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Third Quarter 2005Earnings Conference Call
October 26, 2005
2
Safe Harbor
Certain statements and information included in this presentation are "forward-looking statements" under the Federal Private Securities Litigation Reform Act of 1995. Accordingly, these forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Important factors that could cause such differences include, among others, our ability to obtain adequate profit margins for our services, our inability to maintain current pricing levels due to customer acceptance or competition, customer retention levels, unexpected volume declines, loss of key customers in the Supply Chain Solutions (SCS) business segment, unexpected reserves or write-offs due to the deterioration of the credit worthiness or bankruptcy of certain customers in our SCS business segment, the possibility that changes in customers’ business environments will limit their ability to commit to long-term vehicle leases, changes in market conditions affecting the commercial rental market or the sale of used vehicles, increased competition from vehicle manufacturers and large service providers, higher borrowing costs and possible decreases in available funding sources caused by adverse changes in debt ratings, changes in accounting assumptions, adequacy of accounting accruals, changes in general economic conditions, unexpected reserves or losses due to the effects of Hurricanes Katrina and Rita on our operations and the economy, increases in fuel prices, availability of qualified drivers, our ability to manage our cost structure and changes in government regulations including regulations regarding vehicle emissions. The risks included here are not exhaustive. New risks emerge from time to time and it is not possible for management to predict all such risks factors or to assess the impact of such risks on our business. Accordingly, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
3
Contents
► Third Quarter Results Overview► Asset Management Update► Earnings Outlook► Q & A
4
3rd Quarter Results Overview
► Earnings per diluted share were $0.98, up 20% from a comparable $0.82 in 3Q04
– 3Q04 included $0.01 gain on sale of a portion of former headquarters complex
► Fleet Management Solutions (FMS) total revenue up 10% and operating revenue up 2% vs. prior year
– Full service lease revenue increased 1% due to foreign exchange impact
– Maintenance revenue up 6% due to growth initiatives
– Commercial rental revenue grew 4% due to higher pricing
► FMS net before tax earnings (NBT) up 20%
– FMS NBT percent of operating revenue up 210 basis points to 14.1%
► FMS earnings positively impacted by improved rental results, strong used vehicle sales performance, improved fuel margins and lower overheads, partially offset by hurricane-related charges
5
3rd Quarter Results Overview (cont’d)
► Supply Chain Solutions (SCS) total revenue up 28% (and operatingrevenue up 9%) vs. prior year, reflecting increased subcontracted transportation, new and expanded business, and higher fuel costspassed through to customers
► SCS earnings increased vs. prior year reflecting new and expanded business as well as lower overhead spending, partially offset bylower volumes in certain automotive accounts and impact of Brazil operations
► Dedicated Contract Carriage (DCC) total revenue up 10% (and operating revenue up 10%) vs. prior year; increase due to new and expanded business as well as higher fuel costs passed through tocustomers
► DCC earnings up vs. prior year due to revenue growth from new and expanded business as well as lower safety and other operating costs
6
Earnings Per Share
2005 2004
Earnings Per Share 0.98$ 0.83$
Earnings Per Share Excluding Headquarters Complex Sale (1) 0.98$ 0.82$
Memo: EPS Impact of Headquarters Complex Sale -$ 0.01$ Average Shares (Millions) - Diluted 64.5 65.5 Tax Rate 40.0% 37.9% Return on Capital (1) (2) 7.8% 7.5%
Third Quarter
(1) Non-GAAP financial measure; refer to Appendix - Non-GAAP Financial Measures(2) Calculated based on a 12-month rolling period
