541,568		588,797
Purchases of property and revenue earning equipment ⁽¹⁾	Purchases of property and revenue earning equipment ⁽¹⁾	(2,957,232)		(2,200,006)	Purchases of property and revenue earning equipment ⁽¹⁾	(430,960)		(1,026,711)
Free cash flow ⁽²⁾	Free cash flow ⁽²⁾	$	(964,577)	(632,826)	Free cash flow ⁽²⁾	$	110,608	$	(437,914)

———————————

(1)Included in cash flows from investing activities.

(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-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 $111 million in three months ended March 31, 2020 from a use of $438 million in 2019 primarily due to lower capital expenditures, partially offset by higher cash flows from operations in 2019.

Capital expenditures generally represent the purchase of revenue earning equipment (trucks, tractors and trailers) within our FMS segment. These expenditures primarily support the ChoiceLease and commercial rental product lines. The level of capital required to support the ChoiceLease product line varies based on customer contract signings for replacement vehicles and growth. These contracts are long-term agreements that result in predictable cash flows typically over three to seven years for trucks and tractors and ten years for trailers. We utilize capital for the purchase of vehicles in our commercial rental product line to replenish and expand the fleet available for shorter-term use by contractual or occasional customers. Operating property and equipment expenditures primarily relate to spending on items such as vehicle maintenance facilities and equipment, computer and telecommunications equipment, investments in technologies, and warehouse facilities and equipment.

The following table provides a summary of capital expenditures:


		Nine months ended September 30,						Three months ended March 31,
		2019		2018		2020		2019
		(In thousands)						(In thousands)
Revenue earning equipment:	Revenue earning equipment:				Revenue earning equipment:
ChoiceLease	ChoiceLease	$	2,311,491	1,418,557	ChoiceLease	$	312,873	$	817,027
Commercial rental	Commercial rental	551,062		757,867	Commercial rental	52,886		256,671
		2,862,553		2,176,424		365,759		1,073,698
Operating property and equipment	Operating property and equipment	136,451		119,743	Operating property and equipment	26,231		40,066
Total capital expenditures(1)	Total capital expenditures(1)	2,999,004		2,296,167	Total capital expenditures(1)	391,990		1,113,764
Changes in accounts payable related to purchases of revenue earning equipment	Changes in accounts payable related to purchases of revenue earning equipment	(41,772)		(96,161)	Changes in accounts payable related to purchases of revenue earning equipment	38,970		(87,053)
Cash paid for purchases of property and revenue earning equipment	Cash paid for purchases of property and revenue earning equipment	$	2,957,232	2,200,006	Cash paid for purchases of property and revenue earning equipment	$	430,960	$	1,026,711

———————————

(1)Non-cash additions exclude approximately $4 million and $2 million during the three months ended March 31, 2020 and 2019, respectively, of assets held under finance leases resulting from new or the extension of existing finance leases and other additions.

Capital expenditures decreased 65% to $392 million in the three months ended March 31, 2020 reflecting lower planned investments in the ChoiceLease and rental fleets. In relation to the COVID-19 pandemic, we have cancelled or postponed vehicle orders, where possible, which will result in significantly reduced capital expenditures during 2020.

5140

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

Capital expenditures increased 31% to $3.0 billion in the nine months ended September 30, 2019, reflecting planned higher investments in the ChoiceLease fleet. We expect full-year 2019 capital expenditures to be approximately $3.7 billion. We expect to fund 2019 capital expenditures primarily with internally generated funds and additional debt financing.

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 ~~debt~~ financing alternatives typically available to fund our capital needs include commercial paper, long-term and medium-term public and private debt, asset-backed securities, bank term loans, leasing arrangements and bank credit facilities. Our principal sources of financing are issuances of commercial paper and medium-term notes.

Cash and cash equivalents totaled ~~$76~~$397 million as of ~~September 30, 2019.~~March 31, 2020. As of ~~September 30, 2019,~~March 31, 2020, approximately ~~$30~~$36 million was held outside the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries. If we decide to repatriate cash and cash equivalents held outside the U.S., we may be subject to additional 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 and/or by seeking other funding sources. In April 2020, in response to the COVID-19 pandemic, we issued $400 million of unsecured 4.625% medium-term notes maturing in June 2025 and executed a $400 million senior floating-rate unsecured 364-day term loan, which provides us with liquidity flexibility when combined with our $1.4 billion global revolving credit facility. The expanded liquidity will be used for working capital purposes and to fund debt maturities. As of April 28, 2020, we had a balance of cash and cash equivalents in the U.S. of approximately $1 billion as well as $565 million of availability under our global revolving credit facility and $100 million of availability under our trade receivable facility.

Our ability to access unsecured debt in the capital markets is impacted by both our short-term and long-term debt ratings. These ratings are intended to provide guidance to investors in determining the credit risk associated with our particular securities based on current information obtained by the rating agencies from us or from other sources. Lower ratings generally result in higher borrowing costs, as well as reduced access to unsecured capital markets. A significant downgrade of our short-term debt ratings would impair our ability to issue commercial paper and likely require us to rely on alternative funding sources. A significant downgrade would not affect our ability to borrow amounts under our global revolving credit facility described below, assuming ongoing compliance with the terms and conditions of the credit facility.

Our debt ratings and rating outlooks at ~~September 30, 2019~~March 31, 2020 were as follows:

Rating Summary

~~Short-Term~~

~~Long-Term~~Short-term

Short-term Outlook

Long-term

Long-term Outlook

Fitch Ratings⁽¹⁾

~~F-2~~Stable

A-

Stable

Standard & Poor’s Ratings Services

~~A-2~~A2

Stable

~~BBB+~~BBB

Stable

Moody’s Investors Service

~~P-2~~P2

Stable

Baa1

~~Stable~~Under Review

DBRS

R-1 (Low)

Stable

A (Low)

Stable

———————————

(1)Subsequent to March 31, 2020, Fitch Ratings downgraded our long-term rating to BBB+ with a negative outlook.

As of ~~September 30, 2019,~~March 31, 2020, we had the following amounts available to fund operations under the following facilities:


	(In millions)

Global revolving credit facility	$	~~546~~419
Trade receivables program	$	~~225~~—

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS — (Continued)~~

~~The following table shows the movements in our debt balance:~~

Nine months ended September 30,
2019 2018
(In thousands)
Debt balance at January 1 $ 6,649,277 5,440,006
Cash-related changes in debt:
Net change in commercial paper borrowings and revolving credit facilities 182,708 (113,666)
Proceeds from issuance of medium-term notes 1,690,623 1,192,491
Proceeds from issuance of other debt instruments 547,999 275,037
Retirement of medium term notes (1,000,000) (350,000)
Other debt repaid (334,044) (121,700)
Debt issuance costs paid (4,565) (2,824)
1,082,721 879,338
Non-cash changes in debt:
Fair value adjustment on notes subject to hedging 10,981 (8,934)
Addition of finance lease obligations 15,336 12,889
Changes in foreign currency exchange rates and other non-cash items (11,738) (5,223)
Total changes in debt 1,097,300 878,070
Debt balance at September 30 $ 7,746,577 6,318,076

In accordance with our funding philosophy, we attempt to align the aggregate average remaining re-pricing life of our debt with the aggregate average remaining re-pricing life of our assets. We utilize both fixed-rate and variable-rate debt to achieve this alignment and generally target a mix of 20% - 40% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total debt (including notional value of swap agreements) was ~~20%~~23% and ~~28%~~17% as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

Refer to Note ~~7, “Debt,~~10, “Debt,” in the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements for further discussion around the global revolving credit facility, the trade receivables program, the issuance of medium-term notes under our shelf registration statement, asset-backed financing obligations and debt maturities.

