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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011
OR
   
o 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 LOGO)
RYDER SYSTEM, INC.
(Exact name of registrant as specified in its charter)
     
Florida
(State or other jurisdiction of incorporation or organization)
  59-0739250
(I.R.S. Employer Identification No.)
     
11690 N.W. 105th Street
Miami, Florida 33178

(Address of principal executive offices, including zip code)
 
(305) 500-3726

(Registrant’s telephone number, including area code)
          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ       NO o
          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ       NO o
          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o YES       þ NO
The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at March 31, 2011 was 51,343,469.
 
 

 


 

RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
         
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 EX-31.1
 EX-31.2
 EX-32
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

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Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands, except per share amounts)  
       
Revenue
  $ 1,425,376       1,219,938  
 
           
 
               
Operating expense (exclusive of items shown separately)
    694,423       577,614  
Salaries and employee-related costs
    365,395       304,712  
Subcontracted transportation
    83,082       60,337  
Depreciation expense
    205,937       211,005  
Gains on vehicle sales, net
    (12,349 )     (4,518 )
Equipment rental
    14,233       16,455  
Interest expense
    34,419       33,336  
Miscellaneous income, net
    (4,142 )     (1,495 )
Restructuring and other charges, net
    768        
 
           
 
    1,381,766       1,197,446  
 
           
Earnings from continuing operations before income taxes
    43,610       22,492  
Provision for income taxes
    17,753       9,620  
 
           
Earnings from continuing operations
    25,857       12,872  
Loss from discontinued operations, net of tax
    (732 )     (499 )
 
           
Net earnings
  $ 25,125       12,373  
 
           
 
               
Earnings (loss) per common share — Basic
               
Continuing operations
  $ 0.50       0.24  
Discontinued operations
    (0.01 )     (0.01 )
 
           
Net earnings
  $ 0.49       0.23  
 
           
 
               
Earnings (loss) per common share — Diluted
               
Continuing operations
  $ 0.50       0.24  
Discontinued operations
    (0.02 )     (0.01 )
 
           
Net earnings
  $ 0.48       0.23  
 
           
 
               
Cash dividends declared and paid per common share
  $ 0.27       0.25  
 
           
See accompanying notes to consolidated condensed financial statements.

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Table of Contents

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
                 
    March 31,     December 31,  
    2011     2010  
    (Dollars in thousands, except per
share amount)
 
Assets:
               
Current assets:
               
Cash and cash equivalents
  $ 155,640     $ 213,053  
Receivables, net
    679,336       615,003  
Inventories
    62,914       58,701  
Prepaid expenses and other current assets
    147,222       136,544  
 
           
Total current assets
    1,045,112       1,023,301  
Revenue earning equipment, net of accumulated depreciation of $3,314,739
and $3,247,400, respectively
    4,457,867       4,201,218  
Operating property and equipment, net of accumulated depreciation of $890,484
and $880,757, respectively
    615,609       606,843  
Goodwill
    378,746       355,842  
Intangible assets
    82,006       72,269  
Direct financing leases and other assets
    402,843       392,901  
 
           
Total assets
  $ 6,982,183     $ 6,652,374  
 
           
 
               
Liabilities and shareholders’ equity:
               
Current liabilities:
               
Short-term debt and current portion of long-term debt
  $ 467,974     $ 420,124  
Accounts payable
    466,955       294,380  
Accrued expenses and other current liabilities
    445,470       417,015  
 
           
Total current liabilities
    1,380,399       1,131,519  
Long-term debt
    2,341,142       2,326,878  
Other non-current liabilities
    684,905       680,808  
Deferred income taxes
    1,135,461       1,108,856  
 
           
Total liabilities
    5,541,907       5,248,061  
 
           
 
               
Shareholders’ equity:
               
Preferred stock of no par value per share — authorized, 3,800,917; none outstanding,
March 31, 2011 or December 31, 2010
           
Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding,
March 31, 2011 — 51,343,469; December 31, 2010 — 51,174,757
    25,672       25,587  
Additional paid-in capital
    741,335       735,540  
Retained earnings
    1,022,569       1,019,785  
Accumulated other comprehensive loss
    (349,300 )     (376,599 )
 
           
Total shareholders’ equity
    1,440,276       1,404,313  
 
           
Total liabilities and shareholders’ equity
  $ 6,982,183     $ 6,652,374  
 
           
See accompanying notes to consolidated condensed financial statements.

2


Table of Contents

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
Cash flows from operating activities from continuing operations:
               
Net earnings
  $ 25,125     $ 12,373  
Less: Loss from discontinued operations, net of tax
    (732 )     (499 )
 
           
Earnings from continuing operations
    25,857       12,872  
Depreciation expense
    205,937       211,005  
Gains on vehicle sales, net
    (12,349 )     (4,518 )
Share-based compensation expense
    4,105       3,941  
Amortization expense and other non-cash charges, net
    7,724       10,266  
Deferred income tax expense (benefit)
    12,781       (11,070 )
Changes in operating assets and liabilities, net of acquisitions:
               
Receivables
    (51,090 )     (410 )
Inventories
    (3,750 )     (423 )
Prepaid expenses and other assets
    (8,174 )     6,721  
Accounts payable
    31,408       311  
Accrued expenses and other non-current liabilities
    5,115       42,800  
 
           
Net cash provided by operating activities from continuing operations
    217,564       271,495  
 
           
 
               
Cash flows from financing activities from continuing operations:
               
Net change in commercial paper borrowings
    (290,132 )     (52,000 )
Debt proceeds
    349,867       710  
Debt repaid, including capital lease obligations
    (820 )     (27,381 )
Dividends on common stock
    (13,945 )     (13,384 )
Common stock issued
    5,222       1,991  
Common stock repurchased
    (12,036 )     (25,074 )
Excess tax benefits from share-based compensation
    548       301  
Debt issuance costs
    (1,732 )     (58 )
 
           
Net cash provided by (used in) financing activities from continuing operations
    36,972       (114,895 )
 
           
 
               
Cash flows from investing activities from continuing operations:
               
Purchases of property and revenue earning equipment
    (313,218 )     (200,101 )
Sales of revenue earning equipment
    66,150       48,433  
Sales of operating property and equipment
    5,030       526  
Acquisitions
    (83,776 )     (2,409 )
Collections on direct finance leases
    14,828       15,576  
Changes in restricted cash
    (281 )     2,791  
 
           
Net cash used in investing activities from continuing operations
    (311,267 )     (135,184 )
 
           
 
               
Effect of exchange rate changes on cash
    341       (1,696 )
 
           
(Decrease) increase in cash and cash equivalents from continuing operations
    (56,390 )     19,720  
 
           
 
               
Cash flows from discontinued operations:
               
Operating cash flows
    (1,048 )     (5,199 )
Financing cash flows
    11       1,034  
Investing cash flows
          1,132  
Effect of exchange rate changes on cash
    14       (85 )
 
           
Decrease in cash and cash equivalents from discontinued operations
    (1,023 )     (3,118 )
 
           
 
               
(Decrease) increase in cash and cash equivalents
    (57,413 )     16,602  
Cash and cash equivalents at January 1
    213,053       98,525  
 
           
Cash and cash equivalents at March 31
  $ 155,640     $ 115,127  
 
           
See accompanying notes to consolidated condensed financial statements.

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RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
                                                                    
                                        Accumulated        
  Preferred                   Additional           Other        
  Stock   Common Stock   Paid-In   Retained   Comprehensive      
  Amount   Shares   Par   Capital   Earnings   Loss   Total
    (Dollars in thousands, except per share amount)
 
Balance at December 31, 2010
$     51,174,757     $ 25,587       735,540       1,019,785       (376,599 )     1,404,313  
 
                                                   
 
                                                   
Components of comprehensive income:
                                                   
Net earnings
                        25,125             25,125  
Foreign currency translation adjustments
                              24,343       24,343  
Amortization of pension and postretirement items, net of tax
                              2,956       2,956  
 
                                                   
Total comprehensive income
                                                52,424  
Common stock dividends declared and paid — $0.27 per share
                        (13,945 )           (13,945 )
Common stock issued under employee stock option and stock purchase plans (1)
      419,452       210       5,012                   5,222  
Benefit plan stock purchases (2)
      (740 )           (36 )                 (36 )
Common stock repurchases
      (250,000 )     (125 )     (3,479 )     (8,396 )           (12,000 )
Share-based compensation
                  4,105                   4,105  
Tax benefits from share-based compensation
                  193                   193  
 
                                                 
Balance at March 31, 2011
$     51,343,469     $ 25,672       741,335       1,022,569       (349,300 )     1,440,276  
 
                                                 
 
(1)   Net of common shares delivered as payment for the exercise price or to satisfy the option holders’ withholding tax liability upon exercise of options.
 
(2)   Represents open-market transactions of common shares by the trustee of Ryder’s deferred compensation plans.
See accompanying notes to consolidated condensed financial statements.

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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(A) INTERIM FINANCIAL STATEMENTS
     The accompanying unaudited Consolidated Condensed Financial Statements include the accounts of Ryder System, Inc. (Ryder) and all entities in which Ryder has a controlling voting interest (“subsidiaries”), and variable interest entities (VIEs) required to be consolidated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with the accounting policies described in our 2010 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. These financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. 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.
(B) ACCOUNTING CHANGES
     In September 2009, the Financial Accounting Standards Board (FASB) issued accounting guidance which amends the criteria for allocating a contract’s consideration to individual services or products in multiple-deliverable arrangements. The guidance requires that the best estimate of selling price be used when vendor specific objective or third-party evidence for deliverables cannot be determined. This guidance is effective for us for revenue arrangements entered into or materially modified after December 31, 2010. The adoption of this accounting guidance did not have a material impact on our consolidated financial position, results of operations or cash flows.
(C) ACQUISITIONS
     The Scully Companies — On January 28, 2011, we acquired the common stock of The Scully Companies, Inc.’s (“Scully”) Fleet Management Solutions (FMS) business and the assets of Scully’s Dedicated Contract Carriage (DCC) business. The acquisition included Scully’s fleet of approximately 1,800 full service lease and 300 rental vehicles, and approximately 200 contractual customers. The purchase price was $90.7 million, of which $71.2 million has been paid as of March 31, 2011. The purchase price includes $14.4 million in contingent consideration to be paid to the seller if certain conditions are met. As of March 31, 2011, the fair value of the contingent consideration has been reflected within “Accrued expenses and other current liabilities” in our Consolidated Condensed Balance Sheet. See Note (N), “Fair Value Measurements,” for additional information. The initial recording of the transaction was based on preliminary valuation assessments and is subject to change. As of March 31, 2011, goodwill and customer relationship intangibles related to the Scully acquisition were $26.7 million and $11.2 million, respectively. The combined network operates under the Ryder name, complementing our FMS and DCC business segments market coverage in the Western United States.
     Carmenita Leasing, Inc. — On January 10, 2011, we acquired the assets of Carmenita Leasing, Inc., a full service leasing and rental business located in Santa Fe Springs, California, which included a fleet of approximately 190 full service lease and rental vehicles, and 60 contractual customers for a purchase price of $9.0 million, of which $8.4 million has been paid as of March 31, 2011. The initial recording of the transaction was based on preliminary valuation assessments and is subject to change. As of March 31, 2011, goodwill and customer relationship intangibles related to the Carmenita acquisition were $0.1 million and $0.3 million, respectively. The combined network operates under the Ryder name, complementing our FMS business segment market coverage in California.
     Total Logistic Control — On December 31, 2010, we acquired all of the common stock of Total Logistic Control (TLC), a leading provider of comprehensive supply chain solutions to food, beverage, and consumer packaged goods manufacturers in the U.S. TLC provides customers a broad suite of end-to-end services, including distribution management, contract packaging services and solutions engineering. This acquisition enhances our SCS capabilities and growth prospects in the areas of packaging and warehousing, including temperature-controlled facilities. The purchase price was $208.0 million, of which $3.4 million was paid during the three months ended March 31, 2011. During the three months ended March 31, 2011, the purchase price was reduced by $0.6 million due to contractual adjustments in acquired deferred taxes. The purchase price is subject to further adjustments based on resolution of certain items with the seller. As of March 31, 2011, goodwill and customer relationship intangibles related to the TLC acquisition were $134.0 million and $35.0 million, respectively.