7
Earnings Per Share
2005 2004
Earnings Per Share 2.60$ 2.33$
Earnings Per Share Excluding Headquarters Complex Sale 2.48$ 2.09$ and Tax Change (1)
Memo: EPS Impact of Headquarters Complex Sale -$ 0.23$ EPS Impact of Ohio Tax Change 0.12$ -$ EPS Impact of Restructuring and Other (Charges)/Recoveries, Net 0.01$ (0.03)$ Average Shares (Millions) - Diluted 64.8 65.7 Tax Rate 36.1% 37.6% Return on Capital (1) (2) 7.8% 7.5%
Year-to-Date
(1) Non-GAAP financial measure; refer to Appendix - Non-GAAP Financial Measures(2) Calculated based on a 12-month rolling period
Note: Earnings per share amounts are calculated independently for each component and may not be additive due to rounding
8
Business Segment
2005 2004 % B/(W)Revenue:
Fleet Management Solutions 1,010.8$ 918.7$ 10%Supply Chain Solutions 433.4 338.5 28%Dedicated Contract Carriage 139.0 125.9 10%Eliminations (92.6) (77.2) (20)% Total Revenue 1,490.6$ 1,305.9$ 14%
Segment Net Before Tax Earnings:Fleet Management Solutions 102.6$ 85.8$ 20%Supply Chain Solutions 10.6 9.8 9%Dedicated Contract Carriage 9.2 7.5 22%Eliminations (8.2) (8.0) (4)%
114.2 95.1 20%Central Support Services (Unallocated Share) (9.1) (9.0) (2)%Earnings Before Restructuring and Income Taxes (1) 105.1 86.1 22%
Restructuring and Other Recoveries, Net (2) 0.4 1.3 (66)%
Earnings Before Income Taxes 105.5 87.4 21%Provision for Income Taxes 42.2 33.1 (27)%Net Earnings 63.3$ 54.3$ 17%
Net Earnings Excluding Headquarters Complex Sale (1) 63.3$ 53.5$ 18%
Third Quarter ($ Millions)
(1) Non-GAAP financial measure; refer to Appendix - Non-GAAP Financial Measures(2) Allocation of Restructuring and Other Recoveries, Net across business segments was as follows: FMS - $0.4 in 2005 and CSS - $1.3 in 2004
9
Business Segment
2005 2004 % B/(W)Revenue:
Fleet Management Solutions 2,905.0$ 2,652.3$ 10%Supply Chain Solutions 1,155.1 986.6 17%Dedicated Contract Carriage 400.8 377.7 6%Eliminations (264.8) (229.5) (15)% Total Revenue 4,196.1$ 3,787.1$ 11%
Segment Net Before Tax Earnings:Fleet Management Solutions 262.4$ 223.2$ 18%Supply Chain Solutions 25.4 25.7 (1)%Dedicated Contract Carriage 24.8 22.6 10%Eliminations (23.3) (23.4) 1%
289.3 248.1 17%Central Support Services (Unallocated Share) (26.7) (23.3) (15)%Earnings Before Restructuring and Income Taxes (1) 262.6 224.8 17%
Restructuring and Other Recoveries, Net (2) 0.6 20.5 (97)%
Earnings Before Income Taxes 263.2 245.3 7%Provision for Income Taxes 95.1 92.3 (3)%Net Earnings 168.1$ 153.0$ 10%
Net Earnings Excluding Headquarters Complex Sale and Tax Change (1) 160.5$ 137.6$ 17%
($ Millions)
(1) Non-GAAP financial measure; refer to Appendix - Non-GAAP Financial Measures(2) Allocation of Restructuring and Other Recoveries, Net across business segments was as follows: FMS - $0.5 and SCS - $0.1 in
2005 and FMS - $(2.7), SCS - $(0.9), DCC - $(0.3) and CSS - $24.4 in 2004
Year-to-Date
10
Capital Expenditures
20052005 2004 O/(U) 2004
Full Service Lease 843.3$ 578.7$ 264.6$
Commercial Rental 245.4 225.8 19.6
Operating Property and Equipment 58.6 38.9 19.7
Gross Capital Expenditures 1,147.3 843.4 303.9
Less: Proceeds from Sales of Revenue Earning Equipment 250.8 216.7 34.1
Less: Proceeds from Sales of Operating Property and Equipment 2.7 46.5 (43.8)
Net Capital Expenditures 893.8$ 580.2$ 313.6$
Memo: Acquisitions 15.1$ 148.7$ (133.6)$
($ Millions)
Year-to-Date
11
0%
50%
100%
150%
200%
250%
300%
12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 9/30/05 LongTerm
Target
Total Obligations to Equity
Balance Sheet Debt to Equity
Debt to Equity Ratio
Strong balance sheet to support profitable growthStrong balance sheet to support profitable growth
9/30/05 12/31/04 9/30/04Balance Sheet Debt 2,218.3$ 1,783.2$ 1,720.0$ Percent To Equity 137% 118% 119%
Total Obligations (1) 2,363.7$ 1,944.3$ 1,921.7$ Percent To Equity (1) 146% 129% 133%
Total Equity 1,616.9$ 1,510.2$ 1,441.2$
($ Millions)(1)
(2)
Note: Includes impact of accumulated net pension related equity charge of $189 million as of 9/30/05 and 12/31/04, and $187 million as of 9/30/04.