Our debt to equity ~~ratios were 313%~~ ratio was 364% and ~~262%~~320% as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The debt to equity ratio represents total debt divided by total equity. The increase is due to the reduction in equity related to higher non-cash depreciation expense from our estimated residual change in the third quarter of 2019. Debt to equity ratio as of March 31, 2020 also reflects a higher than normal cash balance which increased debt-to-equity by an estimated 15 percentage points.

Pension Information

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. In ~~2019,~~2020, the expected total contributions to our pension plans are approximately ~~$34~~$37 million. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we contributed ~~$26~~$1 million to our ~~pension~~pension plans. Changes in interest rates and the market value of the securities held by the plans during ~~2019~~2020 could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and contributions in ~~2019~~2020 and beyond. As of March 31, 2020, we have experienced a decline in the market prices of our assets as a result of the COVID-19 pandemic and related economic downturn, which may have an adverse impact on our pension plans if it were to continue through the end of the year. As a result, our contributions may need to increase in 2021 and these changes may negatively impact accumulated other comprehensive income and shareholders’ equity on our balance sheet when it is remeasured in December 2020. See Note ~~13,~~15, “Employee Benefit Plans,” in the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements for additional information.

Share Repurchases and Cash Dividends

See Note 9,11, “Share Repurchase Programs,” in the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements for a discussion of share repurchases.The share repurchase program has been put on hold temporarily due to the impact of COVID-19.

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS — (Continued)~~

In ~~July~~February 2020 and 2019, ~~and 2018,~~ our Board of Directors declared quarterly cash dividends of ~~$0.56~~$0.56 and $0.54 per share of common stock, respectively. The dividends were paid during the ~~third~~first quarter of each respective year. ~~In October 2019, our Board of Directors declared a quarterly cash dividend of $0.56 per share of common stock.~~

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. Management has discussed the development and selection of these critical accounting judgments and estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our disclosures relating to them, which are presented below.

The following discussion, which should be read in conjunction with the descriptions in the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements and our Annual Report on Form 10-K, is furnished for additional insight into certain accounting estimates that have been updated since our ~~2018~~2019 Annual Report.

~~Depreciation and Residual Value Estimates.~~Goodwill Impairment. We periodically review and adjust, as appropriate, the residual values and useful lives of revenue earning equipment for purposes of recording depreciation expense as described in Note 4, “Revenue Earning Equipment, net” in the Notes to Consolidated Condensed Financial Statements. Reductions in estimated 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 remaining life of the equipment.

Our review of the residual values and useful lives of revenue earning equipment is established with a long-term view based on vehicle class, generally subcategories of trucks, tractors and trailers by weight and usage, as well as other factors, which we refer to as "policy depreciation." These other factors include, but are not limited to, historical market prices, current and expected future market price trends, expected lives of vehicles, and expected sales in the wholesale and retail markets. Factors that could cause actual results to materially differ from estimates include, but are not limited to, changes in technology; changes in supply and demand; competitor pricing; regulatory requirements; driver shortages, requirements and preferences; as well as changes in underlying assumption factors. 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. We have disciplines related to the management and maintenance of our vehicles designed to mitigate the risk associated with the residual values of our revenue earning equipment.

At the end of the second quarter of 2019, we began to experience softening in used vehicle market conditions, which intensified during the third quarter of 2019 and we now expect to continue through 2020. In addition, our inventory of used vehicles that is expected to be made available for sale was higher than expected, which has and will impact the volume of used vehicle sales expected to be transacted through our wholesale channels. Due to these dynamics and our updated outlook, management concluded that our residual value estimates likely exceeded the expected future values that would be realized upon the sale of power vehicles in our fleet. As a result, we changed the estimates of our vehicle residual values in the third quarter of 2019 to reflect more recent multi-year trends and our outlook for the expected near-term used vehicle market.

~~We also monitor market trends throughout the year and~~ assess residual values of vehicles expected to be sold in the near-term (generally 12 to 24 months) and may adjust residual values for these vehicles, which we refer to as “accelerated depreciation.” Following the completion of our review in the third quarter of 2019, the near-term forecast for realized residual values on used vehicle sales was below our estimates of residual value discussed above. As a result, we adjusted the estimated residual values for these vehicles and increased accelerated depreciation expense for these vehicles beginning in the third quarter of 2019.

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS — (Continued)~~

The estimated future impact on depreciation expense resulting from the change in our residual value estimates that occurred in the third quarter of 2019 based on the current fleet of power vehicles is as follows:

2019 2020 2021 - 2025
Three months ended September 30, Three months ended December 31,
(In millions)
Policy depreciation $ 52 $ 54 $ 180 $ 305
Accelerated depreciation ⁽¹⁾
125 58 70 —
Total $ 177 $ 112 $ 250 $ 305

~~———————————~~

~~(1)Includes $8M of valuation adjustments in the three months ended September 30, 2019.~~

The impact of the vehicle residual values estimates change that occurred in the third quarter of 2019 is in addition to the annual policy depreciation estimate of $30 million effective January 1, 2019 that will be incurred throughout 2019. The impact of the estimate change as a percentage of our original vehicle investment (cost) of our revenue earning equipment was approximately 5% at September 30, 2019.

Based on our fleet of revenue earning equipment at September 30, 2019, a hypothetical additional 10% reduction in estimated residual values used for policy depreciation would increase depreciation expense in 2020 by approximately $135 million and would increase depreciation expense over the remaining life of these vehicles beyond 2020 by approximately $269 million.