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

(unaudited)
     Proforma information for the 2011 acquisitions is not disclosed because the effects of these acquisitions are not significant. During the three months ended March 31, 2011 and 2010, we paid $0.8 million and $2.4 million, respectively, related to acquisitions completed in prior years.
     Subsequent Event
     On April 1, 2011, we entered into an asset purchase agreement with B.I.T. Leasing, Inc., (“BIT”) a full service truck leasing and fleet services company located in Hayward, California, for a purchase price of $13.8 million. This agreement complements a 2010 acquisition whereby we acquired a portion of BIT’s fleet of full service lease and rental vehicles and contractual customers. The combination of both acquisitions included BIT’s fleet of approximately 490 full service lease and rental vehicles, 70 contract maintenance vehicles and 130 contractual customers. The asset purchase will be accounted for as an acquisition of a business.
(D) DISCONTINUED OPERATIONS
     In 2009, we ceased Supply Chain Solutions (SCS) service operations in Brazil, Argentina, Chile and European markets. Accordingly, results of these operations, financial position and cash flows are separately reported as discontinued operations for all periods presented either in the Consolidated Condensed Financial Statements or notes thereto.
     Summarized results of discontinued operations were as follows:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
 
               
Total revenue
  $        
 
           
 
               
Pre-tax loss from discontinued operations
  $ (747 )     (505 )
Income tax benefit
    15       6  
 
           
Loss from discontinued operations, net of tax
  $ (732 )     (499 )
 
           
     Results of discontinued operations in the first quarter of 2011 included $0.7 million of pre-tax losses related to adverse legal developments, professional fees and administrative fees associated with our discontinued South American operations. Results of discontinued operations in the first quarter of 2010 included $0.3 million of pre-tax operating losses and $0.2 million of pre-tax exit-related restructuring and other charges for employee severance, retention bonuses and lease contract termination charges.
     We are subject to various claims, tax assessments and administrative proceedings associated with our discontinued operations. We have established loss provisions for matters in which losses are deemed probable and can be reasonably estimated. However, at this time, it is not possible for us to determine fully the ultimate effect of all unasserted claims and assessments on our consolidated financial condition, results of operations or liquidity. Additional adjustments and expenses may be recorded through discontinued operations in future periods as further relevant information becomes available. Although it is not possible to predict the ultimate outcome of these matters, we do not expect that any resulting liability will have a material adverse effect upon our financial condition, results of operations or liquidity.
     The following is a summary of assets and liabilities of discontinued operations:
                 
    March 31,   December 31,
    2011   2010
    (In thousands)
Assets:
               
Total current assets, primarily other receivables
  $ 4,337     $ 4,710  
Total assets
  $ 6,125     $ 6,346  
 
               
Liabilities:
               
Total current liabilities, primarily other payables
  $ 3,975     $ 4,018  
Total liabilities
  $ 7,936     $ 7,882  

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

(unaudited)
(E) SHARE-BASED COMPENSATION PLANS
     Share-based incentive awards are provided to employees under the terms of various share-based compensation plans (collectively, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors. Awards under the Plans principally include at-the-money stock options, nonvested stock and cash awards. Share-based compensation expense is generally recorded in “Salaries and employee-related costs” in the Consolidated Condensed Statements of Earnings.
     The following table provides information on share-based compensation expense and income tax benefits recognized during the periods:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
 
               
Stock option and stock purchase plans
  $ 2,247       2,253  
Nonvested stock
    1,858       1,688  
 
           
Share-based compensation expense
    4,105       3,941  
Income tax benefit
    (1,372 )     (1,326 )
 
           
Share-based compensation expense, net of tax
  $ 2,733       2,615  
 
           
     During the three months ended March 31, 2011 and 2010, approximately 700,000 and 900,000 stock options, respectively, were granted under the Plans. These awards, which generally vest one-third each year from the date of grant, are fully vested three years from the grant date and have contractual terms of seven years. The fair value of each option award at the date of grant was estimated using a Black-Scholes-Merton option-pricing valuation model. The weighted-average fair value per option granted during the three months ended March 31, 2011 and 2010 was $12.84 and $8.93, respectively.
     During the three months ended March 31, 2011 and 2010, approximately 140,000 and 190,000 market-based restricted stock rights, respectively, were granted under the Plans. Employees only receive the grant of stock if Ryder’s cumulative average total shareholder return (TSR) at least meets the S&P 500 cumulative average TSR over an applicable three-year period. The fair value of the market-based restricted stock rights was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. The fair value of the market-based awards was determined and fixed on the grant date and is based on the likelihood of Ryder achieving the market-based condition. The weighted-average fair value per market-based restricted stock right granted during the three months ended March 31, 2011 and 2010 was $25.29 and $15.65, respectively.
     During the three months ended March 31, 2011 and 2010, approximately 120,000 and 20,000 time-vested restricted stock rights, respectively, were granted under the plans. The time-vested restricted stock rights entitle the holder to shares of common stock as the awards vest over a three-year period. The fair value of the time-vested awards is determined and fixed on the date of grant based on Ryder’s stock price on the date of grant. The weighted-average fair value per time-vested restricted stock right granted during the three months ended March 31, 2011 and 2010 was $50.62 and $32.99, respectively.
     During the three months ended March 31, 2011 and 2010, employees who received market-based restricted stock rights also received market-based cash awards. The awards have the same vesting provisions as the market-based restricted stock rights except that Ryder’s TSR must at least meet the TSR of the 33rd percentile of the S&P 500. The cash awards are accounted for as liability awards under the share-based compensation accounting guidance as the awards are based upon the performance of our common stock and are settled in cash. As a result, the liability is adjusted to reflect fair value at the end of each reporting period. The fair value of the cash awards was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation.
     The following table is a summary of compensation expense recognized related to cash awards in addition to the share-based compensation expense reported in the previous table:
                 
    Three months ended March 31,
    2011   2010
    (In thousands)
 
               
Cash awards
  $ 460       94  

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

(unaudited)
     Total unrecognized pre-tax compensation expense related to share-based compensation arrangements at March 31, 2011 was $39.1 million and is expected to be recognized over a weighted-average period of approximately 2.2 years.
(F) EARNINGS PER SHARE
     We compute earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Our nonvested stock are considered participating securities since the share-based awards contain a non-forfeitable right to dividend equivalents irrespective of whether the awards ultimately vest. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period.
     The following table presents the calculation of basic and diluted earnings per common share from continuing operations:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands, except per share amounts)  
Earnings per share — Basic:
               
Earnings from continuing operations
  $ 25,857       12,872  
Less: Distributed and undistributed earnings allocated to nonvested stock
    (405 )     (172 )
 
           
Earnings from continuing operations available to common shareholders — Basic
  $ 25,452       12,700  
 
           
 
               
Weighted average common shares outstanding — Basic
    50,626       52,679  
 
           
 
               
Earnings from continuing operations per common share — Basic
  $ 0.50       0.24  
 
           
 
               
Earnings per share — Diluted:
               
Earnings from continuing operations
  $ 25,857       12,872  
Less: Distributed and undistributed earnings allocated to nonvested stock
    (403 )     (172 )
 
           
Earnings from continuing operations available to common shareholders — Diluted
  $ 25,454       12,700  
 
           
 
               
Weighted average common shares outstanding — Basic
    50,626       52,679  
Effect of dilutive options
    385       23  
 
           
Weighted average common shares outstanding — Diluted
    51,011       52,702  
 
           
 
               
Earnings from continuing operations per common share — Diluted
  $ 0.50       0.24  
 
           
 
               
Anti-dilutive options not included above
    1,442       2,315  
 
           
(G) RESTRUCTURING AND OTHER CHARGES
     Restructuring charges, net for the three months ended March 31, 2011 represented $0.8 million of employee severance and benefit costs related to workforce reductions and termination costs associated with non-essential equipment contracts assumed in the Scully acquisition.

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

(unaudited)
     Activity related to restructuring reserves including discontinued operations were as follows:
                                         
                            Foreign        
    December 31, 2010             Cash     Translation     March 31, 2011  
    Balance     Additions     Payments     Adjustments     Balance  
    (In thousands)  
 
                                       
Employee severance and benefits
  $ 234       405       11       5       633  
Contract termination costs
    3,813       375       553       88       3,723  
 
                             
Total
  $ 4,047       780       564       93       4,356  
 
                             
     At March 31, 2011, the majority of outstanding restructuring obligations are required to be paid over the next two years.
(H) DIRECT FINANCING LEASE RECEIVABLES
     We lease revenue earning equipment to customers for periods ranging from three to seven years for trucks and tractors and up to ten years for trailers. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as direct financing leases and, to a lesser extent, sales-type leases. The net investment in direct financing and sales-type leases consisted of:
                 
    March 31,     December 31,  
    2011     2010  
    (In thousands)  
 
               
Total minimum lease payments receivable
  $ 561,575     $ 548,419  
Less: Executory costs
    (181,266 )     (171,076 )
 
           
Minimum lease payments receivable
    380,309       377,343  
Less: Allowance for uncollectibles
    (669 )     (784 )
 
           
Net minimum lease payments receivable
    379,640       376,559  
Unguaranteed residuals
    59,086       57,898  
Less: Unearned income
    (96,646 )     (96,522 )
 
           
Net investment in direct financing and sales-type leases
    342,080       337,935  
Current portion
    (62,925 )     (63,304 )
 
           
Non-current portion
  $ 279,155     $ 274,631  
 
           
     Our direct financing lease customers operate in a wide variety of industries, and we have no significant customer concentrations in any one industry. We assess credit risk for all of our customers including those who lease equipment under direct financing leases. Credit risk is assessed using an internally developed model which incorporates credit scores from third party providers and our own custom risk ratings and is updated on a monthly basis. The external credit scores are developed based on the customer’s historical payment patterns and an overall assessment of the likelihood of delinquent payments. Our internal ratings are weighted based on the industry that the customer operates, company size, years in business, and other credit-related indicators (i.e. profitability, cash flow, liquidity, tangible net worth, etc.). Any one of the following factors may result in a customer being classified as high risk: i) the customer has a history of late payments; ii) the customer has open lawsuits, liens or judgments; iii) the customer has been in business less than 3 years; and iv) the customer operates in an industry with low barriers to entry. For those customers who are designated as high risk, we typically require deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicle’s fair value, which further mitigates our credit risk.
     The following table presents the credit risk profile by creditworthiness category of our direct financing lease receivables:
                 
    March 31,     December 31,  
    2011     2010  
    (In thousands)  
       
Very low risk
  $ 58,480     $ 47,395  
Low risk
    47,442       44,598  
Moderate risk
    210,226       218,547  
Moderately high risk
    42,306       49,536  
High risk
    21,855       17,267  
 
           
 
  $   380,309     $ 377,343  
 
           

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

(unaudited)
     The following table is a rollforward of the allowance for credit losses on direct financing lease receivables for the three months ended March 31, 2011:
         
    (In thousands)  
Balance at December 31, 2010
  $ 784  
Charged to earnings
    18  
Deductions
    (133 )
 
     
Balance at March 31, 2011
  $ 669  
 
     
     As of March 31, 2011, the amount of direct financing lease receivables which were past due was not significant and there were no impaired receivables. Accordingly, we do not believe there is a material risk of default with respect to the direct financing lease receivables as of March 31, 2011.
(I) REVENUE EARNING EQUIPMENT
                                                 
    March 31, 2011     December 31, 2010  
            Accumulated     Net Book             Accumulated     Net Book  
    Cost     Depreciation     Value(1)     Cost     Depreciation     Value (1)  
    (In thousands)  
Held for use:
                                               
Full service lease
  $ 5,712,106       (2,480,796 )     3,231,310     $ 5,639,410       (2,408,126 )     3,231,284  
Commercial rental
    1,812,939       (652,619 )     1,160,320       1,549,094       (647,764 )     901,330  
Held for sale
    247,561       (181,324 )     66,237       260,114       (191,510 )     68,604  
 
                                   
Total
  $ 7,772,606       (3,314,739 )     4,457,867     $ 7,448,618       (3,247,400 )     4,201,218  
 
                                   
 
(1)   Revenue earning equipment, net includes vehicles under capital leases of $29.1 million, less accumulated amortization of $19.0 million, at March 31, 2011, and $29.2 million, less accumulated amortization of $18.5 million, at December 31, 2010. Amortization expense attributed to vehicles acquired under capital leases is combined with depreciation expense.
     At the end of 2010, we completed our annual review of residual values and useful lives of revenue earning equipment. Based on the results of our analysis, we adjusted the estimated residual values of certain classes of revenue earning equipment effective January 1, 2011. The change in estimated residual values increased pre-tax earnings for the three months ended March 31, 2011 by approximately $1.4 million, or $0.02 per diluted common share, compared with the same period in 2010.