(1) Non-GAAP financial measure; refer to Appendix – Non-GAAP Financial Measures.(2) Represents long term total obligations to equity target while maintaining a strong investment grade rating.
12
Free Cash Flow
2005 2004
Net Earnings(1) 168.1$ 153.0$ Depreciation 556.3 528.8
Gains on Sale (38.1) (25.8) Amortization and Other Non-Cash Charges/(Gains), Net 6.1 (20.6)
Changes in Working Capital and Deferred Taxes (223.3) 21.1 Cash Provided by Operating Activities 469.1 656.5
Capital Expenditures (2) (1,105.6) (769.7)
Acquisitions (15.1) (148.7) Proceeds from Sales of Revenue Earning Equipment 250.8 216.7
Proceeds from Sales of Operating Property and Equipment 2.7 46.5
Proceeds from Sale and Leaseback of Assets - 114.0
Collections of Direct Finance Leases 49.7 46.6
Other Investing, Net - (0.1) Free Cash Flow (3) (348.4)$ 161.8$
(1) Includes non-cash restructuring and other recoveries, net (2) Capital expenditures presented net of changes in accounts payable related to purchases of revenue earning equipment(3) Non-GAAP financial measure; refer to Appendix – Non-GAAP Financial Measures
($ Millions)Year-to-Date
13
Contents
► Third Quarter Results Overview► Asset Management Update► Earnings Outlook► Q & A
14
Asset Management Update
Note: U.S. only
► The overall number of vehicles sold in the third quarter was 5,156; up 20% compared with prior year– Used tractor retail sales proceeds up 7% per unit vs. prior year period– Used truck retail sales proceeds down 2% per unit vs. prior year period
► Vehicles not yet earning revenue are 2,301; up 603 from prior year due to increased sales activity vs. prior year
► Vehicles no longer earning (NLE) revenue are 7,229; up 1,760 or 32% over prior year driven primarily by a larger used vehicle inventory– NLE vehicles down 246 units or 3% vs. the prior quarter– 4,844 of these units are held for sale at the used truck centers
15
Contents
► Third Quarter Results Overview► Asset Management Update► Earnings Outlook► Q & A
16
Earnings Outlook
► No anticipated repatriation of foreign earnings under the American Jobs Creation Act of 2004
► 2005 earnings forecast excludes any impact of:
– Recently announced $175M share repurchase program
– Expensing of stock options and employee stock purchases (FAS123R)
• Anticipate adoption on 1/1/06
• Estimated full year expense of $0.12 in 2005 and $0.08 - $0.10 in 2006 (excluding restricted stock)
• Total stock-based compensation including restricted stock is estimated to be $0.15 in 2005 and $0.12 - $0.14 in 2006
– Cumulative charge for conditional asset retirement obligations related primarily to underground fuel storage tanks (FIN47)
• Estimated charge of $0.04 - $0.06 upon adoption in fourth quarter 2005
17
Earnings Outlook
► Raising our full year 2005 earnings forecast range to $3.49-$3.54 per share
– Forecast includes the previously reported second quarter $0.12 state tax benefit
► Current forecast for EPS is as follows:
(Earnings Per Share)
2005 EPS Forecast 0.89$ - 0.94$ 3.49$ - 3.54$ 4th Quarter Full Year
18
Q & A
19
Appendix
Business Segment Detail
Central Support Services
Balance Sheet
Financial Indicators Forecast
FMS Revenue History
Asset Management