~~Goodwill Impairment.~~ Goodwill represents the excess of the purchase price over the fair value of the underlying acquired net tangible and intangible assets. Goodwill and other intangible assets with indefinite useful lives are not amortized, but rather, are testedgoodwill for impairment ~~at least annually.~~on October 1^st of each year or more often if deemed necessary. 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~~necessary, such as macroeconomic conditions, changes in our industry and the markets in which we operate, and our market capitalization 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 or we bypass the optional qualitative assessment, recoverability is assessed by comparing the fair value of the reporting unit with its carrying amount. If a reporting unit's carrying value exceeds its fair value, we will measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

For quantitative tests, we estimate the ~~third quarter of 2019, we performed an interim impairment test of our FMS North America reporting unit (“FMS NA”) as a result~~fair value of the ~~decline in~~reporting units using a combination of both an income and market ~~conditions and~~approach. We perform our ~~updated outlook primarily in the used vehicle market, which negatively affects our forecasted cash flows from the sale of used vehicles. We performed our interim~~quantitative impairment test with the assistance of a third-party specialist. ~~Our valuation~~Under the market approach, we use a selection of ~~fair value for FMS NA was determined based on a discounted future cash flow model (income approach) and the application of current market multiples for~~ comparable publicly-traded companies ~~(market approach).~~that correspond to the reporting unit to derive a market-based multiple. Under the income approach, the fair value of the reporting unit is estimated based on the discounted present value of the projected future cash flows. 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 significant judgments and assumptions about conditions we expect to exist, including revenue growth rates, margins, long-term growth rates, capital requirements, proceeds from the sale of used vehicles, ~~and~~ the ability to utilize our tax net operating ~~losses.~~losses, and the discount rate. 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 SCS and DTS reporting units are dependent on several key customers or industry sectors. The loss of a key customer may have a significant impact to our SCS or DTS 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 ~~conducted~~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. We conduct additional sensitivity analyses to assess the risk for potential impairment based upon changes in the key assumptions in our goodwill valuation test, including long-term growth rates and discount rates. ~~There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment.~~

In the first quarter of 2020, we performed an interim impairment test of our FMS North America reporting unit (“FMS NA”) as a result of the decline in market conditions and our updated outlook as a result of the impact of COVID-19. Our valuation of fair value for FMS NA was determined based on a discounted future cash flow model (income approach) and the application of current market multiples for comparable publicly-traded companies (market approach). Based on our analysis, we determined that FMS NA goodwill was not impaired as of ~~September 30, 2019. However,~~March 31, 2020, however the fair value ~~of FMS NA~~ was not substantially in excess of its carrying ~~amount.~~value. The estimated fair value of the FMS NA reporting unit exceeded its carrying value by approximately 5%. as of March 31, 2020.

Given this level of ~~excess~~ fair value, in the event the financial performance

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS — (Continued)~~

of FMS NA does not meet our expectations in the future; we experience future prolonged market downturns, including in the used vehicle ~~market;~~market or continued declines in our stock price; negative trends from the COVID-19 pandemic continue; or there are other negative revisions to key assumptions, we may be required to perform additional impairment analyses and could be required to recognize a non-cash goodwill impairment charge. ~~In addition, a negative change in either of our assumptions for long-term growth rates or discount rate of 50 basis points or more would result in at least a partial impairment of FMS NA goodwill.~~ As of ~~September 30, 2019,~~March 31, 2020, there was ~~approximately $244~~$243 million of goodwill recorded related to FMS NA. ~~While management can~~As of March 31, 2020, we assessed that it was not more likely than not that our SCS and has implemented strategies to address these events, adverse changes in financial performance in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline inDTS reporting units fair value ~~that could trigger future impairment charges of FMS NA's goodwill. A non-cash impairment charge may negatively impact our credit ratings and debt to equity ratios.~~

~~We believe that the adverse market conditions discussed above directly impact FMS NA, therefore we do not believe that there~~ was ~~a trigger event requiring an interim impairment review of our other reporting units.~~

less than its carrying value.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2, “Recent Accounting Pronouncements," in the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements for a discussion of recent accounting pronouncements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

NON-GAAP FINANCIAL MEASURES

This Quarterly Report on Form 10-Q includes information extracted from condensed consolidated ~~condensed~~ financial information but 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 this non-GAAP financial measures ~~section.~~section or in our results and liquidity discussions above. We also provide the reasons why management believes each non-GAAP financial measure is useful to investors in this section.

Specifically, we refer to the following non-GAAP financial measures in this Form 10-Q:


Non-GAAP Financial Measure			Comparable GAAP Measure
Operating Revenue Measures:
Operating Revenue			Total Revenue
FMS Operating Revenue			FMS Total Revenue
DTS Operating Revenue			DTS Total Revenue
SCS Operating Revenue			SCS Total Revenue
FMS EBT as a % of FMS Operating Revenue			FMS EBT as a % of FMS Total Revenue
SCS EBT as a % of SCS Operating Revenue			SCS EBT as a % of SCS Total Revenue
DTS EBT as a % of DTS Operating Revenue			DTS EBT as a % of DTS ~~Total Revenue~~
~~SCS EBT as a % of SCS Operating Revenue~~			~~SCS EBT as a % of SCS~~ Total Revenue
Comparable Earnings Measures:
Comparable Earnings (Loss) Before Income Tax			Earnings (Loss) Before Income Tax
Comparable Earnings (Loss)			Earnings (Loss) from Continuing Operations
Comparable EPS			EPS from Continuing Operations
Comparable Tax Rate			Effective Tax Rate from Continuing Operations
Cash Flow Measures:
Total Cash Generated and Free Cash Flow			Cash Provided by Operating Activities

5744

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

Set forth in the table below is an overview of each non-GAAP financial measure and why management believes that the presentation of each non-GAAP financial measure provides useful information to investors. See reconciliations for each of these measures following this table.

Operating Revenue ~~Measures~~:

Measures:

Operating Revenue

FMS Operating Revenue

SCS Operating Revenue

DTS Operating Revenue

~~SCS Operating Revenue~~

FMS EBT as a % of FMS Operating Revenue

SCS EBT as a % of SCS Operating Revenue

DTS EBT as a % of DTS Operating Revenue

~~SCS EBT as a % of SCS Operating Revenue~~

Operating revenue is defined as total revenue for Ryder System, Inc. or each business segment (FMS, ~~DTS~~SCS and ~~SCS), respectively,~~DTS) excluding any (1) fuel and (2) subcontracted ~~transportation.~~transportation, as well as (3) revenue from our ChoiceLease liability insurance program which was discontinued in early 2020. 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~~SCS EBT and ~~SCS~~DTS EBT, our primary measures of segment performance, are not non-GAAP measures.

~~Fuel~~

Fuel:: We exclude FMS, ~~DTS~~SCS and ~~SCS~~DTS 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~~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~~SCS and ~~SCS~~DTS business segments subcontract certain transportation services to third party providers, our FMS business segment does not engage in subcontracted transportation and, therefore, this item is not applicable to FMS.

ChoiceLease liability insurance: We exclude ChoiceLease liability insurance as we announced our plan in the first quarter of 2020 to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program is estimated to be completed in the second quarter of 2021. We are excluding the revenues associated with this program for better comparability of our on-going operations.

Comparable Earnings ~~Measures~~:

Measures:

Comparable earnings (loss) before income ~~tax~~taxes (EBT)

Comparable earnings (loss)

Comparable earnings (loss) per diluted common share (EPS)

Comparable ~~provision for income taxes~~tax rate

Comparable EBT, comparable earnings, comparable EPS ~~and comparable provision for income taxes~~ are defined, respectively, as GAAP EBT, earnings, EPS, ~~and provision for income taxes,~~ 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~~Costs: : Our comparable earnings measures exclude non-operating pension costs, which include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit ~~costs.~~costs, as well as a settlement or curtailment of a plan. 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 Impacting Comparability: Our comparable and adjusted earnings measures also exclude other significant items that are not representative of our business operations as detailed in the reconciliation table ~~below - page 60.~~below. 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~~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.