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

(unaudited)
(J) GOODWILL
     The carrying amount of goodwill attributable to each reportable business segment with changes therein was as follows:
                                 
    Fleet     Supply     Dedicated        
    Management     Chain     Contract        
    Solutions     Solutions     Carriage     Total  
    (In thousands)  
Balance at January 1, 2011:
                               
Goodwill
  $ 202,941       177,222       4,900       385,063  
Accumulated impairment losses
    (10,322 )     (18,899 )           (29,221 )
 
                       
 
    192,619       158,323       4,900       355,842  
Acquisitions
    12,655             14,123       26,778  
Purchase accounting adjustments
          (4,319 )           (4,319 )
Foreign currency translation adjustment
    195       250             445  
 
                       
Balance at March 31, 2011:
                               
Goodwill
    215,791       173,153       19,023       407,967  
Accumulated impairment losses
    (10,322 )     (18,899 )           (29,221 )
 
                       
 
  $ 205,469       154,254       19,023       378,746  
 
                       
     Purchase accounting adjustments related primarily to changes in deferred tax liabilities and evaluations of the physical and market condition of operating property and equipment. We did not recast the December 31, 2010 balance sheet as the adjustments are not material.
(K) ACCRUED EXPENSES AND OTHER LIABILITIES
                                                 
    March 31, 2011     December 31, 2010  
    Accrued     Non-Current             Accrued     Non-Current        
    Expenses     Liabilities     Total     Expenses     Liabilities     Total  
    (In thousands)  
 
                                               
Salaries and wages
  $ 62,743             62,743     $ 81,037             81,037  
Deferred compensation
    1,376       21,018       22,394       1,965       21,258       23,223  
Pension benefits
    3,000       336,175       339,175       2,984       333,074       336,058  
Other postretirement benefits
    3,385       44,462       47,847       3,382       43,787       47,169  
Employee benefits
    1,627             1,627       2,251             2,251  
Insurance obligations, primarily self-insurance
    126,195       153,122       279,317       110,697       148,639       259,336  
Residual value guarantees
    2,461       2,169       4,630       2,301       2,196       4,497  
Deferred rent
    12,228       11,338       23,566       2,397       16,787       19,184  
Deferred vehicle gains
    473       1,252       1,725       473       1,374       1,847  
Environmental liabilities
    4,942       9,014       13,956       5,145       8,908       14,053  
Asset retirement obligations
    3,799       12,577       16,376       3,868       12,319       16,187  
Operating taxes
    81,270             81,270       73,095             73,095  
Income taxes
    1,818       75,231       77,049       2,559       73,849       76,408  
Interest
    31,618             31,618       30,478             30,478  
Deposits, mainly from customers
    35,470       7,540       43,010       31,755       7,538       39,293  
Deferred revenue
    18,698       1,950       20,648       15,956       4,646       20,602  
Acquisition holdbacks
    20,670             20,670       6,177             6,177  
Other
    33,697       9,057       42,754       40,495       6,433       46,928  
 
                                   
Total
  $  445,470       684,905       1,130,375     417,015       680,808       1,097,823  
 
                                   

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

(unaudited)
(L) INCOME TAXES
          Uncertain Tax Positions
     We are subject to tax audits in numerous jurisdictions in the U.S. and foreign countries. Tax audits by their very nature are often complex and can require several years to complete. In the normal course of business, we are subject to challenges from the Internal Revenue Service (IRS) and other tax authorities regarding amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. As part of our calculation of the provision for income taxes on earnings, we recognize the tax benefit from uncertain tax positions that are at least more likely than not of being sustained upon audit based on the technical merits of the tax position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Such calculations require management to make estimates and judgments with respect to the ultimate outcome of a tax audit. Actual results could vary materially from these estimates.
     The following is a summary of tax years that are no longer subject to examination:
     Federal — audits of our U.S. federal income tax returns are closed through fiscal year 2006.
     State — for the majority of states, we are no longer subject to tax examinations by tax authorities for tax years before 2007.
     Foreign — we are no longer subject to foreign tax examinations by tax authorities for tax years before 2003 in Canada, 2001 in Brazil, 2006 in Mexico and 2007 in the U.K., which are our major foreign tax jurisdictions. In Brazil, we were assessed $17.0 million, including penalties and interest, related to the tax due on the sale of our outbound auto carriage business in 2001. On November 11, 2010, the Administrative Tax Court dismissed the assessment. The period for the tax authority to appeal the decision has not yet closed. We believe it is more likely than not that our tax position will ultimately be sustained and no amounts have been reserved for this matter.
     At March 31, 2011 and December 31, 2010, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $62.2 million and $61.2 million, respectively. Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by $2.2 million by March 31, 2012, if audits are completed or tax years close.
          Like-Kind Exchange Program
     We have a like-kind exchange program for certain of our revenue earning equipment operating in the U.S. Pursuant to the program, we dispose of vehicles and acquire replacement vehicles in a form whereby tax gains on disposal of eligible vehicles are deferred. To qualify for like-kind exchange treatment, we exchange through a qualified intermediary eligible vehicles being disposed of with vehicles being acquired, allowing us to generally carryover the tax basis of the vehicles sold (“like-kind exchanges”). The program results in a material deferral of federal and state income taxes. As part of the program, the proceeds from the sale of eligible vehicles are restricted for the acquisition of replacement vehicles and other specified applications. Due to the structure utilized to facilitate the like-kind exchanges, the qualified intermediary that holds the proceeds from the sales of eligible vehicles and the entity that holds the vehicles to be acquired under the program are required to be consolidated in the accompanying Consolidated Condensed Financial Statements in accordance with U.S. GAAP. At March 31, 2011 and December 31, 2010, these consolidated entities had total assets, primarily revenue earning equipment, and total liabilities, primarily accounts payable, of $140.0 million and $49.5 million, respectively.
          Tax Law Changes
     On January 13, 2011, the state of Illinois enacted changes to its tax system, which included an increase to the corporate income tax rate from 4.8% to 7.0%. The impact of this change resulted in a non-cash charge to deferred income taxes and a decrease to earnings for the three months ended March 31, 2011 of $1.2 million or $0.02 per diluted common share.

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

(unaudited)
          Effective Tax Rate
     Our effective income tax rate from continuing operations for the first quarter of 2011 was 40.7% compared to 42.8% in the same period of the prior year. The decrease in the effective income tax rate from continuing operations was mainly due to a decrease in the amount of non-deductible items on higher earnings partially offset by the impact of the tax law change in the State of Illinois.
(M) DEBT
                                         
    Weighted-Average                      
    Interest Rate                      
    March 31,     December 31,             March 31,     December 31,  
    2011     2010     Maturities     2011     2010  
                            (In thousands)  
Short-term debt and current portion of long-term debt:
                                       
Unsecured foreign obligations
    4.86%     4.56%     2011-2012     $ 90,590     $ 42,968  
Current portion of long-term debt, including capital leases
                            377,384       377,156  
 
                                   
Total short-term debt and current portion of long-term debt
                            467,974       420,124  
 
                                   
 
                                       
Long-term debt:
                                       
U.S. commercial paper (1)
    0.42%     0.42%     2012       77,984       367,880  
Unsecured U.S. notes — Medium-term notes (1)
    4.88%     5.28%     2011-2025       2,508,957       2,158,647  
Unsecured U.S. obligations, principally bank term loans
    1.53%     1.54%     2012-2013       105,400       105,600  
Unsecured foreign obligations
    %     5.14%                 45,109  
Capital lease obligations
    7.90%     7.86%     2011-2017       11,905       11,369  
 
                                   
Total before fair market value adjustment
                            2,704,246       2,688,605  
Fair market value adjustment on notes subject to hedging (2)
                            14,280       15,429  
 
                                   
 
                            2,718,526       2,704,034  
Current portion of long-term debt, including capital leases
                            (377,384 )     (377,156 )
 
                                   
Long-term debt
                            2,341,142       2,326,878  
 
                                   
Total debt
                          $ 2,809,116     $ 2,747,002  
 
                                   
 
(1)   We had unamortized original issue discounts of $10.1 million and $10.5 million at March 31, 2011 and December 31, 2010, respectively.
 
(2)   The notional amount of executed interest rate swaps designated as fair value hedges was $400 million and $250 million at March 31, 2011 and December 31, 2010, respectively.
     We can borrow up to $875 million under a global revolving credit facility with a syndicate of thirteen lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., Mizuho Corporate Bank, Ltd., Royal Bank of Scotland Plc and Wells Fargo N.A. The global credit facility matures in April 2012 and is used primarily to finance working capital and provide support for the issuance of unsecured commercial paper in the U.S. and Canada. This facility can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at March 31, 2011). At our option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The agreement provides for annual facility fees, which range from 22.5 basis points to 62.5 basis points, and are based on Ryder’s long-term credit ratings. The current annual facility fee is 37.5 basis points, which applies to the total facility size of $875 million. The credit facility contains no provisions limiting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions and certain affirmative and negative covenants. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated tangible net worth, of less than or equal to 300%. Tangible net worth, as defined in the credit facility, includes 50% of our deferred federal income tax liability and excludes the book value of our intangibles. The ratio at March 31, 2011 was 191%. At March 31, 2011, $796.6 million was available under the credit facility, net of the support for commercial paper borrowings.
     Our global revolving credit facility permits us to refinance short-term commercial paper obligations on a long-term basis. Settlement of short-term commercial paper obligations not expected to require the use of working capital are classified as long-term as we have both the intent and ability to refinance on a long-term basis. At March 31, 2011 and December 31, 2010, we classified $78.0 million and $367.9 million, respectively, of short-term commercial paper as long-term debt.
     In February 2011, we issued $350 million of unsecured medium-term notes maturing in March 2015. If the notes are downgraded following, and as a result of, a change in control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest. In connection with the issuance of the medium term

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)
notes, we entered into two interest rate swaps with an aggregate notional amount of $150 million maturing in March 2015. Refer to Note (O),“Derivatives,” for additional information.
     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 receivables conduit or committed purchasers. The subsidiary is considered a VIE and is consolidated based on our control of the entity’s activities. We use this program to provide additional liquidity to fund our operations, particularly when it is cost effective to do so. The costs under the program may vary based on changes in interest rates. The available proceeds that may be received under the program are limited to $175 million. If no event occurs which causes early termination, the 364-day program will expire on October 28, 2011. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the collateralized receivables. At March 31, 2011 and December 31, 2010, no amounts were outstanding under the program. Sales of receivables under this program will be accounted for as secured borrowings based on our continuing involvement in the transferred assets.
     At March 31, 2011 and December 31, 2010, we had letters of credit and surety bonds outstanding totaling $267.2 million and $264.8 million, respectively, which primarily guarantee the payment of insurance claims.
(N) FAIR VALUE MEASUREMENTS
     The following tables present our assets and liabilities that are measured at fair value on a recurring basis and the levels of inputs used to measure fair value:
                                         