Non-GAAP Financial Measures & Reconciliations
20
Fleet Management Solutions (FMS)
2005 2004 % B/(W)
Full Service Lease 447.4$ 444.0$ 1%Contract Maintenance 34.0 34.5 (2)%Contract-related Maintenance 48.3 43.1 12%Commercial Rental 183.4 176.7 4%Other 15.5 15.3 1%Operating Revenue (a) 728.6 713.6 2%Fuel Revenue 282.2 205.1 38%Total Revenue (b) 1,010.8$ 918.7$ 10%
Segment Net Before Tax Earnings (NBT) 102.6$ 85.8$ 20%Segment NBT as % of Total Revenue 10.1% 9.3%Segment NBT as % of Operating Revenue (a) 14.1% 12.0%
($ Millions)Third Quarter
(a) The Company uses operating revenue, a non-GAAP financial measure, to evaluate the operating performance of the FMS business segment and as a measure of sales activity. Fuel services revenue, which is directly impacted by fluctuations in marketfuel prices, is excluded from the operating revenue computation as fuel is largely a pass through to customers for which the Company realizes minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs.
(b) Refer to Appendix - FMS Revenue History for additional historical detail.
21
Fleet Management Solutions (FMS)
2005 2004 % B/(W)
Full Service Lease 1,334.6$ 1,319.1$ 1%Contract Maintenance 101.9 102.6 (1)%Contract-related Maintenance 146.2 131.5 11%Commercial Rental 511.0 475.0 8%Other 47.6 53.1 (10)%Operating Revenue (a) 2,141.3 2,081.3 3%Fuel Revenue 763.7 571.0 34%Total Revenue (b) 2,905.0$ 2,652.3$ 10%
Segment Net Before Tax Earnings (NBT) 262.4$ 223.2$ 18%Segment NBT as % of Total Revenue 9.0% 8.4%Segment NBT as % of Operating Revenue (a) 12.3% 10.7%
($ Millions)Year-to-Date
(a) The Company uses operating revenue, a non-GAAP financial measure, to evaluate the operating performance of the FMS business segment and as a measure of sales activity. Fuel services revenue, which is directly impacted by fluctuations in marketfuel prices, is excluded from the operating revenue computation as fuel is largely a pass through to customers for which the Company realizes minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs.
(b) Refer to Appendix - FMS Revenue History for additional historical detail.
22
Supply Chain Solutions (SCS)
2005 2004 % B/(W) U.S. Operating Revenue Automotive, Aerospace & Industrial 114.5$ 106.5$ 8% High Tech & Consumer Industries 63.0 58.0 9% Transportation Management 6.3 5.3 18%U.S. Operating Revenue 183.8 169.8 8%International Operating Revenue 70.5 63.8 10%Operating Revenue (a) 254.3 233.6 9%Subcontracted Transportation 179.1 104.9 71%Total Revenue 433.4$ 338.5$ 28%
Segment Net Before Tax Earnings (NBT) 10.6$ 9.8$ 9%Segment NBT as % of Total Revenue 2.4% 2.9%Segment NBT as % of Operating Revenue (a) 4.2% 4.2%
Memo: Fuel Costs 23.8$ 15.9$ (50)%
($ Millions)Third Quarter
(a) The Company uses operating revenue, a non-GAAP financial measure, to evaluate the operating performance of the SCS business segment and as a measure of sales activity. Subcontracted Transportation is deducted from total revenue to arrive at operating revenue as Subcontracted Transportation is largely a pass through to customers. The Company realizes minimal changes in profitability as a result of fluctuations in Subcontracted Transportation.
