Ryder System Inc: Form 10-Q for the period ended Sep 30, 2020

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

(1) During the three months ended September 30, 2020, we purchased an aggregate of 1,065 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 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. Under the December 2019 program, management is authorized to repurchase up to 1.5 million shares of common stock issued to employees under our employee stock plans from December 1, 2019 to December 11, 2021. Share repurchases are made periodically in open-market transactions using the Company's working capital, and are subject to market conditions, legal requirements, and other factors. In addition, management has been granted the authority to establish prearranged written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the repurchase program. The share repurchase program has been put on hold temporarily due to the impact of COVID-19 during the second and third quarters, however management intends to recommence the program in the fourth quarter of 2020.

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

Evaluation of Disclosure Controls and Procedures

As of the end of the third quarter of 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 quarter of 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

During the nine months ended September 30, 2020, there were no 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.

Item 1A. Risk Factors of our Annual Report on Form 10-K, filed with the SEC on February 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, as presented below, there have been no material changes in the risk factors described in our Form 10-K.

The COVID-19 pandemic has adversely impacted, and may 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 and our products and services are directly tied to the production and sale of goods and, more generally, to the North American economy. The COVID-19 pandemic and measures taken in response to its spread have severely impacted economic and commercial activity, and, as a result, transportation and supply chain companies such as ours have experienced slowdowns and reduced demand.

The extent to which the COVID-19 pandemic will continue to impact our business, operations and financial results will depend on numerous evolving factors that are difficult to accurately predict, including: the duration and scope of the pandemic and the potential for additional outbreaks; how quickly and to what extent prior levels of economic activity can resume; the timing of the development and distribution of an effective vaccine or treatments for COVID-19; governments, businesses and individuals’ actions in response to the pandemic; the prolonged effect on customer demand for our goods and services and the customer’s ability to pay for these goods and services.

In our Supply Chain Solutions (SCS) segment, we have seen deterioration in customer activity starting in April primarily due to production shutdowns in the automotive industry, which represents a significant portion of our SCS revenue. Our automotive customers that have been shut down restarted production in May and are now above pre-COVID activity levels. However, any negative impact or disruption on customer operations, including production at lower volumes or additional slowdowns or shutdowns, may have a material negative impact on our SCS revenues and earnings.

We have experienced 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 such as off price/discount and clothing retailers experiencing lower volumes and others like consumer-packaged goods experiencing volume increases. However, due to the expected reduction in economic activity and softer freight environment, we expect to have net lower volumes for SCS/DTS customers at least through the end 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 variable.

In our Fleet Management Solutions (FMS) segment, in the second quarter of 2020, we experienced a further weakening of market conditions in used vehicle sales due to the COVID-19 pandemic and expect that pricing for our used vehicles will continue to be adversely impacted in the foreseeable future beyond our first quarter of 2020 expectation of mid-2021.

We will continue to regularly review and update our outlook for the used vehicle market, as appropriate, and, if our outlook remains below our multi-year pricing averages or does not improve to levels in our outlook, we may be required to further decrease residual value estimates to better align with current market conditions and our outlook. In addition, if weak market conditions continue for a prolonged period or further deteriorate, we may also need to sell additional vehicles at wholesale prices which would require us to take additional valuation adjustments. Any residual value estimate changes and valuation adjustments made in future periods would be incremental to any prior residual value estimate changes previously taken for vehicles in the fleet. If we determine to decrease residual value estimates or record valuation adjustments, these changes could have a material adverse impact on our financial results and liquidity.

In addition, as a result of government actions taken, such as shutdowns of large gatherings, mandated social distancing orders, as well as the significant reduction in business activity across the United States, demand for our commercial rental vehicles and rental utilization rates decreased significantly through the first and second quarters of 2020 and have negatively impacted our earnings. Although we are seeing positive commercial rental demand trends in the third quarter, if demand further deteriorates or does not seasonally increase as it has in prior years, we may not be able to attain our utilization targets. As a result, we may be required to further downsize our fleet and decrease our pricing. However, we may not be able to redeploy rental vehicles with lease customers due to lack of demand for such vehicles. Each of these occurrences could result in lower revenues and further adverse impacts 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. We have experienced decreases in new ChoiceLease sales as well as a decrease in miles driven by our customers. Any prolonged decrease in sales activity and miles driven could adversely affect our growth prospects.

The financial condition of our customers, primarily in FMS, are being adversely impacted and have resulted and may continue to 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 credit loss reserves due to our expectations for COVID-19 related payment activity and may need to increase our credit loss reserves if economic conditions worsen for our customers.

Further, in the event of a prolonged 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 undertook 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. We determined that there was no interim impairment trigger event during the second and third quarters of 2020. 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 and any subsequent Quarterly Reports on Form 10-Q.