            Fair Value Measurements        
            At March 31, 2011 Using        
    Balance Sheet Location     Level 1     Level 2     Level 3     Total  
                    (In thousands)          
Assets:
                                       
Investments held in Rabbi Trusts:
                                       
Cash and cash equivalents
          $ 3,144                   3,144  
U.S. equity mutual funds
            8,905                   8,905  
Foreign equity mutual funds
            2,553                   2,553  
Fixed income mutual funds
            2,977                   2,977  
 
                               
Investments held in Rabbi Trusts
  DFL and other assets     17,579                   17,579  
Interest rate swaps
  DFL and other assets           14,280             14,280  
 
                               
Total assets at fair value
          $ 17,579       14,280             31,859  
 
                               
Liabilities:
                                       
Contingent consideration
  Accrued expenses   $             14,400       14,400  
 
                               
 
            Fair Value Measurements          
            At December 31, 2010 Using          
    Balance Sheet Location     Level 1     Level 2     Level 3     Total  
                    (In thousands)          
Assets:
                                       
Investments held in Rabbi Trusts
                                       
Cash and cash equivalents
          $ 2,348                   2,348  
U.S. equity mutual funds
            8,409                   8,409  
Foreign equity mutual funds
            5,188                   5,188  
Fixed income mutual funds
            1,459                   1,459  
 
                               
Investments held in Rabbi Trusts
  DFL and other assets     17,404                   17,404  
Interest rate swap
  DFL and other assets           15,429             15,429  
 
                               
Total assets at fair value
          $ 17,404       15,429             32,833  
 
                               

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

(unaudited)
The following is a description of the valuation methodologies used for these items, as well as the level of inputs used to measure fair value:
     Investments held in Rabbi Trusts — The investments primarily include mutual funds that invest in equity and fixed income securities. Shares of mutual funds were valued based on quoted market prices, which represents the net asset value of the shares and were therefore classified within Level 1 of the fair value hierarchy.
     Interest rate swaps — The derivatives are pay-variable, receive-fixed interest rate swaps based on the LIBOR rate and are designated as fair value hedges. Fair value was based on a model-driven income approach using the LIBOR rate at each interest payment date, which was observable at commonly quoted intervals for the full term of the swaps. Therefore, our interest rate swaps were classified within Level 2 of the fair value hierarchy.
     Contingent consideration — Fair value was based on the income approach and uses significant inputs that are not observable in the market. Therefore, the liability was classified within Level 3 of the fair value hierarchy. Refer to Note (C), “Acquisitions,” for additional information.
     The following tables present our assets and liabilities that are measured at fair value on a nonrecurring basis and the levels of inputs used to measure fair value:
                                 
    Fair Value Measurements        
    At March 31, 2011 Using     Total Losses (2)  
    Level 1     Level 2     Level 3     Three months ended  
    (In thousands)  
Assets held for sale:
                               
Revenue earning equipment: (1)
                               
Trucks
  $             10,155     $ 1,689  
Tractors
                4,274       689  
Trailers
                646       661  
 
                       
Total assets at fair value
  $             15,075     $ 3,039  
 
                       
                                 
    Fair Value Measurements        
    At March 31, 2010 Using     Total Losses (2)  
    Level 1     Level 2     Level 3     Three months ended  
    (In thousands)  
Assets held for sale:
                               
Revenue earning equipment: (1)
                               
Trucks
  $             16,304     $ 4,369  
Tractors
                23,383       3,810  
Trailers
                2,548       1,551  
 
                       
Total revenue earning equipment
                42,235       9,730  
Operating property and equipment held for sale
                8,792        
 
                       
Total assets at fair value
  $             51,027     $ 9,730  
 
                       
 
(1)   Represents the portion of all revenue earning equipment held for sale that is recorded at fair value, less costs to sell.
 
(2)   Total losses represent fair value adjustments for all vehicles held for sale throughout the period for which fair value was less than carrying value.
     Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Losses to reflect changes in fair value are presented within “Depreciation expense” in the Consolidated Condensed Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (tractors, trucks and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. Fair value was determined based upon recent market prices obtained from our own sales experience for sales of each class of similar assets and vehicle condition. Therefore, our revenue earning equipment held for sale was classified within Level 3 of the fair value hierarchy.
     Fair value of total debt (excluding capital lease obligations) at March 31, 2011 and December 31, 2010 was approximately $2.94 billion and $2.86 billion, respectively. For publicly-traded debt, estimates of fair value were based on market prices. For other debt,

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

(unaudited)
fair value was estimated based on rates currently available to us for debt with similar terms and remaining maturities. The carrying amounts reported in the Consolidated Condensed Balance Sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturities of these financial instruments.
(O) DERIVATIVES
     In February 2011, we issued $350 million of unsecured medium-term notes maturing in March 2015. Concurrently, we entered into two interest rate swaps, with an aggregate notional amount of $150 million maturing in March 2015. The swaps were designated as fair value hedges whereby we receive fixed interest rate payments in exchange for making variable interest rate payments. The differential to be paid or received is accrued and recognized as interest expense. At March 31, 2011, the interest rate swap agreements effectively changed $150 million of fixed-rate debt instruments with an interest rate of 3.15% to LIBOR-based floating-rate debt at a weighted-average interest rate of 1.42%. Changes in the fair value of our interest rate swaps are offset by changes in the fair value of the debt instrument. Accordingly, there is no ineffectiveness related to the interest rate swaps.
     In February 2008, we issued $250 million of unsecured medium-term notes maturing in March 2013. Concurrently, we entered into an interest rate swap with a notional amount of $250 million maturing in March 2013. The swap was designated as a fair value hedge whereby we receive fixed interest rate payments in exchange for making variable interest rate payments. The differential to be paid or received is accrued and recognized as interest expense. At March 31, 2011, the interest rate swap agreement effectively changed $250 million of fixed-rate debt with an interest rate of 6.00% to LIBOR-based floating-rate debt at a rate of 2.59%. Changes in the fair value of our interest rate swap are offset by changes in the fair value of the debt instruments. Accordingly, there is no ineffectiveness related to the interest rate swap.
     The location and amount of gains (losses) on derivative instruments and related hedged items reported in the Consolidated Condensed Statements of Earnings were as follows:
                         
    Location of Gain (Loss)     Three months ended March 31,  
Fair Value Hedging Relationship   Recognized in Income     2011     2010  
            (In thousands)  
 
Derivatives: Interest rate swaps
  Interest expense   $ (1,149 )     2,027  
Hedged items: Fixed-rate debt
  Interest expense     1,149       (2,027 )
 
                   
Total
          $        
 
                   
     Refer to Note (N), “Fair Value Measurements,” for disclosures of the fair value and line item caption of derivative instruments recorded on the Consolidated Condensed Balance Sheets.
(P) SHARE REPURCHASE PROGRAMS
     In December 2009, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock, stock option and stock purchase plans. Under the December 2009 program, management is authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued to employees under the Company’s various employee stock, stock option and stock purchase plans from December 1, 2009 through December 15, 2011. The December 2009 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management has established a prearranged written plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2009 program, which allows for share repurchases during Ryder’s quarterly blackout periods as set forth in the plan. For the three months ended March 31, 2011 and 2010, we repurchased and retired 250,000 shares and 169,599 shares, respectively, under this program at an aggregate cost of $12.0 million and $5.8 million, respectively.
     In February 2010, our Board of Directors authorized a $100 million discretionary share repurchase program over a period not to exceed two years. For the three months ended March 31, 2010, we repurchased and retired 550,000 shares under the program at an aggregate cost of $19.3 million. In December 2010, we completed this program.

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

(unaudited)
(Q) COMPREHENSIVE INCOME
     Comprehensive income presents a measure of all changes in shareholders’ equity except for changes resulting from transactions with shareholders in their capacity as shareholders. Our total comprehensive income presently consists of net earnings, currency translation adjustments associated with foreign operations that use the local currency as their functional currency and various pension and other postretirement benefits related items.
     The following table provides a reconciliation of net earnings as reported in the Consolidated Condensed Statements of Earnings to comprehensive income:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
 
Net earnings
  $ 25,125       12,373  
Other comprehensive income:
               
Foreign currency translation adjustments
    24,343       (1,650 )
Amortization of transition obligation (1)
    (6 )     (4 )
Amortization of net actuarial loss (1)
    3,368       3,157  
Amortization of prior service credit (1)
    (406 )     (400 )
Change in net actuarial loss (1)
          (82 )
 
           
Total comprehensive income
  $ 52,424       13,394  
 
           
 
(1)   Amounts pertain to our pension and/or postretirement benefit plans and are presented net of tax. See Note (R), “Employee Benefit Plans,” for additional information.

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

(unaudited)
(R) EMPLOYEE BENEFIT PLANS
     Components of net periodic benefit cost were as follows:
                                 
    Pension Benefits     Postretirement Benefits  
    Three months ended March 31,  
    2011     2010     2011     2010  
    (In thousands)  
Company-administered plans:
                               
Service cost
  $ 3,767       5,089     $ 347       426  
Interest cost
    24,490       24,097       669       765  
Expected return on plan assets
    (25,859 )     (23,301 )            
Amortization of:
                               
Transition obligation
    (8 )     (6 )            
Net actuarial loss
    5,129       4,732       106       178  
Prior service credit
    (570 )     (563 )     (58 )     (58 )
 
                       
 
    6,949       10,048       1,064       1,311  
Union-administered plans
    1,341       1,275              
 
                       
Net periodic benefit cost
  $ 8,290       11,323     $ 1,064       1,311  
 
                       
                                 
Company-administered plans:
                               
U.S.
  $ 7,100       8,816     $ 883       941  
Non-U.S.
    (151 )     1,232       181       370  
 
                       
 
    6,949       10,048       1,064       1,311  
Union-administered plans
    1,341       1,275              
 
                       
 
  $ 8,290       11,323     $ 1,064       1,311  
 
                       
     Pension Contributions
     In 2011, we expect to contribute approximately $15 million to our pension plans. During the first quarter of 2011, we contributed $3.5 million to our pension plans.
     Savings Plans
          Employees who do not actively participate in pension plans and are not covered by union-administered plans are generally eligible to participate in enhanced savings plans. Plans provide for (i) a company contribution even if employees do not make contributions, (ii) a company match of employee contributions of eligible pay, subject to tax limits and (iii) a discretionary company match based on our performance. During the first quarter of 2011 and 2010, we recognized total savings plan costs of $8.2 million and $6.7 million, respectively.
(S) SUPPLEMENTAL CASH FLOW INFORMATION
     Supplemental cash flow information was as follows:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
Interest paid
  $ 31,429     $ 26,686  
Income taxes paid (refunded)
  $ 5,110     $ (11,119 )
Changes in accounts payable related to purchases of revenue earning equipment
  $ 134,806     $ 76,308  
Revenue earning equipment acquired under capital leases
  $ 1,153     $  

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

(unaudited)
(T) SEGMENT REPORTING
     Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We operate in three reportable business segments: (1) FMS, which provides full service leasing, contract maintenance, contract-related maintenance and commercial rental of trucks, tractors and trailers to customers, principally in the U.S., Canada and the U.K.; (2) SCS, which provides comprehensive supply chain consulting including distribution and transportation services in North America and Asia; and (3) Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.
     Our primary measurement of segment financial performance, defined as “Net Before Taxes” (NBT), includes an allocation of Central Support Services (CSS) and excludes restructuring and other charges, net described in Note (G), “Restructuring and Other Charges.” CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services, public affairs, information technology, health and safety, legal and corporate communications. The objective of the NBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment and each operating segment within each business segment accountable for their allocated share of CSS costs. Certain costs are considered to be overhead not attributable to any segment and remain unallocated in CSS. Included among the unallocated overhead remaining within CSS are the costs for investor relations, public affairs and certain executive compensation.
Our FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to the SCS and DCC segments. Inter-segment revenue and NBT are accounted for at rates similar to those executed with third parties. NBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in both FMS and the business segment which served the customer and then eliminated (presented as “Eliminations”).