23
Supply Chain Solutions (SCS)
2005 2004 % B/(W)
U.S. Operating Revenue Automotive, Aerospace & Industrial 332.9$ 315.3$ 6% High Tech & Consumer Industries 182.1 169.4 8% Transportation Management 18.6 14.5 28%U.S. Operating Revenue 533.6 499.2 7%International Operating Revenue 208.0 193.6 7%Operating Revenue (a) 741.6 692.8 7%Subcontracted Transportation 413.5 293.8 41%Total Revenue 1,155.1$ 986.6$ 17%
Segment Net Before Tax Earnings (NBT) 25.4$ 25.7$ (1)%Segment NBT as % of Total Revenue 2.2% 2.6%Segment NBT as % of Operating Revenue (a) 3.4% 3.7%
Memo: Fuel Costs 66.5$ 46.5$ (43)%
($ Millions)
(a) The Company uses operating revenue, a non-GAAP financial measure, to evaluate the operating performance of the SCS business segment and as a measure of sales activity. Subcontracted Transportation is deducted from total revenue to arrive at operating revenue as Subcontracted Transportation is largely a pass through to customers. The Company realizes minimal changes in profitability as a result of fluctuations in Subcontracted Transportation.
Year-to-Date
24
Dedicated Contract Carriage (DCC)
2005 2004 % B/(W)
Operating Revenue (a) 134.6$ 122.7$ 10% Subcontracted Transportation 4.4 3.2 40%Total Revenue 139.0$ 125.9$ 10%
Segment Net Before Tax Earnings (NBT) 9.2$ 7.5$ 22%Segment NBT as % of Total Revenue 6.6% 6.0%Segment NBT as % of Operating Revenue (a) 6.8% 6.1%
Memo: Fuel Costs 24.9$ 18.2$ (37)%
($ Millions)Third Quarter
(a) The Company uses operating revenue, a non-GAAP financial measure, to evaluate the operating performance of the DCC business segment and as a measure of sales activity. Subcontracted Transportation is deducted from total revenue to arrive at operating revenue as Subcontracted Transportation is largely a pass through to customers. The Company realizes minimal changes in profitability as a result of fluctuations in Subcontracted Transportation.
25
Dedicated Contract Carriage (DCC)
2005 2004 % B/(W)
Operating Revenue (a) 389.2$ 371.0$ 5% Subcontracted Transportation 11.6 6.7 74%Total Revenue 400.8$ 377.7$ 6%
Segment Net Before Tax Earnings (NBT) 24.8$ 22.6$ 10%Segment NBT as % of Total Revenue 6.2% 6.0%Segment NBT as % of Operating Revenue (a) 6.4% 6.1%
Memo: Fuel Costs 67.7$ 52.3$ (29)%
($ Millions)
(a) The Company uses operating revenue, a non-GAAP financial measure, to evaluate the operating performance of the DCC business segment and as a measure of sales activity. Subcontracted Transportation is deducted from total revenue to arrive at operating revenue as Subcontracted Transportation is largely a pass through to customers. The Company realizes minimal changes in profitability as a result of fluctuations in Subcontracted Transportation.