5845

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

Cash Flow ~~Measures~~:

Measures:

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~~: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, (3) net cash provided by the sale of operating property and equipment and (4) other cash inflows from investing activities. We believe total cash generated is an important measure of total cash flows generated from our ongoing business activities.

Free Cash ~~Flow~~:Flow: We refer to the net amount of cash generated from operating activities and investing activities (excluding 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 operating property and equipment, (3) other cash inflows from investing activities, less (4) purchases of property and revenue earning equipment. We believe free cash flow provides investors with an important perspective on the cash available for debt service and for shareholders, after making capital investments required to support ongoing business operations. Our calculation of free cash flow may be different from the calculation used by other companies and, therefore, comparability may be limited.

* See Total Cash Generated and Free Cash Flow reconciliations in the Financial Resources and Liquidity section of Management's Discussion and Analysis.

5946

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

The following table provides a reconciliation of GAAP earnings (loss) before taxes (EBT), earnings (loss), and earnings (loss) per diluted share (EPS) from continuing operations to comparable EBT, comparable earnings (loss) and comparable EPS from continuing operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. Certain items included in EBT, earnings and diluted EPS from continuing operations have been excluded from our comparable EBT, comparable earnings and comparable diluted EPS measures. The following table lists a summary of these items, which are discussed in more detail throughout our MD&A and within the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements:


		EBT					Earnings (Loss)						Diluted EPS					EBT						Earnings (Loss)	Diluted EPS
		2019		2018	2019		2018	2019		2018		2020		2019		2020		2019		2020		2019
Three months ended September 30,		(In thousands, except per share amounts)
Three months ended March 31,											Three months ended March 31,	(In thousands, except per share amounts)
Continuing operations (GAAP)	Continuing operations (GAAP)	$	(91,260)	118,863	$	(91,538)	91,602	$	(1.75)	1.73	Continuing operations (GAAP)	$	(113,634)	$	68,151	$	(109,129)	$	45,890	$	(2.09)	$	0.87
Non-operating pension costs	Non-operating pension costs	6,885		1,161	4,919		572	0.09		0.01	Non-operating pension costs	1,221		6,462		100		4,562		—		0.09
Restructuring and other, net ⁽¹⁾											Restructuring and other, net ⁽¹⁾	11,263		2,588		8,898		1,842		0.17		0.04
ERP implementation costs ⁽¹⁾	ERP implementation costs ⁽¹⁾	6,126		—	4,540		—	0.09		—	ERP implementation costs ⁽¹⁾	10,326		3,590		7,664		2,660		0.15		0.05
Restructuring and other, net ⁽¹⁾		5,234		(546)	3,981		(660)	0.08		(0.01)

Tax adjustments ⁽²⁾	Tax adjustments ⁽²⁾	—		—	—		(3,322)	—		(0.06)	Tax adjustments ⁽²⁾	—		—		20,363		3,508		0.39		0.06
Comparable (non-GAAP)		$	(73,015)	119,478	$	(78,098)	88,192	$	(1.49)	1.67

		EBT					Earnings (Loss)						Diluted EPS
		2019		2018	2019		2018	2019		2018
Nine months ended September 30,		(In thousands, except per share amounts)
Continuing operations (GAAP)		$	79,960	273,456	$	29,804	175,084	$	0.56	3.31
Non-operating pension costs		20,060		3,241	14,263		1,506	0.27		0.03
ERP implementation costs ⁽¹⁾		13,617		—	10,091		—	0.19		—
Goodwill impairment ⁽¹⁾		—		15,513	—		15,513	—		0.29
Restructuring and other, net ⁽¹⁾		13,757		1,836	10,395		1,348	0.21		0.02

Gain on sale of property ⁽¹⁾		(18,614)		—	(13,843)		—	(0.26)		—
Tax adjustments ⁽²⁾		—		—	3,508		22,683	0.06		0.43

Comparable (non-GAAP)	Comparable (non-GAAP)	$	108,780	294,046	$	54,218	216,134	$	1.03	4.08	Comparable (non-GAAP)	$	(90,824)	$	80,791	$	(72,104)	$	58,462	$	(1.38)	$	1.11

————————————

(1)Refer to Note ~~14,~~16, “Other Items Impacting Comparability,” in the Notes to Condensed Consolidated ~~Condensed~~ Financial Statements for additional information.

(2)In the ~~nine~~three months ended ~~September 30,~~March 31, 2020, we recorded charges of $7 million and $13 million to our tax provision for income taxes due to expiring state net operating losses and a valuation allowance on our U.K. deferred tax assets, respectively. In the first quarter of 2019, we recorded a $5 million charge to our tax provision for income taxes due to expiring state net operating losses ~~never previously benefited in the tax rate,~~ offset by a $1 million ~~tax~~ benefit to our provision due to a tax law change. In the nine months ended September 30, 2018, we recorded an additional $29 million adjustment to increase the provisional estimate for the one-time transition tax offset by a $3 million tax benefit for state enacted law changes. In addition, for the nine months ended September 30, 2018, we recorded a $1 million unfavorable tax adjustment related to the prior provisional estimate from the 2017 Tax Cuts and Jobs Act offset by a $4 million tax benefit for certain uncertain tax positions that should have been reversed in prior periods due to expiring statutes of limitations.

The following table provides a reconciliation of the provision for income taxes to the comparable provision for income taxes:


		Three months ended September 30,					Nine months ended September 30,						Three months ended March 31,
		2019		2018	2019		2018		2020		2019
		(In thousands)												(In thousands)
Provision for income taxes		$	(278)	(27,261)	$	(50,156)	(98,372)
Benefit from (provision for) income taxes								Benefit from (provision for) income taxes	$	4,505	$	(22,261)
Tax adjustments	Tax adjustments	—		(3,322)	3,508		22,683	Tax adjustments	20,363		3,508
Income tax effects of non-GAAP adjustments	Income tax effects of non-GAAP adjustments	(4,805)		(703)	(7,914)		(2,223)	Income tax effects of non-GAAP adjustments	(6,148)		(3,576)

Comparable provision for income taxes ⁽¹⁾		$	(5,083)	(31,286)	$	(54,562)	(77,912)
Comparable benefit from (provision for) income taxes ⁽¹⁾								Comparable benefit from (provision for) income taxes ⁽¹⁾	$	18,720	$	(22,329)

————————————

(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.