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

(unaudited)
     The following tables set forth financial information for each of our business segments and reconciliation between segment NBT and earnings from continuing operations before income taxes for the three months ended March 31, 2011 and 2010. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.
                                         
    FMS     SCS     DCC     Eliminations     Total  
                    (In thousands)                  
For the three months ended March 31, 2011
                                       
Revenue from external customers
  $ 889,616       401,038       134,722             1,425,376  
Inter-segment revenue
    90,500                   (90,500 )      
 
                             
Total revenue
  $ 980,116       401,038       134,722       (90,500 )     1,425,376  
 
                             
 
Segment NBT
  $ 38,562       12,064       7,398       (4,904 )     53,120  
 
                             
Unallocated CSS
                                    (8,742 )
Restructuring and other charges, net
                                    (768 )
 
                                     
Earnings from continuing operations before income taxes
                                  $ 43,610  
 
                                     
 
Segment capital expenditures (1), (2)
  $ 301,972       6,140       959             309,071  
 
                             
Unallocated CSS
                                    4,147  
 
                                     
Capital expenditures paid
                                  $ 313,218  
 
                                     
 
March 31, 2010
                                       
Revenue from external customers
  $ 809,389       294,207       116,342             1,219,938  
Inter-segment revenue
    74,594                   (74,594 )      
 
                             
Total revenue
  $ 883,983       294,207       116,342       (74,594 )     1,219,938  
 
                             
 
Segment NBT
  $ 21,695       7,025       7,386       (4,732 )     31,374  
 
                             
Unallocated CSS
                                    (8,882 )
 
                                     
Earnings from continuing operations before income taxes
                                  $ 22,492  
 
                                     
 
Segment capital expenditures (2)
  $ 195,488       1,501       612             197,601  
 
                             
Unallocated CSS
                                    2,500  
 
                                     
Capital expenditures paid
                                  $ 200,101  
 
                                     
 
(1)   Excludes revenue earning equipment acquired under capital leases.
 
(2)   Excludes acquisition payments of $83.8 million and $2.4 million during the three months ended March 31, 2011 and 2010, respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS —
THREE MONTHS ENDED MARCH 31, 2011 AND 2010
OVERVIEW
     The following discussion should be read in conjunction with the unaudited Consolidated Condensed Financial Statements and notes thereto included under Item 1. 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 2010 Annual Report on Form 10-K.
     Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. Our business is divided into three business segments: Fleet Management Solutions (FMS), which provides full service leasing, contract maintenance, contract-related maintenance and commercial rental of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; Supply Chain Solutions (SCS), which provides comprehensive supply chain consulting including distribution and transportation services in North America and Asia; and Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution in the U.S. 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 automotive, electronics, transportation, grocery, lumber and wood products, food service and home furnishing.
ITEMS AFFECTING COMPARABILITY BETWEEN PERIODS
   Accounting Changes
     See Note (B), “Accounting Changes,” for a discussion of the impact of changes in accounting guidance.
   Other
     On March 11, 2011, an earthquake and tsunami occurred off the northeast coast of Japan. Our first quarter results were not significantly impacted by these events. However we expect our second quarter SCS results to be adversely affected by customer business impacts, specifically due to announced automotive production cuts with one of our significant customers. We estimate the impact to be approximately $0.04 to $0.05 per diluted common share in the second quarter of 2011 and $0.10 to $0.15 per diluted common share for the full year. Based on currently available information, we expect a ramp up of automotive production levels in the second half of the year; however, these production levels are subject to change as conditions develop. We will continue to monitor the situation in Japan and its potential impacts on our customers’ operations.
   ACQUISITIONS
     We completed two acquisitions in 2011 under which we acquired a company’s fleet of vehicles and contractual customers. The combined networks operate under Ryder’s name and complement our existing market coverage and service network. The results of these acquisitions have been included in our consolidated results since the dates of acquisition.
                                         
    Business                   Contractual      
Company Acquired   Segment   Date   Vehicles   Customers   Market
The Scully Companies
  FMS/DCC   January 28, 2011     2,100       200     Western U.S.
Carmenita Leasing, Inc.
  FMS   January 10, 2011     190       60     California
     Total Logistic Control — On December 31, 2010, we acquired all of the common stock of Total Logistic Control (TLC), a leading provider of comprehensive supply chain solutions to food, beverage, and consumer packaged goods manufacturers in the U.S. TLC provides customers a broad suite of end-to-end services, including distribution management, contract packaging services and solutions engineering. This acquisition enhances our SCS capabilities and growth prospects in the areas of packaging and warehousing, including temperature-controlled facilities.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
CONSOLIDATED RESULTS
                         
    Three months ended March 31,     Change
    2011     2010     2011/2010
    (In thousands, except per share amounts)          
 
Earnings from continuing operations before income taxes
  $ 43,610       22,492       94 %
Provision for income taxes
    17,753       9,620       85  
 
                 
Earnings from continuing operations
    25,857       12,872       101  
Loss from discontinued operations, net of tax
    (732 )     (499 )     (47 )
 
                 
Net earnings
  $ 25,125       12,373       103 %
 
                 
 
                       
Earnings (loss) per common share — Diluted
                       
Continuing operations
  $ 0.50       0.24       108 %
Discontinued operations
    (0.02 )     (0.01 )     NM
 
                 
Net earnings
  $ 0.48       0.23       109 %
 
                 
 
                       
Weighted-average shares outstanding — Diluted
    51,011       52,702       (3 )%
 
                 
     Earnings from continuing operations before income taxes (NBT) increased 94% in the first quarter of 2011 to $43.6 million. The increase in pre-tax earnings was driven by better organic performance in global commercial rental and used vehicle sales, acquisitions and higher volumes in our Supply Chain Solutions business segment. This increase was partially offset by lower full service lease performance reflecting higher maintenance costs on a relatively older fleet, higher compensation costs and higher investments in strategic growth initiatives. Earnings from continuing operations increased 101% in the first quarter of 2011 to $25.9 million. Earnings from continuing operations in 2011 included an income tax charge of $1.2 million, or $0.02 per diluted common share, associated with an increase in deferred income taxes due to an enacted change in Illinois tax laws. Earnings from continuing operations for the first quarter of 2011 included a restructuring charge of $0.5 million or $0.01 per diluted common share. Excluding this item, comparable earnings and EPS from continuing operations for the first quarter of 2011 increased 104% to $26.3 million and 113% to $0.51 per diluted common share, respectively. We believe that comparable earnings from continuing operations and comparable earnings per diluted common share from continuing operations measures provide useful information to investors because they exclude significant items that are unrelated to our ongoing business operations.
     Net earnings increased 103% in the first quarter of 2011 to $25.1 million or $0.48 per diluted common share. Net earnings in the first quarter of 2011 and 2010 were negatively impacted by losses from discontinued operations from SCS South America and Europe of $0.7 million and $0.5 million, respectively.
     EPS growth in the first quarter of 2011 exceeded the net earnings growth reflecting the impact of share repurchase programs. See “Operating Results by Business Segment” for a further discussion of operating results.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
                         
    Three months ended March 31,     Change
    2011     2010     2011/2010
    (Dollars in thousands)          
Revenue:
                       
Fleet Management Solutions
  $ 980,116       883,983       11 %
Supply Chain Solutions
    401,038       294,207       36  
Dedicated Contract Carriage
    134,722       116,342       16  
Eliminations
    (90,500 )     (74,594 )     (21 )
 
                 
Total
  $ 1,425,376       1,219,938       17  
 
                 
 
                       
Operating revenue (1)
  $ 1,129,070       987,590       14 %
 
                 
 
(1)   We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our businesses and as a measure of sales activity. FMS fuel services revenue net of related intersegment billings, which is directly impacted by fluctuations in market fuel prices, is excluded from the operating revenue computation as fuel is largely a pass-through to our customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs. Subcontracted transportation is deducted from total revenue to arrive at operating revenue as subcontracted transportation is typically a pass-through to our customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Operating revenue is also a primary internal operating metric used to measure segment performance. Refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of total revenue to operating revenue.
     Total revenue increased 17% in the first quarter of 2011 to $1.43 billion. Total revenue growth was driven by the impact of recent acquisitions and higher fuel revenue. Operating revenue increased 14% in the first quarter of 2011 to $1.13 billion primarily due to the impact of recent acquisitions and organic growth in commercial rental and SCS freight volumes. Total revenue and operating revenue in the first quarter of 2011 included a favorable foreign exchange impact of 1.0%, primarily due to the strengthening of the Canadian dollar.
                         
    Three months ended March 31,   Change
    2011   2010   2011/2010
    (Dollars in thousands)          
 
Operating expense (exclusive of items shown separately)
  $ 694,423       577,614       20 %
Percentage of revenue
    49%       47%          
     Operating expense and operating expense as a percentage of revenue increased in the first quarter of 2011 primarily as a result of pass-throughs of higher fuel costs as well as higher maintenance costs and the impact of acquisitions.
                         
    Three months ended March 31,   Change
    2011   2010   2011/2010
    (Dollars in thousands)          
 
Salaries and employee-related costs
  $ 365,395       304,712       20 %
Percentage of revenue
    26%       25%          
Percentage of operating revenue
    32%       31%          
     Salaries and employee-related costs increased 20% in the first quarter of 2011 to $365.4 million primarily due to the impact of recent acquisitions. Salaries and employee-related costs were also impacted by higher headcount to support growth in our FMS and SCS business segments and higher incentive-based compensation. Average headcount from continuing operations for the first quarter of 2011 increased 15% compared with the same period in the prior year.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
                         
    Three months ended March 31,   Change
    2011   2010   2011/2010
    (Dollars in thousands)          
 
Subcontracted transportation
  $ 83,082       60,337       38 %
Percentage of revenue
    6%       5%          
 
     Subcontracted transportation expense represents freight management costs on logistics contracts for which we purchase transportation from third parties. Subcontracted transportation expense is directly impacted by whether we are acting as an agent or principal in our transportation management contracts. To the extent that we are acting as a principal, revenue is reported on a gross basis and carriage costs to third parties are recorded as subcontracted transportation expense. To the extent we are acting as an agent, revenue is reported net of carriage costs to third parties. The impact to net earnings is the same whether we are acting as an agent or principal in the arrangement. Subcontracted transportation expense increased 38% in the first quarter of 2011 to $83.1 million as a result of increased automotive freight volumes.
                         
    Three months ended March 31,   Change
    2011   2010   2011/2010
    (Dollars in thousands)          
 
Depreciation expense
  $ 205,937       211,005       (2 )%
Gains on vehicle sales, net
  $ (12,349 )     (4,518 )     173  
Equipment rental
  $ 14,233       16,455       (14 )%
 
     Depreciation expense relates primarily to FMS revenue earning equipment. Revenue earning equipment held for sale is recorded at the lower of fair value less costs to sell or carrying value. Losses to reflect change in fair value are reflected within Depreciation expense. Depreciation expense decreased 2% in the first quarter of 2011 to $205.9 million because of reduced write-downs of $6.7 million in the carrying value of vehicles held for sale. The decrease also reflects changes in residual values of certain classes of our revenue equipment effective January 1, 2011 and lower accelerated depreciation, which together declined $3.6 million. The decrease in depreciation expense was partially offset by the impact of acquisitions and higher average new vehicle investments. Refer to Note (I), “Revenue Earning Equipment,” in the Notes to Consolidated Condensed Financial Statements for additional information.
 
     Gains on vehicle sales, net increased in the first quarter of 2011 to $12.3 million due to higher average pricing on vehicles sold.
 
     Equipment rental consists primarily of rent expense for FMS revenue earning equipment under lease. Equipment rental decreased 14% to $14.2 million in the first quarter of 2011 due to a lower number of leased vehicles.
                         