Year-to-Date
26
Central Support Services (CSS)
2005 2004 % B/(W)
Allocated CSS Costs 42.0$ 45.8$ 8%Unallocated CSS Costs 9.1 9.0 (2)%Total CSS Costs 51.1$ 54.8$ 7%
($ Millions)Third Quarter
27
Central Support Services (CSS)
2005 2004 % B/(W)
Allocated CSS Costs 127.2$ 132.7$ 4%Unallocated CSS Costs 26.7 23.3 (15)%Total CSS Costs 153.9$ 156.0$ 1%
($ Millions)Year-to-Date
28
Balance Sheet
September 30, December 31,2005 2004
Cash and Cash Equivalents 140.5$ 101.0$
Other Current Assets 1,201.6 1,126.7
Revenue Earning Equipment, Net 3,633.3 3,331.7
Operating Property and Equipment, Net 485.5 479.6
Other Assets 583.1 598.9 Total Assets 6,044.0$ 5,637.9$
Current Liabilities 1,278.3$ 1,454.8$
Long-Term Debt 1,888.6 1,393.7
Other Non-Current Liabilities 1,260.2 1,279.2
Shareholders' Equity 1,616.9 1,510.2 Total Liabilities and Shareholders' Equity 6,044.0$ 5,637.9$
($ Millions)
29
Financial Indicators Forecast (1)
(1) Free Cash Flow and Debt to Equity include acquisitions. Capital Expenditures exclude acquisitions. Debt to Equity excludes impact of share repurchases.(2) Non-GAAP financial measure; refer to Appendix - Non-GAAP Financial Measures.
(270)
366269
156
(345)
126
(500)
0
500
Actual2000
Actual2001
Actual2002
Actual2003
Actual 2004
Forecast2005
0
500
1000
1500
Actual2000
Actual2001
Actual2002
Actual2003
Actual2004
Forecast2005
PPEOtherRentalLease
$1,289
$600
$725
$1,165
$657
$1,435
0%
50%
100%
150%
200%
250%
300%
2000 2001 2002 2003 2004 2005 Plan
Total Obligations to EquityBalance Sheet Debt to Equity
275%
234%
201%
146%129%
143%
Debt to Equity Ratio
(2)
Free Cash Flow (2) ($ Millions) Capital Expenditures ($ Millions)
30
FMS Revenue History
Q1 2003
Q2 2003
Q3 2003
Q4 2003
Full Year 2003
Q1 2004
Q2 2004
Q3 2004
Q4 2004
Full Year 2004
414.7$ 418.9$ 417.4$ 418.0$ 1,669.0$ 429.8$ 445.3$ 444.0$ 447.6$ 1,766.7$
42.3 33.3 33.3 33.6 142.5 33.3 34.8 34.5 33.7 136.3
41.5 39.7 40.7 41.0 162.9 44.5 44.0 43.1 46.5 178.1
118.5 134.7 144.6 142.9 540.7 135.9 162.4 176.7 174.8 649.8
Other 18.0 19.1 19.3 19.5 75.9 19.6 18.1 15.3 16.7 69.7
Operating Revenue 635.0 645.7 655.3 655.0 2,591.0 663.1 704.6 713.6 719.3 2,800.6
Fuel Revenue 176.0 154.4 154.0 156.3 640.7 178.4 187.5 205.1 231.2 802.2
Total Revenue 811.0$ 800.1$ 809.3$ 811.3$ 3,231.7$ 841.5$ 892.1$ 918.7$ 950.5$ 3,602.8$
Full Service Lease
Contract Maintenance
Contract-related Maintenance
Commercial Rental
($ Millions)
Note: FMS revenue presentation revised to: (1) report both Contract Maintenance and Non-contractual Maintenance individually, and (2) to report trailer pool revenue previously included in the Other product line in Full Service Lease and Commercial Rental.
31
Asset Management Update (a)
(a) U.S. only(b) Excludes early terminations where customer purchases vehicle.
3,478
1,671
5,370
3,349
3,875
2,026
5,409
1,172
4,412 4,914
837
3,950
723
3,8003,810
3,184 3,623
1,071
3,890
2,180
1,075
2,697
2,8633,071
0
1,000
2,000
3,000
4,000
5,000
6,000
Redeployments Extensions Early Terminations Early Replacements
YTD-00 YTD-01 YTD-02 YTD-03 YTD-04 YTD-05
(b)
32
2,3011,666
2,3061,079
5489241,0151,0911,2531,0688551,174 1,384 1,704 1,698 1,937
7,2297,4757,925
7,0006,652
7,8237,180
7,623
9,5069,898
7,0617,040 7,264
6,066 5,4696,368
-1,000
1,000
3,000
5,000
7,000
9,000
11,000
Non-Revenue Earning Equipment (a)
Units Not Yet Earning Revenue - "NYE"
Units No Longer Earning Revenue - "NLE"
TotalTotal11,07211,072
Dec 2001TotalTotal
10,36110,361
Mar 2002TotalTotal8,8388,838
Mar 2003TotalTotal8,6918,691
June 2002TotalTotal8,4338,433
Sept 2002TotalTotal8,1318,131
Dec 2002TotalTotal7,9857,985
Jun 2003
(a) U.S. only(b) Excludes units for which customer deposits have been received.