The following table provides a reconciliation of total revenue to operating revenue:


	Three months ended March 31,
	2020		2019
	(In thousands)
Total revenue	$	2,161,306	$	2,180,327
Fuel	(178,748)		(216,543)
Subcontracted transportation	(201,953)		(204,777)
ChoiceLease liability insurance revenue ⁽¹⁾	(9,358)		(8,520)
Operating revenue	$	1,771,247	$	1,750,487

6047

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

The following table provides a reconciliation of ~~total revenue to operating revenue:~~

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands)
Total revenue $ 2,223,932 2,159,682 $ 6,649,252 6,153,791
Fuel (206,072) (222,368) (642,988) (655,212)
Subcontracted transportation (213,127) (218,526) (630,351) (596,434)
Operating revenue $ 1,804,733 1,718,788 $ 5,375,913 4,902,145

~~The following table provides a reconciliation of~~ FMS total revenue to FMS operating revenue:


		Three months ended September 30,								Nine months ended September 30,									Three months ended March 31,
		2019			2018		2019			2018			2020			2019
		(In thousands)																		(In thousands)
FMS total revenue	FMS total revenue	$	1,397,346		1,337,771		$	4,139,855		3,876,550		FMS total revenue	$	1,340,237		$	1,351,599
Fuel ⁽¹⁾	Fuel ⁽¹⁾	(198,669)			(214,534)		(618,906)			(633,571)		Fuel ⁽¹⁾	(173,335)			(207,866)
ChoiceLease liability insurance revenue ⁽²⁾												ChoiceLease liability insurance revenue ⁽²⁾	(9,358)			(8,520)
FMS operating revenue	FMS operating revenue	$	1,198,677		1,123,237		$	3,520,949		3,242,979		FMS operating revenue	$	1,157,544		$	1,135,213

FMS EBT	FMS EBT	$	(108,550)		97,782		$	10,107		228,681		FMS EBT	$	(114,574)		$	60,911
FMS EBT as a % of FMS total revenue	FMS EBT as a % of FMS total revenue	(7.8)		%	7.3	%	0.2		%	5.9	%	FMS EBT as a % of FMS total revenue	(8.5)		%	4.5		%
FMS EBT as a % of FMS operating revenue	FMS EBT as a % of FMS operating revenue	(9.1)		%	8.7	%	0.3		%	7.1	%	FMS EBT as a % of FMS operating revenue	(9.9)		%	5.4		%

————————————

(1)Includes intercompany fuel sales from FMS to DTS and SCS.

(2)In the first quarter of 2020, we announced our plan to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program is estimated to be completed in the second quarter of 2021. We have revised our definition of operating revenues to exclude the revenues associated with this program for better comparability of our on-going operations.

The following table provides a reconciliation of SCS total revenue to SCS operating revenue:


	Three months ended March 31,
	2020			2019
	(In thousands)
SCS total revenue	$	628,447		$	635,671
Subcontracted transportation	(135,728)			(127,995)
Fuel	(25,408)			(30,587)
SCS operating revenue	$	467,311		$	477,089

SCS EBT	$	31,025		$	32,317
SCS EBT as a % of SCS total revenue	4.9		%	5.1		%
SCS EBT as a % of SCS operating revenue	6.6		%	6.8		%

The following table provides a reconciliation of DTS total revenue to DTS operating revenue:


		Three months ended September 30,								Nine months ended September 30,									Three months ended March 31,
		2019			2018		2019			2018			2020			2019
		(In thousands)																		(In thousands)
DTS total revenue	DTS total revenue	$	359,211		340,604		$	1,071,076		970,196		DTS total revenue	$	334,888		$	349,621
Subcontracted transportation	Subcontracted transportation	(76,213)			(80,768)		(229,927)			(224,837)		Subcontracted transportation	(66,225)			(76,782)
Fuel	Fuel	(35,283)			(37,591)		(109,750)			(107,876)		Fuel	(31,978)			(37,219)
DTS operating revenue	DTS operating revenue	$	247,715		222,245		$	731,399		637,483		DTS operating revenue	$	236,685		$	235,620

DTS EBT	DTS EBT	$	18,490		13,929		$	63,034		45,433		DTS EBT	$	12,180		$	17,412
DTS EBT as a % of DTS total revenue	DTS EBT as a % of DTS total revenue	5.1		%	4.1	%	5.9		%	4.7	%	DTS EBT as a % of DTS total revenue	3.6		%	5.0		%
DTS EBT as a % of DTS operating revenue	DTS EBT as a % of DTS operating revenue	7.5		%	6.3	%	8.6		%	7.1	%	DTS EBT as a % of DTS operating revenue	5.1		%	7.4		%

6148

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

~~The following table provides a reconciliation of SCS total revenue to SCS operating revenue:~~

Three months ended September 30, Nine months ended September 30,
2019 2018 2019 2018
(In thousands)
SCS total revenue $ 617,600 628,544 $ 1,902,582 1,727,775
Subcontracted transportation (136,914) (137,758) (400,424) (371,597)
Fuel (26,975) (27,990) (88,602) (80,488)
SCS operating revenue $ 453,711 462,796 $ 1,413,556 1,275,690
SCS EBT $ 34,595 36,516 $ 112,686 98,912
SCS EBT as a % of SCS total revenue 5.6 % 5.8 % 5.9 % 5.7 %
SCS EBT as a % of SCS operating revenue 7.6 % 7.9 % 8.0 % 7.8 %

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS — (Continued)~~

FORWARD-LOOKING STATEMENTS

Forward-looking statements (within the meaning of the Federal Private Securities Litigation Reform Act of 1995) are statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. These statements are often preceded by or include the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “could,” “should” or similar expressions. This Quarterly Report on Form 10-Q contains forward-looking statements including, but not limited to, statements regarding:

•our expectations of the impact of the COVID-19 pandemic on our financial results and operations, including with regard to our revenue, cash flows, commercial rental demand, residual values and depreciation assumptions, and lease sales;

•our expectations in our FMS business segment regarding anticipated ChoiceLease revenue ~~and fleet growth~~ and commercial rental revenue and demand;

•our expectations in our ~~DTS~~SCS and ~~SCS~~DTS business segments regarding anticipated ~~operating~~customer volumes, revenue ~~trends, sales activity~~ and ~~growth rates;~~earnings;

•our expectations of the ~~near-term and~~ long-term residual values of revenue earning equipment;

•~~the anticipated increase in NLE vehicles in inventory through the end of the year;~~

•the expected pricing, demand and inventory levels for used vehicles;

•our expectations of operating cash flow and capital expenditures through the end of ~~2019;~~2020;

•the adequacy of our accounting estimates and reserves for pension expense, compensation expense and employee benefit plan obligations, depreciation and residual ~~values~~value guarantees, goodwill impairment, accounting changes, and income taxes;

•our ~~estimates~~expected future contractual cash obligations and ~~assumptions, including relating to future business performance, underlying our impairment analysis of goodwill;~~

•~~the anticipated timing of payment of restructuring liabilities;~~commitments;

•the adequacy of our fair value estimates of employee incentive awards under our share-based compensation plans, publicly traded debt and other debt;

•our ~~beliefs regarding~~ability to fund all of our ~~credit ratings;~~operating, investing and financial needs for the foreseeable future through internally generated funds and outside funding sources;

•our expected level of use and availability of outside funding sources and anticipated future payments under debt and lease agreements;