    Three months ended March 31,   Change
    2011   2010   2011/2010
    (Dollars in thousands)          
 
Interest expense
  $ 34,419       33,336       3 %
Effective interest rate
    5.0%       5.4%          
     Interest expense increased 3% in the first quarter of 2011 to $34.4 million due to higher average outstanding debt and partially offset by a lower effective interest rate.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
                 
    Three months ended March 31,
    2011   2010
    (In thousands)  
 
Miscellaneous income, net
  $ (4,142 )     (1,495 )
 
     Miscellaneous income, net consists of investment (income) losses on securities used to fund certain benefit plans, interest income, (gains) losses from sales of operating property, foreign currency transaction (gains) losses and other non-operating items. Miscellaneous income, net improved $2.6 million in the first quarter of 2011 primarily due to gains from sales of facilities.
                 
    Three months ended March 31,
    2011   2010
    (In thousands)  
 
Restructuring and other charges, net
  $ 768        
     Refer to Note (G), “Restructuring and Other Charges,” for a discussion of the restructuring and other charges recognized in the first quarter of 2011.
                         
    Three months ended March 31,   Change
    2011   2010   2011/2010
    (Dollars in thousands)          
 
Provision for income taxes
  $ 17,753       9,620       85 %
Effective tax rate from continuing operations
    40.7%       42.8%          
     Our effective income tax rate from continuing operations for the first quarter of 2011 was 40.7% compared to 42.8% in the same period of the prior year. The decrease in the effective income tax rate from continuing operations was mainly due to a decrease in the amount of non-deductible items on higher projected earnings partially offset by the impact of a tax law change in Illinois which increased the corporate income tax rate from 4.8% to 7.0%.
                 
    Three months ended March 31,
    2011   2010
    (In thousands)
 
Loss from discontinued operations, net of tax
  $    (732 )        (499 )
     Refer to Note (D), “Discontinued Operations,” in the Notes to Consolidated Condensed Financial Statements for a discussion of losses from discontinued operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
     OPERATING RESULTS BY BUSINESS SEGMENT
                         
    Three months ended March 31,     Change
    2011     2010     2011/2010
    (Dollars in thousands)          
Revenue:
                       
Fleet Management Solutions
  $ 980,116       883,983       11 %
Supply Chain Solutions
    401,038       294,207       36  
Dedicated Contract Carriage
    134,722       116,342       16  
Eliminations
    (90,500 )     (74,594 )     (21 )
 
                   
Total
  $ 1,425,376       1,219,938       17 %
 
                   
 
                       
Operating Revenue:
                       
Fleet Management Solutions
  $ 719,011       677,410       6 %
Supply Chain Solutions
    324,301       238,201       36  
Dedicated Contract Carriage
    128,376       112,011       15  
Eliminations
    (42,618 )     (40,032 )     (6 )
 
                   
Total
  $ 1,129,070       987,590       14 %
 
                   
 
                       
NBT:
                       
Fleet Management Solutions
  $ 38,562       21,695       78 %
Supply Chain Solutions
    12,064       7,025       72  
Dedicated Contract Carriage
    7,398       7,386        
Eliminations
    (4,904 )     (4,732 )     (4 )
 
                   
 
    53,120       31,374       69  
Unallocated Central Support Services
    (8,742 )     (8,882 )     2  
Restructuring and other charges, net
    (768 )         NM
 
                   
Earnings from continuing operations before income taxes
  $ 43,610       22,492       94 %
 
                   
     As part of management’s evaluation of segment operating performance, we define the primary measurement of our segment financial performance as “Net Before Taxes” (NBT) from continuing operations, which includes an allocation of Central Support Services (CSS), and excludes restructuring and other charges, net, described in Note (G), “Restructuring and Other Charges,” in the Notes to Consolidated Condensed Financial Statements. CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services and public affairs, information technology, health and safety, legal and corporate communications. The objective of the NBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment and each operating segment within each business segment accountable for their allocated share of CSS costs. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Certain costs are considered to be overhead not attributable to any segment and remain unallocated in CSS. Included within the unallocated overhead remaining within CSS are the costs for investor relations, public affairs and certain executive compensation.
     Our FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to our SCS and DCC segments. Inter-segment revenue and NBT are accounted for at rates similar to those executed with third parties. NBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in both FMS and the business segment which served the customer and then eliminated (presented as “Eliminations”).
     The following table sets forth equipment contribution included in NBT for our SCS and DCC business segments:
                         
    Three months ended March 31,     Change
    2011     2010     2011/2010
    (Dollars in thousands)          
Equipment contribution:
                       
Supply Chain Solutions
  $ 1,600       2,004       (20 )%
Dedicated Contract Carriage
    3,304       2,728       21  
 
                   
Total
  $ 4,904       4,732       4 %
 
                   

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Fleet Management Solutions
                         
    Three months ended March 31,     Change
    2011     2010     2011/2010
    (Dollars in thousands)          
 
Full service lease
  $ 483,310       479,423       1 %
Contract maintenance
    38,075       39,765       (4 )
 
                   
Contractual revenue
    521,385       519,188        
Contract-related maintenance
    44,696       40,218       11  
Commercial rental
    135,657       101,558       34  
Other
    17,273       16,446       5  
 
                   
Operating revenue (1)
    719,011       677,410       6  
Fuel services revenue
    261,105       206,573       26  
 
                   
Total revenue
  $ 980,116       883,983       11 %
 
                   
 
                       
Segment NBT
  $ 38,562       21,695       78 %
 
                   
 
                       
Segment NBT as a % of total revenue
    3.9 %     2.5 %   140 bps
 
                   
 
                       
Segment NBT as a % of operating revenue (1)
    5.4 %     3.2 %   220 bps
 
                   
 
(1)   We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our FMS business segment and as a measure of sales activity. Fuel services revenue, which is directly impacted by fluctuations in market fuel prices, is excluded from our operating revenue computation as fuel is largely a pass-through to customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs.
     Total revenue increased 11% in the first quarter of 2011 to $980.1 million primarily due to higher fuel services revenue and higher commercial rental revenue. The increase in fuel services revenue was due to higher fuel cost pass-throughs. Operating revenue (revenue excluding fuel) increased 6% in the first quarter of 2011 to $719.0 million primarily due to higher commercial rental revenue. Total revenue and operating revenue in the first quarter of 2011 included a favorable foreign exchange impact of 0.8% and 0.9%, respectively.
     Full service lease revenue increased 1% in the first quarter of 2011 to $483.3 million reflecting the impact of recent acquisitions and favorable foreign exchange movements. We expect favorable full service lease revenue comparisons throughout the year due to acquisitions and a reduction in customer fleet downsizing. Commercial rental revenue increased 34% in the first quarter of 2011 to $135.7 million reflecting improved global market demand and higher pricing. We expect favorable commercial rental revenue comparisons to continue throughout the year driven by higher demand and higher pricing on a larger fleet.

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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 March 31,     Change
    2011     2010     2011/2010
    (Dollars in thousands)          
 
Non-lease customer rental revenue
  $ 82,213       59,374       38 %
 
                   
 
                       
Lease customer rental revenue (1)
  $ 53,444       42,184       27 %
 
                   
 
                       
Average commercial rental power fleet size — in service (2), (3)
    24,500       21,700       13 %
 
                   
 
                       
Commercial rental utilization — power fleet
    72.5 %     68.6 %   390 bps
 
                   
 
(1)   Lease customer rental revenue is revenue from rental vehicles provided to our existing full service lease customers, generally during peak periods in their operations.
 
(2)   Number of units rounded to nearest hundred and calculated using quarterly average unit counts.
 
(3)   Fleet size excluding trailers.
     FMS NBT increased 78% in the first quarter of 2011 to $38.6 million primarily due to significantly better commercial rental performance and improved used vehicle sales results. Commercial rental performance improved as a result of increased market demand and higher pricing on a larger average fleet. Used vehicle sales results were positively impacted by higher pricing and a lower average quarterly inventory level. FMS results in the first quarter of 2011 also benefited from a non-operational gain of $2.4 million from the sale of a facility as well as recent acquisitions. The increase in NBT was partially offset by lower full service lease performance, higher compensation-related expenses and planned spending on growth initiatives. Full service lease performance was adversely impacted by increased maintenance costs on a comparatively older fleet. However, year over year lease mileage comparisons improved reflecting increased usage of existing customer fleets.

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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 contract maintenance vehicles is summarized as follows (number of units rounded to the nearest hundred):
                                         
                      Change
    March 31,     December 31,     March 31,     Mar. 2011/   Mar. 2011/
    2011     2010     2010     Dec. 2010   Mar. 2010
End of period vehicle count
                                       
 
                                       
By type:
                                       
Trucks (1)
    65,500       63,000       63,600       4 %     3 %
Tractors (2)
    50,800       49,600       50,200       2       1  
Trailers (3)
    33,400       33,000       34,500       1       (3 )
Other
    3,100       3,100       3,000             3  
 
                                 
Total
    152,800       148,700       151,300       3 %     1 %
 
                                 
 
                                       
By ownership:
                                       
Owned
    149,200       145,000       146,300       3 %     2 %
Leased
    3,600       3,700       5,000       (3 )     (28 )
 
                                 
Total
    152,800       148,700       151,300       3 %     1 %
 
                                 
 
                                       
By product line:
                                       
Full service lease
    111,800       111,100       112,700       1 %     (1 )%
Commercial rental
    33,200       29,700       28,800       12       15  
Service vehicles and other
    2,800       2,700       3,000       4       (7 )
 
                                 
Active units
    147,800       143,500       144,500       3       2  
Held for sale
    5,000       5,200       6,800       (4 )     (26 )
 
                                 
Total
    152,800       148,700       151,300       3 %     1 %
 
                                 
 
                                       
Customer vehicles under contract maintenance
    33,200       33,400       33,900       (1 )%     (2 )%
 
                                 
 
                                       
Quarterly average vehicle count
                                       
 
                                       
By product line:
                                       
Full service lease
    111,600       111,200       114,400       %     (2 )%
Commercial rental
    30,900       30,400       27,800       2       11  
Service vehicles and other
    2,800       2,800       2,900             (3 )
 
                                 
Active units
    145,300       144,400       145,100       1        
Held for sale
    5,200       4,900       6,900       6       (25 )
 
                                 
Total
    150,500       149,300       152,000       1 %     (1 )%
 
                                 
 
                                       
Customer vehicles under contract maintenance
    33,300       33,400       34,100       %     (2 )%
 
                                 
 
(1)   Generally comprised of Class 1 through Class 6 type vehicles with a Gross Vehicle Weight (GVW) up to 26,000 pounds.
 
(2)   Generally comprised of over the road on highway tractors and are primarily comprised of Classes 7 and 8 type vehicles with a GVW of over 26,000 pounds.
 
(3)   Generally comprised of dry, flatbed and refrigerated type trailers.
NOTE: Amounts were computed using a 6-point average based on monthly information.

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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 global fleet count (number of units rounded to nearest hundred):
                                         
                            Change
    March 31,     December 31,     March 31,     Mar. 2011/   Mar. 2011/
    2011     2010     2010     Dec. 2010   Mar. 2010
Not yet earning revenue (NYE)
    2,200       800       1,400       175 %     57 %
No longer earning revenue (NLE):
                                       
Units held for sale
    5,000       5,200       6,800       (4 )     (26 )
Other NLE units
    2,400       2,000       3,000       20       (20 )
 
                                 
Total
    9,600       8,000       11,200       20 %     (14 )%
 
                                 
     NYE units represent new vehicles on hand that are being prepared for deployment to a lease customer or into the rental fleet. Preparations include activities such as adding lift gates, paint, decals, cargo area and refrigeration equipment. For 2011, NYE units increased reflecting the refresh and modest growth of the rental fleet and to a lesser extent, new lease sales. NLE units represent vehicles held for sale and vehicles for which no revenue has been earned in the previous 30 days. For 2011, NLE units increased compared to year-end due to the outservicing of the rental fleet. We expect NLE levels to increase throughout the year as we refresh the lease fleet.
Supply Chain Solutions
                         
    Three months ended March 31,     Change
    2011     2010     2011/2010
    (Dollars in thousands)          
Operating revenue:
                       
Automotive
  $ 122,727       106,568       15 %
High-Tech
    56,885       51,616       10  
Retail & CPG
    104,062       41,820       149  
Industrial and other
    40,627       38,197       6  
 
                   
Total operating revenue (1)
    324,301       238,201       36  
Subcontracted transportation
    76,737       56,006       37  
 
                   
Total revenue
  $ 401,038       294,207       36 %
 
                   
 
                       
Segment NBT
  $ 12,064       7,025       72 %
 
                   
 
                       
Segment NBT as a % of total revenue
    3.0 %     2.4 %   60  bps
 
                   
 
                       
Segment NBT as a % of operating revenue (1)
    3.7 %     2.9 %   80  bps
 
                   
 
                       
Memo: Fuel costs (2)
  $ 26,467       18,495       43 %
 
                   
 
(1)   We use 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 typically a pass-through to customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Operating revenue is also a primary internal operating metric and is used to measure segment performance.
 