TotalTotal7,2007,200
pt 2003SeTotalTotal8,0798,079
Dec 2003
5,215 Units held for sale (b) 3,485
TotalTotal8,6488,648
Mar 2004
4,187
Total Total 7,7707,770
Jun 2004Total Total 7,1677,167
Sept 2004
4,274
Total Total 8,3058,305
Dec 2004TotalTotal9,5309,530
Sept 2005
4,844
TotalTotal10,23110,231
Mar 2005TotalTotal9,1419,141
June 2005
33
Non-GAAP Financial Measures
► This presentation includes “non-GAAP financial measures” as defined by SEC rules. As required by SEC rules, we provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure and an explanation why management believes that presentation of the non-GAAP financial measure provides useful information to investors. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP.
► Specifically, the following non-GAAP financial measures are included in this presentation:
Non-GAAP Financial Measure Comparable GAAP MeasureReconciliation & Additional Information Presented on Slide Titled
EPS / Net Earnings Excluding Headquarters Complex Sale and Tax Change
EPS / Net Earnings Appendix - Net Earnings and EPS Reconciliation
Earnings Before Restructuring and Income Taxes Net Earnings Business Segment
Return on Capital Return on Capital Appendix - Return on Capital Reconciliation
Free Cash Flow Cash Provided by Operating Activities Appendix - Free Cash Flow Reconciliation
Total Obligations Balance Sheet Debt Appendix - Debt to Equity Reconciliation
Total Obligations to Equity Debt to Equity Appendix - Debt to Equity Reconciliation
FMS Operating Revenue and Segment NBT as % of Operating Revenue
FMS Total Revenue and Segment NBT as % of Total Revenue
Fleet Management Solutions
SCS Operating Revenue and Segment NBT as % of Operating Revenue
SCS Gross Revenue and Segment NBT as % of Total Revenue
Supply Chain Solutions
DCC Operating Revenue and Segment NBT as % of Operating Revenue
DCC Gross Revenue and Segment NBT as % of Total Revenue
Dedicated Contract Carriage
Tax Rate Excluding State Tax Benefit Tax Rate Appendix - Tax Rate Reconciliation
34
YTD05 - YTD05 -Net Earnings EPS
Net Earnings $ 168.1 $ 2.60
Less: Tax Change 7.6 0.12
Net Earnings Excluding Tax Change $ 160.5 $ 2.48
Net Earnings and EPS Reconciliation
3Q04 - 3Q04 - YTD04 - YTD04 -Net Earnings EPS Net Earnings EPS
Net Earnings $ 54.3 $ 0.83 $ 153.0 $ 2.33
Less: Gain on Sale of Headquarters, After Tax 0.7 0.01 15.4 0.23
Net Earnings Excluding Headquarters Complex Sale $ 53.5 $ 0.82 $ 137.6 $ 2.09
($ Millions or$ Earnings Per Share)
Note: Earnings per share amounts are calculated independently for each component and may not be additive due to rounding
35
Tax Rate Reconciliation
YTD05 -Tax Rate
Tax Rate Excluding Net Tax Benefit 39.0%
Effect of Net Ohio Tax Change on Tax Rate (2.9)%Tax Rate as Reported 36.1%
36
Return on Capital Reconciliation
($ Millions)9/30/05 9/30/04
(A) Net Earnings (1) 230.8$ 192.4$ Restructuring Charges/(Recoveries), Net 2.2 (17.0) Income Taxes 118.3 114.7
Earnings Before Net Restructuring and Income Taxes 351.3 290.1 Interest Expense 113.8 101.2 Implied Interest Expense from Off-Balance Sheet Debt 7.0 9.2
Adjusted Earnings Before Income Taxes 472.1 400.5 Adjusted Income Taxes (182.7) (149.2)
(B) Adjusted Net Earnings (Non-GAAP)(1) 289.4$ 251.2$
Average Total Debt 2,035.3$ 1,822.6$ Average Shareholders' Equity 1,530.6 1,365.3