•our beliefs regarding ~~the default risk of~~ our ~~direct financing lease receivables;~~credit ratings;

•our ability to fund all of our operating, investing and financial needs for the foreseeable future through internally generated funds and outside funding sources;

•the anticipated impact of fuel price and exchange rate fluctuations;

•our expectations as to return on pension plan assets, future pension expense and estimated contributions;

•our expectations regarding the scope and anticipated outcomes ~~and the adequacy of our loss provisions~~ with respect to certain claims, ~~proceedings~~complaints and ~~lawsuits;~~legal proceedings;

•the ultimate disposition of estimated environmental liabilities;

•our expectations about the need to repatriate foreign cash to the U.S.;

•our ability to access commercial paper and other available debt financing in the capital markets;

•our expected cost savings from workforce reductions and restructuring actions;

•our expectations regarding restructuring charges;

•the status of our unrecognized tax benefits related to the U.S. federal, state and foreign tax positions;

•our estimates for self-insurance loss reserves;

•our expectations regarding the ~~future use~~completion and ~~availability~~ultimate outcome of ~~funding sources;~~certain tax audits; and

•the anticipated impact of recent accounting pronouncements.

6349

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

These statements, as well as other forward-looking statements contained in this Quarterly Report, are based on our current plans and expectations and are subject to risks, uncertainties and assumptions. We caution readers that certain important factors could cause actual results and events to differ significantly from those expressed in any forward-looking statements. These risk factors include, but are not limited to, the following:

•Market Conditions:

•The severity and duration of the COVID-19 pandemic and the governmental responses thereto.

•Changes in general economic and financial conditions in the U.S. and worldwide leading to decreased demand for our services, lower profit margins, increased levels of bad debt and reduced access to credit and financial ~~markets~~markets.

•Decreases in freight demand which would impact both our transactional and variable-based contractual ~~business~~business.

•Changes in our customers’ operations, financial condition or business environment that may limit their demand for, or ability to purchase, our ~~services~~services.

•Decreases in market demand ~~or increases in supply~~ affecting the commercial rental market and used vehicle sales as well as global economic conditions.

•Volatility in customer volumes and shifting customer demand in the industries serviced by our SCS business.

•Changes in current financial, tax or regulatory requirements that could negatively impact our financial ~~results~~results.

•Competition:

•Advances in technology may impact demand for our services or may require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these ~~investments~~investments.

•Competition from other service providers, some of which have greater capital resources or lower capital costs, or from our customers, who may choose to provide services ~~themselves~~themselves.

•Continued consolidation in the markets in which we operate which may create large competitors with greater financial ~~resources~~resources.

•Our inability to maintain current pricing levels due to economic conditions, demand for services, customer acceptance or ~~competition~~competition.

•Profitability:

•Our inability to obtain adequate profit margins for our ~~services~~services.

•Lower than expected sales volumes or customer retention ~~levels~~levels.

•Decreases in commercial rental fleet utilization ~~demand~~ and ~~pricing~~pricing.

•Lower than expected used vehicle sales pricing levels ~~demand for our used vehicles~~ and fluctuations in the anticipated proportion of retail versus wholesale ~~sales~~sales.

•Loss of key customers in our SCS and DTS ~~and SCS~~ business ~~segments~~segments.

•Our inability to adapt our product offerings to meet changing consumer preferences on a cost-effective ~~basis~~basis.

•The inability of our legacy information technology systems to provide timely access to ~~data~~

•~~Our inability to implement new information technology systems efficiently and effectively~~data.

•Sudden changes in fuel prices and fuel ~~shortages~~shortages.

•Higher prices for vehicles, diesel engines and fuel as a result of new environmental ~~standards~~standards.

•Higher than expected maintenance costs and lower than expected benefits associated with our maintenance ~~initiatives~~initiatives.

•Our inability to successfully execute our asset management initiatives, maintain our fleet at normalized levels and right-size our fleet in line with ~~demand~~

•~~Higher than anticipated levels of NLEs~~

•~~Our inability to redeploy vehicles and prepare vehicles for sale in a cost-efficient manner~~demand.

•Our key assumptions and pricing structure of our ~~FMS,~~SCS and DTS ~~and SCS~~ contracts prove to be ~~inaccurate~~inaccurate.

•Increased unionizing, labor strikes and work ~~stoppages~~stoppages.

•Difficulties in attracting and retaining drivers and technicians due to driver and technician shortages, which may result in higher costs to procure drivers and technicians and higher turnover rates affecting our ~~customers~~customers.

•Our inability to manage our cost ~~structure~~structure.

•Our inability to limit our exposure for customer claims.

•Unfavorable or unanticipated outcomes legal or regulatory proceedings or uncertain positions.

6450

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS — (Continued)

•~~Our inability to limit our exposure for customer claims~~

•~~Our inability to successfully execute our strategic plan~~

•~~Unfavorable or unanticipated outcomes of new legislation, legal or regulatory proceedings or uncertain positions~~

•Business interruptions or expenditures due to severe weather or natural ~~occurrences or strikes~~

•~~The inability to offer new products profitably or lack of market acceptance for such new products~~occurrences.

•Financing Concerns:

•Higher borrowing ~~costs and possible decreases in available funding sources~~costs.

•Unanticipated interest rate and currency exchange rate ~~fluctuations~~fluctuations.

•Negative funding status of our pension plans caused by lower than expected returns on invested assets and unanticipated changes in interest ~~rates~~rates.

•Withdrawal liability as a result of our participation in multi-employer ~~plans~~plans.

•Instability in U.S. and worldwide credit markets, resulting in higher borrowing costs and/or reduced access to ~~credit~~credit.

•Accounting Matters:

•~~Impact of unusual items resulting from ongoing evaluations of business strategies, asset or expense valuations, acquisitions, divestitures and our organizational structure~~

•Reductions in residual values or useful lives of revenue earning ~~equipment and changes to depreciation policy~~equipment.

•Increases in compensation levels, retirement rate and mortality resulting in higher pension expense; regulatory changes affecting pension estimates, accruals and ~~expenses~~

•~~Increases in health care costs resulting in higher insurance costs~~expenses.

•Changes in accounting rules, assumptions and ~~accruals~~accruals.

•~~Impact of actual insurance claim~~Difficulties and ~~settlement activity compared to historical loss development factors used to project future development~~delays in implementing our Enterprise Resource Planning system and related processes.

•Other risks detailed from time to time in our SEC filings including our ~~2018~~2019 Annual Report on Form ~~10-K.~~10-K and in "Item 1A.-Risk Factors" of this Quarterly Report.

New risk factors emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. As a result, 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 Quarterly Report. We do not intend, or assume any obligation, to update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of new information, future events or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to Ryder’s exposures to market risks since December 31, ~~2018.~~2019. Please refer to the ~~2018~~2019 Annual Report on Form 10-K for a complete discussion of Ryder’s exposures to market risks.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the ~~third~~first quarter of ~~2019,~~2020, 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 as of the end of the ~~third~~first quarter of ~~2019,~~2020, Ryder’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective.