(2)   Fuel costs are largely a pass-through to customers and therefore have a direct impact on revenue.
     Total revenue increased 36% in the first quarter of 2011 to $401.0 million. Operating revenue increased 36% in the first quarter of 2011 to $324.3 million. The increase in total and operating revenue in the first quarter of 2011 was primarily due to the TLC acquisition and higher freight volumes. In the first quarter of 2011, SCS total and operating revenue included a favorable foreign currency exchange impact of 1.9% and 1.8%, respectively. We expect favorable revenue comparisons to continue throughout the year due to the impact of the TLC acquisition, higher overall freight volumes and new business.
     SCS NBT increased 72% in the first quarter of 2011 to $12.1 million primarily due to the impact of the TLC acquisition, better operating performance and higher freight volumes.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Dedicated Contract Carriage
                         
    Three months ended March 31,     Change
    2011     2010     2011/2010
    (Dollars in thousands)          
 
Operating revenue (1)
  $ 128,376       112,011       15 %
Subcontracted transportation
    6,346       4,331       47  
 
                   
Total revenue
  $ 134,722       116,342       16 %
 
                   
 
                       
Segment NBT
  $ 7,398       7,386       %
 
                   
 
                       
Segment NBT as a % of total revenue
    5.5 %     6.3 %   (80 ) bps
 
                   
 
                       
Segment NBT as a % of operating revenue (1)
    5.8 %     6.6 %   (80 ) bps
 
                   
 
                       
Memo: Fuel costs (2)
  $ 27,317       19,405       41 %
 
                   
 
(1)   We use 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 typically a pass-through to customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Operating revenue is also a primary internal operating metric and is used to measure segment performance.
 
(2)   Fuel costs are largely a pass-through to customers and therefore have a direct impact on revenue.
     Total revenue and operating revenue increased in the first quarter of 2011 due to the impact of the Scully acquisition and higher fuel cost pass-throughs. We expect favorable revenue comparisons to continue throughout the year.
     DCC NBT remained unchanged in the first quarter of 2011 compared to the same period of the prior year as the favorable impact of the Scully acquisition was offset by costs incurred to close certain customer locations and higher driver costs.
Central Support Services
                         
    Three months ended March 31,     Change
    2011     2010     2011/2010
    (Dollars in thousands)          
 
Human resources
  $ 4,448       3,834       16 %
Finance
    12,236       12,560       (3 )
Corporate services and public affairs
    3,150       2,920       8  
Information technology
    15,392       13,611       13  
Health and safety
    1,723       1,655       4  
Other
    8,552       7,781       10  
 
                   
Total CSS
    45,501       42,361       7  
Allocation of CSS to business segments
    (36,759 )     (33,479 )     (10 )
 
                   
Unallocated CSS
  $ 8,742       8,882       (2 )%
 
                   
     Total CSS costs increased 7% in the first quarter of 2011 to $45.5 million primarily due to planned strategic investments in information technology initiatives and higher compensation expense. Unallocated CSS costs decreased in the first quarter due to lower spending on public affairs and professional services partially offset by higher compensation-related expenses.

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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 operating, financing and investing activities from continuing operations:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
Net cash provided by (used in):
               
Operating activities
  $ 217,564       271,495  
Financing activities
    36,972       (114,895 )
Investing activities
    (311,267 )     (135,184 )
Effect of exchange rate changes on cash
    341       (1,696 )
 
           
Net change in cash and cash equivalents
  $ (56,390 )     19,720  
 
           
     A detail of the individual items contributing to the cash flow changes is included in the Consolidated Condensed Statements of Cash Flows.
     Cash provided by operating activities from continuing operations decreased to $217.6 million in the three months ended March 31, 2011 compared with $271.5 million in 2010 because of an increase in working capital needs. Cash provided from financing activities from continuing operations in the three months ended March 31, 2011 increased to $37.0 million compared with cash used in financing activities of $114.9 million in 2010 due to higher borrowing needs to fund capital spending. Cash used in investing activities from continuing operations increased to $311.3 million in the three months ended March 31, 2011 compared with $135.2 million in 2010 due to higher vehicle spending and acquisition related payments.
     We refer to the sum of operating cash flows, proceeds from the sales of revenue earning equipment and operating property and equipment, collections on direct finance leases and other investing cash inflows from continuing operations as “total cash generated.” We refer to the net amount of cash generated from operating and investing activities (excluding changes in restricted cash and acquisitions) from continuing operations as “free cash flow.” Although total cash generated and free cash flow are non-GAAP financial measures, we consider them to be important measures of comparative operating performance. We also believe total cash generated to be an important measure of total cash inflows generated from our ongoing business activities. 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.
     The following table shows the sources of our free cash flow computation:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
 
Net cash provided by operating activities from continuing operations
  $ 217,564       271,495  
Sales of revenue earning equipment
    66,150       48,433  
Sales of operating property and equipment
    5,030       526  
Collections on direct finance leases
    14,828       15,576  
 
           
Total cash generated
    303,572       336,030  
Purchases of property and revenue earning equipment
    (313,218 )     (200,101 )
 
           
Free cash flow
  $ (9,646 )     135,929  
 
           
     Free cash flow decreased $145.6 million to negative $9.6 million in the three months ended March 31, 2011 primarily due to higher vehicle spending. We expect full year free cash flow to be consistent with our previous forecast of negative $265 million as capital spending for lease equipment increases throughout the year.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
     The following table provides a summary of capital expenditures:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
Revenue earning equipment: (1)
               
Full service lease
  $ 112,260       121,433  
Commercial rental
    317,279       142,219  
 
           
 
    429,539       263,652  
Operating property and equipment
    18,485       12,757  
 
           
Total capital expenditures
    448,024       276,409  
Changes in accounts payable related to purchases of revenue earning equipment
    (134,806 )     (76,308 )
 
           
Cash paid for purchases of property and revenue earning equipment
  $ 313,218       200,101  
 
           
 
(1)   Capital expenditures exclude non-cash additions of approximately $1.2 million in 2011 in assets held under capital leases. No revenue earning equipment was acquired under capital leases for the three months ended March 31, 2010.
     Capital expenditures (accrual basis) increased 62% in the three months ended March 31, 2011 to $448.0 million principally as a result of increased commercial rental spending to refresh and grow the rental fleet. We anticipate full-year 2011 accrual basis capital expenditures to be consistent with our previous forecast of $1.75 billion.
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.
     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 particular Ryder securities based on current information obtained by the rating agencies from us or from other sources. Lower ratings generally result in higher borrowing costs as well as reduced access to unsecured capital markets. A significant downgrade of our short-term debt ratings would impair our ability to issue commercial paper and likely require us to rely on alternative funding sources. A significant downgrade would not affect our ability to borrow amounts under our revolving credit facility described below.
     Our debt ratings at March 31, 2011 were as follows:
             
    Short-term   Long-term   Outlook
Moody’s Investors Service
  P2   Baa1  
Stable (affirmed February 2011)
Standard & Poor’s Ratings Services
  A2   BBB+  
Stable (raised August 2010)
Fitch Ratings
  F2   A -  
Stable (affirmed March 2011)
     We believe that our operating cash flows, together with our access to commercial paper markets 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 commercial paper markets 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 commercial paper and other sources of unsecured borrowings, we would meet our liquidity needs by drawing upon contractually committed lending agreements as described below and/or by seeking other funding sources.
     We can borrow up to $875 million under a global revolving credit facility with a syndicate of thirteen lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., Mizuho Corporate Bank, Ltd., Royal Bank of Scotland Plc and Wells Fargo N.A. The global credit facility matures in April 2012 and is used primarily to finance working capital and provide support for the issuance of unsecured commercial paper in the U.S. and Canada. This facility can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at March 31, 2011). At our option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The agreement provides for annual facility fees, which range from 22.5 basis points to 62.5 basis points, and are based on Ryder’s long-term credit ratings. The

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
current annual facility fee is 37.5 basis points, which applies to the total facility size of $875 million. The credit facility contains no provisions limiting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions and certain affirmative and negative covenants. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated tangible net worth, of less than or equal to 300%. Tangible net worth, as defined in the credit facility, includes 50% of our deferred federal income tax liability and excludes the book value of our intangibles. The ratio at March 31, 2011 was 191%. At March 31, 2011, $796.6 million was available under the credit facility, net of the support for commercial paper borrowings.
     Our global revolving credit facility permits us to refinance short-term commercial paper obligations on a long-term basis. Settlement of short-term commercial paper obligations not expected to require the use of working capital are classified as long-term as we have both the intent and ability to refinance on a long-term basis.
     In February 2011, we issued $350 million of unsecured medium-term notes maturing in March 2015. In connection with the issuance of the medium term notes, we entered into two interest rate swaps with an aggregate notional amount of $150 million maturing in March 2015. The swaps were designated as fair value hedges whereby we receive fixed interest rate payments in exchange for making variable interest rate payments. The differential to be paid or received is accrued and recognized as interest expense. Refer to Note (O),“Derivatives” for additional information.
     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 receivables conduit or committed purchasers. The subsidiary is considered a VIE and is consolidated based on our control of the entity’s activities. We use this program to provide additional liquidity to fund our operations, particularly when it is cost effective to do so. The costs under the program may vary based on changes in interest rates. The available proceeds that may be received under the program are limited to $175 million. If no event occurs which causes early termination, the 364-day program will expire on October 28, 2011. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the collateralized receivables. At March 31, 2011 and December 31, 2010, no amounts were outstanding under the program. Sales of receivables under this program will be accounted for as secured borrowings based on our continuing involvement in the transferred assets.
     Historically, we have established asset-backed securitization programs whereby we have sold beneficial interests in certain long-term vehicle leases and related vehicle residuals to a bankruptcy-remote special purpose entity that in turn transfers the beneficial interest to a special purpose securitization trust in exchange for cash. The securitization trust funds the cash requirement with the issuance of asset-backed securities, secured or otherwise collateralized by the beneficial interest in the long-term vehicle leases and the residual value of the vehicles. The securitization provides us with further liquidity and access to additional capital markets based on market conditions. On June 18, 2008, Ryder Funding II LP, a special purpose bankruptcy-remote subsidiary wholly-owned by Ryder, filed a registration statement on Form S-3 with the SEC for the registration of $600 million in asset-backed notes. The registration statement became effective on November 6, 2008 and remains effective until November 6, 2011.
     At March 31, 2011 we had the following amounts available to fund operations under the aforementioned facilities:
         
    (In millions)
Global revolving credit facility
  $ 797  
Trade receivables program
  $ 175  

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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:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
 
Debt balance at January 1
  $ 2,747,002       2,497,691  
 
           
 
               
Cash-related changes in debt:
               
Net change in commercial paper borrowings
    (290,132 )     (52,000 )
Proceeds from issuance of medium-term notes
    349,867        
Proceeds from issuance of other debt instruments
          710  
Other debt repaid, including capital lease obligations
    (820 )     (27,381 )
Net change from discontinued operations
    11       1,034  
 
           
 
    58,926       (77,637 )
Non-cash changes in debt:
               
Fair market value adjustment on notes subject to hedging
    (1,149 )     2,027  
Addition of capital lease obligations, including acquisitions
    1,153        
Changes in foreign currency exchange rates and other non-cash items
    3,184       1,734  
 