(C) Total Capital (GAAP) 3,565.9 3,187.9 Average Off-Balance Sheet Debt 160.4 149.3
(D) Adjusted Total Capital (Non-GAAP) (2) (3) 3,726.3$ 3,337.2$
(A/C) Return on Capital (GAAP) 6.5% 6.0%
(B/D) Return on Capital (Non-GAAP) (3) (4) 7.8% 7.5%
(1) Adjusted earnings calculated based on a 12-month rolling period.(2) Average shareholders’ equity and average debt are calculated quarterly using a weighted average.(3) Shareholders’ equity reflects impact of accumulated net pension related equity charge of $189 million as of 9/30/05 and $187 million as of 9/30/04.(4) The Company adopted return on capital, a non-GAAP financial measure, to determine how effectively capital is utilized across the business.
Note: Totals may not foot due to rounding differences.
37
Free Cash Flow Reconciliation
12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 9/30/04 9/30/05
Cash Provided by Operating Activities 1,023$ 357$ 615$ 812$ 883$ 657$ 469$
Changes in Balance of Trade Receivables Sold (270) 235 110 - - - -
Collections of Direct Finance Leases 67 66 66 61 64 47 50
Proceeds from Sales of Assets 230 175 153 210 331 263 254
Capital Expenditures (1) (1,296) (704) (582) (734) (1,092) (770) (1,106)
Proceeds from Sale and Leaseback of Assets - - - 13 118 114 -
Acquisitions (28) - - (97) (149) (149) (15)
Other Investing, Net 4 (3) 4 4 1 - -
Free Cash Flow (2) (270)$ 126$ 366$ 269$ 156$ 162$ (348)$
(1) Capital expenditures presented net of changes in accounts payable related to purchases of revenue earning equipment.(2) The Company uses free cash flow, a non-GAAP financial measure, because management considers it to be an important measure of comparative
operating performance. Management believes free cash flow provides investors with an important perspective on the cash available for debt service and shareholders after making capital investments required to support ongoing business operations. The calculation of free cash flow may be different from the calculation used by other companies and therefore comparability may be limited.
($ Millions)
38
Debt to Equity Reconciliation
12/31/00% to
Equity 12/31/01% to
Equity 12/31/02% to
Equity 12/31/03% to
Equity 12/31/04% to
Equity 9/30/04% to
Equity 9/30/05% to
Equity
Balance Sheet Debt $2,017 161% $1,709 139% $1,552 140% $1,816 135% $1,783 118% $1,720 119% $2,218 137%
Receivables Sold 345 110 - - - - -
PV of minimum lease payments and guaranteed residual values under operating leases for vehicles 879 625 370 153 161 202 146
PV of contingent rentals under securitizations 209 441 311 - - - -
Total Obligations (1) $3,450 275% $2,885 234% $2,233 201% $1,969 146% $1,944 129% $1,922 133% $2,364 146%
Note: In connection with adopting FIN 46 effective July 1, 2003, the Company consolidated the vehicle securitization trusts previously disclosed as off-balance sheet debt.
(1) The Company uses total obligations and total obligations to equity, non-GAAP financial measures, which include certain off-balance sheet financial obligations relating to revenue earning equipment. Management believes these non-GAAP financial measures are useful to investors as they are more complete measures of the Company’s existing financial obligations and help investors better assess the Company’s overall leverage position.
($ Millions)
39