Changes in Internal Controls over Financial Reporting

Beginning January 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842)” and related amendments (collectively, the “new lease standard”). As a result of our adoption of the new lease standard, we implemented significant new lease accounting systems, processes and internal controls over lease accounting to assist us in the application of the new lease standard. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, there were no other changes in Ryder’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect such internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

Item ~~1A of Part I~~1A. Risk Factors of our Annual Report on Form 10-K, ~~for the year ended December 31, 2018,~~ filed with the SEC on February ~~21, 2019, contains~~27, 2020, includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K. Our operations could also be affected by additional risk factors that are not presently known to us or by factors that we currently consider immaterial to our business. To our knowledge and except, ~~to the extent additional factual information disclosed in this Quarterly Report on Form 10-Q relates to such risk factors,~~as presented below, there have been no material changes in the risk factors described in ~~"Item 1A. Risk Factors"~~our Form 10-K.

The coronavirus pandemic has adversely impacted, and is expected to continue to adversely impact, our business, results of operations and financial condition, and the ultimate impact on our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.

Our business is highly susceptible to changes in economic conditions. Our products and services are directly tied to the production and sale of goods and, more generally, to the North American economy. The rapid spread of the novel coronavirus (COVID-19), and the measures taken in response, have severely disrupted economic and commercial activity tied to the production and sale of goods, which have impacted supply chains and routes, and, as a result, transportation and supply chain companies such as ours have experienced slowdowns and reduced demand.

Furthermore, quarantines, shelter in place orders, labor shortages due to illness and otherwise, business and facility closures or other disruptions to our operations, or our customers’ operations, have also adversely impacted demand for our services and our ability to provide services to our customers. We have seen deterioration in our Supply Chain Solutions (SCS) volumes primarily due to production shut downs in the automotive industry which represents a significant portion of our SCS revenue. Although our automotive customers generally expect to resume production in May, this is subject to change based upon evolving conditions related to the pandemic. This could have a material negative impact on our SCS revenues and earnings.

We are seeing varying impacts with our SCS customers in non-automotive industries as well as with our Dedicated Transportation Solutions (DTS) customers, with some customers and industries experiencing lower volumes and others like consumer packaged goods experiencing significant volume increases. However, due to the expected reduction in economic activity, we expect to have net lower volumes for SCS/DTS customers through the second quarter of 2020. Lower volumes and revenues in our non-automotive SCS industries and in DTS have a lesser impact on our earnings as our fees are less transaction based.

Furthermore, as a result of government actions taken, such as mandated shelter in place orders as well as the significant reduction in business activity across the United States, demand for our commercial rental trucks has decreased significantly negatively impacting our earnings. If such decrease in demand were to continue for a prolonged period or further deteriorate, it could have further adverse impacts on our financial results. We have also experienced a furthering weakening of market conditions in used vehicle sales, requiring us to increase accelerated depreciation and write down the value of used vehicles in our inventory at quarter-end to reflect lower expected pricing. We expect demand for our used vehicles to be adversely affected through the remainder of 2020 and, any further decline in demand or in the event such decline in demand were to continue for a prolonged period, it could have an adverse impact on our financial results.

With respect to our ChoiceLease product line, our customers have signed long-term lease contracts and, therefore, we do not expect our revenue and cash flows to be materially affected provided our customers remain solvent and continue to make their payments on their contractual obligations. However, there is no guarantee that this trend will continue, as the COVID-19 pandemic may impact our customers' solvency, ability to make payments and spending decisions. We are also expecting a decrease in new ChoiceLease sales and any prolonged decrease in sales activity could adversely affect our growth prospects.

The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity and impact of the COVID-19 outbreak, the effects of the outbreak on our customers and suppliers and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future. Furthermore, the financial condition of our customers may be adversely impacted which may result in an increase in bankruptcies or insolvencies, or a delay in payments, which may, in turn, impact our business, results of operations and financial condition.

We have established additional bad debt reserves due to our expectations for slower COVID-19 related payment activity with certain customers and may need to increase our bad debt reserves if economic conditions worsen for our customers. Further, in the event of a prolonged material economic downturn which has a material negative impact on our earnings and free cash flow, we may not be able to comply with our financial covenant in our global revolving credit facility which, in the absence of a bank waiver, would negatively impact our ability to borrow under that facility and negatively impact our liquidity position.

We periodically evaluate factors, including, but not limited to macroeconomic conditions, changes in our industry and the markets in which we operate and our market capitalization, as well as our reporting units’ expected future financial performance for purposes of evaluating asset impairments, including goodwill. We believe that the impact of COVID-19 will negatively affect certain key assumptions used in our analysis; however, we will need to assess the severity and nature of the long-term impacts to determine if we may be required to record charges for asset impairments in the future. While we have undertaken an interim goodwill impairment test related to our FMS NA reporting unit as of March 31, 2020 and concluded that no impairment was necessary, we may determine that impairment is necessary in future periods. At this time, it remains uncertain whether and to what extent we may need to record charges for impairments in the future as a result of the ongoing COVID-19 outbreak.

In addition to the operational impacts described above, the COVID-19 pandemic may present or heighten other operational risks to our business. Remote working arrangements may decrease employee productivity, increase cybersecurity risks and the strain on our technology systems and adversely affect our internal controls over financial reporting. Further, our business may be adversely affected if key personnel become ill from COVID-19 and are unable to work.

In addition, due to the increase in claims as a result of the impacts of the COVID-19 pandemic, insurance companies may limit or stop offering coverage to companies like ours or increase the cost of such insurance so that it is no longer available at commercially reasonable rates. This trend could adversely affect our ability to obtain suitable insurance coverage or increase the cost for such coverage significantly, each of which may adversely affect our financial condition, results of operations, liquidity or cash flows.

To the extent to which the COVID-19 outbreak adversely affects our business, results of operations and financial condition, it may also have the effect of heightening many of the other risks described in the section entitled Risk Factors of our 2019 Annual Report on Form 10-K ~~for the year ended December 31, 2018, filed with the SEC~~and any subsequent Quarterly Reports on ~~February 21, 2019.~~Form 10-Q.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information with respect to purchases we made of our common stock during the three months ended ~~September 30, 2019:~~March 31, 2020:

Total Number
of Shares
Purchased ⁽¹⁾
Average Price
Paid per Share Total Number of
Shares
Purchased as
Part of Publicly
Announced
Programs
Maximum
Number of
Shares That May
Yet Be
Purchased
Under the
Anti-Dilutive
Program ⁽²⁾
July 1 through July 31, 2019 11 $ 55.37 — 730,067
August 1 through August 31, 2019 62,695 51.13 62,695 667,372
September 1 through September 30, 2019 200 52.57 — 667,372
Total 62,906 $ 51.13 62,695


	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum Number of Shares That May Yet Be Purchased Under the Anti-Dilutive Program ⁽²⁾
January 1 through January 31, 2020	—	$	—	—	1,500,000
February 1 through February 29, 2020	384,724	41.30		303,098	1,196,902
March 1 through March 31, 2020	1,660	36.09		—	1,196,902
Total	386,384	$	41.28	303,098