           
Total changes in debt
    62,114       (73,876 )
 
           
 
               
Debt balance at March 31
  $ 2,809,116       2,423,815  
 
           
     In accordance with our funding philosophy, we attempt to balance 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 match and generally target a mix of 25% to 45% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total obligations (including notional value of swap agreements) was 22% and 28% at March 31, 2011 and December 31, 2010, respectively.
     Ryder’s leverage ratios and a reconciliation of on-balance sheet debt to total obligations were as follows:
                                 
    March 31,     % to     December 31,     % to  
    2011     Equity     2010     Equity  
    (Dollars in thousands)  
 
On-balance sheet debt
  $ 2,809,116       195%       2,747,002       196%  
Off-balance sheet debt—PV of minimum lease payments and guaranteed residual values under operating leases for vehicles (1)
    98,812               99,797          
 
                           
Total obligations
  $ 2,907,928       202%       2,846,799       203%  
 
                           
 
(1)   Present value (PV) does not reflect payments Ryder would be required to make if we terminated the related leases prior to the scheduled expiration dates.
     On-balance sheet debt to equity consists of balance sheet debt divided by total equity. Total obligations to equity represents balance sheet debt plus the present value of minimum lease payments and guaranteed residual values under operating leases for vehicles, discounted based on our incremental borrowing rate at lease inception, all divided by total equity. Although total obligations is a non-GAAP financial measure, we believe that total obligations is useful as it provides a more complete analysis of our existing financial obligations and helps better assess our overall leverage position. Our leverage ratios at March 31, 2011 were consistent with out ratios at year-end.
Off-Balance Sheet Arrangements
     We periodically enter into sale-leaseback transactions in order to lower the total cost of funding our operations, to diversify our funding among different classes of investors and to diversify our funding among different types of funding instruments. These sale-leaseback transactions are often executed with third-party financial institutions. In general, these sale-leaseback transactions result in a reduction in revenue earning equipment and debt on the balance sheet, as proceeds from the sale of revenue earning equipment are primarily used to repay debt. Accordingly, sale-leaseback transactions will result in reduced depreciation and interest expense and increased equipment rental expense. These leases contain limited guarantees by us of the residual values of the leased vehicles

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
(residual value guarantees) that are conditioned upon disposal of the leased vehicles prior to the end of their lease term. The amount of future payments for residual value guarantees will depend on the market for used vehicles and the condition of the vehicles at time of disposal. We did not enter into any sale-leaseback transactions during the three months ended March 31, 2011 or 2010.
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. We disclosed in our 2010 Annual Report that we estimated contributions of approximately $15 million to our pension plans during 2011. During the three months ended March 31, 2011, we contributed $3.5 million to our pension plans. Changes in interest rates and the market value of the securities held by the plans during 2011 could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and required contributions in 2012 and beyond. See Note (R), “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information.
Share Repurchases and Cash Dividends
     See Note (P), “Share Repurchase Programs,” in the Notes to Consolidated Condensed Financial Statements for a discussion of share repurchases.
     In February 2011, our Board of Directors declared and paid a quarterly cash dividend of $0.27 per share of common stock.
NON-GAAP FINANCIAL MEASURES
     This Quarterly Report on Form 10-Q includes information extracted from consolidated condensed financial information but not required by generally accepted accounting principles (GAAP) to be presented in the financial statements. Certain of this information are considered “non-GAAP financial measures” as defined by SEC rules. Specifically, we refer to comparable earnings from continuing operations, comparable EPS from continuing operations, operating revenue, salaries and employee-related costs as a percentage of operating revenue, FMS operating revenue, FMS NBT as a % of operating revenue, SCS operating revenue, SCS NBT as a % of operating revenue, DCC operating revenue, DCC NBT as a % of operating revenue, total cash generated, free cash flow, total obligations and total obligations to equity. 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.
     The following table provides a numerical reconciliation of total revenue to operating revenue which was not provided within the MD&A discussion:
                 
    Three months ended March 31,  
    2011     2010  
    (In thousands)  
 
Total revenue
  $ 1,425,376       1,219,938  
FMS fuel services and SCS/DCC subcontracted transportation (1)
    (344,188 )     (266,910 )
Fuel eliminations
    47,882       34,562  
 
           
Operating revenue
  $ 1,129,070       987,590  
 
           
 
(1)   Includes intercompany fuel sales.

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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 as to anticipated revenue and earnings in each business segment, as well as future economic conditions and market demand, with respect to increased freight volume, improved contractual lease demand, positive commercial rental demand, revenue from recent acquisitions and new business;
 
  our expectations regarding commercial rental pricing trends and fleet utilization;
 
  our expectations of the long-term residual values of revenue earning equipment;
 
  our ability to sell certain revenue earning vehicles throughout the year;
 
  the anticipated increase in NLE vehicles in inventory throughout the year;
 
  our expectations of free cash flow, operating cash flow, total cash generated and capital expenditures during 2011;
 
  the adequacy of our accounting estimates and reserves for pension expense, employee benefit plan obligations, depreciation and residual value guarantees, self-insurance reserves, goodwill impairment, accounting changes and income taxes;
 
  the adequacy of our fair value estimates of employee incentive awards under our share-based compensation plans;
 
  the adequacy of our fair value estimates of total debt;
 
  our ability to fund all of our operations for the foreseeable future through internally generated funds and outside funding sources;
 
  the anticipated impact of foreign exchange rate movements;
 
  the anticipated impact of fuel price fluctuations;
 
  our expectations as to return on pension plan assets, future pension expense and estimated contributions;
 
  our expectations regarding the completion and ultimate resolution of tax audits;
 
  the anticipated deferral of tax gains on disposal of eligible revenue earning equipment pursuant to our vehicle like-kind exchange program;
 
  our expectations regarding the impact of recently adopted or implemented accounting pronouncements;
 
  our ability to access short-term and long-term unsecured debt in the capital markets;
 
  our expectations regarding the future use and availability of funding sources;
 
  the appropriateness of our short-term and long-term target leverage ranges and our expectations regarding meeting those ranges; and
 
  our expectations regarding the short-term and long-term impact of the recent Japan earthquake and tsunami on our operations and the operations of our customers.
     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:
  o   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
 
  o   Unanticipated or unrealized effects of the recent Japan earthquake and tsunami that could affect our business or the business of our customers
 
  o   Decrease in freight demand or setbacks in the recent recovery of the freight recession which would impact both our transactions and variable-based contractual business
 
  o   Changes in our customers’ operations, financial condition or business environment that may limit their need for, or ability to purchase, our services
 
  o   Changes in market conditions affecting the commercial rental market or the sale of used vehicles
 
  o   Volatility in automotive volumes and shifting customer demand in the automotive industry
 
  o   Less than anticipated growth rates in the markets in which we operate
 
  o   Changes in current financial, tax or regulatory requirements that could negatively impact the leasing market

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
  Competition:
  o   Advances in technology 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
 
  o   Competition from other service providers, some of which have greater capital resources or lower capital costs
 
  o   Continued consolidation in the markets in which we operate which may create large competitors with greater financial resources
 
  o   Our inability to maintain current pricing levels due to economic conditions, demand for services, customer acceptance or competition
  Profitability:
  o   Our inability to obtain adequate profit margins for our services
 
  o   Lower than expected sales volumes or customer retention levels
 
  o   Our inability to integrate acquisitions as projected, achieve planned synergies or retain customers of companies we acquire
 
  o   Lower full service lease sales activity
 
  o   Loss of key customers in our SCS and DCC business segments
 
  o   Our inability to adapt our product offerings to meet changing consumer preferences on a cost-effective basis
 
  o   The inability of our business segments to create operating efficiencies
 
  o   The inability of our legacy information technology systems to provide timely access to data
 
  o   Sudden changes in fuel prices and fuel shortages
 
  o   Higher prices for vehicles, diesel engines and fuel as a result of exhaust emissions standards enacted over the last few years
 
  o   Our inability to successfully implement our asset management initiatives
 
  o   Our key assumptions and pricing structure of our SCS contracts prove to be invalid
 
  o   Increased unionizing, labor strikes, work stoppages and driver shortages
 
  o   Difficulties in attracting and retaining drivers due to driver shortages, which may result in higher costs to procure drivers and higher turnover rates affecting our customers
 
  o   Our inability to manage our cost structure
 
  o   Our inability to limit our exposure for customer claims
  Financing Concerns:
  o   Higher borrowing costs and possible decreases in available funding sources caused by an adverse change in our debt ratings
 
  o   Unanticipated interest rate and currency exchange rate fluctuations
 
  o   Negative funding status of our pension plans caused by lower than expected returns on invested assets and unanticipated changes in interest rates
 
  o   Withdrawal liability as a result of our participation in multi-employer plans
 
  o   Instability in U.S. and worldwide credit markets, resulting in higher borrowing costs and/or reduced access to credit
  Accounting Matters:
  o   Impact of unusual items resulting from ongoing evaluations of business strategies, asset valuations, acquisitions, divestitures and our organizational structure
 
  o   Reductions in residual values or useful lives of revenue earning equipment
 
  o   Increases in compensation levels, retirement rate and mortality resulting in higher pension expense; regulatory changes affecting pension estimates, accruals and expenses
 
  o   Increases in healthcare costs resulting in higher insurance costs
 
  o   Changes in accounting rules, assumptions and accruals
 
  o   Impact of actual insurance claim and settlement activity compared to historical loss development factors used to project future development
  Other risks detailed from time to time in our SEC filings
     The risks included here are not exhaustive. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. As a result, no assurance can be given as to our future results or achievements. You should not place undue reliance on the forward-looking statements contained herein, which speak only as of the date of this 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.

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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, 2010. Please refer to the 2010 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 first quarter of 2011, 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 first quarter of 2011, 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 three months ended March 31, 2011, 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.
PART II. OTHER INFORMATION
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 March, 31, 2011:
                                 
                            Maximum  
                    Total Number of     Number of  
                    Shares     Shares That May  
                    Purchased as     Yet Be  
    Total Number             Part of Publicly     Purchased Under  
    of Shares     Average Price     Announced     the Anti-Dilutive  
    Purchased(1)     Paid per Share     Programs     Program(2)  
January 1 through January 31, 2011
    3,422     $ 49.34             1,438,344  
February 1 through February 28, 2011
    68,449       49.03       20,000       1,418,344  
March 1 through March 31, 2011
    232,998       48.00       230,000       1,188,344  
 
                         
Total
    304,869     $ 48.24       250,000          
 
                         
 
(1)   During the three months ended March 31, 2011, we purchased an aggregate of 54,869 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock delivered as payment for the exercise price of options exercised or to satisfy the option holders’ tax withholding liability associated with our share-based compensation programs and (ii) open-market purchases by the trustee of Ryder’s deferred compensation plans relating to investments by employees in our stock, one of the investment options available under the plans.
 
(2)   In December 2009, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock, stock option and stock purchase plans. Under the December 2009 program, management is authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued to employees under our various employee stock, stock option and stock purchase plans from December 1, 2009 through December 15, 2011. The December 2009 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management has established a prearranged written plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2009 program, which allows for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the three months ended March 31, 2011 we repurchased and retired 250,000 shares under this program at an aggregate cost of $12.0 million.

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ITEM 6. EXHIBITS
     
31.1
  Certification of Gregory T. Swienton pursuant to Rule 13a-14(a) or Rule 15d-14(a).
 
   
31.2
  Certification of Art A. Garcia pursuant to Rule 13a-14(a) or Rule 15d-14(a).
 
   
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  Certification of Gregory T. Swienton and Art A. Garcia pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350.

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SIGNATURES
     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: April 26, 2011  By:   /s/ Art A. Garcia    
    Art A. Garcia   
    Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer) 
 
 
     
Date: April 26, 2011  By:   /s/ Cristina A. Gallo-Aquino    
    Cristina A. Gallo-Aquino   
    Vice President and Controller
(Principal Accounting Officer) 
 
 

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