————————————

(1)During the three months ended ~~September 30, 2019,~~March 31, 2020, we purchased an aggregate of ~~211~~83,286 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock withheld as payment for the exercise price of options exercised or to satisfy the employees' 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 ~~2017,~~2019, our Board of Directors authorized a new share repurchase program intended to mitigate the dilutive impact of shares issued under our employee stock ~~plans (the program).~~plans. Under the December 2019 program, management is authorized to repurchase 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~~our employee stock plans from December ~~31, 2017~~1, 2019 to December ~~13, 2019.~~11, 2021. Share repurchases ~~of common stock~~ are made periodically in open-market transactions using the Company's working capital, and are subject to market conditions, legal requirements, and other factors. ~~Management may~~In addition, management has been granted the authority to establish prearranged written trading plans ~~for the Company~~ under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the repurchase program. The share repurchase program ~~which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in~~has been put on hold temporarily due to the ~~trading plan.~~impact of COVID-19.

6654

ITEM 6. EXHIBITS


Exhibit Number			Description

31.1			Certification of Robert E. Sanchez pursuant to Rule 13a-14(a) or Rule 15d-14(a)

31.2			Certification of Scott Parker pursuant to Rule 13a-14(a) or Rule 15d-14(a)

32			~~Certification~~Cer tification of ~~Robert~~ Rob ert E. ~~Sanchez~~Sanche z and Scott ~~Parker~~Par ker pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 ~~U.S.C.~~U.S .C Section 1350

~~101~~101.INS		XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document

The following materials from Ryder System, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Condensed Statements of Earnings, (ii) the Consolidated Condensed Statements of Comprehensive Income (Loss), (iii) the Consolidated Condensed Balance Sheets101.SCH	,	~~(iv) the Consolidated Condensed Statements of Cash Flows, (v) the Consolidated Condensed Statements of Shareholders' Equity, and (vi) the Notes to the Consolidated Condensed Financial Statements.~~XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page ~~formatted~~Interactive Data File (formatted in Inline XBRL and contained in Exhibit ~~101.~~101).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RYDER SYSTEM, INC.

(Registrant)

Date: ~~October 29, 2019~~

May 1, 2020

By:

/s/ Scott T. Parker

Scott T. Parker

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: ~~October 29, 2019~~

May 1, 2020

By:

/s/ Frank J. Mullen

Frank J. Mullen

Vice President and Controller

(Principal Accounting Officer)

6856


	Three months ended September 30, 2018									Nine months ended September 30, 2018

	As Previously		Lessor	Lessee and Other		As Previously		Lessor	Lessee and Other
	Reported		Adjustments ⁽¹⁾	Adjustments ⁽¹⁾	As Revised	Reported		Adjustments ⁽¹⁾	Adjustments ⁽¹⁾	As Revised
Lease & related maintenance and rental revenues	$	895.2	1.2	0.4	896.8	$	2,577.4	2.0	1.0	2,580.4


Total revenues	2,158.1		1.2	0.4	2,159.7	6,150.9		2.0	1.0	6,153.8

Cost of lease & related maintenance and rental	649.4		(2.7)	—	646.7	1,905.0		(9.9)	—	1,895.1
Cost of services ⁽²⁾	945.9		—	2.1	947.9	2,639.1		—	5.6	2,644.8

Other operating expenses	30.3		—	(0.3)	30.0	94.8		—	(1.1)	93.7
Selling, general and administrative expenses ⁽²⁾	215.5		0.9	(0.8)	215.6	637.3		1.0	(2.2)	636.0

Used vehicle sales, net	3.0		0.2	—	3.2	16.4		(0.2)	—	16.2
Interest expense	47.4		—	0.5	47.8	127.5		—	1.2	128.8

Restructuring and other items, net ⁽²⁾	0.3		—	(0.9)	(0.5)	19.7		—	(2.4)	17.3

Earnings from continuing operations before income taxes	116.1		2.9	(0.2)	118.9	262.5		11.2	(0.2)	273.5
Provision for income taxes	26.6		0.6	—	27.3	95.6		2.8	—	98.4
Earnings from continuing operations	89.5		2.3	(0.2)	91.6	167.0		8.4	(0.2)	175.1

Net earnings	88.8		2.3	(0.2)	90.8	164.5		8.4	(0.2)	172.6

Comprehensive income	100.6		1.9	—	102.5	156.4		9.5	—	165.9

Earnings per common share - Basic
Continuing operations	$	1.70	0.04	—	1.74	$	3.18	0.15	—	3.33

Net earnings	$	1.69	0.04	—	1.73	$	3.13	0.15	—	3.28

Earnings per common share - Diluted
Continuing operations	$	1.69	0.04	—	1.73	$	3.15	0.16	—	3.31

Net earnings	$	1.68	0.04	—	1.72	$	3.11	0.16	—	3.26


	Nine months ended September 30, 2018
	As Previously Reported		New Lease Standard Adjustments	As Revised


Net earnings	$	164.5	8.1	172.6

Earnings from continuing operations	167.0		8.1	175.1
Depreciation expense	1,028.5		(6.5)	1,022.0

Used vehicle sales, net	16.4		(0.2)	16.2
Amortization expense and other non-cash charges, net	21.2		83.7	104.9

Deferred income tax expense	103.1		2.8	105.9
Collections on sales-type leases and other items	—		63.3	63.3
Changes in operating assets and liabilities:


Prepaid expenses and other assets	(27.2)		(77.3)	(104.5)

Accrued expenses and other non-current liabilities	(6.7)		(10.7)	(17.4)
Net cash provided by operating activities from continuing operations	1,212.4		63.2	1,275.6




Debt repaid	(466.1)		(5.6)	(471.7)




Net cash provided by financing activities from continuing operations	784.9		(5.6)	779.2






Collections on direct finance leases and other items	57.6		(57.6)	—

Net cash used in investing activities from continuing operations	(2,018.2)		(57.6)	(2,075.8)


	Operating Leases		Finance Leases	Total
	(In thousands)
2019 (remaining three months ending December 31, 2019)	$	22,200	3,962	26,162
2020	72,840		13,709	86,549
2021	51,964		12,048	64,012
2022	37,869		8,130	45,999
2023	26,558		5,532	32,090
Thereafter	23,570		14,178	37,748
Total lease payments	235,001		57,559	292,560
Less: Imputed Interest	(17,279)		(8,999)	(26,278)
Present value of lease liabilities	$	217,722	48,560	266,282


	Proceeds per unit change 2019/2018
	Three Months		Nine Months

Tractors	(8)	%	7	%
Trucks	(10)	%	(5)	%


	2019						2020		2021 - 2025
	Three months ended September 30,		Three months ended December 31,
	(In millions)
Policy depreciation	$	52	$	54	$	180	$	305
Accelerated depreciation ⁽¹⁾	125		58		70		—
Total	$	177	$	112	$	250	$	305